Sealord Sale: OIC Exposed
In May 2000, no less than six applications were refused by the Overseas Investment Com-mission (OIC). Most details, other than that they were in the “Marine Fisheries” industry were suppressed. All turned out to be the applications of three unidentified companies seeking ap-proval to buy the half of the Sealord Group owned by Brierley Investments Ltd (BIL). Sealord is the largest fishing company in Aotearoa, one of the world’s ten largest seafood companies, and has subsidiaries, joint ventures or alliances in 16 countries. It fishes in “the waters of South America, the African continent, Indian and Pacific Oceans, the Antarctic, Australia, as well as New Zealand” (Press, 7/09/00, “Size places Sealord in top league”, p.14). In Aotearoa it owns 149,037 tonnes, or 23%, of the total fish quota in various species. The main species is Hoki, but it also owns quota for the slow-growing and highly valued Orange Roughy.
Three applications refer to the purchase of BIL’s share (it owns its 50% through a shelf com-pany called Basuto Investments Ltd), and the other three to the overseas ownership that would then exist in Sealord itself. The other half of Sealord is owned by the Treaty of Waitangi Fisheries Commission, through its company Te Waka Unua Ltd. (In fact the ownership of Sealord is more convoluted even than that: Basuto and Te Waka Unua each own half of an-other company, Te Ika Paewai Limited; Te Ika Paewai owns all but one share of Sealord; that share is owned by Basuto. Some smart corporate lawyer would be able to explain why).
The refusals were the end result of a little publicised change in the fisheries law in 1999 by the previous, National-led government, with the support of Labour; a devious piece of last minute work by the outgoing Government; a significant change in attitude by the new La-bour/Alliance government; and intense lobbying by fishing and other interests to retain the fishing quota owned by Sealord in New Zealand hands. Because of the importance of the events – both to the fishing industry, and to the way in which OIC applications will be treated under the new Government – CAFCA wrote to the OIC, Ministry of Fisheries and Treasurer asking for the full files on these sales. The material below draws on these files, which consist of several hundred pages, although considerable information continues to be suppressed from them. Information suppressed includes most legal advice, and all identification of the applicant companies and some of the objectors to the sale.
While the identities of the applicant companies have not been revealed officially, news reports name Irvin and Johnson, the largest frozen food company in South Africa, and Nissui (Nippon Suisan Kaisha), Japan’s largest fishing company (e.g. Press, 20/6/00, “Commission may bid for Sealord”, p.13). A number of local consortia also made bids, as will be seen below, and the Treaty of Waitangi Fisheries Commission also had pre-emptive right over the shares.
National Waters Down Fisheries Protection
The Fisheries Act 1996 disallows more than 24.9% of a quota-owning company being over-seas owned unless exempted by the relevant Ministers. The criteria for exemption are very similar to those for sales of land to foreign owners. It puts the administration of applications in the hands of the OIC.
The 1996 Act was originally tighter in that such an exemption could not be given for a com-pany more than 40% overseas owned, but was never put into force. In 1999 the National coa-lition government amended the Act in the Fisheries Act 1996 Amendment Bill, which was passed in September 1999, not long before Parliament broke up for the election. In an as-tounding display of either ignorance or wanton negligence, almost the entire Parliament voted in favour of the Bill, the only exception being the Alliance. The tone of the debate on the over-seas ownership provision was self-congratulatory: none other than Labour spokesperson, Jim Sutton, had proposed it. Even Green Party co-leader, Jeannette Fitzsimons (then still part of the Alliance), seemed not to oppose the change in principle, though she rightly opposed it on the grounds that the OIC would fatally undermine it. As she said in the Third Reading debate, reported in Hansard (2/9/99):
“I commend Jim Sutton for his member’s Bill to implement, finally, the clauses of the 1996 Bill to restrict foreign ownership of fishing quota. We worked through the issues involved with that quite well in the select com-mittee, and came to some reasonably good conclusions. But it may yet be a rather hollow achievement because the Overseas Investment Commis-sion is to oversee the implementation of this part of the Bill on the same basis that it does for land – another scarce and important natural resource. Therefore we have put in special conditions relating to ownership of fish quota that do not apply to, for example, just investing in a business. Nev-ertheless, the Overseas Investment Commission has turned down only one application in the last 6-month period, while approving 150 sales of land, and it is pretty well known that it is not difficult to get permission from the Overseas Investment Commission to invest in New Zealand, to buy land and to buy businesses in New Zealand”.
The new legislation took effect on 1 October 1999 and the Government delegated the OIC authority to approve overseas sales of fishing quota on 19 November 1999, just days before National was voted out of office. The instructions to the OIC specified that all applications meeting the criteria “should be approved unless good reason exists to refuse them”. In March 2000, the responsible Minister, John Luxton (by then a mere opposition MP) claimed in Par-liament that the instructions “were set in place to cover the interregnum period of the election” (Hansard, 30/3/00). However, both the OIC itself and the new Treasurer, Michael Cullen strongly disputed that interpretation, the OIC Secretary in a tone of some anxiety: “I was con-cerned to hear in Parliament today … I am at a loss to know the basis for Mr Luxton’s com-ment” (letter from the OIC to the Treasurer, Minister for Land Information and Minister of Fisheries, 30/3/00; and Hansard 30/3/00).
It is important to appreciate that the present applications were judged by the OIC twice: first under the Overseas Investment Act, and second under the Fisheries Act. What is not clear from the present applications is that the OIC had apparently already approved them under the Overseas Investment Act. It was the evaluation of the applications under Fisheries Act that led to their refusal.
