Overview of Economic Integration Between Australia and New Zealand

Integration Partnership Forum
Kuala Lumpur
Saturday 25 June 2011
Overview of Economic Integration Between
Australia and New Zealand:
What Happened
How it Happened
Presentation for
Integration Partnership Forum
Kuala Lumpur, 25 June 2011
Robert Scollay
APEC Study Centre
University of Auckland
Australia-New Zealand Economic Integration
• A Success Story
• Success did not come easily
– especially in the early years
• Always more to be done
• Focus first on manufactures, agriculture and
services followed
• Free movement of labour
– a “given” throughout the process
 one of the cornerstones of ANZ economic integration
NZ$ millions
New Zealand's total merchandise trade with Australia
since CER took effect
June years
Summary: Three “Make-or-Break” Moments
• Establishment of ANZCERTA 1983
– framework for a comprehensive FTA
– initial caution, timidity
– early implementation encountered many difficulties
• 1988 Review of ANZCERTA
– breakthrough to a comprehensive FTA
– beginning of path toward a single market
• Statement of intent on Single Economic Market
– confirmation of single market as the ultimate goal
..there was
•the original NAFTA (NZ-Australia FTA)
– Positive list
– Limited coverage
– Increasingly difficult to extend
– Reached end of useful life by early 1980s
First “Make-or-Break” Moment:
Establishment of ANZCERTA 1983
• Negative list agreement for free trade in goods
• Furiously opposed by manufacturers
(“Free Trade with Australia – A Step Too Far”)
• Very cautious initially
– extensive negative list, special arrangements for agricultural products
– lengthy phase-out periods for tariffs and NZ’s QRs
– investment deliberately excluded, no coverage of services
• Initial implementation: difficult with some bickering
but meantime
– both countries began embracing comprehensive economic reform,
including unilateral MFN tariff reduction programmes
– business gradually became more enthusiastic
(“CER – The Way Ahead”)
Second “Make-or-Break” Moment:
1988 Review of ANZCERTA
• “End of the FTA Phase”
– acceleration of free trade in goods
– extension to free trade in services on negative list
• “Beginning of the Single Market Phase”
– elimination of anti-dumping on trans-Tasman trade
– commitment on working to harmonise customs and
quarantine procedures
– initial agreement on government procurement
Gradual Accumulation of
Building Blocks for the Single Market
• 1990s
agreement on standards, accreditation, quality assurance
joint accreditation system for conformity assessment (JASANZ)
joint food standards and food standards authority
mutual recognition of standards and occupational qualifications (TTMRA)
enhanced arrangements on government procurement
double tax agreement
work on business law harmonisation
flow-on issues related to people movement addressed (eligibility for
welfare benefits, state-funded medical treatment, pensions; cost
implications for each government)
– services
• most remaining sectors progressively removed from the negative list
• implementation issues addressed in some sectors
• Early mid-2000s:
single market concept placed on the agenda
focus on business law, competition and securities regulation issues
progress relatively slow
ANZ Leadership Forum began meeting 2004
• focusing support of business leaders in both countries
Third “Make-or-Break” Moment:
Commitment to a Single Economic Market
• Joint Statement of Intent on SEM 2009
– strong focus in initial work programme on competition and
regulatory issues (including enforcement), also IP
– some elements completed, others nearing completion
– other important issues remain to be resolved
• Major recent developments
– adoption of new rules of origin 2009 (switch from RVC to CTC)
– Treaty on Court Proceedings and Regulatory Enforcement 2009
– Investment Protocol 2011
• beginning to fill a major gap in integration arrangements
• progress on investment previously held back by various concerns over
– precedent setting
– relation to broader investment policies
– erosion of tax bases via application of dividend imputation provisions in both countries
How It Happened
Features of the Australia-NZ Integration Process
Leadership and Process
•Political leadership at highest level (PMs) was
crucial at “make-or-break” moments
•Maintaining momentum through “ups and
downs” facilitated by
– close working relations at official level across many
government functions
– periodic setting of broad objectives to be pursued
through well-defined processes
•Objectives specified in broad terms rather than
as detailed blueprints
– often outcome focused
ASEAN – CER Integrated Partnership
Evolution of CER to SEM
Geoff Miller
Principal Adviser, Markets Group, Department
of the Treasury, Australia
Single Economic Market
“a geographic area comprising two or more
