Address by H E Harinder Sidhu, Australian High Commissioner to New Zealand
to the New Zealand Law Society, hosted by Bell Gully
17 October 2023
Introduction
E ngā mana, e ngā reo, e ngā karangataha maha,
Tēnā koutou katoa.
Ko au te māngai o te whenua moemoeā
Ko Harinder Sidhu toku ingoa
Nō reira,
Tēnā koutou, tēnā koutou, tēnā koutou katoa.
I have been invited here today to share a little about the Australia-New Zealand Closer Economic Relations Trade Agreement, or the CER as it is most often referred to.
Along the way, I’ve also been asked to consider the question – how important is New Zealand to Australia, really? It’s an intriguing question.
In order to answer it, we need to take into account our shared history, values and geography, our contemporary circumstances and to understand the different equities of our two sovereign nations.
That’s a big topic and perhaps one we can touch on a bit later in this discussion.
As a preliminary caveat, I am not a trade law specialist. My interest in these issues is from the perspective of a diplomat, concerned with relations between states. And that is how I propose to approach our discussion today.
The origins of the Closer Economic Relations (CER) Agreement
So let’s start with the CER which was signed on 28 March 1983 – making it 40 years old this year.
The CER didn’t just come from anywhere. It descended from a number of increasingly broad and comprehensive trade agreements.
Seen from today, the one thing that strikes me is that the highly integrated economic relationship we have now was not always the case. Indeed, our history suggests it was quite the opposite.
From the time of Australian federation in 1901, we regarded New Zealand as a foreign country for tariff and trade purposes. We extended preferences to some parts of the British Empire, but not to New Zealand (in part because of competitive the trade relationship between us).
New Zealand woke up to this anomaly and in 1921, withdrew preferential treatment from Australian exports.
Australian reaction was swift, and in 1922, we signed our first bilateral trade agreement. It was a simple enough instrument. It simply stated that each party would trade with the other and extended preferential tariff treatment to 129 items.
Significantly for Australia, this was our first trade agreement ever with a foreign country.
In 1933, we struck an Australia-New Zealand Trade Agreement, under which the two countries gave each other tariff preferences and some special rates of duty.
But the genesis of the CER lies in the New Zealand-Australia Free Trade Agreement or NAFTA as it was known then, which entered into force in 1966.
NAFTA was created in the shadow of the establishment of the European Economic Community (EEC). So it was driven by a recognition of the value of better trans-Tasman economic integration for the benefit of both countries, from that perspective
To the extent that NAFTA eventually removed around 80% of tariffs between the two countries by the late 1970s, it was a significant step forward from its predecessors.
But NAFTA was also seen as overly bureaucratic and cumbersome. This was largely because it was a ‘positive list’ agreement, based on tariff reduction and elimination schedules against an agreed list of products on each side.
What this meant is that every change every change to the schedule had to go through a consultations process that was attached to the agreement. This process quickly degenerated to the point where consultations absorbed increasing bureaucratic effort and time, with only incremental results.
The story has it that things came to a head on our inability to agree on trade rules for horsehair brushes.
The Closer Economic Relations (CER) Agreement
Finally, in March of 1980, Prime Ministers Robert Muldoon and Malcolm Fraser released a joint statement that called for ‘closer economic relations’, noting that an appropriately structured closer economic relationship would bring benefits to both countries and improve living standards.
The negotiation of the agreement was not without its challenges. Two major sticking points in the negotiations were New Zealand’s desire for better access for dairy products, and Australia’s ask of New Zealand to remove export incentives and quantitative restrictions.
The protracted negotiations led to officials on both sides being shut in a room in Queenstown and told not to come out until they reached an agreement. Two days later they finally had.
Aside from the negotiating challenges officials faced, there was also the issue of personal disdain between Prime Ministers Muldoon and Fraser, so much so, when it came time to sign the negotiated agreement, they refused to be in the same room as each other.
And so, on the 28th of March 1983, the CER was signed in Canberra between the Australian Minister for Trade, Lionel Bowen and the New Zealand High Commissioner to Australia, Laurie Francis.
The CER had four key objectives, set out in Article 1 of the agreement. It aimed to
- strengthen the broader relationship between Australia and New Zealand;
- develop closer economic relations through a mutually beneficial expansion of free trade;
- eliminate barriers to trade in a gradual and progressive manner under an agreed timetable and with a minimum of disruption; and
- develop trade under conditions of fair competition.
I think we can say that the CER has broadly met these goals. Unlike the NAFTA, the CER is a ‘negative list’ agreement. In the early years where both countries were still relatively protectionist, the negative list included quite a number of manufactured products. But these fell away over time as both countries moved to liberalise their economies and remove trade barriers.
The CER was designed to operate alongside the 1973 Trans Tasman Travel Arrangement, which allowed citizens of Australia and New Zealand to travel to, live and work freely.
In January 1989, the CER took another step up when a Trade in Services Protocol was introduced, so allowing most services to be traded free of restriction across the Tasman.