A further technicality that played an
important part in the considerations is that the crucial
“na-tional interest” criteria under the Fisheries Act apply
only to the ownership of fishing quota, not to what the
company owning them might do. The criteria encompass whether
the change of ownership of the quota would result in job
creation, new technology or business skills, new export
markets, added market competition, greater efficiency or
productivity, additional in-vestment for significant
development, or increased processing in New Zealand of
seafood. It does not matter that the company’s business
plans would or would not result in those desid-erata unless
it was as a result of acquiring the quota. More of this
Brierley Announces It Wants To Sell
BIL announced in February 2000 that it was looking for a buyer for its half share of Sealord, and that interest was being sought from overseas as well as from within Aotearoa (Press, 5/2/00, “Brierley seeks buyer for 50% stake in Sealord Group”, p.21). Deutsche Bank was given the job of organising the sale.
A number of local bidders lined up. One was a consortium of New Zealand fishing companies, Seafood Consortium Ltd, which was formed in 1995 and controls some 25% of New Zealand fish quota, including Independent Fisheries Ltd, United Fisheries Ltd, Ngai Tahu Fisheries Ltd, Deep Cove Fisheries Ltd, and Tainui-owned Raukura Moana Fisheries Ltd (Press, 2/5/00, “Call to buy Sealord stake”, p.4; letter to OIC, 27/4/00). Another was a joint venture formed for the purpose, New Zealand Seafood Investments Ltd, equally owned by Sanford and Amaltal Corporation. Amaltal is in turn equally owned by Amalgamated Marketing, a sub-sidiary of Amalgamated Dairies and Talley’s Fisheries (Press, 11/3/00, “Sealord application”, p.28). The Treaty Tribes Coalition also tried to make a bid, its chairman, Harry Mikaere, ex-pressing concern at it being sold overseas.
The Treaty of Waitangi Fisheries Commission also had a pre-emptive right to buy BIL’s stake, but indicated it preferred to have a partner, possibly from overseas. As matters slowly pro-gressed, that right expired. However, Sir Graham Latimer, on behalf of the New Zealand Maori Council, wrote to the Ministers of Fisheries and Maori Affairs and the Attorney-General asking that the Treaty of Waitangi Fisheries Commission be required to purchase BIL’s share in Sealord and hold it in trust for all Maori until eventual allocation of the Commission’s as-sets. Minister of Fisheries, Pete Hodgson, reflecting his ministry’s advice, commented “Sir Graham draws a long raku” (letter to Minister of Fisheries from Chief Executive, Ministry of Fisheries, 18/2/00).
As it became apparent that a number of the
interested buyers were from overseas – BIL indi-cated it had
“about five buyers, local and overseas” – intensive lobbying
broke out both within Government circles and by New Zealand
fishing interests. Seafood Consortium Ltd put full-page
advertisements in daily newspapers around the country,
calling for the Government to prevent the BIL-owned half
being sold overseas. “If a New Zealand company wants to
export fish to Japan they have to pay huge duty, often over
50%. If a New Zealand company wants to export to South
Africa we face duties of up to 25%. The South Africans are
currently pro-posing a total ban on foreign ownership. Why
then should we allow foreigners to own quota when they
prevent fish caught by New Zealanders being freely sold on
their domestic mar-kets? This creates an anomaly that could
force other New Zealand companies to sell their quota to
foreign interests in order to remain competitive” (Press,
29/4/00, “An Open Letter to New Zealanders”,
BIL’s announcement set in train heated lobbying of the Government by New Zealand fishing interests, Maori, other MPs, lobbyists, and concerned citizens. The OIC resented this. In a letter to the Treasurer on 28/2/00, the OIC secretary Stephen Dawe took the unusual step of warning him not to listen. In response to one unnamed objector who questioned the OIC’s legal right to make decisions on the case, and who complained that the delegation of authority from the Minister to the OIC “removed his ability to directly lobby MPs prior to the exercise of Ministerial powers under the Fisheries Act”, Dawe wrote:
“As noted in our post-election briefing paper there are significant risks to Ministers if MPs are lobbied. There is a strong risk that considerations other than the statutory ones will be taken into account in making deci-sions. This would then make such decisions open to judicial review. This risk is particularly so when the lobbyist has a pecuniary interest in the out-come of the decision. The more traditional role for Ministers is to decide frameworks and set policy – not to be involved in individual application de-cisions. The framework for allowing foreign ownership of fishing quota is set in the legislation”.
In other words, his view was that such decisions have become purely bureaucratic ones, out-side the influence of normal political processes. But as will be seen, the lobbying continued unabated.
In the same letter, Dawe revealed that he had told BIL in January that permission for “another foreigner” (BIL is “around 70% foreign owned”) to buy their share, “in principle” could be granted, so long as the criteria in the legislation were met. The Government was, deliberately or not, set up for maximum damage if the applications were not approved.
The Labour/Alliance Government First Approves The Sale …
What has not become publicly apparent in the fuss over the refusal of the transfer of fishing quota was that in March, the Treasurer (Michael Cullen) and Minister of Land Information (Paul Swain) agreed to the sale to any of three overseas companies, under the Overseas In-vestment Act. It included seven hectares of freehold land in Pelorus Sound, Marlborough adjoining the Sounds Foreshore Reserve. As noted above, the sale of the quota required a separate approval under the Fisheries Act. In a letter dated 23 March 2000, the two Ministers took the OIC’s advice in overriding objections that the sale was, for various reasons, not in the national interest.
