View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by ResearchArchive at Victoria University of Wellington ips policy paper number seventeen / 2003 The Rocky Road to CER Frank Holmes INSTITUTE OF POLICY STUDIES • VICTORIA UNIVERSITY OF WELLINGTON Te Whare Wananga o te Upoko o te Ika a Maui i Institute of Policy Studies Victoria University of Wellington PO Box 600, Wellington New Zealand ISSN 1175-8201 ISBN 1-877347-01-9 Telephone (04) 463-5307 Fax (04) 463-5170 e-mail addresses: Director: [email protected] Editor: [email protected] Design & Layout: [email protected] General enquiries / Book orders: [email protected] Web Site: www.vuw.ac.nz/inst-policy-studies ii a very limited free trade agreement, came into effect The in 1966. This in turn had been preceded by considerable debate on the pros and cons of freer trade across the Tasman among politicians, business people and Rocky Road academics, especially in New Zealand. Without NAFTA, there would probably have been no CER. to CER My interest in the possibility of freeing trade between Australia and New Zealand was stimulated Frank Holmes by a year’s study at Chatham House in Britain in Emeritus Professor, Institute of Policy Studies, Victoria University of Wellington 1957. My topic was the implications for Britain, New Zealand and the Commonwealth of the Rome Treaty to establish a European Economic Community being Abstract negotiated that year. It was useful to be able to This paper is a history of discussions, debates and cooperate in work on the issues with Henry Lang, arrangements leading up to the Australia New Zealand then Economic Counsellor at the New Zealand High Closer Economic Relationship (CER), which was Commission, and colleagues from Industries and launched 20 years ago. While a large volume to Commerce and Customs there. I was already concerned celebrate the anniversary has been published by the about the debilitating effects on Britain of the Second Australian and New Zealand governments, in fact the World War and the growth of subsidisation of events covered by this official publication were agriculture there. I could foresee an increase in preceded by another 20 years or so of negotiations, pressures for Britain to join the Community that the debates and discussions, some unofficial and some six original EEC members were establishing.1 This official, on both sides of the Tasman. While the author increased my concern about New Zealand’s of this policy paper was never an official negotiator, dependence on the British market for our narrow he was a major driving force behind the arguments range of pastoral exports. for a regional free trade area, and this account of what I began to argue publicly that arguments that led up to CER has not only historical validity and depth had induced the Western Europeans and Latin of detail but also personal acuity and insight. Americans to take regional free trade arrangements seriously were highly relevant to the problems with Introduction which Australia and New Zealand were likely to Twenty years ago, on 1 January 1983, the Australia be confronted. New Zealand Closer Economic Relations Trade I was never an official negotiator. My first postwar Agreement (CER for short) was launched. To job in the Prime Minister’s and External Affairs celebrate the anniversary, the Australian Department Department and my teaching responsibilities at the of Foreign Affairs and Trade, collaborating with New University, especially in public economics for the Zealand’s Ministry of Foreign Affairs and Trade, has Diploma of Public Administration, meant that I knew published a 746-page volume. It contains selected well many of the officials who participated in the documents from ministers, officials and others negotiations. These included old colleagues in engaged in the difficult negotiations that took place External Affairs who worked on Australian affairs in over a five-year period preceding the inception of Wellington or were posted to work in our High the agreement. Commission and consulates in Australia. My links The earliest document selected is one from the with the leaders of the Treasury, then leading Ministry in Wellington to the New Zealand High negotiations through chairmanship of the Officials Commission in Canberra on 2 September 1977. The Economic Committee, were also helpful to my research road to CER was much longer than that. The New and other activities. Industries and Commerce (later Zealand Australia Free Trade Agreement (NAFTA), Trade and Industry) had the closest interaction with ips policy paper seventeen • 1 the manufacturers. Debates on strategy and tactics proved useful to him in sustaining Australian with their participants in the negotiations played an government interest in bringing the negotiations to a important part in the development of my own thinking successful conclusion. on the issues and how best to deal with them. I hope that these reflections on my own Why Consider Free Trade involvement in the discussions and debates that led