Memorandum from Anderson to Henderson

Canberra, 22 February 1980

Australia - New Zealand Economic Relations

Further to the meeting of the Permanent Heads Steering Committee on 14 February, I am attaching drafts of:

1. a paper representing the optimal agreement which we would hope to emerge from the meeting of Prime Ministers on 21 March
2. a statement of Australian objectives for the Permanent Heads meeting

The attached draft statement [a] has not been prepared as a public statement but rather as an agreement between Prime Ministers on the outcome of their discussions. Any public statement or communique would necessarily be less precise and would have to take account of what each country was prepared to publicly announce.

For these reasons we worked up the basis of an agreed statement and from that derived the proposed objectives [b] to be pursued in the Permanent Heads meeting.

Rather than attempt to co-ordinate individual comments from several Departments by telephone, it is proposed that Steering Committee Departments should meet at 4 p.m. today (STR Conference Room, Wing 5 First Floor EBB) to finalise the papers.

Attachment [a]

CONFIDENTIAL

Draft Outline of Statement to be Agreed by Prime Ministers of Australia and New Zealand at the Conclusion of Meeting in Wellington, 20-21March 1980 Australia - New Zealand Economic Co-operation

In accordance with the programme established during discussions at Lusaka in August 1979,1 a review has been undertaken of the preliminary studies by Senior Government Officials of options for the development of closer long-term trade and economic links between Australia and New Zealand.

1. It is recalled that the decision that officials should, at this time, examine a range of options for closer economic association was motivated by two basic considerations.
2. First, it was considered that the external environment, if not hostile to Australian and New Zealand interests, was at the very least difficult and in many ways unpredictable. In view of this, and 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 trade and economic co-operation.
3. Second, it was recognised that valuable though NAFTA had been in prompting the significant growth in bilateral trade which had occurred since the mid 1960s, the Agreement in its present form did not seem to be providing sufficient impetus for the type of economic co-operation which would best serve the interests of both countries in the changing international economic environment.
4. Against this background, it is agreed that the preliminary studies which have been undertaken by senior officials represent a necessary and valuable first step in identifying the issues which would have a major influence on the prospects for achieving closer forms of association between Australia and New Zealand.
5. On the basis of work done so far, there is reason to believe that an appropriately structured closer economic relationship could provide economic benefits for both countries and enable each to cope with greater confidence in the difficult international economic and trading environment. It has been accepted as a principle that any new arrangements should reflect an outward-looking approach based on an efficient allocation of resources and an efficient structure of industry which is less reliant on government assistance and designed to enhance relationships with third countries.
6. Reports by officials have highlighted a number of important differences in the size and structure of industry and the extent and form of assistance accorded to industries in each country. Australia has a broader industrial base and produces a wider range of industry inputs, including intermediate goods than is the case in New Zealand. Although Australia provides assistance to a broader range of industries, including many which do not exist in New Zealand, overall levels of protection are generally lower. Further, Australia has had considerable recent experience in lowering levels of assistance and embarking upon a course of industry restructuring. On the other hand, while New Zealand generally accords higher levels to its finished goods industries and makes significant use of import licensing, it has less need to apply tariffs and other forms of protection against imports of raw materials and other inputs for industry which are mainly imported at competitive world market prices.
7. Both countries are by world standards efficient low cost suppliers of agricultural commodities and production is geared largely for export to third countries. It is apparent that liberalization of trans-Tasman trade could create difficulties for certain agricultural industries in each country and that the differences in agricultural production and marketing arrangements for certain commodities in Australia and New Zealand are such as to inhibit equality of trading opportunity between the two countries.
8. The studies have shown that Australia and New Zealand do not start from a common position in contemplating the scope for more broadly based forms of economic association and that any rapid change in the relationship could lead to severe problems of adjustment in the short term, particularly for New Zealand. At the same time it has been noted that the problems of achieving a mutually beneficial closer relationship are likely to become even more difficult if the two countries proceed along different lines of development in the years ahead. It is agreed that the differences which exist between the two economies will have to be taken into account in determining the pace and direction in which the relationship can be developed but that they should not be regarded at this stage as setting limits to the form of relationship which might be established in the longer term.
9. As a general conclusion, it is agreed that a basis should be found for progressing the trans-Tasman relationship beyond the plateau currently reached under NAFTA without prejudice to the scope for moving ultimately to a customs union.
10. Accordingly officials are requested to continue their work with a view to elaborating arrangements which would facilitate the progressive development of a closer bilateral relationship and contribute to the development of internationally efficient industries consistent with the outward looking trade and economic strategies of both countries. In particular, they should further refine elements of an arrangement which would: 1. assume a commitment to move to tariff and import licence-free trade across the Tasman in as broad a band of industries as possible 2. provide automaticity in the phasing-in, over an appropriate time period, of free trade arrangements with a minimum of exceptions to a prescribed formula 3. incorporate provisions which, without prejudice to the overall momentum towards the longer-term objectives, would enable appropriate consideration to be given to sensitive industries, to problems arising from differences in industry structure and to changes in levels of production against third countries 4. lead wherever possible to the establishment of a common external tariff and harmonization of customs administration procedures 5. increase the scope for equality of trading opportunity by harmonizing, eliminating or establishing an equivalence of measures which significantly distort conditions of competition in trans-Tasman trade.
11. Specific questions which should be examined in the course of further work include: 1. an assessment of the extent of the problems arising from different levels of protection applied by each country to imports of raw materials and intermediate goods 2. in relation to the concept of equality of trading opportunity
    1. a detailed comparative analysis of the impact of the respective export incentive schemes
    2. detailed comparative analysis of by-law and concessional entry arrangements in the two countries and the implications of harmonization
    3. consideration of the scope for harmonization or equalization of the impact of agricultural production and marketing arrangements
    4. further study in depth of the possible mechanisms, time frame and implications for particular industries of phasing-out of import licensing
       1. study of the implications and arrangements for co-operation between the respective industries assistance advisory bodies.
12. It is agreed that officials should report by ………… in preparation for a further meeting of Prime Ministers to take place around …………