The objections came from a number of parties. The OIC was not swayed: it informed the Ministers that “our conclusion is that the issues raised do not materially alter our view about whether the applications … are in the national interest and that we still recommend that the applications should be approved”. It is instructive to see what the OIC considers to be valid arguments regarding what is the national interest.
The OIC reports four substantive issues that were raised by objectors at this stage. (We have no way of knowing whether these are a fair summary of the objections raised).
1. The New Zealand fishing resource is a taonga or treasure. As the OIC comments, this “raises more generally obligations in relation to the Treaty of Waitangi”. But, it points out, the Overseas Investment Act and its regulations lay down no requirements regarding the Treaty or Maori. While it recognises a special status for wahi tapu areas, their protection and that of Maori land are the responsibility of other legislation, not the OIC. As far as fisheries are concerned, the “nurturing of the fishing resources occurs via the operation of the quota management system, and, in particular the determination of total allowable catch rather than in relation to who owns the quota”. In other words, the OIC doesn’t think that who owns the resource makes any difference to its conservation: at that point it is simply “a private property right”. The total allowable catch system solves all such prob-lems. Obligations to Maori have been addressed “in the context of the Treaty of Waitangi (Fisheries Claims) Act 1992. Among other things that Act explicitly acknowledges the ex-istence of the Sealord joint-venture between Maori and BIL. It also indicates in section 5(b) of that Act that Parliament was supportive of foreign interests taking a 50% share in the joint-venture” .
This highlights the necessity to consider whether Treaty of Waitangi obligations should be part of national interest criteria for both investment and fishing quota.
2. The company buying the assets should come “from a country that has a similar tariff re-gime to ours for the importation of our products”. The point being made is that some countries have substantial tariffs on seafood imports, where Aotearoa does not. That means that an overseas owner from such countries gets both preferential (low tariff) entry to their home market, and uncontrolled access to the New Zealand market in competition with the local fishing industry, undermining the local industry on both counts – using its own fish. The OIC replies that is not necessarily so, because the overseas owner is not necessarily selling to their home market. Anyway, while “the development of new export markets or increased export market access for New Zealand exports” is a criterion, the tariff regime of their home country is not. Further, “the concept of taking into account re-ciprocal tariff arrangements in the host country of the applicant … has not been articu-lated as a policy platform of the Government”, at least in instructions to the OIC.
At this point, rather desperately, the OIC pulls out the wild card of the World Trade Or-ganisation (WTO) and other trade agreements: “It is also possible that favouring appli-cants from one country over another would breach New Zealand’s international obliga-tions to the Organisation for Economic Cooperation and Development (OECD), under the General Agreement on Trade in Services, within Asia Pacific Economic Cooperation (APEC) and under bilateral Investment Promotion and Protection Agreements, to the concept of ‘Most Favoured Nation’ treatment. That concept requires New Zealand to treat investors from any country in the same way as it treats investors from any other country”. Never mind that neither the OECD nor APEC are binding, that the General Agreement on Trade in Services (part of the WTO) does not apply to fishing, and that it is not stated that any bilateral agreement actually applies to any of the cases at issue.
This reveals how the OIC bureaucracy is – in this case quite improperly – using interna-tional trade and investment agreements to resist change to the investment regime.
But it also shows a crucial weakness in the “development of new export markets” crite-rion. Given the highly protected nature of some overseas markets, if an overseas com-pany selling to its home market has privileged access avoiding that protection, it can guarantee “export” development of its home market and will romp home on this criterion. So this criterion encourages economic powers to maintain high tariffs and use foreign in-vestment to take over the resources of other countries such as Aotearoa.
3. Sealord should remain in New Zealand ownership. The OIC rightly points out that since BIL is an overseas company, selling its share to another overseas company will make no difference to Sealord’s 50/50 Aotearoa/overseas ownership status. However, it sees no problem with the current 50/50 arrangement, nor even with the Treaty of Waitangi Fish-eries Commission selling its share on top of that: that is up to the Fisheries Commission, or to Sealord itself in its constitution. So, the OIC says, this issue is not relevant to the current case.
4. An overseas company should form part of a New Zealand led consortium. The OIC notes that Sealord is already run as a joint venture. That misses the point that BIL should be re-placed by a consortium. However, the OIC says, there is no Government policy that re-quires joint venture arrangements, and it is not among the criteria. Hence it is not relevant to the decision.
… The OIC Advises Complete Acceptance …
Having approved the applications under the Overseas Investment regulations, the next hurdle was the Fisheries Act criteria. By 1 May 2000, the OIC considered it had finished processing the applications and sent them to the Ministry of Fisheries for comment.
The reply from the Ministry of Fisheries was remarkable. Though almost all of the material has been suppressed by the OIC in its release to CAFCA, the heart of it was to “question the good character of the persons controlling” at least some of the companies (file notes by Ste-phen Dawe, 4/5/00). For any overseas investment, individuals controlling the investor must be of “good character”.
In one case the Ministry of Fisheries provided evidence that
“subsidiaries in New Zealand have committed a number of fisheries re-lated offences in New Zealand. Although most of the offences were tech-nical nature [sic] there was one substantive case where [suppressed] pleaded guilty and received a conviction with discharge and the vessel was forfeit”.
Dawe’s response was to put the matters to the fishing company’s lawyers. He accepted their response that they were mainly minor matters or very old. With regard to the forfeited vessel, he read the court’s judgement and noted that there was no intention to commit the offences: they “arose out of inadvertence or inattention etc that has now been remedied”. He also noted that some of the directors had changed since the offence. The lawyers’ file also contained “a statement attributed to [suppressed] at the Ministry of Fisheries commenting about [sup-pressed] good compliance record and stating that directors and senior management are be-yond reproach in terms of Fisheries Act compliance”. He noted that the Ministry agreed that the company should have its exemption approved to acquire the share of Sealord. Accord-ingly, he did not change his mind that this company’s applications should be approved. One wonders how seriously the Ministry of Fisheries takes its own fisheries laws, and what it would take for the OIC to judge an investor to be not of good character.
