Price setting and subsidies
In 1973 the New Zealand economy faltered as export prices fell and the price of oil went through the roof. All of New Zealand’s oil supply was imported.
The European Economic Community (EEC) came to dictate world prices in livestock products through the Common Agricultural Policy subsidy regime. When subsidies rose, world prices fell by that amount. US traders, with a similar set-up, could match these prices, but unsubsidised exporters, such as New Zealand, faced depressed prices and uneconomic competition. From 1979 New Zealand set minimum prices for its own producers to ensure their viability – it was a form of income support which was a subsidy in all but name.
The General Agreement on Tariffs and Trade (GATT) Tokyo round of trade talks (1973–79) was disappointing for New Zealand. The talks covered goods that accounted for 90% of world trade, and negotiations ranged more widely than previously. Agricultural trade was meant to feature in the final agreement, but this did not happen as the US drove a quick deal with Europe and Japan to finish the round well before the 1980 US presidential election.
In the years after Britain joined the European Economic Community (EEC), trade diversification was a major preoccupation for New Zealand. A manufacturing beef trade (lean beef to blend with US domestic beef for hamburgers) into North America developed in the 1960s. Sales of casein (a milk protein) to the US increased, taking advantage of the unique lack of protection on this dairy product – a loophole classified it as an industrial product.
A second oil shock took place in 1978. Deals that bartered oil for sheep meat were made with Iran, and markets in other oil-producing states were also developed. Agreements were signed with state trading organisations in the Soviet Union and China. New Zealand also had some success in expanding markets in Japan, particularly for aluminium, fish, wool and kiwifruit. In 1980 no single market took more than 20% of New Zealand’s exports. Diversifying the product range took longer and was still ongoing in the 2000s.
CER with Australia
The Australian government tired of the product-by-product negotiations required under the 1965 trade agreement and pushed for a simpler arrangement. New Zealand had little choice but to agree. The Closer Economic Relations (CER) agreement was signed in 1983, and allowed New Zealand and Australian businesses to trade in each other’s market as domestic rather than foreign producers. This meant that Australian goods were exempt from New Zealand’s import licensing regime.
The focus of the agreement was ‘outward-looking’. It allowed for participation by other countries, and it did not impose a common external tariff, which gave New Zealand and Australia flexibility in future trade negotiations with other countries. It transformed New Zealand trade policy, which had been grounded in a narrow, reactive view of the place of New Zealand in the world economy.