New Zealand/Australia Economic Integration
New Zealand/Australia Economic Integration – Where to from here?
I am very pleased today to have the opportunity to give you the Government’s perspective on some of the issues raised by the Foreign Affairs, Defence and Trade Committee in its report on New Zealand’s Economic and Trade Relationship with Australia, and to describe some aspects of what the Government is doing to develop the relationship.
The Government released its response to the Committee’s report at the beginning of October. As we said in our response to the report, the Government is already advancing many of the issues raised by the Committee in its programme to develop CER.
The Government welcomed the Committee’s recommendation for the development of an Australia New Zealand Economic Community, as a contribution to public debate on the future of the trans-Tasman relationship. We believe, however, that it would be premature to adopt this proposal until the costs and benefits have been the subject of further analysis.
We did not agree with the Committee that a dedicated Cabinet portfolio should be established, to be responsible for the relationship with Australia. In fact, I and all the other Cabinet Ministers have responsibility for aspects of the relationship, and we all work hard on advancing it. A new portfolio would only duplicate responsibilities and risk confusion.
As we all know, the trade and economic relationship with Australia is by far the most extensive that New Zealand has with any country. Australia is by a significant margin New Zealand’s largest trading partner and source of foreign investment, and in turn, New Zealand is one of Australia’s most important trading partners and its eighth biggest source of investment. The two countries are closely integrated economically. The New Zealand Government is committed to maintaining and furthering this close relationship with the Government and people of Australia.
I will focus today on the steps the Government is taking in the areas related to the Commerce portfolio.
MOU on Business Law Co-ordination
One of the ways in which we have shown our commitment to work for increased integration between the two economies is through the Memorandum of Understanding between New Zealand and Australia on the co-ordination of business law. We signed this in August 2000, indicating the high priority the government places on deepening the trans-Tasman relationship and making it easier for New Zealand business to operate on a trans-Tasman basis.
The MOU provides a framework for business law co-ordination which is flexible, but provides incentives for both countries to consider the trans�Tasman dimension in any business law reform which they undertake.
The MOU contains an annex of eight areas identified as possible candidates for co-ordination.
Cross recognition of
companies; Disclosure regimes for financial products;
Cross border insolvency; Mutual recognition of share
markets; Recognition of intellectual property rights;
Consumer issues; Electronic transactions, and Competition
The MOU acknowledged that there was already a significant degree of co-ordination and co-operation in some of these areas, such as competition and consumer protection laws and in cross investment activity.
Under the headings annexed to the MOU, the areas which are being given the highest priority at present, on both sides of the Tasman, are: the mutual recognition of securities offering documents (which I’ll comment on when talking about our securities law reform programme); the cross recognition of company registrations; and cross border insolvency issues.
A further issue which has come up recently is the move towards international accounting standards. Officials are currently looking at co-ordination issues arising from the Australian government’s decision to adopt International Financial Reporting Standards by 1 January 2005.
The focus of the MOU is on: reducing transaction costs, lessening compliance costs and uncertainty; and increasing competition.
It recognises that one single approach is not necessarily suitable for every area of business law.
It emphasises the trans-Tasman relationship, but also acknowledges the importance of a global approach to business law issues. An enhanced trans-Tasman commercial environment will allow New Zealand and Australia to share a common outward focus in commercial activities within the greater global market.
The effect of the MOU is that when we are looking at business law reform, the Australian law is a starting position. We will not just be takers of Australian laws, however. We will ensure in each case that the benefits of co-ordination outweigh the costs. We need to ensure that our strategy increases, not limits, choices for New Zealand firms and investors in a global, not just a trans-Tasman environment. We will also be aiming for our regulation to be cost effective for a New Zealand setting, having regard to any characteristics unique to New Zealand. And we will, where appropriate, use the dialogue established under the MOU as an opportunity for us to influence Australian law.
Here are some examples of recent developments and current work within the MOU framework which we consider is advancing CER.
Securities Law Reform
There are three parts to the securities law reform programme which was begun in the Government’s previous term.
The Takeovers Code, which came into effect in July 2001, the amendments to securities legislation under the Securities Markets and Institutions Bill, which have just this month been passed into law, and a fundamental review of securities trading laws, especially our insider trading laws. We will be looking at making policy decisions on the outcome of the review in mid 2003.
The reform programme is designed to ensure that the regulations governing our market are efficient and effective. We also want to reassure both international and domestic investors that the New Zealand market is a market of integrity and is in line with international best practice. And we are already looking at further securities law reform work following on from this current programme to update our regulation in an area where there are constant developments in markets and technology.
