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Wednesday, 11 April 1973
Page: 1299

Dr J F CAIRNS (Lalor) (Minister for Overseas Trade and Minister for Secondary Industry) - by leave - As honourable members are aware, I have recently returned from New Zealand where 1 held discussions with the New Zealand Minister of Trade and Industry, Mr W. W. Freer, on the operation of the New Zealand-Australia Free Trade Agreement and on related trade matters. This was the first ministerial review of NAFTA since the 2 new Labor governments were elected to office. This Agreement provides a most valuable and important association for the 2 countries, and I should like to acknowledge the work of previous governments, and especially the work of the former Australian Minister for Trade and Industry, the then Mr John McEwen, and the former New Zealand Trade Minister, Mr John Marshall, with whom I had the opportunity to hold discussions while I was in New Zealand, in laying the foundations of a structure which has given great benefits to both countries.

The Australian Government is giving high priority to its trading relationships. Continuing developments in international trade require that the maximum attention must be given to securing and advancing Australia's interests in overseas trade. Two such developments that are of the closest concern to Australia are the entry of the United Kingdom into the European Economic Community and the rapid steps being taken by Japan and the

United States in particular to building up trading relationships with the People's Republic of China. Recent international currency movements have also highlighted the vital role that trade plays in the international economy.

The environment which Australia faces is one of increasing competitiveness among trading nations. This is an environment in which Australia must not only survive but also flourish, and only the resourcefulness and determination of government action can ensure that Australia derives the maximum benefits from the opportunities that are presented to Australia. Australia's trading position is strong. But it is urgent that Australia should strengthen and broaden its trading relationships. The Government is determined that Australia should be in the forefront in seeking new markets and increasing its trade in existing markets. The early life of the new Government has testified to the importance that not only itself but also other nations place upon our role as a trading partner. The visit to Australia in March by the Soviet Trade Minister, Mr N. Patolichev, has confirmed the importance of Australia's trade with the Soviet Union and has added scope for development of our trade. Following this, I held discussions with the New Zealand Government on ways to expand two way trade between our 2 countries. Next month Australia will be sending the first Australian Government trade mission ever to visit the Chinese People's Republic.

I stress the importance that both Australia and New Zealand place upon the New Zealand-Australia Free Trade Agreement. Growth in trade between the 2 countries has been considerable, increasing from $21 8m in 1965-66 to $390m in 1972 - an increase of more than 78 per cent. Discussions between Mr Freer and myself were constructive and successful. They have laid the groundwork for a co-operative effort to stimulate an increase in trade between the 2 countries and to develop their economies through the complementary use of resources. Both governments fully support the objectives of NAFTA and intend to work towards its more effective operation. To this end the review of its operation that was commenced during these talks will continue over the next 12 months. Indeed, the importance that both Mr Freer and I attach to the advances that were made in our talks is such that we will be meeting again in about 6 months time to look at the progress made during the intervening period. Normally about 12 months elapse between ministerial meetings on NAFTA.

Discussions between Mr Freer and myself have resulted in a number of significant achievements which will strengthen NAFTA's operation in the interests of our trading and economic relationship. Both governments agreed on the principle that the first objective of our trading relationship should be the joint development of the economies of both countries and that this should be pursued through the complementary use of the resources of each country. Positive measures were agreed upon to prepare for the implementation of this policy. Both governments also agreed that further stepping stones towards greater free trade should be added to the Agreement. Arrangements also have been prepared for the situation arising from the elimination of British preferential tariffs. Accordingly, substantial progress was made on the future of preferential arrangements between Australia and New Zealand and agreement was reached on rules defining the origin of goods traded on a preferential basis between Australia and New Zealand.

While discussions between Mr Freer and myself largely centred on the development of secondary industry and of trade in manufactured goods, due recognition was paid by both governments to the importance of the primary production sector of both economies. It was understood that the appropriate arrangements for meeting the needs of this sector - particularly with respect to meat and dairy products - would be a continuation of co-operation between both countries in third markets rather than the introduction of disruptive competition in each other's domestic market. At the same time, it would be wrong to suggest that there are not some areas of tension, due largely to the similarity of production in both countries. Problem areas do exist, in particular with regard to some forest products. As a result of discussions with Mr Freer this morning, we expect to make progress in that area too. Both governments are mindful of such problems and are watching the situation closely while encouraging a resolution of competitive interests through those directly involved.

