Transtasman trade up 10-fold

JIM EAGLES looks at the current state of CER and the debate over further alignment of transtasman trade practices.

Australia and New Zealand appear to have reached a turning point in their relationship not uncommon in a couple who have been living together for some time.

There have been arguments about the Rugby World Cup and anger over the collapse of Ansett; the Australian Government is appalled at our defence policy and many in New Zealand's finance sector are appalled at the aggressive behaviour of the Australian Stock Exchange; the Australians have been unfaithful enough to try to reach a separate trade deal with the United States, while New Zealand is still flirting with an independent approach to foreign policy.

Overall, Australia seems increasingly dismissive of New Zealand and more interested in new relationships with the likes of Singapore and the US. A relationship counsellor watching the antics would no doubt fear the worst.

But Finance Minister Michael Cullen insists that, on his trip to Australia this month, he actually found "a much stronger recognition of the importance of New Zealand to Australia than previously".

In his view, that is because Australia has been suffering many of the same problems as New Zealand - companies taken over by foreigners, head offices moved to New York and talk of becoming a branch-office economy all creating a sense of insecurity. "As a result, they see strengthening the relationship with New Zealand as a small but significant way of improving their position," Cullen said.

As a measure of that greater warmth, he said, there was good progress made towards better consultation when either side - i.e. Australia - is considering changes to business rules, "so we don't get further apart".

That, for example, might prevent the sort of embarrassment created when the Labour-Alliance Government amended the Commerce Act to bring it more into line with Australia's, only to find the Australian Government proposing to take its legislation in a different direction.

Cullen said he had had good discussions with his Australian counterpart, Peter Costello, "on how we can have a better exchange of information" and would be going back to him soon "with some specific proposals".

As a further mark of this mateyness, Cullen hoped to have Costello over to New Zealand in the near future "for further talks."

But, even if relations with Australia are better than the surface squabbling might suggest, there are still questions about whether it is a real or just a one-way relationship.

Cullen raised a few eyebrows after his visit to Australia when he observed that in many ways New Zealand was a branch-office economy, that the transtasman partnership was not one of economic equals and that harmonisation of business rules was always likely to mean adopting the Australian version.

In Australia, such a view would probably be taken as obvious. But on this side of the Tasman things are a bit more complex.

On the one hand, there is continuing pressure from companies to make it easier for them to operate in Australia by harmonising the rules and the reality is that the New Zealand tail is unlikely to wag the Australian dog.

Business New Zealand chief executive Simon Carlaw says the organisation and its predecessors have for years been arguing for a broader and deeper CER - facing up to issues such as taxation and currency union - to allow businesses to compete more effectively across the Tasman. "The opportunities are enormous," Carlaw says, "but unfortunately there has been very little interest from politicians and we are making minimal progress."

On the other hand, Australia is no shining example of economic efficiency and its economy is very different to ours, so New Zealand would have to think carefully before accepting its rules.

Stephen Franks, previously a top commercial lawyer and now Act's justice spokesman, is appalled at the way New Zealand is blindly adopting Australian regulations which he regards as bureaucratic and inefficient. "Why on earth would New Zealand business want to be lumbered with Australia's flawed and expensive compliance costs?"

The Government is obviously tending towards the view that the advantages of having one set of rules for the whole Australasian market generally outweigh the downside of those rules being more cumbersome.

Commerce Minister Paul Swain sees big benefits in modelling our regulatory regimes on international - i.e. Australian - norms wherever that is appropriate. "Running a regulatory regime unique to New Zealand is not always in our best international interests ... given the size of the New Zealand economy," he says. "Good regulatory coordination means potential foreign investors do not need to learn two sets of rules."

That approach is strongly endorsed by Securities Commission chairman Jane Diplock, who thinks harmonising our securities legislation with our nearest neighbour would do a lot to boost New Zealand's ailing capital markets.

As an Australian who previously worked for the Australian Securities and Investment Commission, she is careful not to sound as though she is promoting an Australian takeover.

But she does point out that New Zealand has a much better chance of being noticed by international investors as part of an Australasian investment scene and that the Australian sharemarket has expanded hugely in proportion to GDP while New Zealand's has shrunk.

Interestingly, the politician who had most to do with creating the present relationship is pretty relaxed about how it has developed.

David Caygill, the 1984-88 trade and industry minister, acknowledges that "when it comes to harmonisation, there was always the risk that New Zealand, as the smaller partner, would have to adopt the Australian model".

"But," he adds, "I'm not sure what is in that for us. We have always been free to adopt Australian ideas if we want to. The fact that we frequently don't suggests that they are not always seen as suitable for our particular circumstances."

In any event, he says, harmonisation is often not just a case of two-way transtasman negotiations, but involves New Zealand sitting at the table with half a dozen states and the the federal Government, "which gives us a better chance of having some input".

Sometimes, too, such negotiations end with the states deciding not to harmonise their rules in some areas but to agree to mutual recognition. "That is the approach which has often been followed in Europe and it means we don't have to adopt their rules - or they ours - but simply to recognise that both are acceptable."

The fact is, he says, harmonisation is not an end in itself. "In the end, so long as there are two sovereign nations, there is going to be the potential for two different systems, and I don't see anything particularly worrying about that.

"The real question is whether there are areas where having different sets of rules inhibits our opportunities to operate in Australia. When such situations arise, they are obviously worth looking at."

In fact, as Caygill points out, huge strides have been made in smoothing out such impediments to transtasman trade in goods and services in a great many areas.

"There's a huge amount of business going on between the two countries that would not have been feasible previously, and I would have thought that speaks for itself."

The trade figures certainly speak for themselves. Transtasman trade has increased almost 10-fold over the 20 or so years of CER. And the balance of trade has been swinging steadily our way.

Twenty years back, the ratio was 40:60 in Australia's favour. The latest figures show the balance is still in Australia's favour but is more like 47:53.

That surely confirms that - recent disputes notwithstanding - the relationship is worth preserving in its present form. The relationship counsellor would probably advise the parties to work at it a bit harder.

And, as it happens, New Zealand is proposing to do just that. For the past two years, Parliament's foreign affairs, defence and trade committee has been reviewing the relationship and is finally poised to report back.

It has considered a huge range of possibilities, including major steps such as a currency union or even moving towards complete integration - which seem fairly unlikely to go anywhere right now - as well as more practical measures for improving the relationship, such as establishing a more formal disputes resolution process or having a Cabinet minister responsible for the transtasman relationship.

The fact that Parliament has put so much effort into thinking about the relationship provides further confirmation about how important it is to New Zealand. Things haven't yet reached the point where marriage is on the agenda ... but who knows?

Twenty years ago, when interviewing former Australian Prime Minister Bob Hawke, I raised the possibility that the closer economic relations process that had been set in train would, over many years, lead to the two countries being so closely integrated that merger would become natural and inevitable.

Hawke agreed to comment provided his views were not reported. Then he said something like, "That's absolutely right. That's exactly what will happen over time. But I don't want to comment publicly because any time an Australian politician says something like that, the whole process is set back another 50 years."

* Tomorrow, Act MP Stephen Franks and the manufacturing lobby debate the merits of transtasman harmony.