New Zealand and Australia are getting closer together. Decisions made in 2005 could effectively cement a single economic market in place by the end of the year. There are, however, pockets of resistance. Advocates of an SEM predict long-term economic benefits, taking the existing closer economic relationship arrangement to a new , level of mutual advantage. Opponents suggest New Zealand's sovereignty is under threat and that New Zealand will lose any competitive advantages it might still have.
Forging economic and political links between New Zealand and Australia was always a tricky business. We declined an invitation to join the Federation and become Australia's seventh state back at the turn of the last century. For most of the first half of the 20th century our trading relations were characterised by economic indifference interspersed with bouts of tit-for-tat restrictions or embargoes that effectively cut one product or another out of each country's market.
It wasn't until the 1960s when first the prospect and then the reality of Britain's entry to the European Economic Community (EEC) struck resonance, that we started rehearsing some common themes. Even then, as writer and Aussie watcher Ian F Grant pointed out in Management's May 2003 cover story on trans-Tasman relations: "It took four and a half years to craft the New Zealand-Australia Free Trade Agreement (NAFTA), with mutual suspicion eased by the good working relationship between the ministers, New Zealand's Jack Marshall and Australia's John McEwen."
By the late 1970s NAFTA was "in trouble" because it had "reached the extent of its capacity to expand trade". And so, despite a lack of enthusiasm by New Zealand's Prime Minister of the day Robert Muldoon, New Zealand took up a challenge thrown down by Australia's deputy-PM Doug Anthony at the March 1979 NAFTA talks to find a way to either grow or widen the scope of NAFTA. Alternatively, Australia would "walk away from the agreement".
New Zealand's then Minister of Industry and Trade, Hugh Templeton, went to work on a better arrangement but, as Grant also reported, "talks stuttered along, not helped by the distinct coolness that chilled relations between Muldoon and Australian PM Malcolm Fraser". Then in 1983, when Muldoon was "finally ready to sign" but Fraser's Liberal/National coalition had been swept from power by Bob Hawke's Labour Party, the Australia-New Zealand Closer Economic Relations Trade Agreement (CER) was signed.
CER has been, in the eyes of most reasonable critics, successful. "More progress has been made in the fleeing of trade in the first three years of CER than in the entire 17 years of NAFTA," economist Peter Lloyd wrote in 1988. And more recently the World Trade Organisation (WTO) suggests CER is "recognised as the world's most comprehensive, effective and multilaterally compatible free-trade agreement".
"The intention of CER was to expand free trade by removing trade barriers and encouraging fair competition," wrote Grant in 2003. "It achieved its specific objective of removing all tariffs and quantitative restrictions from trans-Tasman goods trade by 1990, five years in advance of the agreed deadline."
But our politicians now believe more can be wrung from New Zealand's relationship with Australia and that we must in order to foot it with the rest of the trading world. Coincidentally and conveniently, so do key Australian politicians including Prime Minister John Howard and Treasurer Peter Costello. Without their patronage an SEM agreement would struggle for traction. Australia's middle level bureaucrats are traditionally uncooperative and bloody-minded when negotiating terms and detail of closer relations with New Zealand.
But a not insubstantial and fairly influential group of business leaders are unconvinced, suggesting that CER and issue-by-issue negotiations are sufficient to build a strong trans-Tasman relationship. …