One of the key advances made through the discussions in New Zealand was the new emphasis that was placed upon the concept of economic co-operation. Up to the present, the emphasis under NAFTA has been, quite reasonably, on the expansion of trans-Tasman trade. However, there are great advantages to be obtained from the gradual development of an economic framework in which 2 individual markets, comprising 13 million people in Australia and 3 million in New Zealand, blend into a closely related market of 16 million people. The possibilities of economies of scale would benefit not only production and employment in both countries and trade between the 2 countries, but also would strengthen the competitiveness of both nations in wider international trade. It is clear that the greatest benefits will accrue to both countries when each economy is encouraged towards specialisation in the production of those things which it is suited to producing most efficiently and most economically. However, I stress that this is a long range ideal. It can only be achieved by gradual and co-operative steps which, moreover, must take proper account of the existing level of industrialisation in both countries. Responsible planning, therefore, should be geared towards complementary development in future industries rather than being implemented in a way that would disrupt existing industries. The important thing is that economic co-operation becomes the first objective of our relationship once it is established that resources allocation is the key to sensible economic planning.

Mr Freerand I agreed that the operation of NAFTA should now move into a new phase, one in which the emphasis should be placed on what I consider to be the fundamental objective of NAFTA - that of the development of the area, and the use of the resources of the area as a basic stimulus to the further expansion of trade between our 2 countries. When I say this, I mean that trade can only increase with real advantage if it is aimed to fully and properly develop our resources. It is not only the aggregates of goods exchanged that are important in trade. Of far greater importance is the contribution that the exchange of goods makes towards real economic growth. It is essential to ensure that trade strengthens and optimises the industrial growth of both countries.

Mr Freerand I agreed that high priority should be given to the complementary use of resources as a means of developing each country's economy. Against this background, we had an initial discussion On the industry objectives of both governments and we agreed to keep in touch with each other as these were elaborated into policies. The basis for this arrangement was our belief that Australia and New Zealand must work together not only to ensure that our individual plans and policies can take account of the other country's objectives and aspirations but also to encourage collaboration between industries in the 2 countries so that they can contribute in a complementary way to the growth of the 2 economies. For example, the development of an efficient secondary industry in New Zealand is in Australia's interest as well as in New Zealand's interest. My aim is to assist, in every way that Australia can, in the achievement of this objective.

It is essential to stress the importance of involvement of industry leaders in the process of our mutual economic development. Both governments are prepared to work positively and constructively towards this end within the framework of NAFTA. But, while governments can plan, encourage and lead, the success of NAFTA is still very much dependent on how businessmen use the arrangements governments have evolved. A fundamental point is that government does not work in isolation from commercial realities. Government must work with business, from a position of leadership, but leadership based on close consultation and co-operation with industry. The extent to which industry can take advantage of the economic growth of both countries and of the economies of scale which should result from production for the combined area market will depend on the energy and imagination that businessmen on both sides of the Tasman put into making NAFTA work. Co-operation should be the objective, backed by the assurance that, through co-operation, trade can be expanded without injury to existing investment and efficient domestic industries. It is worth noting that, in some industrial sectors, notably motor vehicles and domestic appliances, there is already an encouraging trend towards trans-Tasman industrial cooperation and co-ordination of production plans. For example, although starting from limited firm to firm arrangements made under Article 3:7 of the Agreement, 2-way trade in domestic appliances has greatly increased in volume on the basis of industry to industry co-operation.

I refer now to the very significant agreement reached by both governments on the principle that provision should be made to add further stepping stones towards free trade. It is apparent that the slow expansion of the trade coverage of Schedule A - the free trade part of NAFTA - has been to a large extent the result of reluctance by firms and industries to commit themselves to conditions of complete free trade without some transitional arrangement which would permit them to gain experience as to their relative competitiveness. At present, NAFTA Schedule A arrangements are all or nothing. In adding a product to Schedule A, permanent commitment is being undertaken with uncertainty as to the result. This is too big a step to take for many firms and industries in view of the many unknowns. To the detached observer, the fears often appear groundless but they exist, and if they are based on uncertainty as to the future then it is up to the governments to provide means to allay that uncertainty. In the discussions between Mr Freer and myself we have provided additional stages between the existence of the commodity in perhaps Article 3:7 and its eventual entry into Schedule A - the completely free trade area.

