Maybe it's time for realism about Australia and CER

Helen Clark is in Canberra for her annual meeting with John Howard today. What can she tell him?

There is much safe ground: mutual purring over election wins, a scan of December’s East Asia Summit, the China question, CER-ASEAN trade talks, Iran’s bomb, the Pacific.

Australia’s resigned realism about her defence policy is now partially offset by recognition of the high per-capita contribution to peacemaking and peacekeeping, especially in Afghanistan and East Timor, and her army expansion programme.

And elsewhere cooperation continues to deepen. Next month Monash University commissions its synchroton, to which New Zealand has contributed. The biotechnology alliance with the three eastern states attests to closer science links.

And then the asymmetry intrudes. Australia is New Zealand’s most important foreign relation (a fifth of exports go there and large numbers of New Zealanders go there to live). Australia’s most important foreign relation is the United States and New Zealand figures there as Fiji does here.

Managing that imbalance is a constant test for New Zealand Prime Ministers. They must get Australians to recognise value in the New Zealand market and get New Zealand business on more nearly equal terms with Australians in that market. Yet at no point may they compromise sovereignty if not to be punished at home. Nor can they risk being thought a nuisance or a niggling nationalist in Canberra.

Apples are a balancing case in point. It will not be good for trans-Tasman relations when — and local politics on both sides has made it almost certainly a “when” — a dispute is taken to the World Trade Organisation. Australia, by the way, has a counterclaim, on some tropical fruit caught up in the Hazardous Substances and New Organisms Act.

CER is now out of balance. New Zealand wants a single economic market in which a business in one country can do business in the other as if it is its home market: set-up, capital raising and investment, tax, standards and labelling, court processes, competition issues.

Some Australian businesses see the point — after all, Australians own most of the banking system and a great number of other businesses, including some which started here and went there. Those businesses want a single market, too, as has become clear at the Australia New Zealand Leadership Forum meetings.

But there are hurdles.

One is New Zealand’s generous granting of visa-free entry for tourists, which raises post-Iraq security worries in Canberra. So passport-free trans-Tasman travel is out.

A second hurdle is Australian bureaucrats’ protective approach to their tax base (a problem with dividend imputation, for example) and their regulatory system, which sometimes parks undertakings their ministers give.

A third lies in the detail of the regulatory changes needed. Bigger Australia does not see as much point in compromise as New Zealand. So it took 15 years from first mention to get an improvement in the rules-of-origin governing which goods qualify for duty-free entry. New Zealand, on the other hand, has a different view on tax rates. And its businesses, particularly bigger businesses, are wary of Australia’s more prescriptive regulatory approach.

A fourth lies in the selection of what to mesh. Essentially, Australia chooses. Much CER negotiation looks like New Zealand pushing on the end of a piece of string and succeeding only when Australia decides to pull on the other end.

One string Australia decided to pull was on banking regulation, after two Australian banks objected to the Reserve Bank’s approach here. The options put to Michael Cullen were a joint regulator or joint regulations administered by two separate regulators. The sticking point is that banking surveillance here puts the onus on bank directors, while Australia’s rules put the onus on the regulator, which has to be intrusive to succeed (and doesn’t always succeed).

The banking move came with a warning from Treasurer Peter Costello that if he did not get “measurable improvements”, Australia would turn its negotiating energies elsewhere in the world.

That bluntness underlines Howard’s importance to Clark. The next generation of Canberra politicians does not share his 1950s sentiment about a longstanding, if sometimes wayward, Commonwealth companion and war comrade.

Will the next Australian Prime Minister diary an annual meeting with the eastern cousin?

After you answer no, as the odds suggest you must, ponder what this or the next New Zealand Prime Minister might do about Australia.

The Labour party does have an instinct for prescriptive regulation — as in electricity, telecommunications and the labour market. It has moved competition law and insider trading law closer to Australian law and is following with bankruptcy law.

But prescriptive regulation can — mostly does — reduce international competitiveness. Adopting Australia’s prescriptive rules to get smoother access for 20 per cent of our exports and part of our foreign investment might reduce our ability to export, and attract investment from, elsewhere.

And officials’ time spent pushing on the end of the CER string is time not spent on other bilaterals and promoting trade and tourism.

So what Clark could tell Howard today is that henceforth New Zealand’s CER focus will be on internationally competitive, not just Australasian-competitive, tax arrangements, joint regulation and administration and that otherwise she will focus on bigger fish in Asia, Europe and America.

Of course, Australia is our most important foreign relation. But the rest of the world put together is more important. And will become more so.