The year 2013 marks the 30th anniversary of the historic Closer Economic Relations (CER) agreement between Australia and New Zealand. The close relationship goes back much further, with people moving freely across the Tasman since colonial times. Integration has increased over the past three decades, with trade, investment and people movement yielding benefits for both countries.
Personal ties are extensive and deep, with some 480 000 New Zealand-born people living in Australia and around 65 000 Australian-born people living in New Zealand. The two countries have similar political, legal and economic institutions, as well as language and culture, leading to a relationship that the two Prime Ministers have recently described as being ‘like no other’ (Key 2011) and ‘family’ (Gillard 2011a).
The CER agreement has a more prominent place in New Zealand than in Australia. More than half of New Zealand’s foreign direct investment comes from Australia and Australia is New Zealand’s largest export market. Australia’s economy is over seven times the size of New Zealand’s, so the commercial significance of New Zealand for Australia is smaller. New Zealand is nevertheless a major market for Australia’s manufactured exports and tourism industry, and Australians hold investments in New Zealand worth around A$74 billion.
Against this backdrop, the Prime Ministers requested that the two Productivity Commissions jointly conduct a ‘scoping study’ to identify further initiatives to strengthen the trans-Tasman economic relationship and improve economic outcomes. The Commissions were asked to identify initiatives where joint net benefits would be highest and how they might best be implemented, noting any potentially significant transition and adjustment costs.
Purpose
The Governments of Australia and New Zealand are firmly committed to strong economic relations between Australia and New Zealand, including boosting productivity through reducing the regulatory burden on business, increasing competition and encouraging closer economic cooperation, and to strengthening those relations further. The two countries have a long history of working together through the Australia New Zealand Closer Economic Relations Trade Agreement which first came into effect on 1 January 1983 and has involved successive rounds of integration of the Australia and New Zealand economies. This has been highly beneficial to both countries.
At their annual leaders meeting, the Prime Ministers of Australia and New Zealand agreed that, to promote further reform and economic integration, the Productivity Commissions of each country would conduct a joint study on the options for further reforms that would enhance increased economic integration and improve economic outcomes. The Commissions’ final report should be completed by 1 December 2012 in order to inform the next meeting of leaders, expected to take place in early 2013.
With 2013 marking 30 years of the operation of the Closer Economic Relations Trade Agreement, the Commissions’ report will help advise the Australian and New Zealand Governments on next steps in economic integration.
The report should identify specific areas for further potential reform, the ways in which they might be best achieved, the likely impacts of potential reforms, any significant transition and adjustment costs that could be incurred and the time scale over which impacts are likely to accrue.
Key Results
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• The Australian and New Zealand economies have become closely integrated, beyond what could be expected with any third country. This has been facilitated by institutional, legal and cultural similarities, as well as geographic proximity. • Closer Economic Relations (CER) initiatives have contributed significantly to trans-Tasman integration over the past 30 years. Tariffs and quantitative restrictions have been eliminated on virtually all goods traded between the two countries; people move freely across the Tasman; and the CER agenda has expanded into new areas, such as services trade and behind-the-border regulatory barriers. • The Commissions’ assessment is that CER has produced benefits overall for Australia and New Zealand, even though evidence is limited in some areas. • Barriers to further integration remain and new issues will emerge. Addressing them is becoming more challenging, as the focus shifts to more complex areas, including the regulation of services. • To ensure that integration policies make the biggest contribution to both economies, future CER initiatives should continue to: be outward looking; take account of linkages with other agreements; and complement domestic policy improvement. • A ‘direction of travel’ towards a single economic market has been characterised by Prime Ministers in terms of a seamless market in which people and businesses can have a ‘domestic-like’ experience in either country. How far Australia and New Zealand go in this direction should emerge from good public policy processes focused on the achievement of net benefits. • This scoping study identifies more than 30 initiatives to promote beneficial integration. Most address regulatory barriers to services trade and commercial presence, and some remaining impediments to integration in goods, capital and labour markets. • Some of these initiatives will require more detailed consideration. • There is further potential for each government to cooperate with and learn from the other in policy development, service delivery and regulatory approaches. • Current governance approaches for CER are informal and flexible, and appear reasonably effective. This scoping study identifies some opportunities for improvement. |