CER Negotiations-Cabinet Consideration
PURPOSE: To provide background and briefing for Cabinet's consideration of the Australia- New Zealand CER.
Australian officials from Trade and Resources, Industry and Commerce, Primary Industry, Prime Minister and Cabinet and this Department had discussions at working party level with their counterparts in Wellington from 5 to 15 October, and on 19 and 20 October further negotiations were held at Head of Department level in Canberra.
On 28 October, Mr Anthony had discussions in Wellington with Mr Muldoon during which agreement was reached on a new package which goes some way to meet the concerns of Australian industry groups. As expected, New Zealand has not felt able to advance the termination dates for its import licensing (1995) and export incentive (1987) schemes as they affect trans-Tasman trade. However, as alternative methods of achieving the desired result of giving Australian manufacturers better access to the New Zealand market in the early stages of the operation of a new agreement, New Zealand has agreed to phase out 50 per cent of the export incentives in 1985, a further 25 per cent in 1986, and the remainder in 1987. On import licensing it has agreed to double (to $NZ400,000) its earlier minimum access entitlement offer.
We share the Department of Trade and Resources' assessment that the renegotiated package is a real improvement on the proposals circulated in June,2 and judge that New Zealand will go no further (there have already been reports of revived domestic criticism in New Zealand of the agreement on the grounds that too much has been given to Australia). We recognise that there remain aspects which some industry groups, the ACTU and some State Governments will criticise, but it seems clear enough that a point has been reached beyond which the agreement would cease to be politically viable for the New Zealand Government.
The question therefore is whether to proceed with the agreement as now negotiated, or whether to allow NAFTA to lapse next year and not to be replaced with a new and more comprehensive trade agreement. On balance we share the view of Trade and Resources, also held with some qualifications by the other economic departments, that it would be preferable to proceed with CER.
In interdepartmental discussions we have avoided arguing that the agreement should proceed for foreign policy reasons if it does not meet Australia's specific trading interests as we have regarded these interests as paramount in consideration of this issue.
We would nevertheless be concerned at the negative consequences for overall relations if at this stage agreement is not reached. Without a new agreement the trading relationship could become increasingly complex and subject to dispute. Australia could be increasingly prone to blame within New Zealand-including blame from the Government-for the country's economic difficulties. Tensions in the economic sphere could over time have negative consequences for co-operation in other areas such as ANZUS and the South Pacific. It could also heighten already existing New Zealand tendencies towards insularity which cause us and the US some concern.
We do not see the CER negotiations continuing beyond the negotiation of the new agreement. New Zealand ideas for closer economic co-operation in areas other than direct trade seem to lack real content. We would not favour a broader agreement covering such issues as migration and civil aviation, which we believe are better pursued in their own right. One possible area for exploring further economic co-operation is the possibility of relaxing foreign investment restrictions as they apply between Australia and New Zealand (though Treasury is not enthusiastic).3
[NAA: A1838, 370/1119/18, xxxiv]