countries in which there is no significant
discrimination in the markets of each country
arising from differences in the policies and
regulations adopted by each country”
Scope of the SEM
• Business law (cross-border insolvency,
company registration, mutual recognition of
securities offerings);
• Prudential regulation (seamless banking,
insurance, banking crisis and failure
• Superannuation (portability, interaction
between the retirement income systems);
• Taxation (double tax agreements)
SEM Institutional Arrangements
• the participation of New Zealand Ministers and officials in relevant
Australian Ministerial Councils
• the Trans-Tasman Working Group on Court Proceedings and
Regulatory Enforcement (2003);
• the Trans-Tasman Auditing and Accounting Standards Advisory
Group (2004);
• the annual Australia New Zealand Leadership Forum (2004);
• the Joint Trans-Tasman Council on Banking Supervision (2005);
• the Mutual Recognition of Securities Offerings Treaty (2006);
• the MoU on the Coordination of Business Law (2000, revised in
2006 and 2010); and
• the Trans Tasman Outcomes Implementation Group (2009).
Memorandum of Understanding
• SEM is governed by the Memorandum of
Understanding between the Government of
New Zealand and the Government of Australia
on the Coordination of Business Law
• The MOU sets out a framework of principles
and a range of shared practical outcomes for
developing cross border economic initiatives.
Memorandum of Understanding
• Original MOU signed in 1988 as the MOU on
Business Law Harmonisation
• In 2000 old MOU replaced by a MOU on the
Coordination of Business Law
• MOU on the Coordination of Business Law
was revised and resigned in 2006 and 2010.
Vision of a single economic market
• No focus or sense of unity in purpose
• Harder to achieve legislative harmony
• Seemingly intractable issues around differing
legal systems or sovereignty issues
• Time for a new approach
A new approach to the SEM
• Not identical laws but shared outcomes
• Shared outcomes could be achieved in any
way each country felt necessary or appropriate
• In August 2009, a Joint Statement of Intent:
Single Economic Market Outcomes
Framework together with a framework of
principles and outcomes proposals
A framework of principles
• persons in Australia or New Zealand should not have to engage in the
same process or provide the same information twice;
• measures should deliver substantively the same regulatory outcomes
in both countries in the most efficient manner;
• regulated occupations should be able to operate seamlessly between
each country;
• both Governments should seek to achieve economies of scale and
scope in regulatory design and implementation;
• products and services supplied in one jurisdiction should be able to be
supplied in the other;
• the two countries should seek to strengthen joint capability to
influence international policy design;
• outcomes should seek to optimise net Trans-Tasman benefit.
The work program
Insolvency law
Financial reporting policy
Financial services policy
Competition policy
Business reporting
Corporations law
Personal property securities law
Intellectual property law
Consumer policy
Trans-Tasman Outcomes Implementation
• Ensure that the necessary processes are in place to
advance the work;
• Monitor progress towards meeting the agreed
• Identify areas of risk and seek to resolve issues;
• Report regularly to both Governments on progress in
achieving the outcomes; and
• Make appropriate recommendations in relation to any
changes to the initial list of proposed outcomes.
TTOIG website
Case study
Cross-border insolvency
• Australia adopted the United Nations
Committee on International Trade Law
(UNCITRAL) Model Law on Cross-Border
Insolvency (Model Law) by passage of the
Cross-Border Insolvency Act 2008
• New Zealand adopted the Model Law by its
earlier legislation, the Insolvency (Crossborder) Act 2006
Case study
Cross-border insolvency
• Although the Model Law provides an extremely
flexible generic framework for governing crossborder insolvencies between countries with greatly
differing legal systems, that flexibility can come at
the cost of efficiency
• The pure legislative approach to harmonisation
through model laws or strict alignment of laws did
not lead to the expected harmonisation of regulation
• Aligning legislation in many cases would not and,
in the case of Australia and New Zealand, did not
result in regulatory harmonisation
• Harmonisation can occur when each country
commits itself to achieving a shared outcome
• The mechanism for delivering that outcome is a
means to an end, and not the outcome itself
A Business Perspective on Cross
Border Agreements
Reflecting the Australia – New Zealand
CER/SEM Experience
Kerry McDonald
Context for negotiations
• Business is the engine of an economy.
