Fran O'Sullivan: Trans-Tasman single market looking likely

COMMENT

Like any courtship ritual played out in public, New Zealand and Australia's first tentative steps towards a single market ringed by a common border have provided plenty of intrigue for bystanders - and perhaps a bit too much for the Prime Minister.

Ten days ago, 75 Australian and New Zealand powerbrokers emerged from two days of talks at Government House to push their big idea - a common border with joint customs controls and tariffs, shared rules of origin for trade, common taxation, securities and competition law regulations and more.

This was much more than the round of transtasman business law harmonisation announced by Finance Minister Michael Cullen and Australian Treasurer Peter Costello after their annual meeting in January.

Helen Clark initially poured cold water over the powerbrokers' common-border concept before back-tracking.

Clark's vision is of a proudly independent nation making its way in the world. She believes a full single market will submerge New Zealand's interests beneath Australia's if the policy changes are not skilfully handled.

This is a view shared by the small inner core of Wellington's policy elite who pursued a deliberate strategy of their own to stymie a proposal that the powerbrokers endorse a common currency - a proposal they believed would have reduced New Zealand's ability to manage counter-cyclical economic swings.

When Qantas chairwoman Margaret Jackson pushed a common currency - "If the Germans and French can adopt one, why can't we?" - just before the forum, the group went into overdrive.

The leader of the New Zealand side, Bank of New Zealand chairman Kerry McDonald, had talked about a broadbrush agenda.

Others labelled McDonald's programme a mere talkfest.

But Jackson and her team had indicated they would arrive with a clearly focused approach and a policy agenda that did not play well with the under-prepared Wellington elite.

"They came complete with a set of briefing papers to drive debate forward," said one core group member.

"All we had was some background stuff on CER. There was an absolute misconnect."

The core group - Foreign Affairs Secretary Simon Murdoch, Telecom chief executive Theresa Gattung, Ministry of Economic Development chief executive Geoff Dangerfield, Reserve Bank Governor Allan Bollard, Commerce Commission chairman Paula Rebstock and NZX chief executive Mark Weldon - quickly got into overdrive to set some principles and rules for any fast-track marriage discussions.

The two nations face similar economic challenges - scale and connection in an under-populated region, market access in an inhospitable trading world, how to add value to commodities and resources and how to invest better and lift productivity.

But there are also clear differences, and the New Zealand side focused on these.

New Zealand used a first-best framework for policy formation, was focused on opportunity, and was consumer-driven and light-handed in its regulatory approach.

In contrast, Australia was opportunistic and pragmatic, had a problem-solving approach, was focused on producer interests and was more interventionist.

"Our goal was to show the Australians New Zealand also had something to offer," said one of the New Zealanders, "not to come across as puppy dogs with soft heads."

Major issues had to be considered as both nations pushed forward to further integrate the two economies, and some misconceptions had to be blown away if a single market was to get beyond mere posturing. Among these:

* Australian business: "New Zealand is just like another state"; New Zealand business: "Australia is just a bigger version of us".

* Australian Government: "The Kiwis free-ride their regulation on us"; New Zealand Government: "Our regulation is better but the Aussies won't change."


New Zealand has been batting its eyelashes for years trying to get the attention of its larger neighbour.

Now that Australia thinks it's time to marry the two markets, New Zealand is cautious about what should go into the dowry.

But serious economic realities are driving Australia's apparent sudden desire to get closer with New Zealand 20 years after the signing of the Closer Economic Relations agreement.

Australia's population may be five times that of New Zealand, but it is not a large country and will be superseded by some of the faster-growing regional economies.

Australia has some $A20 billion invested in New Zealand. Last year alone, it snapped up newspaper company INL, Tranz Rail and the National Bank. New Zealand has $A30 billion invested the other way.

Australian interests own 86 per cent of the banking industry - all five major trading banks are Australian owned - the two dominant newspaper chains, a big part of the retail industry and the railways.

But, like New Zealanders with investments in Australia, they face different laws when operating on the other side of the Tasman.

"Follow the money," urges Hugh Morgan, president of the Business Council of Australia. "That's why we want to, need to, make this work."

Morgan, a leader at the first Australia-New Zealand Leadership Forum, is among those who believe it is time to increase the pace of transtasman harmonisation.

He says a single market does not have to be a one-way street.

"It's not true that New Zealand should automatically adopt Australian rules just because it is the smaller player," he told the Herald.

"We may want to adopt some of New Zealand's less-onerous commercial rules, or both countries can examine moving to adopt world-best policies."

Morgan's ability to pitch the single market as a two-way street won him support from many New Zealand business delegates at the leadership forum.

His ability to understand the feelings of the smaller party also played a part.

"Why not put the first transtasman regulatory institution in New Zealand?" he asked.

Carter Holt Harvey chairman John Maasland is another transtasman operator who wants to get rid of the irritation of different rules.

Herald interviews with leading Australian business representatives at the forum indicate a greater preparedness to see the opposing viewpoint.

Canberra policy-makers have tended to take a world-best approach to commercial issues to ensure Australian companies do not face too many hassles as they do business elsewhere, particularly in the US, with which Australia has forged a free trade deal.

But New Zealand, contrary to the view of many Canberra policy-makers, is not predominantly focused on Australia and the Pacific.

There are also signs that at political level the Australian side may be more flexible.

"We have a vested interest in a strong New Zealand economy," said Australian Foreign Affairs Minister Alexander Downer.

"We have massive investments in New Zealand - I'm not sure whether New Zealanders are aware.

"A downturn for the New Zealand economy is bad for Australia, so initiatives that strengthen the New Zealand economy are supported by us."