Strengthening trans-Tasman economic relations

Australia and New Zealand 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. With 2013 marking 30 years of this trade agreement, this study was commissioned to help advise the Australian and New Zealand Governments on the next steps in economic integration.

Our brief was to identify specific areas for 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.

In its final report, the Commissions concluded that CER initiatives have benefited both countries over the past 30 years. Trade restrictions have been greatly reduced on goods traded between the two countries; people move freely ‘across the ditch’; and the CER agenda has expanded into new areas ‘behind the border’. However, there are further opportunities to strengthen the bilateral economic relationship, particularly in relation to services trade and investment.

In addition to proposing further liberalisation of trade in goods and services, and capital flows, the report addresses some of the complex issues associated with the free movement of people between the two countries. There is also significant potential for each government to cooperate with and learn from the other in policy development and evaluation.
 
The Commissions also identified some enhancements to CER governance arrangements to help meet the challenges of the future, building on the informality and flexibility which have served the relationship well.

Key points:

• 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.

In May 2014, the Australian and New Zealand Governments released their joint response.

Developments since the report's release and relating to its recommendations include the Closer Economic Relations investment protocol coming into force, the trans-Tasman retirement savings portability scheme, and the announcement of a new scheme making young New Zealanders who have spent a significant period growing up in Australia eligible for student loans.