• It operates within the framework of
government laws, policies and international
• This framework has a critical influence on the
competitiveness and performance of business
and strength of the economy.
• Business is now, of necessity, much more mobile,
shifting investment readily in response to the
competitiveness of different locations.
• Success in the intensively competitive globalized
economy requires this.
• So, it is important, in terms of outcomes, that
governments engage with business to understand its
needs when developing the policy framework,
including cross border agreements.
Related business perspectives
• As a businessman, when you understand what
is possible you become impatient with
anything less.
• In the modern World the speed of decision
making has accelerated dramatically. A 90 to
180 day decision horizon often replaces one
previously defined in years.
• It is often a struggle for policy makers to
appreciate this.
The Evolution of the A-NZ Process
• The attitudes and role of business varied markedly
through the process, with important implications for
the rate of progress and the level of business support
or frustration.
• 50 years ago, pre-globalisation the CER initiative was
largely political, with some business support.
• Business generally was less outward looking, more
reliant on subsidies and protection, and cautious.
• Over time both economies became more focused on
reducing subsidies and increasing competition and
• In parallel, business became more engaged with and
supportive of the CER process - but initially to
maximize the gain for its home-base economy and
minimize and loss of protection or other adverse
• Then, over the last 2 decades, with increasing
globalisation and the rapid growth of
Emerging Economies, the A-NZ business view
shifted strongly, reflecting greater exposure to
and awareness of international competition, it’s
challenges and opportunities.
• It became a much more aligned, single view,
across both economies, on steps needed to
improve the competitiveness of both
economies, in the face of globalisation – “we
are in this together”!
• And, business became much more engaged
and active with the CER/SEM processes, and
increasingly impatient with slow-moving
political leadership.
• The powerful unifying force was the
competitive pressures in the market on both
• It also sharpened the business focus on the
domestic competitiveness benefits of
leveraging off the CER/SEM change process
to improve domestic policies and align them
cross border.
• The CER/SEM processes became a vehicle for
addressing domestic policy inefficiencies and
barriers to competitiveness.
• The dominant business view became “we want
the best, most efficient policy, whether it’s
from Australia or NZ or elsewhere”.
• NZ business was apprehensive of A’s greater
size, but increasingly focussed on the necessity
and benefits of closer engagement with the
larger economy.
• Some, mainly regulated, domestically focussed
businesses, felt threatened and responded
accordingly – but were a distinct minority.
The focus of the CER/SEM processes
• The initial focus was reducing trade barriers,
especially tariffs.
• It evolved progressively to include non-tariff
barriers and behind the border measures, such
as standards, regulatory policies and processes,
financial markets, investment, qualifications,
tax harmonisation, etc.
• But, many of these changes were very slow
and of limited scope.
• Post tariff reductions “behind the border”
issues became more difficult as the benefits
were more complex and domestic
constituencies, which were less attuned to the
importance of competitiveness, more resistant.
• On the other hand these issues, well handled,
tended to have substantial competitiveness
The handbrake of politics
• As issues became more politically difficult
progress slowed dramatically, in spite of the
intense pressure on business to become more
competitive, and from business for faster
CER/SEM progress.
• In spite of the strong A-NZ business alignment
post-CER progress has been slow.
The consequences
• CER meant major gains for business and the
two economies, from tariff reductions and
improved border processes and the increasing
alignment of standards, financial markets,
regulatory processes, and so on.
• In NZ, and perhaps to a lesser extent in
Australia, it was part of a process of
transformation to a more outwardly focussed,
competitive economy.
• It probably also contributed to a closer social
alignment, including in sport and culture – a
stronger sense of shared opportunities and
• In A-NZ business there is now a much stronger
focus on the capability and performance of
people, rather than their nationality.
