Tricky issues on transtasman agenda

John Key and Kevin Rudd first met last August. Photo / Greg Bowker

Australian Prime Minister Kevin Rudd is credited as the driving force behind what he has billed as the "inaugural joint Cabinet meeting between Australia and New Zealand".

"Rudd was very keen to find a new way of symbolising the Anzac engagement," said one well-placed New Zealand insider, in respect of this afternoon's historic event in Sydney.

The Anzac Cabinet agenda is bursting with items that will reinforce what Rudd describes as the "two countries' special political and economic bonds and their shared future". Among them: further progress on "Pacer Plus" to spur increased trade and investment in the Pacific, the external trade agenda, science initiatives, the climate change regime and Australia's defence strategy.

With just 90 minutes scheduled for this inaugural hui, most of the tangible results will have been pre-cooked.

Rudd is again expected to promote his proposal for an Asia Pacific Community to supersede existing long-standing regional institutions like Asia-Pacific Economic Co-operation (Apec).

But the real challenge to the New Zealand contingent will be Australia's increasingly prickly dealings with its biggest trading partner, China - and in particular, how New Zealand ministers respond to the clear identification of China as a potential strategic threat in the Rudd Government's recent White Paper, "Defending Australia in the Asia Pacific Century: Force 2030".

The paper discloses that Australia has deep issues over the pace and scope of China's military modernisation, saying this has the potential to give its neighbours cause for concern if China does not reach out to others to build confidence regarding its military plans. But Australia's proposals to sharply expand its submarine force and potentially invest in its first theatre missile system to protect its forward-deployed defence forces is seen by some critics as an unduly alarmist response.

New Zealand does not formally share Australia's stance on this score. But given Australia's desire for the two countries to continue to align their approaches to defence relations, capacity building and preventive diplomacy, it is important that both sides agree on just what constitutes a strategic threat.

Another thought-starter: When Rio Tinto walked from Chinalco's offer to double its stake in the Australian mining giant, it wasn't long before Beijing protested against Australia's "capital xenophobia."

One Chinese firm has already endeavoured to buy a major New Zealand asset under the investment protocols in the NZ-Sino free trade deal. But New Zealand has yet to have its own limits tested by China.

Prime Minister John Key has entertained the ambitions of China's sovereign wealth fund to invest in this country's primary resources, but when push comes to shove would the Key Government endorse a China play for a major stake in Fonterra (if listed), or use a "national interest test" to block it?

Herald inquiries disclose some New Zealand officials were caught off-guard when Canberra first floated the joint Cabinet meeting. One well-placed insider says a "constitutional tailspin" was threatened: "They thought they would have to be sitting there taking notes."

It had to be reinforced that what will take place at the Naval Heritage Centre on Sydney's Garden Island is indeed not really a joint Cabinet meeting (there is no formal constitutional architecture for this) but a joint meeting of the two Prime Ministers and senior Cabinet teams.

Others recognised the branding opportunity. "It's an extraordinary initiative really between the two countries," says MFAT chief executive John Allen. "It's going to be an important component to putting the Australia-New Zealand relationship firmly on the map in Sydney."

Australian businessman Rod McGeoch, co-chair of the adjoining Australia New Zealand Leadership Forum, credits Prime Ministers Rudd and Key for an injection of "new energy" into the transtasman agenda.

"They're new and they want to make their mark and that's permeating right down through the ministers."

At today's meeting, Key will be flanked by the senior New Zealand Cabinet group taking part in the forum: Bill English, Gerry Brownlee, Murray McCully, Simon Power, Tim Groser, Wayne Mapp and Steven Joyce. Rudd's team is expected to include the Australian forum contingent: Wayne Swan, Simon Crean, Stephen Conroy, Penny Wong, John Faulkner, Anthony Albanese and Martin Ferguson.

A communique and future work programme will be issued following the meeting.