Story: International economic relations

Page 6. Australia and New Zealand

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The Australian colonies united in 1901. New Zealand could have joined but chose not to. At that time New Zealand conducted around 14% of its trade with Australia, while the Australian colonies had conducted between 25% and 55% of their external trade with each other. The principal Australian presence in New Zealand was financial. Three of the banks trading in New Zealand – the Union Bank and the Bank of Australasia (later to merge), and the Bank of New South Wales – were primarily Australian operations, although they had head offices in London.

Commonwealth of Australia and New Zealand

It was not until a trade agreement was signed in 1922 that Australia took New Zealand items off its general tariff. Australia gained duty-free entry to New Zealand for its timber, but New Zealand’s main exports to Australia remained items that were not covered by the agreement – butter and wool.

CER

A mutual interest in the two economies expanding their relations came about in the 1960s, partly against the backdrop of Britain’s shift towards close economic relations with mainland Europe. Australia’s manufacturers were keen to export, and New Zealand’s pulp and paper industry wanted free entry into Australia.

A 1965 free-trade agreement had a schedule listing items which would be exempt from duty. Two-way trade increased, but within a decade the Australian government and businesses had become exasperated with this limited approach and sought a proper free-trade agreement. Enough interests in New Zealand agreed, and it was foisted on unwilling manufacturers in 1983.

The new trade agreement was known as ANZCERTA (Australia–New Zealand closer economic relationship trade agreement) – in New Zealand this was quickly abbreviated to CER. It provided for a phased removal of duties, and the removal of other limits to open trade such as quotas and export incentives.

Mutual trade

Mutual trade grew to the point where Australia became New Zealand’s largest trading partner, accounting for approximately 20% of its merchandise trade. In the early 2000s the range of goods and services traded was much more varied than between New Zealand and any other economy. The top five imports into Australia from New Zealand – mechanical and electrical machinery, textiles, petroleum and timber products – accounted for less than one-third of total imports. There was a similar variety of exports to New Zealand, with the top five – petroleum, vehicles, iron and steel, and machinery – accounting for around 40% of total exports. The overlap of the two trade flows is indicative of a high level of integration, as is the existence of a common labour market – the only large economy with which New Zealand has such an arrangement.

Investment and services

In the early 2000s Australians were far and away the biggest foreign investors in New Zealand, accounting for between a third and half of direct investment. Australia also received around half of New Zealand’s much smaller volume of direct investment overseas. New Zealand’s biggest banks were Australian-owned, as was one of its two largest supermarket chains, and its largest media company. Australia had a large two-way trade in services with New Zealand – it amounted to $1.2 billion in 2002 (compared with $16 billion of two-way merchandise trade), of which the largest items were communications and business services.

A single market?

Australia has not been as committed to the creation of a ‘single market’ – including harmonisation of taxation, investment regimes and a single aviation market – as New Zealand. For Australia there has been little incentive to invest effort in harmonising with a smaller partner, as New Zealand only accounts for around 5% of Australia’s exports. But in 2009 New Zealand and Australia were jointly engaged in negotiating a free-trade agreement with the Association of Southeast Asian Nations (ASEAN).

How to cite this page:

Malcolm McKinnon, 'International economic relations - Australia and New Zealand', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/international-economic-relations/page-6 (accessed 15 October 2019)

Story by Malcolm McKinnon, published 11 Mar 2010