So, while it was pioneering for our two countries, I think it was also pioneering for the rest of the world. It was the first agreement of its kind and it still is recognised as one of the most open trade agreements in the world.
Today, the WTO recognises it as being among the world’s most comprehensive, effective and multilaterally compatible free trade agreements, covering substantially all trans-Tasman trade in goods, including agricultural products, and in services.
We rightly refer to it as a gold standard agreement, providing the basis for truly free and open trade between two nations.
More importantly, it has created a strong platform from which both countries have been able to take a leadership role in advocating for international trade liberalisation.
Impact of the CER Agreement and future directions
The effect of the CER on both our economies has been profound.
Australia and New Zealand now have one of the broadest and most diverse trade and economic relationships in the world.
Today Australia is New Zealand’s second-largest trading partner, with two-way trade worth NZD $29 billion in 2022.
A key feature in our trade story is we are often the first country small and medium enterprises export to with businesses cutting their teeth in a safe market before expanding.
New Zealand provides an attractive investment destination for Australia, and is today our fourth largest investment destination.
And, in turn, Australia is New Zealand’s largest source of foreign direct investment. In 2021 two way investment totalled AUD 184 billion, of which AUD114 billion was from Australia to New Zealand.
Having the CER as the bedrock of our economic relationship has given us the confidence to be ambitious. So in about 2009 we began to work on the Single Economic Market (SEM) agenda, with the aim of enabling business, consumers and investors to carry out business across the Tasman in a seamless regulatory market.
The commitment to enabling a single economic market is as strong as ever. At their meeting in Wellington in July this year, our Prime Ministers recognised that this agenda had slowed during the Covid-19 pandemic. They resolved to re-establish and reconvene a Working Group to take forward arrangements for seamless borders across the Tasman.
This year, in about August, as part of the 40th anniversary of the agreement, our two Ministers for Trade issued a Sustainable and Inclusive Trade Declaration, setting out our shared commitment to support and drive our respective transitions to net zero and pathways for achieving sustainable development for all our people.
Beyond CER – what’s next?
Just as our trading relationship and the CER arose in response to a set of global circumstances, the situation we find ourselves in today will also shape our bilateral relationship into the future.
Looking ahead, there are a number of challenges that the agreement and our relationship face.
The first is the global economy. Outside of the pandemic and the Global Financial Crisis, the next two years are expected to be the weakest for global growth in over two decades.
Inflation remains stubbornly high for us both. We’ve seen persistent interest rate rises on both sides of the Tasman and rising costs of living are taking their toll.
At the same time, shifts in global power dynamics are having a direct influence on our ability to engage freely in the global economy, with consequences for our economies and prosperity.
Trade, investment, and industrial policy are increasingly being used as tools of statecraft. The global trading order, which has served us so well, is now under challenge.
As open trading nations, we have a stake in safeguarding the international rules based order that gives predictability and certainty to small and medium sized countries like ours.
Further to this, as trading and maritime nations with the 3rd and 5th largest EEZs in the world, our prosperity relies on international trade routes staying open and unhindered.
So it is fair to say that, going forward, our economic relationship will become increasingly intertwined with political and strategic considerations.
Strategic Competition
It would be remiss not to acknowledge that in an increasingly interconnected world, our bilateral relationship exists in a much more globalised context than was the case in 1983.
A key driver of economic challenges is rising strategic competition.
One only need to see the effect of Russia’s invasion on Ukraine on fuel prices, food security and global supply chains to know that, even though Australia and New Zealand are far from the fighting, geopolitics has a direct and immediate impact on us.
Geographic distance is no longer a safeguard.
Technology is shrinking the barrier of distance. Global power is shifting to the East, with the rise of India and China.
The rules and norms that have kept the peace and governed international economic relationships since the Second World War are now under strain.
And, it is getting increasingly difficult to make progress on trade liberalisation in the WTO, driving us toward regional trading arrangements such as RCEP and the CPTPP.
We are seeing the increasing use of coercive trade measures, unsustainable lending, disinformation, cyber attacks, political interference.
And, our own region, the Indo-Pacific, is now increasingly a theatre for strategic competition.
That competition is, in essence, a contest over the type of region in which we will live, travel and trade. A contest over what and whose rules will apply.
Australia and New Zealand, together with other countries in the region have to consider how we should respond.
For Australia’s part, we are working to support and defend the rules-based order by building our own resilience across the board. This is genuinely a whole-of-nation effort.
This means investing in the resilience of our economy, acting on climate change, expanding our diplomatic reach and relationships, and supporting our people. All these matter as much as the investment we make in tools of hard power such as defence.
The Trans-Tasman Relationship Today
This is probably a good point to pause and consider the side question I’ve been asked – because in this world how important is New Zealand to Australia?
It is interesting to me because I don’t think that is a question that would be put in the converse.
And the reason, has much to do with the size differential between our two countries.
So, yes, it is true that New Zealand will always think about Australia more, and more deeply, than Australians think about New Zealand.
But that is not the same as irrelevance.
Australians are acutely conscious of how much we share with New Zealand. We are bound by a common history, shared values and similar outlooks in the world.
