Call for Aust. and N.Z. to establish free trade area

Press, 17 August 1979, Page 11

Call for Aust. and N.Z. to establish free trade area

pa Auckland A report published this week suggests that New Zealand and Australia should work towards es-. tablishing an unrestricted free trade area. “The changing world economic climate dictates that action is now ur« gently required," says the report, prepared by the New Zealand Institute of Economic Research. The report said that the New Zealand-Australia Free Trade Agreement (N.A.F.T.A.) was not the vehicle for closer economic integration, and said that three main options were open to both countries; an unrestricted free trade area, a Customs union, and economic union. it said that opting for an unrestricted free trade area had decided advantages, allowing for commodities to be traded between the two countries free of duty and with no quantitative controls. Both Governments are urged to pay immediate attention to the research necessary to indicate they are seriously considering a long-term commitment to introduce free trade policies. “Both countries, particularly New Zealand, must now make bold moves to overcome the inertia that has developed,” the report, said. “Australia is continuing to strengthen trade ties with the A.S.E.A.N. nations (Indonesia, Singapore, Malaysia, Thailand, and the Philippines), and if New Zealand does not act promptly to become part of this development, the invaluable chance of a co-ordinated approach to common problems may be lost for a long time.” The report was commissioned by the AustraliaNew Zealand Businessmen’s Council, in association with the AustraliaNew Zealand Foundation. It was presented to a meeting of the New Zealand executive of the council at Auckland. It said that many signs existed in both countries that businessmen were willing to accept moves to

expand trans-Tasman trade significantly, and that New Zealand, “the less willing partner in the past," was now showing a stronger interest in closer economic ties. “N.A.F.T.A. provided trade stimulus in the past, but the agreement has been much less effective in recent years because of difficulties in adding items to the various schedules in the face of opposition by groups having to face increased competition. “It is also unlikely that a modified N.A.F.T.A. arrangement would provide the necessary climate to significantly ■ assist the restructuring process in both countries." Setting out the three options, the report said: “Additional research is necessary to identify the economic implications of these options, and they will need to be matched against the political desires of the two Governments. “An initial reaction by some is that New Zealand is unlikely to have a competitive edge in many manufacturing industries, but it has already shown the ability to compete with Australia in such areas as processed goods, forestry products, carpets, agricultural machinery, clothing and footwear, furniture, whiteware, motor vehicle components etc. “New Zealand is also likely to have a competitive advantage in trade in primary, particularly dairy, products, but the issue here could be as much political as economic. “The two Governments will have to reach an early agreement on trade in primary products, with consideration also given to co-ordinating marketing efforts in third countries.” The report said that in a more general sense New Zealand would prove competitive in particular areas through differences in the range of natural resources, a lower wage cost structure, and shorter production runs permitting greater flexibility. “Australia’s comparative advantage stems mainly from lower unit costs through economies of scale,” it said.

“Careful consideration will also need to be given to movements in the exchange rate, which have had a significant impact on the pver-all trade balance,” Explaining why an unrestricted free trade area was favoured, the report said: “A Customs union would mean both countries would have to adjust their external tariffs to a common level, and given the generally higher levels in New Zealand it would probably be necessary for New Zealand to make numerous downward adjust* ments. “New Zealand would then face increased compeition not only from Australian manufacturers but also from third countries. “Economic union would mean greater sacrifices than those made under a Customs union, but there could be advantages to both countries in adopting common policies in specific areas, such as agriculture production. “A packaged free trade approach is suggested, because concern has been expressed about a range of restrictive trade practices, not all of which would be eliminated if only free trade conditions were introduced.” Mr T. K. McDonald, director of the N.Z.E.1., said in a preface to the report that N.A.F.T.A. now provided a tightly regulated maze that few could penetrate. “The businessmen’s participation through the council, and the more recent resurgence of Government interest, reflect both a growing desire and need to pursue the sort of economic benefits that development of the relationship seems to offer, and increasing scepticism about the prospects of significant progress with N.A.F.T.A. through existing channels,’’ he said. “Rather than being the vehicle for progressing in the relationship, as was originally envisaged, N.A.F.T.A. now provides a tightly regulated maze that few can penetrate, stultifying progress and needing either radical change or an alternative route to be opened,” he said.