Where next for CER?

Where next for CER? Joint study draft released by Productivity Commissions

The Australian and New Zealand Productivity Commissions have identified some 20 policy initiatives to promote beneficial economic integration between the two countries.

In a discussion draft released today the Commissions conclude that Closer Economic Relations (CER) initiatives have benefited both countries over the past 30 years. Barriers to integration remain, particularly regulations affecting services trade and investment. Tackling these is important but will be challenging, notwithstanding the similarities between the two countries.

New Zealand Productivity Commission Chair Murray Sherwin says, “CER has been a very successful venture, with initiatives that would not have been possible with any third country. There is more that can be achieved to the benefit of both Australia and New Zealand.”

Gary Banks from the Australian Productivity Commission observed, “While a single economic market provides the ‘direction of travel’ for the bilateral relationship, how far future policy initiatives go ultimately must emerge from good public policy processes focused on achievement of net benefits.”

The draft study says both countries face challenges and opportunities in a dynamic global economy. The relationship should remain outward-looking, taking into account linkages with other trade agreements and not impeding opportunities for profitable exchange with other trading partners. It should also complement productivity-enhancing policies and reforms in each country.

The major initiatives likely to deliver benefits to both Australia and New Zealand are set out in the study and relate to business law, occupational licensing, ‘rules of origin’, air services and shipping, and capital and labour flows. The draft says there is also significant potential for each government to cooperate with and learn from the other in policy development and evaluation.

In a number of areas — such as mutual recognition of dividend imputation more work is required to assess the potential for net benefits. For others, such as monetary union, the Commissions have concluded that they would not generate net benefits and should not proceed.

The Commissions have 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.

Public feedback is being sought on the discussion draft. A final report will be presented to the Australian and New Zealand Governments in early December 2012.

Strengthening trans-Tasman economic relations key points

· The Australian and New Zealand economies have become closely integrated in many areas, beyond what would seem possible 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 transTasman 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 between them; 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, notwithstanding limitations in the empirical evidence.

· While much has been achieved, barriers to further integration remain and new issues will emerge. Addressing them is becoming more challenging, however, as the focus shifts to more complex areas, including many involving 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’ 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 along the way.

· This scoping study identifies some 20 policy initiatives to promote integration that could yield joint net benefits.

– Most of these address regulatory barriers to services trade and commercial presence, and some remaining impediments to integration in goods, capital and labour markets.

– There is also some untapped potential for each government to cooperate with and learn from the other in policy development and service delivery.

· Current governance approaches for CER are informal and flexible, and they appear to have been reasonably effective thus far. With a view to the challenges of the future agenda, this scoping study identifies some opportunities for improvement.

· A number of the policy areas potentially yielding joint net benefits will require more detailed consideration, including after the study is completed.

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