to with Australia? CER will provoke some of the officials now in a At first, it was difficult to provoke interest in the private position to do so to respond and to tell their part of sector and the academic community in the possibilities what is a fascinating story. of freeing trade across the Tasman. Some officials were From the time I returned from Britain early in interested, but others, reflecting the general attitudes in 1958, I was speaking and writing frequently about the manufacturing sector in particular, were hostile. The our relationship with Australia in a variety of activities older Sir James Fletcher was among a small number of in which I was involved. These included the early industrialists in the late 1950s who favoured the idea of publications of the New Zealand Institute of Economic a form of economic union between Australia and Research and the New Zealand Association of New Zealand as a reaction to the UK’s expected Economists. The issues were debated often at the association with the EEC.2 meetings of the Economic Society of Australia and While interest in free trade was small, there was New Zealand, especially in its lively Wellington some interest in improving opportunities in one another’s branch. I raised them in my presidential address in markets. Trade missions were exchanged between 1967 to the Economic Section of the Australia New Australian and New Zealand business people in the late Zealand Association for the Advancement of Science 1950s. Discussions between the two governments, (ANZAAS). They featured in several of the continuing focused on possible newsprint and other forest education and Pacific cooperation links that I was products development, led to the establishment in establishing with universities, research institutes and 1961 of an Australian/New Zealand Consultative financial institutions in Australia. In the process, I got Committee on Trade. to know several of the Australian officials and others whose continued positive interest was so important in NZIER Discussion Paper No. 1 eventually achieving a successful outcome. My arguments for taking freer trade seriously were The case for freeing trade with Australia was an summed up in the first discussion paper issued by the important aspect of the policy issues featured by two recently created New Zealand Institute of Economic advisory agencies established by the New Zealand Research in 1961.3 I pointed out that New Zealand’s Government, of which I was made chairman, the rate of growth had been one of the slowest in the world Monetary and Economic Council and the New Zealand in the previous decade. The economy remained Planning Council. I became heavily involved in the extremely dependent upon a narrow range of export manufacturing politics of the issues when I worked products, subject to wide fluctuations in price. for a period as a senior executive of the Tasman Pulp Agricultural protectionism in overseas countries clouded and Paper Company, which was one of the leading prospects for several products. Government policy had forest products enterprises involved in the debate. promoted industrialisation behind the wall of protection, My various publications and speeches on the issues so that New Zealand might make at home some products from the late 1950s until 1983 are a useful reminder previously imported. Far from reducing the vulnerability of the rocky road that had to be travelled before the of the economy, industrialisation had so far merely CER arrangements were consummated. At a small created a new kind of vulnerability. private dinner held in Wellington to celebrate the The range of New Zealand export products had twentieth anniversary of CER, the leading Australian scarcely changed. Its imports were in the main now negotiator, Doug Anthony, was kind enough to ‘essential’ consumers’ goods and materials or equipment recognise that my activities during this period had for its industries and services. Consequently, if exports ips policy paper seventeen • 2 fell, the country was quickly in danger of a contraction seemed to preoccupy most of those who bothered to of economic activity and the emergence of unemployment discuss trans-Tasman trade. Rather it was to examine due to lack of imported supplies, unless there were possible changes in the trade policies of the two countries adequate reserves of overseas exchange or the country that might improve the efficiency of their economies, was able and willing to borrow. speed up their rates of growth and improve the standards New Zealand’s ability to maintain employment and of living of their growing populations. improve living standards of what was then a rapidly Despite the high-sounding objectives of the Canberra growing population continued to depend heavily on its Pact of 1944, there had till then been little real effort to ability to maintain an adequate increase in the volume of work closely together in matters of economic exports or of the production of efficient domestic development and trans-Tasman trade.