71 Minute from Shannon to Ashwin
Canberra, 10 March 1980
By your minute of 5 March you sought our views on the international and domestic legal ramifications of the draft Tasman Declaration I and associated Communique.
- As. advised, we do not consider either document to have treaty status in international law and consequently to create no legal obligations between the parties. The commitments are political and the rhetoric reflects this rather than any striving for legal precision. It is pointless, therefore, to impose on the language an assumption that legal obligations are created (para 2 of your minute refers).
- Although there are no legal obligations between the parties, the political commitments could generate legal consequences for each Government's relations with third countries and for its own domestic legislation. We note the report of the Australia- New Zealand Permanent Heads meeting2 foreshadows a study of the GATI implications.
- Australia is a party to a large number of bilateral treaties which contain 'most favoured nation' [m.f.n.] provisions. These are generally found, as far as trade is concerned in bilateral Trade Agreements which supplement GATT obligations and as far as commerce is concerned, [in]3 the old-style 'Freedom of Commerce and Navigation' treaties. There are also m.f.n. clauses in the Basic Treaty of Co-operation with Japan. The standard formula is that Australia undertakes to extend the same privileges on trade and commerce to the other party as it offers any other nation. Frequently there is a derogation in favour of Commonwealth nations to the effect that such countries are agreed to have a 'special' privileged status. M.f.n. clauses can be triggered when Australia treats a third country in a privileged way which is not excepted under the m.f.n. clause itself. It should be noted that the reference is generally to 'treatment' and not to some legally binding agreement which extends the privilege.
- Paras 5(i) and 5(ii) of the Tasman Declaration and the equivalent references in the Communique could be argued to establish in principle a privileged status for New Zealand which is not open to other countries. The question arises whether the consequent special treatment of New Zealand could precipitate claims for equal treatment from third countries who have m.f.n. agreements with Australia. A related question is to what extent derogations in favour of Commonwealth countries in a m.f.n. clause operate as a defence for special treatment of New Zealand. A conclusive answer to these questions requires a study of every treaty to which Australia is a party, which contains an m.f.n. clause.
- However, an analysis of the effect of the new commitments with New Zealand on our relationship with Japan is illustrative of some of the problems involved. Article IX (3) of the Basic Treaty of Friendship and Co-operation with Japan and article 1(c)(i) of the related Protocol together establish an m.f.n. regime in respect inter alia of the movement of capital with a derogation in favour of Commonwealth countries.
ARTICLE IX (3)
'Each Contracting Party shall accord within its territory to the nationals of the other Contracting Party fair and equitable treatment with respect to matters relating to their business and professional activities, provided that in no case shall such treatment be discriminatory between nationals of the other Contracting Party and nationals of any third country.'
ARTICLE L(C)(I) OF THE PROTOCOL
'(c) entitle Japan to claim the benefit of any treatment, preference or privilege which is or may hereafter be accorded by Australia-
(i) to any country or to its nationals or companies, where that treatment, preference or privilege originates from that country's membership of the Commonwealth of Nations.'
- With regard to para 5(i) of the Declaration an argument can be mounted that it extends a special privilege to New Zealand (although not based on any legal right) to have the freest possible movement of inter alia capital into Australia. The degree of movement is unqualified and the words 'freest possible' imply that a better degree of movement is not, in fact, possible. This would further imply that this is a special status. Japan could (and probably would) point to the clause as establishing in principle a degree of movement of capital which it does not enjoy with Australia. (I assume here that it does not.)
- To justify the exception for New Zealand we would need to rely on the derogation in para l(c)(i) in the Protocol of the Basic Treaty. The question now poses the extent to which the special privilege to New Zealand 'originates from its membership of the Commonwealth of Nations'. There is no automatic justification for a discriminatory practice simply because it is accorded to a Commonwealth country. One has to show a link between the. discriminatory practice and Commonwealth membership. It is unclear what the link needs to be but the length of time the discriminatory practice has operated and the number of members of the Commonwealth in whose favour it is granted would be relevant. A strong argument can be made that the link would be difficult to establish in the case of the New Zealand proposal, since the initiative seems to have its genesis in historical ties and geographical proximity than any Commonwealth nexus.
- The upshot of this analysis is that the implementation of para 5(i) of the Tasman Declaration could well trigger Japanese claims for an equal degree of movement into Australia of capital (and possibly people and goods related to business and professional activities).
- As noted in para 3 above, another legal consequence of the Declaration and the Communique could be their effect on domestic Australian legislation. In this regard para 5(2) of the Declaration which establishes equal national treatment might be in conflict with Australian legislation or regulations which specify nationality criteria for employment, government benefits or services or other privileges. Although there would be no legal obligation to bring Australian legislation into conformity with the principles of the Declaration (since it is not a treaty) there could be political embarrassment if, as the result of its own discriminatory legislation, Australia were not able to accord equal national treatment to the greatest extent possible. We should add that the phrase 'to the greatest extent possible' has no discernable legal meaning in as much that everything is possible including, in this context, the amendment of discriminatory legislation.
- A point to note in passing is that the word 'citizen' in para 5(ii) excludes non-citizen residents, which leads to the question why a long-time Greek resident in Australia should not enjoy the privilege extended under 5(ii) when he/she is in New Zealand.
- To be confident about all the legal ramifications of the principles espoused in the Declaration and Communique will require extensive consultations with Commonwealth departments and State governments. Neither the Attorney-General's Department nor ourselves are now in a position to comment in detail on the taxation, social security, repatriation and immigration angles you mention in para 4 of your minute.
- Given the time constraint you face in settling the terms of the Declaration and Communique by the end of the next week and the unlikelihood you could complete Federal and State consultations by then, you might consider amending the text to obviate the problems raised above.
- The critical changes would be to paras 5(i) and (ii) of the Declaration and the equivalent references in the Communique which confer identifiable 'special' privileges on New Zealand. We suggest the following redrafts:
- the movement of people, goods and capital between the two countries should be consistent with an outward-looking approach to trade and economic policies;
- consistent with their laws both countries will continue to treat citizens of the other no less favourably than if they were their own citizens;
The effect of the changes is to nullify any implication that privileges are granted. The principles thus become hortative like the rest of the Declaration. You will need to judge whether the consequent dilution of the political rhetoric is worth the prudence of not triggering possible m.f.n. difficulties or any embarrassments in our domestic legislation.
- In conclusion, we would like to stress that amending the Declaration along the lines we suggest is only a stop-gap solution to having a suitable text for the Prime Ministers to issue later this month. As we foreshadow, the development of a special relationship with New Zealand will generate important international legal consequences, particularly in our relations with third countries such as Japan. You have already focussed on the GATT implications. Before the Australia-New Zealand relationship evolves much further these problems will need to be put to extensive inter-departmental study.
[NAA: A1838, 370/1/19/18, xvi]