Eye-to-Eye on CER Why Helen Clark wants John Howard to keep looking in her direction

No 2 must try harder. That sums up our Closer Economic Relations (CER) with Australia on the trade agreement’s 20th birthday. No 1 has better things to do – though now maybe, just maybe, it might cast another glance No 2’s way.
The first 10 years were vintage stuff. New Zealand went from dipping quivering toe in the water of competition with Big Brother manufacturers, to jumping in the deep end – and found, much to its amazement and delight, that it could swim. Trade boomed both ways. CER became the world’s star performing free trade agreement.
Then Australia lost interest. Once New Zealand had opened up, its small market thereafter offered limited new gains – far fewer than fast-growing Asia and rich United States.
New Zealand slipped so far in Australian national consciousness that eminent Australian journalist Paul Kelly, in book in 2001 marking 100 years since federation, could give New Zealand only seven fleeting references and didn’t mention CER at all.
Ministers on this side of the Tasman complained privately they would get their counterpart minister to take an interest in something only to find Australian officials quietly buried it. Each year the ministers met, as required. Each year they issued ritual communique. Each year little happened.
There were some small, though significant, developments. But CER moved at snail’s pace. There was new fluffing of feathers when Labour took office in late 1999 and Trade Minister Jim Sutton got business involved but Australian officials stuck tenaciously to their go-slow.

Cullen’s interest
Then Michael Cullen took an interest. He has set up regular meetings with Peter Costello. And he has got movement on “tax triangulation” – partial recognition by both countries of each other’s company dividend imputation credits (known as “franking credits” in Australia). The topic had supposedly been on the action list for decade.
Is this the start of something big? Should we start dreaming of “single market”, operating under one set of rules? Of common currency? common external tariff? After all, Europe has all those and CER is supposed to be “state-of-the art” agreement, is between two countries, not 25, and those two countries have deep Anglo cultural ties.
The answer is no – and yes. Be prepared to dream patiently.
First, register some big dividers.
* The two countries have starkly different geologies, geographies and climates and depend for living on very different commodity mixes.
* The shared 75 percent British genealogy apart, the two societies are demographically very different. New Zealand has large Polynesian dimension with growing cultural, political and economic influence.
* The upside-down twins at the bottom of the world see the world very differently. Australia worries about next-door Indonesia and snuggles up to the United States for protection. New Zealand basks in the “distance of tyranny” (to turn Australian historian Geoffrey Blainey’s famous phrase on its head) and seeks security in numbers.
* Australia’s population is five times greater and its people one-fifth richer. New Zealand is in sense province to Australia’s metropolis, the first hop upstream for fish looking for bigger pond. Australia has habit of co-opting New Zealand movie stars and directors, singers, artists, football players and executives who win international attention. newspaper feature earlier this year called contemporary artist Colin McCahon Australasian, on the strength of his one fleeting trip across the ditch.

Superior or dismissive
Size and wealth cause Australians to feel superior or dismissive and New Zealanders to be resentful or noisily attention-seeking. That is unhealthy.
And business in each country views the other differently. The New Zealand Institute of Economic Research (NZIER), in report in August for the Australian-New Zealand Business Council (ANZBC), found most Australian businesses it surveyed see this country as place to generate increased sales, sort of additional state, while New Zealand firms see Australia as an export market, stepping stone toward other more distant third markets.
This multiple asymmetry means New Zealand has to make the running to get changes in CER.
CER was the product of Australian frustration with New Zealand pettiness in the pre-1983 trading arrangement (Nafta) and concern that it might become an economic basketcase. With those two worries fixed, Australia could again turn its attention elsewhere. Now New Zealand impinges on Australian consciousness mainly when it is nuisance: Ansett; defence disappointments; Kiwis on the dole; (increasingly rare) sporting wins.
Now for the good news.
Helen Clark and John Howard have both determinedly fashioned good relationship. They agree to differ and, thus freed from the negatives, agree on much. Clark helped Howard out with the Tampa refugees. Howard stayed mum on her Iraq anti-war statements. Clark won’t complain at Australia’s go-it-alone on free trade agreement with the United States and Howard puts in word for New Zealand coat-tailing his deal.
And there is movement on CER.
Note, first, what CER now is. It has long since moved beyond being an instrument of free trade. It is clearly an instrument of economic integration.
The CER ministerial meeting on August 28 to mark the 20th anniversary pronounced that the two countries are “bound together … by the depth of our labour market integration, value of cross-investment, integration of our banking and broader financial services markets, shared public and private institutions, integrated companies and the breadth of business and personal networks and daily interactions”.
But as the formal border – tariffs and quotas and the like – has been progressively dismantled, it has exposed blockages behind the border. To develop true “borderless” market requires common or harmonised or compatible tax and regulatory regimes.

Hard issues
These are hard issues: competition and securities law, business and other regulation, tax, court jurisdiction, phytosanitary rules (which have been used, in the face of scientific evidence, to keep apples out of Australia), migration (on which there was step backwards in 2001) and investment – not to mention joint development of new policy.
High on that list is matter which is both border and behind-the-border issue: rules of origin regime which is increasingly anachronistic in world of freer trade. CER requires at least 50 percent Australasian content for duty-free entry, which inhibits some, mainly New Zealand, manufactured exports. Both countries’ recent trade agreements with Singapore set much lower levels – 40 and 35 percent.
New Zealand has tried to get movement from Australia for many years. At the last minute at the ministerial talks this August, Australia gave ground. So there will be an immediate “incremental” change, to allow most components to qualify. In return New Zealand agreed better treatment of outsourcing by Australian companies. And there was agreement to completely overhaul the regime by June next year.
Tax triangulation, rules of origin: sounds like movement at last. But don’t be so fast. “Incremental” is the CER creed.

Mutual recognition
So there will be “report” on how mutual recognition by each country of the other’s goods standards and professional qualifications, introduced in 1998, is going. There is at last, after much Australian foot-dragging, legislation before both Parliaments for mutual recognition of aviation certification. Discussions on mutual recognition of securities offerings (share and bond floats and the like) are “well advanced” and discussion paper is due on November 30. There is now limited cooperation between the two countries’ financial markets and competition watchdogs and accounting standards boards.
The long overdue need for joint competition approach – or joint competition authority – has been highlighted by the drawn-out two-legged scrutiny of the Qantas-Air New Zealand proposal

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