KEY POINTS:
Australian Treasurer Peter Costello has first-hand experience of the concerns a smaller economy has about being "swamped" by a larger economy.
Since negotiations began on a single Australasian economic market (SEM) in early 2004 there has been a subtle change of sentiment as the Australian buy-up of the New Zealand economy gathers pace.
In Wellington this week, Costello has been at pains to assure audiences that Australia understands what it's like to be the junior partner in negotiations.
"New Zealanders might feel the same way in relation to Australia, as Australia does in relation to the US in such negotiations.
"From memory the Australian economy is seven times the size of New Zealand - but the US economy is about 20 times the Australian economy.
"Nonetheless we have substantially liberalised our trade and investment rules with the US in the free-trade agreement."
At first blush, it should be simple for Costello and New Zealand counterpart Finance Minister Michael Cullen to negotiate an investment protocol for New Zealand and Australian firms to acquire businesses in each other's country without undue compliance costs.
New Zealand, after all, has been at a clear disadvantage since the United States negotiated more favourable terms to invest in Australia as part of a free-trade deal.
In Melbourne last year, Cullen agreed with Costello that they ought to be able to unveil an investment protocol at this year's meeting.
But while Australia's formal offer was made late last year, Cullen has not been able to indicate just how far the Government is prepared to relax the overseas investment rules in Australia's favour.
Domestic politics, particularly the complications of MMP, have injected new complexities into the SEM talks.
That became apparent last August, when the National Party seemed prepared to scuttle plans to set up a transtasman therapeutic goods agency. National had not been consulted by then-Health Minister Annette King when she negotiated a deal for a supra-national body to oversee alternative medicines and dietary supplements.
Don Brash thought it smacked of the nanny state. There were high compliance costs. Eyebrows were raised in Canberra.
New Zealand had been most anxious to get a bilateral agenda moving again after years of struggling to get Australia's attention.
After tweaking - and hard negotiating - Labour was able to get National's support. But the ruling party had been given a lesson.
Even before this week's talks, Green co-leader Russel Norman called on Cullen to pressure Costello to stop his "unsustainable and unfair subsidies to Australian businesses", which, said Norman, resulted from the "Howard Government's refusal to ratify the Kyoto climate protection treaty".
Costello did make the point during his visit, that irrespective of the fact that Australia was not a Kyoto signatory, it would nevertheless have fulfilled first-round obligations by next year - an achievement that Cullen noted has so far eluded New Zealand.
The Greens' claim is a nonsense. But it serves as yet another reminder to both politicians to tread carefully.
At their joint press conference, Cullen skirted the issue. But he later told me he would need National's support to change the overseas investment regime to liberalise investment.
The Greens will oppose that on sovereignty grounds. And while NZ First is in a confidence and supply agreement with Labour, Cullen expects it will also oppose the legislation, as will the four Maori Party MPs.
That means he needs National's numbers.
Cullen makes the valid point that the Overseas Investment Commission had not turned down any business-related proposal to invest here since 1984. Nor does the proposed liberalisation include land deals.
But Costello's point is that while that may be so, he has to get a quid pro quo for any relaxation of Australia's rules.
"The point I was trying to make is that New Zealand should get as good a deal in Australia [as the US does].
"But in order for New Zealand to get as good a deal in Australia, Australia's got to get as good a deal in New Zealand as it gets in the US.
"At the moment it doesn't have so much access."
Commonsense suggests that Australasian firms should be able to invest on the same terms in each other's market if the SEM is to live up to its ambitions. But Costello agrees that while that might be an end point: "You'd have to at least get to where we are with the US [first]. We're not quite there yet."
Checking off progress towards the SEM, Costello notes that harmonising the banking systems, , which was his first priority, has gone "as far as it can go", although it stopped short of his original ambition for a joint regulator.
Corporate regulation - the second priority - is well down the track. Investment is the next hurdle.
After that it's on to competition.
Costello is concerned about the way the proposal for a strategic alliance between Qantas and Air New Zealand on the Tasman route was knocked back.
"It's totally impractical to have one decision on one side of the Tasman and the other decision on the other side. It becomes lowest-common-denominator. You know, whoever holds out the most wins the day.
"I'd like to sit the ACCC with the New Zealand Commerce Commission - have three ACCC and two Commerce Commission [members] - put them together and tell them to come up with a joint decision. If we can't do that then let's work back from there.
An alliance between the airlines may not be a go anymore.
"The ownership of Qantas is going to move on," Costello said. "The world of business moves much faster than the world of regulators. If you don't have good decision-making you just move on."
Costello, and to a lesser extent Cullen, have concerns over the nature of the buying spree private equity funds are going on Downunder.
Costello won't go into the private equity bid for Qantas. "The bidders know that they will have to comply with all of our legislation."
Both treasurers are aware of the "wall of equity" coming Australasia's way as funds run the ruler over both countries' larger companies. Costello is concerned that excessive gearing can destroy companies.
"We saw during the late 1980s ... that excessive leveraging led to the collapse of many companies. People will say that interest rates were much higher in those days than they are now, that these companies can sustain it.
"But can these companies sustain it during a downturn?"