In another case, the Ministry of Fisheries
“came into possession of a video tape and a number of documents that showed that during the [line suppressed] operating in the New Zealand exclusive economic zone (EEZ). The papers showed that this [words sup-pressed] was carried out at the express orders of [suppressed]… The Ministry of Fisheries [words suppressed] and senior officials of the Ministry of Fisheries presented evidence. [words suppressed] officially warned [suppressed] and banned [suppressed] from operating in New Zealand waters
The Ministry of Fisheries sees [words suppressed] as the most serious threat to the integrity of the New Zealand EEZ and the quota management system due to the huge quantities involved. This incident raises questions about the desirability of having this company operating in New Zealand”.
Again, Dawe’s response was to meet with lawyers and representatives of the company, in-cluding the President, Chief Financial Officer, and Global Marketing Manager. They acknowl-edged the incident occurred, but said the OIC needed to know how the company operated: subsidiaries have operational independence from the parent company. The fishing vessel in question was not actually owned, but chartered. The company’s spokesman had given “a personal undertaking that [suppressed] would act with complete integrity in their New Zealand fishing operations”. The spokesman said they were a “good company with a good reputation”, and “[suppressed] was one of the finest, ethical, trustworthy [suppressed] individuals he had ever come across”.
Dawe was impressed by (and reproduced) one of the company’s philosophies (but insuffi-ciently impressed to release it to allow us to read it). After some legal discussion he “re-mained satisfied that … the individuals controlling [suppressed] of good character and that the applications involving [suppressed] should be approved” .
While much of the legal argument leading to this conclusion was suppressed, it may have been at least partly based on the loophole that “good character” applies only to “natural per-sons” (real people as opposed to “legal persons”, such as companies). A company can break the law repeatedly and still not be caught by the “good character” provision.
Meanwhile, other objections had been flowing – and continued to flow -– into both the Minis-ters and the OIC’s offices, and the OIC was methodically rejecting them. For example:
Former New Zealand First MP Deborah
Morris, now working as “Government Rela-tions Manager” for
PR firm, Communications Trumps, opposed the applications.
Her in-formation on the applications came from a [name
suppressed] Sunday newspaper. She cited the “distinct
commercial advantage” the overseas companies have in the
bidding process because “they do not pay tax, ACC levies or
GST when they fish our waters – therefore their bids could
be wildly inflated. There is a real issue here re: tariffs
too. [Sup-pressed] companies, for example, can take their NZ
catch and sell it into Japan as local product therefore
avoiding the kinds of tariffs NZ companies face in Japan.”
The result would be to “severely undermine the fishing
industry here – and all the jobs that go with it”. (Note
that the OIC suppressed information coming from public
sources, namely a Sunday newspaper. It is not clear whom
Morris was representing in this letter).
Labour MP Damien O’Connor noted he had raised the issue with Caucus and with Mi-chael Cullen directly. He considered that the Fisheries Act intended that ownership of quota should remain with companies with less than 25% foreign ownership and control. The BIL ownership was “clearly an anomaly”. He believed “passionately in the need to retain control of sovereign assets, such as the right to exploit our fish stocks in the hands of New Zealanders. Unlike land that can never be physically taken from our shores, the fish can be caught, processed and sold without any direct benefits to New Zealanders. A situation like that is simply unacceptable”. It was an issue that will “clearly distinguish us from the previous National Government and one where we should make a stand and en-sure ownership remains with New Zealanders”.
The New Zealand Recreational Fishing Council considered that the Sealord Group “was a positive influence in the sustainable management of the New Zealand fishery”. The Council wrote that “the public did not allocate these quotas for the advantage of for-eign owned companies many of which are based in countries that subsidise their fishing fleets”. It cited trade barriers and high tariffs against New Zealand fish exporters, and al-leged a lack of sustainable harvesting and management philosophies in the foreign com-panies. Once sold overseas, quota will not be returned. It opposed the sales.
The Seafood Consortium Ltd (see above) opposed the sale because of the large amount of quota held by Sealord, whose sale overseas would “seriously alter the dynam-ics of the seafood industry in New Zealand” through loss of export earnings and less sustainable harvest practices. They also were concerned that foreign companies would be subsidised by their home countries, and at the unfair effect of tariffs and trade barriers. “This will produce a spiral effect with more and more of our nation’s fisheries resources passing into foreign ownership”. They wrote to the OIC, but also promised meetings with key Ministers.
Barry Wilson, lawyer, Government-appointed member of the New Zealand Fishing In-dustry Board, member of the Fisheries Task Force 1991, and chair of the Rock Lobster Steering Committee, wrote a detailed, ten page submission opposing the sale to any for-eign owner. He emphasised that he was not opposed to foreign investment as such: he currently acts for Stagecoach in New Zealand as well as other overseas companies. But he considered foreign investment was appropriate only in areas of the economy where the investment can be replicated, where a startup is involved, or where resources or capital are not adequate. But it was clear to him that “none of these considerations would apply in this case”. He outlined the complexity of the industry. He raised the possibility that a foreign owner would take the processing and marketing knowledge of the industry and use it elsewhere, where labour and assets are cheaper, catches are unrestricted, and markets closer, rather than “run its New Zealand investment to full capacity”. We lose control of the fishery and knowledge of how to run it. He considered the criteria in turn, answering each time that they could not be satisfied.
