THE PRESS SATURDAY. JUNE 5. 1982. C.E.R. out in the open

Press, 5 June 1982, Page 14

THE PRESS SATURDAY. JUNE 5. 1982. C.E.R. out in the open

The so-called exposure draft of the agreement on Closer Economic Relations with Australia contains few, if any, surprises. Most of the details have been made known already. People with a business interest in trading with Australia will have been following developments closely. The announcements this week about removing export incentives from Tasman trade by 1987 and about abolishing licensing for imports from Australia by 1995 made definite what had seemed highly probable previously. For those without business or other professional interest in trade with Australia, the discussion that is bound to occur may be more illuminating now that they know the formulas under which tariffs will be reduced and import licensing will be removed in the process of freeing trade between the two countries. The advantages for New Zealand and for Australia in the new arrangement include the obvious fact that the manufacturers should have a market of 18 million. The two countries should also be able to undertake some combined planning and development of each other’s large resources. The area as a whole should be more attractive for investment. This investment should lead to increased industrial efficiency and productivity. Because of the increased size of the market manufacturers should be all the more ready to introduce modern plant. In time, there should be some harmonisation of traditional interests between the two countries, leading to improved marketing. If both countries benefit from the arrangement, this should lead to a stronger role in the development and security of the Pacific as a whole.

The new arrangement should raise many hopes; it has already stirred fears. The more extreme fears that Australian manufacturers will be able, because of their bigger base market; to swamp New Zealand with goods may be dismissed out of hand. New Zealand, at the moment, has two substantial, if depressing, advantages. One is that the New Zealand dollar is worth only slightly more than 70 per cent of the Australian dollar. This is a reflection of this country’s economic performance compared with the performance of its main trading partners. The lower value of ‘ the New. Zealand dollar means that imports will cost rather more and exports will have a price advantage in Australia.' This is likely to prevent the New Zealand market being: swamped by Australian manufacturers and to- help New Zealand manufacturers compete in Australia. On . this ; score, •. some manufacturers .. in

Australia have more to fear than their counterparts here. The second advantage is that New Zealand wages are lower than in Australia. This will have the same effect of making imports from Australia dearer and making exports to Australia more attractive through lower prices provided that the productivity of New Zealand manufacturing is maintained or improved.

Because of the lower value of New Zealand's currency and the lower wages the chances are strong that a number of Australian investors will consider that New Zealand is a more attractive place to build a factory than Australia itself. Certainly most New Zealand investors would think this. The advantages would be offset by the fact that the goods may have to be transported a long way to their main market, and when manufacturers here talk of the importance of the servicing industries to their success in C.E.R. the transport industry must be uppermost in their minds.

Increased investment from Australia is likely to mean more employment opportunities. New Zealanders have tended to be somewhat ambivalent about overseas investment. However, the labour pool is virtually common to Australia and New Zealand already, and New Zealand prosperity already depends heavily on trade with Australia and will continue to depend more heavily still. It would be foolish to regard Australian investment in such circumstances as foreign, any more than most New Zealanders and Australians regard one another as. foreign. The C.E.R. is not going to be the end for either New Zealand or Australia. A combined market of 18 million is not big enough to sustain the economies of the two countries. Besides, each already devotes a great deal of its activity to exporting around the world. The bigger base market should enable both countries to export elsewhere more easily. Australia has its eyes on the markets of the five Association of South-East Asian Nations countries. A regional trading grouping comprising these countries and Australia and New Zealand would have a greater population than the United States. Because of the disparities in incomes in the area it is dangerous to imagine that there is a parallel. at the moment, but there is certainly a potential to be' developed. As a start, the C.E.R. should enable Nev/ Zealand and Australian exporters to becoihe familiar with the combined market without experiencing the frustrations that attended the last years of the . 1970 s under New Zealand-Australia Free Trade Agreement trading.' ■