The framers of NAFTA, to their credit, included Article 3:7 in the Agreement. This Article allows the governments to agree on and implement special measures beneficial to the trade and development of each member state and designed to further the objectives of the Agreement. It has always been seen as a way of providing transition to full Schedule A treatment. The governments have used the authority given by the Article successfully to approve a narrow type of arrangement nl the firm to firm level. In its way this has been quite successful. Since this type of arrangement has been in force 2-way trade worth $5 8m has been facilitated. It is unfortunate, however, that loose usage has caused many people to think of such arrangements as being the only way of operating under Article 3:7. Article 3:7 arrangements as currently employed are useful in bringing firms together and generally educating business to the benefits of trans-Tasman partnership. However, such firm to firm arrangements only in rare cases lead to the consensus at industry level that is required before genuine free trade through Schedule A is possible. The governments see the need for intermediate steps to facilitate transition to Schedule A. Mr Freer and I have authorised officials to undertake studies, in collaboration with industry, designed to introduce new transitional positions, allowing a wider range of industry to experience the benefits of free trade in a practical sense and, in the light of proof provided by this experience, enjoy the long term benefits that inclusion of products on Schedule A would bring.

Mr Freerand I also reached agreement that specific measures should be taken to take account of the new situation arising between our 2 countries with the elimination of British preferential tariffs. These measures include understanding on rules concerned with the origin of goods traded on a preferential basis between our 2 countries in the future, and also the preferential arrangements themselves. It was recognised at the inception of NAFTA that the rules of origin applying to the goods traded on a preferential basis, and evolved in the 1930s for completely different reasons, were not necessarily appropriate to a free trade area. An essential element in any such rule is that the benefits accrue primarily to the partners. It is, after all, an area agreement designed to make the best use of the area's resources where this is economically reasonable and to increase trade above the level at which it would otherwise be. The origin rules we now have were intended to benefit Britain as well as Australia and New Zealand. This was fair enough in the context of the old Commonwealth agreements. But now we are thinking in an entirely new context. We in Australia are thinking increasingly in a Pacific, South East Asian and Asian context.

Mr Freerand I therefore agreed that common rules of origin, based on a 50 per cent area content criterion, should be adopted. There would, of course, be circumstances under which a 50 per cent area criterion would not be appropriate for certain industries. It was recognised that provision would have to be made for flexibility in the administration of the common rule in special cases and circumstances. Officials in both countries will be consulting closely with industry to ensure that the new rule does not produce distortions in trade or grave inconvenience to traders. After those consultations are completed it is proposed to finalise details for new rules with the objective of implementing them from 1st July 1974.

Another matter of major importance on which substantial progress was made during our meeting in Wellington was the future of preferential arrangements between Australia and New Zealand. The mutual exchange of

British Preferential Tariff treatment between Australia and New Zealand derives, on a non-contractual basis, from the trade agreements each country had with Britain and, although applying to items of trade not yet covered by Schedule A, is an essential element of the NAFTA relationship. With the dismantling of the British Preferential Tariffs by both countries which eventually will come, and New Zealand has been more specific about this than has Australia so far, it has therefore been necessary to reach agreement on the extent to which preferences accorded by each country to the other could, and should, be retained in the circumstances of the 2 economies and in terms of the concept of a developing free trade area.

Both countries recognise that to achieve the prime objectives of NAFTA, including the development and use of the resources of the area by the expansion of mutually beneficial trade, tariff rates against each other should be kept at the lowest possible levels and should give preference to area production where this was economically reasonable. In this way, trade growth under such preferential arrangements should help to stimulate a progressive movement towards free trade under NAFTA.

Several factors have underlined the necessity for reaching an understanding with New Zealand on preferences with a minimum of delay. Both Australia and New Zealand are restructuring their tariffs in a climate where British preferences will be disappearing and, in the case of New Zealand, practical reasons made it necessary to finalise important aspects of its proposed new tariff at an early date. Although the time limits on the Australian side are less rigid, the future position of New Zealand rates in the Australian tariff will have to be taken into account in future references to the Tariff Board. Another important consideration is the effect which the forthcoming round of negotiations on the General Agreement on Tariffs and Trade will have on tariffs in both countries.