• However, the slow pace of progress over at
least the last decade has been costly for the
two economies - probably NZ in particular.
• And the political reluctance was mirrored in
the modest pace of domestic reform to
improve competitiveness.
• The externally focussed, resource based
sectors in the two economies are strong.
• This contrasts with the non-resource based
parts of the two economies.
• In NZ’s case the output of the vital tradables
sector (goods and services) peaked in about
2006 and has declined steadily since
• This reflects, to a substantial extent, a lack of
competitiveness and the pressures of foreign
• In this context, the very slow progress with
CER/SEM initiatives is directly relevant.
• Such issues are not unique to Australia and
New Zealand.
Session One: Q&A
Ambassador David Taylor
New Zealand
Services Integration
Experiences of CER
Christopher Findlay
University of Adelaide
Why services integration matters
• Context of services industry development
– Services sector grows with rising income levels –
demand and supply side factors
– But also there are new business models in services
– supply chains matter like they do in goods
• Gains from international business
– Gains from specialisation and access to variety
Why services integration matters
• Costs in trading systems
– Links to trade facilitation
• Participation matters
– Value of reducing the costs of entering the trading
• Competition is the goal
Challenges of services reform
• Challenges
• Nature of barriers
• Agencies involved,
• Continuing concerns about market failure, including the
nature of competition
• How can trade agreements help?
• Binding policy, guiding principles, schedules
• Concerns about diversion and competition
• Links to domestic reform
Approach in CER
• negative list
• definitions
• market access
• national treatment,
access to the agreement
coverage of modes
mutual recognition
best endeavours
• benchmark agreement compared to others
– good coverage
– horizontal reservations not significant
– liberal rule of origin
– movement of people
• talking points
– inscriptions, investment, business law
• impact studies – work in progress
• Wider reform matters - services reform best
driven by domestic reform agenda
• Leadership is important – define the goal
• Engagement from within – an important driver
which can be mobilised
• Continuing process – as times change and
shocks occur
Australia and New Zealand
Establishing joint bodies
Marc Mowbray-d’Arbela
Assistant Secretary
Legislative Review Branch
Department of Finance and Deregulation
Options for countries wishing to achieve a
common approach to a particular activity
• Unilateral reform in one country to align its
practices with another country
• Bilateral non-legally binding undertakings
• Bilateral legally binding commitments
- such as the establishment of a joint body
Australia New Zealand Therapeutic
Products Authority (Proposed)
• A joint body to replace 2 existing bodies
• Purpose – to regulate common standards for
therapeutic goods in both countries
• Would have an enforcement role in both
• Involved both countries adjusting some of their
normal internal approaches.
• Whole process took much longer and was
more difficult than anticipated
• Trade off was there would be considerable
advantages for both countries
• Lower compliance costs for business
• Lower administration costs for both
• Increased regulatory effectiveness
• Greater strategic understanding
Lessons learned
1. Consider more than one option for
2. Don’t under-estimate the task
3. Differences between jurisdictions matter
4. Identify clear net benefits
5. Ensure clear political authority
Lessons learned
6. Agreements and decisions reached need to be
scrupulously recorded
7. There is a need for dispute resolution
8. Always bear in mind that the parties are
sovereign nations and we have different
political systems
Lessons learned
9. Seek and use specialist knowledge across
respective bureaucracies
10. Apply existing organisational governance
Lessons learned
• Paper jointly developed in 2007 by New
Zealand and Australia
• Title: “Arrangements for Facilitating TransTasman Government Institutional
– http://www.finance.gov.au/publications/arrangements-forfacilitating-trans-tasman-co-operation/index.html
Looking forward
• In most economic activity there will be a
presumption in favour of cooperation
• Need to be alert for any unintended
consequences for the other party
• Specifically, Australia and New Zealand
recently agreed to resurrect the joint
Therapeutic Products Authority project
CER/SEM: Lessons Learned
Simon Murdoch
Former Chief Executive, Department of Prime
Minister and Cabinet
Former Secretary of Foreign Affairs and Trade
New Zealand
Integration Partnership Forum
Saturday 25 June 2011
Kuala Lumpur