A tangible expression of this is that the Australian Lowy Institute surveys, year after year, show that of all countries in the world, Australians feel warmest toward New Zealand (85 deg/100).
Notwithstanding the occasional argument about pavlova or the rugby, the truth is that our bilateral connections are deep and wide. What unites us is greater than what divides us.
And, fundamentally, what this means is we have a very deep trust in each other.
And that trust, in today’s world, is a strategic asset.
A Trans-Tasman Roadmap to 2035
Recognising that we do better when we work together, our two Prime Ministers in July launched a Trans Tasman Roadmap to 2035.
The Roadmap is more than just another diplomatic declaration. It is a statement of where and how we will work together as we face a changing world and a more uncertain future.
It answers a simple question: if we were designing a trans-Tasman relationship today, given what we have now and in the circumstances we face, what would it look like?
The Roadmap aims, in the words of Prime Minister Anthony Albanese, to make our partnership “fit for the modern era”.
In a relationship as broad and deep as ours, it’s important to articulate where we will focus our efforts.
The Roadmap identifies five areas where we believe New Zealand and Australia’s strengths intersect. Where we can work together to make a positive difference, both to the welfare of our own countries and to our region.
Of the five pillars there are three core pillars:
- First, sustainable, inclusive and prosperous economies;
- Second, security and resilience;
- Third active partners in the Pacific;
Which are underpinned by two foundational pillars
- Upholding shared principles and values; and
- Our peoples.
The first pillar, on sustainable, inclusive and prosperous economies, recognises that modern economic challenges ask us to think more broadly than the trade, investment and regulatory focus that have characterised our relationship in the past.
Specifically, climate change will have significant impacts for both our economies and for our trading partners. Addressing climate change – both mitigation and adaptation – will require some economic restructuring in our countries.
This is far from an easy task, and one that will ask us to work together more closely and in different ways to how we have done so in the past. Arguably, it is an effort that requires structures other than a Free Trade Agreement to achieve.
What I am saying here are there now are limits to how much more we can continue to amend and augment the CER to support our economic circumstances.
We also need to recognise that, compared to 1983, not just climate change, but the impact of technology, the greater movement of people and deep economic interdependence – witness the challenges we face on supply chains, for instance – will also shape our bilateral relationship differently.
The changing geo-strategic environment, calls for a renewed partnership on security and resilience.
So, under the second pillar of the Roadmap, we have committed to strengthening our security partnership. We will reinforce our defence alliance through deeper cooperation, interoperability and integration via our upgraded architecture and capability planning.
We will also work closer to coordinate joint responses to regional security threats and other shocks (such as disasters) that could impact our way of life.
And, a key objective here is to build domestic resilience and to support the region to do likewise.
Which brings me to the Pacific. Our future success is tied to that of our region. We seek a region that is peaceful, stable, prosperous and resilient, with a strong Pacific Islands Forum at its core. We will continue to work together with all Forum members to achieve this.
The approach adopted in the Roadmap is to recognise that the Pacific region is strongest when it works together.
What gives me confidence that Australia and New Zealand can achieve this ambition is embedded in the final two pillars of the Roadmap.
It’s what I call the ‘secret sauce’ of the trans-Tasman relationship. That is, our shared values and our deep people links. We hold fast the values that bind our people. We will continue to protect and promote respect for human rights globally, so that all people may live with dignity.
But, finally, it’s our people-to-people links which, in the end, are the backbone of the relationship. Nearly 700,000 Kiwis live in Australia, and about 70,000 Australians live in New Zealand. The personal links between us are what underpin the enduring nature of our relationship.
So we need to do what we can to uplift and preserve that by preserving free-movement of people, celebrating our multicultural societies and championing the relationship of Aboriginal and Torres Strait Islander peoples of Australia and of Māori, tangata whenua of Aotearoa New Zealand.
Translating that ambition, all of it, to meaningful action and delivery will take serious commitment on both sides. It is my view that it’s necessary to work on all these aspects. It will reshape our relationship in new ways into the future.
Conclusion
So to conclude, what I really wanted to say is we need to recognise that we are each different nations.
While our relationship is built on history, shared geography and shared values, it is important to acknowledge that we often have different equities.
We each bring unique strengths and perspectives – together, we are stronger.
Just as we did with the CER 40 years ago, we are now entering a new phase of the relationship.
We don’tseek to be identical. Our unity of purpose does not mean uniformity of approach. What makes us different can also be a strength.
But what will be key is a sense of common purpose, and a spirit of collaboration.
And, as I hope I have demonstrated, we owe a debt of gratitude to those people who had the ambition to conceive of the CER in the first place.
The audacity of the idea that our two nations could be so deeply integrated is what sits at the core of the Trans Tasman Partnership today.
And it is the very nature of the Partnership that gives me, and I hope all of you, great optimism that we can tackle the challenges of the future with as much success as we have in the past.
So thank you for your time this afternoon. I look forward to the discussion.
Nō reira,
Tēnā koutou, tēnā koutou, tēnā koutou katoa.