Again, the OIC’s responses were revealing. A number of the common objections were an-swered in an internal OIC memo dated 20 April 2000. They include the four issues dealt with under the Overseas Investment Act (summarised above). We summarise some of the others shortly. Though the memo predates some of the submissions, it anticipates many of their ar-guments.
All the submissions were annotated with hand written comments. For example, the OIC wrote that Barry Wilson “appears to close eyes to possibility of criteria being met in any case” [sic], in response to his criticism of any foreign investment in the fishing industry. In response to his suggestion that a foreign owner might make use of knowledge it gained from the New Zea-land industry to the country’s and Sealord’s disadvantage, the OIC writes, “these comments are geared at saying foreigners should never be allowed into the industry – we can not close our eyes in this manner”. This is a particularly asinine comment given that the OIC was at that stage instructed to “approve applications unless good reason exists to refuse”: in other words, close its eyes to all but the most blatant breaches of the criteria. Its actions indicate that it ac-cepted those instructions with enthusiasm.
On another argument of Wilson’s, that our fishing secrets could be used “to outmanoeuvre us in the marketplace”, the comment is that “this is a global argument for saying no foreigners”. Apparently general arguments are not to be accepted by the OIC, unless they are favourable to foreign investment: the comment assumes that foreign investment is always good, and that the only argument against it (and rarely accepted) is one specific to an application. (More of this below). Yet when Wilson makes his argument that the six statutory criteria are not com-plied with, the OIC responds with generality: to Wilson’s reasoning that our fishing industry is a world leader and so it is unlikely that foreign investment introduces “new technology or business skills”, the OIC rejoins that he “ignores product development, general fish product research, processing practice etc”. Elsewhere they respond with specific knowledge of the applications that Wilson and other objectors are not allowed to see, let alone scrutinise and evaluate. Again, the weakness of the criteria and the process are glaring.
The internal 20 April memo rebuts 23 different points made by unnamed objectors. Some have been censored to the point where they are indecipherable. The most important remain-ing ones are as follows:
Submission: The Sale Could Lead To The Loss Of Millions Of Dollars Of Tax Reve-nue.
Taxation effects are not matters that are dealt with under
the national inter-est criteria. Anyway it is already
overseas owned, by BIL, which can be assumed to be avoiding
tax as “efficiently” as any other corporate. Moreover, “the
tax treatment of fishing is a generic matter for the revenue
authorities, not a matter directly relevant to this
transaction”. It then makes two interesting
It quotes a New Zealand Institute for Economic Research (NZIER) report that concludes that taxation arrangements tend to favour foreign ownership of fishing vessels rather than quota. While interesting in its own right, and contradictory to its primary argument, that taxation matters should not be considered, this also reveals another potential weakness in the legislation. It is pointing out that the criteria apply to ownership of quota, not of the fishing vessels or company. Even if taxation were a relevant consideration, it is saying, since the argument applies to the vessels and not the quota, it would still not be relevant.
“Further”, the OIC continues, “as the negative impact claimed by [suppressed] is suppos-edly generic to all foreign fishers it is not a matter than can be considered under the ‘other’ category in section 57(4)(b)(iii) as it is not a matter that relates to the circum-stances and nature of the particular application”. The section referred to states that the Ministers, when judging whether approval is in the national interest may also have regard to “such other matters as [they], having regard to the circumstances and the nature of the application, think fit”. The OIC is saying (as it does in its critique of Barry Wilson’s objec-tions) that this means that general objections cannot be taken into account, only ones specific to the case. The interpretation is debatable, and if accepted has a bizarre effect. It is as if a doctor was told that she could not advise a patient against smoking because it does not relate to the specific circumstances the patient is consulting her about, despite the fact that in general it causes cancer and a host of other health problems.
Submission: The Sale To A Foreign Party Is Almost Certain To Move Other Major Companies Offshore With A Corresponding Loss Of Jobs.
OIC Response: It is already foreign owned. The sale from one foreign owner to another does not change things. Moreover, one of the criteria is “enhanced competition”. If some companies choose to respond to that by moving offshore that could still be in the national in-terest if the overall result was greater exports etc. “Moreover, any job losses resulting from a particular company moving offshore could be offset by growth in jobs at Sealord, elsewhere in the fishing industry or elsewhere in industries servicing or linked to fishing due to expansion of Sealord”. How a company moving offshore could lead to further jobs in Aotearoa is not ex-plained. But it illustrates the barbed nature of the competition criterion. It can be satisfied by the destruction, or sale overseas, of the rest of the industry. This is repeated in the response to the next submission.
Submission: The Sale To A Foreign Party Will Lead To The Collapse Of Fishing Companies Through An Inability To Remain Competitive Against Non-taxed New Zealand Product Which Is Processed Offshore.
OIC Response: Again the OIC cites the “enhanced competition and efficiency” criterion. Though some of its response is suppressed, it cites the NZIER report as suggesting that “quota ownership is unlikely to lead to the taxation benefits [sic] alluded to”. “Moreover, the positive effects claimed by the applicants appear more likely to result than the claims in the submission”. Once again, the objectors are at the disadvantage of not knowing, or being able to respond to, what the applicants are proposing.
Submission: “The Sale Will Directly Affect The New Zealandisation Of Our Fisheries Which Has Been A Policy Of Both Labour And National Governments For Many Years. [Suppressed] Believes The Political Party Issues Will Need To Be Consid-ered”.
