KEY POINTS:
Trivial haggling over trading in peas and beans, leather wallets and even seawater prodded politicians into CER, the closer economic relationship with Australia, 25 years ago.
Now the haggling is over complex and often obscure regulatory matters to make a single economic market (SEM). There is plenty to
keep them going another 25 years.
CER began to morph into SEM in the late 1980s. The simple challenge of eliminating tariffs and quotas - scary as it seemed to most New Zealand manufacturers in 1983 - was met well ahead of deadline, barring a few items.
So negotiators began focusing on reducing the non-tariff barriers to seamless trade - so that doing business in each other's countries would be like doing business at home.
It sounds straightforward but it isn't. More than a century after federation, doing business between Australia's states is far from seamless.
In March, Kevin Rudd's Government identified a wide range of laws that differed from state to state, ranging from health and safety, through consumer protection and product safety, mortgage credit and advice, building regulation, business registration and reporting and electronic conveyancing to wine labelling.
It agreed on a work programme with the states to eliminate the differences. One result this month has been agreement on unified transport regulation.
If Australia after 108 years is so far short of a single market, how can a single market be put together across the Tasman after only 25 years?
The short answer is that that is the wrong way to look at it. The SEM is best seen as a process, not an endpoint - just as federation has been.
So, short of political merger, and probably not even then, a seamless market is most unlikely. But progressively barriers can be removed and irritations ironed out.
That requires three preconditions.
One is an economic rationale, coupled with business need.
The rationale of a free market is now broadly accepted. At the parliamentary level only the Greens, the Maori Party and New Zealand First have reservations.
The business need flows both ways. Australian businesses and managed funds are heavily invested in New Zealand and New Zealand is Australia's biggest export market for manufacturers.
New Zealand businesses need the Australian market for critical mass once they reach a certain size.
The second precondition is a way of overcoming or going round the asymmetry in the relationship.
For New Zealand, Australia looms far larger than the other way round. Australia is New Zealand's biggest export market but New Zealand is well down Australia's list. New Zealand has to work hard to get on the agenda in Canberra and stay on the agenda.
The third precondition is political will to make things happen.
That will was absent on the Australian side until John Howard warmed up the relationship at prime ministerial level. But even then the Canberra bureaucracy routinely buried SEM issues.
It was not until Michael Cullen and Peter Costello hit it off in 2003 and Costello prodded his Treasury that some momentum developed. Even so, it is not smooth.
Until 2003, though there was some progress - notably on mutual recognition of standards and professional qualifications (a work still in progress) and air travel - not a lot happened.
Since then a "leadership forum" made up of business leaders, officials, some politicians and a sprinkling of "others" has met once a year. Its most visible achievement has been to get New Zealanders added to the Australians' faster-processed immigration queues at airports.
But through its working groups, the forum keeps quite a lot on officials' agendas and there is now a small list of gains the forum has helped to speed up.
Last year a protocol was agreed on between the Ministry of Economic Development here and the Ministry of Finance in Canberra which requests officials writing or rewriting regulations in each country to take the other into account so opportunities are taken to improve compatibility and new incompatibilities do not develop.
This is particularly relevant to the Australian Government's initiative to align state and federal laws. A hard-won new federal-state alignment which is incompatible with New Zealand would be much more difficult to get changed.
But besides the formal exchanges, much happens under the radar. This occurs at four levels, apart from the mingling of the two populations as a result mainly of New Zealanders emigrating to Australia:
* Informal contact between officials in Wellington, Canberra and the state capitals;
* Informal or semiformal co-operation between institutions, as in the links between the two non-government standards bodies or in the "virtual" Australia New Zealand School of Government, which is independently funded but draws on universities in both countries;
* Formal co-operation by the commissions overseeing competition and the securities markets and the courts;
* Participation by New Zealand ministers (and senior officials) in Australia's federal-state ministerial councils.
This variety is matched by the variety of policy options. They range from mutual recognition of a regulatory mechanism (as for the financial sector), a product standard or professional or trade qualification to harmonised regulation and, beyond that, to joint regulators.
In this last category comes the transtasman therapeutics goods agency, which the National Party blocked in Parliament despite a compromise which met its objections.
The therapeutics agency stalled on both commercial and "sovereignty" grounds (the Greens argued the latter).
That shows that any steps beyond an SEM such as a common border and a common currency administered by a joint Reserve Bank are off the agenda for a good while yet.
Meantime, the focus stays on bread and butter. Australia is looking again at mutual recognition of dividend credits (though in the context of a wide-ranging overhaul of the tax system which might result in scrapping imputation because only our two countries have it). New Zealand is gingerly examining an Australian request for an investment agreement similar to the one it has with the United States.
But is that all there is to a single market - better commercial flows within the Australasian market?
In 1983 when CER was negotiated, some of those involved argued there was more to CER than improving Australasian economic efficiency (as it has).
They argued that businesses and policymakers needed to look not just east-west but north - to build on greater efficiency to do better in the world. Part of that, they argued, would be to operate jointly in trade and other forums.
The two countries do co-operate in many forums. But in free trade agreements they have gone separate ways: New Zealand with the P4 and China, Australia with the United States.
There is a recent exception: the joint agreement with Asean. And the leadership forum, its east-west agenda securely tucked into a range of working groups, this year picked up that outward-looking theme.
David Skilling argued in a paper for this year's leadership forum that New Zealand should shift its focus from growing the bilateral economic relationship to "partnering with Australia in order to position New Zealand to more successfully compete in the global economy".
The point, as far-sighted negotiators in 1983 foresaw, is that CER and SEM go far beyond the formal wording.
They are ingredients in an organic relationship from which New Zealand needs to extract maximum benefit. That benefit is not to be a better Tasmania. It is to be a high-income player in the world economy. Australia can help.
That is the real CER and SEM challenge for the next 25 years.
ColinJames@synapsis.co.nz