Attachment [b]

CONFIDENTIAL DRAFT

Australia - New Zealand Economic Relations Permanent Heads Meeting Canberra 25/26 February 1980 Australian Objectives

With a view to laying the ground work for the Prime Ministerial meeting to be held 21 March, Australian objectives at the Permanent Heads meeting in Canberra, 25/26 February are to:

1. review the main issues identified and conclusions reached in the studies undertaken in accordance with the Statement of Understanding2
2. determine whether, on the basis of New Zealand attitudes to the main issues, there is a sufficient basis for further pursuing options for closer economic association, and if so
3. seek New Zealand agreement to a paper, to be submitted for the endorsement of Prime Ministers, setting out the conclusions reached so far, and recommendations for the direction and timing of future work

these should include:

1. an assessment of the extent of the problems arising from different levels of protection applied by each country to imports of raw materials and intermediate goods
2. in relation to the concept of equality of trading opportunity 
  1. a detailed comparative analysis of the impact of the respective export incentive schemes
  2. detailed comparative analysis of by-law and concessional entry arrangements in the two countries and the implications of harmonization
  3. consideration of the scope for harmonization or equalization of the impact of agricultural production and marketing arrangements
  4. further study in depth of the possible mechanisms, time frame and implications for particular industries of phasing-out of import licensing
3. study of the implications and arrangements for co-operation between the respective industries assistance advisory bodies.

2. More specifically the objective of discussion, expected to be based on the report of the Joint Working Parties,3 should be to:

1. ascertain whether New Zealand is genuinely prepared to enter into arrangements with Australia which

—are consistent with the objective of achieving a more competitive and outward-looking industry structure which is less reliant on government assistance

—embody a commitment to the progressive development of a trading relationship with an agreed longer term goal of eventually moving towards a substantial customs union

1. have it acknowledged that:

—the elimination of tariffs and import licensing are fundamental to the liberalization of trans-Tasman trade

—it is logical that such liberalization be backed up by arrangements to ensure to the extent possible, equality of trading opportunity between Australia and New Zealand

1. determine whether and over what time frame New Zealand would be prepared to modify its existing policies in order to give effect to the above principles.

[NAA: A1838, 370/1/19/18, xv]

• 1 See Document 20.
• 2 Document 52.
• 3 Document 58.