OIC Response: “The proposed sale is from one overseas person to another. Therefore the ‘New Zealandisation’ of fisheries is neutral as a result of this transaction. It is inappropriate to consider political matters – the matters to consider are those set out in the legislation. That legislation essentially provides that foreigners can own ‘quota’ so long as benefits are deliv-ered to New Zealand. The legislation is geared at regulating foreign participation in the own-ership of quota, not preventing it outright”.
It is interesting to note the OIC’s frequent use of the argument that since the asset is already in overseas hands, nothing, however bad, will make a difference to the status quo. On that logic, once sold overseas, the OIC will never prevent an asset being onsold to another over-seas owner.
It is also important to emphasise what the OIC is correctly pointing out about the fisheries legislation. Despite the self-congratulatory behaviour of Labour in supporting the legislation in 1999, and the evident belief by many, including MP Damien O’Connor, that it prevented the sale of quota overseas, the legislation does nothing of the sort. It simply delivered its sale into the hands of the OIC.
Submission: ”[Suppressed] Claims That No New Job Opportunities Will Be Created Nor Will Retention Of Employment Be Assisted. This Is Because There Are New Zealand Companies That Can Fund The Purchase And Develop Sealord. [Sup-pressed] Also Believes That A Foreign Fishing Company Is Likely To Want To Fish The Quota With Its Own Vessels Or Other Foreign Vessels. This Would Likely Lead To A Loss Of Shore- And Sea-based Jobs”.
OIC Response: “The source of funds (New Zealand or otherwise) is not relevant to deter-mining whether Sealord will generate jobs”. Anyway, Sealord, rather than the new owner, makes decisions about which vessels with which to fish the quota. Even if it was 100% New Zealand-owned it could decide to fish with chartered foreign vessels. That might lead to more jobs through processing on shore and exports, even if it lost some jobs. “More generally, the job losses alluded to flow more from who owns and operates fishing vessels not quota” [our emphasis]. First, the logic that the “source of funds is not relevant” escapes us. What the submission says is that just as many jobs could be retained or created if it remained in local ownership. But that is not relevant to the OIC: all that is relevant is whether the new owner would retain or create jobs. Second, the importance of the technicality that the legislation protects quota, not fishing vessels and companies, is reiterated. The OIC points out that fish-ing vessels and processing create jobs, not quota. So the criteria are almost irrelevant in protecting its ownership.
Submission: “[Suppressed] Believes That A Sale To A Foreign Country Will Reduce Competition And Production Efficiency Within New Zealand. The Reasons Revolve Around Expectations That Foreign Vessels Will Be Used, Offshore Processing Will Occur And No Taxes Will Be Paid”.
OIC Response: “While that could occur in relation to specific aspects of the fishing industry, the overall result is likely to be a more efficient industry measured at macro levels. More im-portantly, the legal test is not geared at determining whether competition etc will be reduced (that is a Commerce Act matter) but at whether there will be more competition or efficiency… the claims of the applicants on this matter have more credence than those of [suppressed] … the assertion in the submission does not seem to outweigh the NZIER viewpoint”. No analysis is made to justify the statement that the industry will be “more efficient measured at macro levels”. And the OIC don’t care if competition or efficiency is reduced (and they concede it might be) – only if it is increased. Figure that one out.
In summary, nothing persuaded the OIC to change its mind that the sale of the share of the quota was in the national interest and should be approved.
… But Finally The Government Enforces “National Interest”
BIL had given potential buyers until 5 May to put in their bids. By 1 May, the OIC was desper-ately trying to get a decision from the Ministers on the second lap of the applications under the Fisheries Act, in order to please its clients. Apparently there was no consideration given to asking BIL to relax its deadline. The OIC was showing signs of frustration with the Govern-ment. At least six substantial memos flowed from the OIC’s secretary to the Ministers respon-sible, all labelled “Commercial Secret”, between 1 and 5 May.
Some of the material in them has been totally suppressed by the OIC. But the sequence ap-pears to be as follows.
On 1 May the Ministers were asked to prepare for a meeting on 4 May to give them the op-portunity to “express their views” before the OIC made a decision. By then, the OIC was clearly ready to approve the applications, happily using its usual “approve unless good reason exists to refuse them” instruction and delegation from the National administration. Until almost the last moment, the Government insisted it would not change the delegation. However, the OIC was aware that the Ministers might after all want to make the decisions themselves, re-quiring a change in the delegations. It obligingly prepared some alternative documents.
On 2 May, a sizeable pile of documents was sent to each Minister to prepare them for the meeting on 4 May. They consisted of OIC analyses of each application, the 20 April memo detailed above, an analysis of further submissions received, a legal opinion on the admini-stration of the fisheries legislation (suppressed), and letters from the Ministry of Fisheries re-garding the allegations outlined above, but agreeing to the approval of the applications. The covering memo warned the Ministers that “one outcome of this process could be legal action being taken against the OIC/Crown” due to the strong views being taken. The legal advice (suppressed) presumably addressed that possibility, and the OIC was being careful to dot all its i’s. It once again warned the Ministers against listening to objectors: “we also remind you that it would be inadvisable to agree to meet with any parties to discuss these applications” presumably to avoid the risk of “irrelevant considerations” being taken into account.
By then however, political temperatures had risen considerably. In a letter dated 3 May, to the Chairman of the OIC, the Ministers revoked the delegation to the OIC of its right to make de-cisions under the Fisheries Act with regard to the Sealord case. Presumably the Ministers no longer trusted the OIC to take into account all relevant considerations.