For all these reasons, an early understanding between Australia and New Zealand on reciprocal preferential arrangements was necessary. Accordingly, during our discussions in Wellington, Mr Freer and I agreed that we would put before our respective Cabinets proposals for an interim agreement on preferences, which would operate pending the working out of a long term agreement. The proposed interim agreement will apply until

September 1974, and will thus provide a period of experience within which to assess whether the interim agreement can, as we would hope, form the basis for a long term arrangement.

The details of the agreement I have reached with Mr Freer will be. announced when the necessary formalities have been completed. Meanwhile I can say that the emphasis in the arrangement is heavily on manufactured goods for which New Zealand is such an important market for Australia. The major exception is motor vehicles, transport vehicles and components. These items form a very important part of the trade between Australia and New Zealand. They accounted for $57m of Australia's exports to New Zealand in 1971-72 and, being mainly in CKD form, represent the basic materials for New Zealand's developing motor vehicle assembly industry. They are therefore an important element in the total NAFTA relationship and will necessarily have to be covered in any long term arrangement. However, New Zealand has not yet formulated a policy on the development of her motor vehicle industry and could not, at this stage, accept a commitment on future tariffs, particularly as developing a future policy on this industry is a very complex subject.

Given the existing interconnection between the Australian and New Zealand motor vehicle and component industries the matter, of course; goes much wider than tariffs and preferences. Indeed, Mr Freer and I had an initial discussion about achieving a high degree of complementarity in our motor vehicle policies.

Mr Chipp - That is not a bad word.

Dr J F CAIRNS - That is right. It is not a bad objective either. We both recognised this to be a most desirable objective, particularly as the. industry is one with considerable scope for further industry co-operation and joint development. We agreed that an examination should be made of the scope for greater participation of New Zealand components in the overall development of the motor vehicle industry of the NAFTA area.

There are external factors which, if not coordinated, could make all the work by government and industry meaningless. Industry has a particular responsibility and the motor vehicle industry has a particular responsibility in this respect. It strikes me as important that we develop a consciousness of each other in our general economic policies. This will become increasingly important as more and more industry comes under the NAFTA umbrella.

While the importance of the primary industry sector of both economies was mutually recognised and understood, our discussions in New Zealand on this occasion were concerned primarily and most directly with trade in manufactured goods and the development of secondary industry. However, both governments are aware of the need to avoid disruptive competition in our exports of primary products, both in each other's domestic market and in international trade. Both governments recognise that our mutual interests in the primary sector, and particularly with respect to meat and dairy products, will be best served by a harmonious and co-operative effort towards an expansion of our primary produce exports in third markets. Mr Freer and I have therefore agreed to continue, vigorously and constructively, the work already started towards this objective.

I would mention that, while in New Zealand, I stressed the considerable emphasis placed by the Australian side on the process of reconstruction that has been going on for some time within the Australian dairying industry, and the effects that this was already having in achieving efficiency of that industry.

Mr Freerand I were very pleased with the degree of frank consultation and co-operation which has characterised discussions under NAFTA since its inception. We strongly endorsed the view that this type of consultation and co-operation gave strength to the whole structure of our trade relations and agreed that it should continue at all levels - government, industry and commercial - as basic to the success of the Agreement. It is essential that knowledge and experience of the Agreement and of its opportunities and benefits should penetrate to all sectors of our 2 communities if NAFTA is to achieve the wide public support which will ensure its full and successful operation.

Our relations with New Zealand under NAFTA are the most intricate and comprehensive of our trading relations. It has to be recognised that because of the comprehensive nature of these relations and the similarity of our 2 economies it is difficult to move rapidly towards more free trade. I have already acknowledged the work done by the previous governments in this matter. In conclusion I acknowledge the ease and fruitfulness of the co-operation that Mr Freer, the Minister for Trade and Industry in New Zealand, made possible in this matter. Finally, I acknowledge the high level of competence that is shown by our own departmental officials in the real work - and they do the real work - that is done in these negotiations. I present the following paper:

New Zealand-Australia Trade Relations - Ministerial Statement, 11 April 1973.

Motion (by Mr Crean) proposed:

That the House take note of the paper.

Suggest corrections