Statement of Understanding

Canberra, 3 November 1979

0.CH85502QlCONFIDENTIAL

Talks in Wellington

Following is text of ‘Statement of Understanding between Permanent Heads’ agreed in Wellington on 2 November. Please bring to the attention of the Minister. Begins:-1

Australian - New Zealand Economic Co-operation Statement of Understanding between Permanent Heads

1. There was general understanding that the present was an opportune time to examine the future prospects of a closer economic relationship. The external environment, if not hostile to Australian and New Zealand interests was at the very least difficult and in many ways unpredictable. Given the trend elsewhere to regional economic groupings it was sensible for Australia and New Zealand, as countries with similar backgrounds and ideals to look at the prospects for closer co-operation. The present talks should be seen by other countries as a matter of logical and historical progression. While it would be inaccurate to see the present talks as the last possible opportunity when Australia and New Zealand might discuss the prospects of closer economic co-operation, it might well be more difficult to attempt the same exercise in ten or twenty years time when the economies and trading interests of both countries might well have diverged from their present, roughly similar paths.
2. It is recognised that there is scope for new economic arrangements between Australia and New Zealand which can provide economic benefits for both countries, strengthen relationships between both countries, and allow each to cope with greater confidence with the difficult international economic and trading environment. It is important that any new arrangements reflect an outward-looking approach based on an efficient allocation of resources and an efficient structure of industry, and should be designed to enhance relationships with third countries. Such an approach is regarded as being in conformity with the economic policy objectives of both countries.
3. An outward-looking approach would enhance relationships with third countries and the two countries would be better placed to accommodate the interests of neighbouring developing countries. This should permit assurances to be given to third countries that in any new arrangement it would not be the intention to raise new trade barriers against them.
4. The specific arrangements for closer economic co-operation would need to provide for elimination of trade barriers, which would be phased over a period of say, five to seven years, and for conditions of fair competition. It is recognised that to provide for conditions of fair competition the specific arrangements for closer economic co-operation would also need to provide, to the extent practicable for the harmonisation or elimination of quantitative controls, industry assistance measures, export incentives, customs procedures, trade practices, standards and other relevant matters impinging on the cost of trade between the two countries.
5. In spite of its successes there are fundamental problems with further developments of the NAFTA. It was devised at a time of growth in the world economy and the procedures by which it was implemented assumed that rationalisation between the two economies could be based on future growth. This has led to an over-managed agreement and in the changed economic circumstances of the 1970s to severe difficulties in expanding its coverage. The new approach should seek to avoid these shortcomings and to encourage the expansion of internationally efficient industries and provide a better climate for investment decisions.
6. In reaching a judgment on any new approach particular attention should be given to the dynamic and not merely the static costs and benefits.
7. The benefits of closer consultative arrangements for such matters as marketing in third countries and approaches in international forums were recognised. In addition, transport costs were identified as a particular problem affecting trans-Tasman trade.
8. Study groups are being established to report by the end of January with the following terms of reference:

Terms of Reference (underlined)

1. To assess as far as practicable the economic, industrial and institutional implications for Australia and New Zealand of eliminating over say five to seven years all tariff and non-tariff barriers and other protective devices between the two countries on all products: 1. With each country maintaining its freedom to vary its tariff and non-tariff barriers against third countries; or 2. With a movement to a common external regime based on the adoption, in respect of each industry, of the lower of the two external regimes currently in force; or 3. With combination of these approaches.
2. To determine the most desirable and practicable techniques that might be applied in achieving the elimination of tariff and non-tariff barriers between Australia and New Zealand over such a period.
3. To determine what administrative adjustments associated with tariff related policies might be desirable to achieve harmonisation and to examine the implications that might be involved in this regard.
4. To examine the other forms of assistance currently provided to industries in each country with a view to assessing the likely effects of: 1. Their elimination in respect of trade between the two countries in the event of a decision to proceed with closer economic integration in either of the forms I(a) or I(b) above; or 2. Their harmonisation (in the event of such a decision being taken) in such a way as to provide equal treatment of the industries in each country.
5. To report broad conclusions including identification of major issues taking account of both dynamic and static implications as far as practicable.

[NAA: A1838, 37011/19/18, x]

• 1 The cablegram was sent to Peacock in Seoul.