On 4 May, further submissions were forwarded to the Ministers, including those from Deborah Morris, Damien O’Connor and Barry Wilson (to whom special attention is given), and further letters from the Ministry of Fisheries. There was a further legal opinion on the issue of “good character”, highly relevant in regard to the Ministry of Fishery’s information. The OIC secre-tary is still not moved however: “each of the applications is in the national interest”. However he is still investigating “certain allegations” – presumably the Ministry ones. His unchallenging mode of investigation is outlined above.
Two other memos followed that day in a rising sense of panic. In the first, it was clear that the OIC secretary had not yet received the revocation of its delegation, but was expecting it. But “the timing of events is very tight”, so the Ministers were urged to read all the material and approve all but two applications whose investigation was continuing.
In the second, the remaining matters raised by the Ministry of Fisheries were analysed. It “goes to the issue of the ‘good character’ of the individuals controlling [suppressed]”. None-theless Mr Dawe remained satisfied of their good character and urged the approval of the re-maining applications. But if the Ministers were not satisfied as to the good character of the individuals, they should allow the individuals to make further representations on the issue (but no thought of allowing objectors the same privilege).
He urged the Ministers “to resist making public your decisions or even how many applications you have been considering” because of the commercial secrecy he asserted was required. “Moreover, you are under no strict obligation to tell the world of your decisions”, he wrote, continuing the Commission’s long-held penchant for secrecy. He kindly supplied some written samples of ways to avoid answers to queries they might receive.
On 4 May the Ministers made their decision and the Treasurer conveyed it by telephone to the OIC.
The OIC wrote tersely to the Ministers on 5 May in a letter headed “Brierley Investments Sale of Interest in Sealord – Decision Reaction”. The secretary had “communicated” the Ministers’ decision to refuse the applications because it was not in national interest.
“The reaction of all applicants was very similar – universal disbelief and disappointment. The representatives of [suppressed] asked me to specifi-cally let you know how disappointed and surprised they were with the de-cision in relation to the applications they were associated with. Some ap-plicants have asked what aspects of their proposal they could improve to have you reconsider your decision. Please give that some thought and let me know what you would like us to communicate in response to that or similar questions”.
The OIC had become a conduit of commercial pressure on the Ministers: the quasi-judicial façade it had tried to construct in analysing the decisions and recommending their approval had disappeared and they were acting as lobbyists for the companies.
All that was publicly said was a press release on 8 May. On the same day, the Ministers wrote formally to OIC Secretary Stephen Dawe recording the reasons for their decision.
They had withdrawn their delegation to the OIC because they were “determined to apply a neutral test” rather than the previous instruction to grant consents unless there was a good reason to refuse them. “We believe that this instruction may be ultra vires the Act.” More of this little bombshell below.
They agreed that each of the applicants met the good character requirement of the Act. They evaluated each of the applications against the other criteria. Much of their reasoning has been suppressed, but they concluded that some of the benefits “seem somewhat nebulous. There is no indication that similar advantages could not be obtained by something less than a per-manent loss of New Zealand control of quota”. They noted that “we would need to take the claims of benefit on trust, and this does not offer us enough comfort that the national interest test has been met” – a radically different approach from the OIC’s standard practice.
After noting the descriptions of benefits used words like “potentially”, “possible”, “if” and “should”, and the lack of quantification or evidence of benefit beyond Sealord itself, they wrote, “there is far too much doubt about the benefits, and they are far too vaguely specified to allow us to conclude that the national interest test has been met”. Under additional consid-erations, they recognised the policy of successive governments (including their own) to sup-port the New Zealandisation of the fishing industry, and noted the large amount of quota at stake.
They concluded by stating that although they “noted the comments of various third parties”, they were not persuaded by them. “The substantive reason for our disagreement with your general recommendations was that we were evaluating the applications in the context of a specification of Government policy and applying a different standard of national interest than you had been instructed to…” They thanked Dawe and his staff “for the very detailed and professional manner in which you discharged your statutory duties with regard to these very complex matters of immense national significance and high public interest”.
The Ministers’ press release, under the name of the Treasurer, Michael Cullen, “Foreign bids for BIL’s Sealord stake declined”, announced that the two Ministers had declined all the over-seas applications to purchase BIL’s stake in Sealord. They had “carefully considered the crite-ria laid down in the relevant legislation”. They “recognise that it has been an explicit or implicit policy of successive governments to support the New Zealandisation of the fishing industry.” They then carefully covered themselves over the crucial distinction (see above) between ownership of quota, which is subject to the Fisheries Act, and ownership of the industry:
“While we accept that there is no necessary linkage between foreign shareholding in New Zealand fish quota and the New Zealandisation of either fishing or fish processing, it is clear to us that past and present Government policy nonetheless implies that the relevant property rights should ordinarily be held by New Zealand interests.
“We were not satisfied that any of the overseas applications satisfactorily met the required national interest tests to outweigh that consideration”.
But they had a sting in their tail for the OIC:
“We note that the previous National Government’s delegation to the Over-seas Investment Commission to make such decisions contained a pre-sumption in favour of approving applications. This presumption was in the general context of all applications under the Overseas Investment Act. Our revocation of that delegation in the case of Sealord applicants also, as a consequence, revoked for those applications the policy statement con-taining this presumption.
“In any case, we have been advised that in that respect, the delegation made by the previous Government may well be ultra vires the legislation and that we should approach the applications with no such or any other presumption”.
The suggestion that the OIC’s delegation and therefore its decisions had been for years ultra vires (beyond the powers given by) the legislation was naturally more than a little upsetting to the OIC, already feeling raw at having its preferred course of action reversed. Perhaps all its decisions for several years had been invalid! Cullen rubbed salt into the wound in Parliament the next day when he said in reply to a question from Damien O’Connor:
“I have received advice that delegations made in November 1999 to the Overseas Investment Commission by the previous Minister of Fisheries and the previous Treasurer may be ultra vires the Fisheries Act 1996 and the Overseas Investment Act. The delegation instructed the Overseas In-vestment Commission to grant consents unless there was good reason to refuse them. Both the Fisheries Act and the Overseas Investment Act re-quire an even-handed approach to applications, with no prior presumption” (Hansard, 9/5/00).
The OIC exploded. On 10 May its Assistant Secretary, Peter Hill, wrote to all three Ministers (the Treasurer, Minister for Land Information and Minister of Fisheries):
“I refer to your press release about the Sealord applications and response to a Parliamentary question on Tuesday 9 May 2000 about the validity of the delegation/directive letter to the Overseas Investment Commission. I note that neither was prepared with input from this office. I attach an opin-ion from the Commission’s legal advisers on this topic. You will see that their advice is that the delegation/directive letter is vires the legislation. You will also note that they were asked for and provided the same view before the current version of the directive letter was formulated.
“Your public pronouncements have left us in an impossible position. Our ongoing processing of applications is placed in jeopardy because, unless this issue is resolved in Court, public confidence in our decisions is eroded”.
He makes the assumption that there is indeed public confidence in their decisions.
He tells the Government that it has five
courses of action available to it:
a) wait for a legal challenge;
b) seek a declaratory judgement;
c) re-issue the delegation and directives but “remove or alter the passage(s) re-ferred to by Crown Law”;
d) re-issue the delegation and directives but “remove or alter the passage(s) re-ferred to by Crown Law” and revoke the delegation under the Fisheries Act;
e) issue a completely new directive and delegation in line with Government policy.
In the meantime they will send all decisions to the Minister so that the validity of their deci-sions cannot be questioned (if you don’t like the way we do it, do it yourself!). Treasury had been consulted in the preparation of the letter and agreed with it. An urgent meeting was sought to discuss the issues.
The Ministers declined to meet with them. Instead they indicated that they intended to change the directive to the OIC. The same day, the OIC sent them a choice of four revised directives (letter from the OIC to the Treasurer, 10/5/00). They responded:
“I refer to the Overseas Investment Commission report 816 of 10 May 2000, which raises difficulties associated with public pronouncements made by myself and Hon Pete Hodgson. Until further notice, we are re-voking clause 2(b)(ii) of the statement of Government policy outlined in the letter from the Office of the Treasurer and dated 19 November 1999” (let-ter to the Chairman of the OIC, 11/5/00).
Clause 2 (b)(ii) of the 19/11/99 letter is the instruction to approve applications “unless good reason exists to refuse them”.
On 6 July the Government revoked the 19 November 1999 delegation and directive com-pletely, replacing it with one that retained the responsibility for approving fishing quota sales in the hands of the Ministers, and explicitly stated “that there are no doubts that the Commis-sion’s responsibilities under its legislation should be exercised in a neutral manner”. In prac-tice, other than for fishing quota, it is doubtful that there will be much change in the OIC’s practice. The Ministers’ letter states: “Please note that these changes are technical in nature and the Government remains committed to an open and facilitative overseas investment re-gime”.
The lack of any controls on general overseas investment, other than where land or fishing quota are involved, is well known. This episode highlights the weakness of even the stricter “national interest” criteria in these cases. In particular it indicates that the criteria should
satisfied: satisfying only one can be destructive. For
example, enhanced competi-tion may lead to the destruction
of the domestic fishing and processing industry;
have an overarching requirement to strengthen the productive capacity of Aotearoa, and confer social benefits. For example, greater competition and enhanced efficiency and productivity may (in a strict economic sense, which is how it has been interpreted) lead to production and other activities moving offshore;
take into consideration negative effects such as the possibility of lower competition or employment;
under the enhanced export markets criterion, disregard markets that are opened due to preferential treatment given to the proposed overseas owners of the investment. This case illustrated the fact that if overseas owners get preference to export to their home country, then the result is unfair competition. That logic leads to the whole of the industry being overseas owned, as well as encouraging such discriminatory treatment;
provide that the criteria should be applied freshly in each case (that is, as if the compari-son was to New Zealand ownership), not weakened by comparison with a previous over-seas owner as the OIC did here. Where possible there should be a comparison of the relative benefits of overseas and local ownership;
test the “good character” of legal persons (such as companies) as well as natural persons (real people);
favour proposals with less rather than more overseas control and ownership;
take into account the different tax and regulatory treatment of overseas parties when as-sessing the economic effects (including effects on employment). In this case, overseas fishing companies were allegedly able to escape tax, ACC, GST, our employment law and working conditions, for example;
make clear that the “such other matters as the Minister, having regard to the circum-stances and the nature of the application, thinks fit” provision, which allows the Minister to take into account matters not anticipated by the other criteria, can apply to generic mat-ters as well as ones specific to the particular case;
make provision for protection of the environment and conservation of resources;
make provision for upholding Treaty of Waitangi obligations.
The above should apply to all investment, but
in the particular case of fishing quota, the leg-islation
should make clear that the criteria
should apply to all the activities resulting from the ownership of the quota – fishing, processing, marketing, exporting – not only to the ownership of the quota itself;
should rule out more than a fixed proportion of overseas ownership – we suggest 24.9%.
Finally, at least for major sales like this case, there needs to be provision for the public to be properly informed of the facts of the proposals and be given appropriate time to make sub-missions before decisions are made.