Australian law was used as a starting point in a number of areas when the Securities Markets and Institutions Bill was drafted, but we are not just copying Australian law for the sake of it. Consistency with Australia means that investors who understand and have confidence in the Australian regime will also have confidence in the New Zealand regime. The Australian system is consistent with international best practice and because of the increasing linkages between the two economies, it makes sense to have similar regimes.
The legislation establishes a co-regulatory model governing securities exchanges. The model allows exchanges to perform their core role of administering the market on a day to day basis, while ensuring that the public interest is served through the oversight of the Securities Commission.
An important aspect of the new legislation is the introduction of a continuous disclosure regime. This regime, with disclosure under exchange listing rules backed up by statute, will ensure timely disclosure by companies of material information and will encourage investors to have confidence in the integrity of the market, while providing an effective balancing of the rights of companies and investors.
Another change is the strengthening of the role of the Securities Commission. The Commission has taken on new functions in oversight of securities exchanges, monitoring and enforcement of secondary market activity and enforcement of insider trading breaches. The Commission received an additional $1 million in this year’s Budget for these new functions.
The legislation also includes a framework to allow for the implementation of arrangements for the mutual recognition of securities offering requirements between New Zealand and other countries. Within this framework, the aim is to implement an arrangement so that a New Zealand issuer of securities could offer securities to the public in Australia using its New Zealand prospectus and other documents, without also having to comply with Australian requirements, and vice versa. Such an agreement could significantly reduce costs for issuers offering into Australia. This proposal is consistent with the aim of removing impediments to trans-Tasman business activity and was at the initiation of the Australian government.
Integration of Capital Markets
A recommendation of the Committee which is related to securities law proposed that the Government facilitate greater integration of capital markets, including the merger of the Australian and New Zealand Stock Exchanges.
The Government shares the Committee's view that greater integration of capital markets is desirable, and it should be facilitated. We are actively pursuing this goal and the securities law reform programme I have just outlined is a major step in this direction.
Our law reform programme is aimed at creating greater confidence in New Zealand’s capital markets. Because capital markets are to a large extent global, we must have regard to international norms and practices in the development of domestic laws and their enforcement. Consistency between New Zealand and overseas jurisdictions will both promote confidence by overseas investors in the New Zealand market, and reduce the transaction and compliance costs for market participants operating in multiple markets.
In this regard Australia is of particular importance to us. There is already a high level of integration of the New Zealand and Australian capital markets, as indicated by the level of investment by Australia in New Zealand, and vice versa, and the number and size of entities that are listed on both the New Zealand and Australian stock exchanges.
Co-ordination with Australia does not, however, imply that there should be a merger of the NZSE and ASX. The New Zealand market has its own particular characteristics and we need institutions that cater for our needs. In particular, the presence of a local capital market is critical to growth of small and medium sized New Zealand companies (SMEs). Listed SMEs typically attract domestic retail investors. A local market can facilitate more efficient and informed investment into this sector, and generates greater investor interest. In addition, localisation of the domestic capital market in New Zealand provides for many positive spin-offs and indirect value flow into the economy. For example, capital markets require input from a critical mass of specialist domestic services. These include legal services, investment and merchant banks, brokers, accountants, analysts and specialist media. This critical mass could be diminished or even lost to New Zealand if any institutional integration resulted in a loss of focus on local SMEs.
A merger of the ASX and NZSE may contribute to the greater integration of capital markets, but this cannot be assumed. Given New Zealand's economic development goals and the characteristics of our capital markets, a very careful assessment would need to be made of any merger proposal to confirm that it did meet our needs. In the absence of a merger I would certainly encourage the NZSE and ASX to work together in promoting trans-Tasman capital markets.
What is of particular importance now, however, is to remove regulatory roadblocks to the development of both the domestic and trans-Tasman capital markets. This is being given priority on the Government's economic development and law reform agenda.
Trans-Tasman Mutual Recognition Arrangement
As regards integration of markets for goods and services, further work is being done in relation to the Trans -Tasman Mutual Recognition Arrangement (TTMRA). The TTMRA came into effect in 1998 and was signed by New Zealand, the Commonwealth of Australia and the eight Australian states and territories.
The objective of the TTMRA is to reduce regulatory barriers to trade between Australia and New Zealand. The Arrangement provides that a good that can be sold in Australia can be sold in New Zealand and vice versa; and that a person registered to practise an occupation in one country is entitled to practise an equivalent occupation in the other.
A top priority for officials will be to advance the statutorily mandated review of the TTMRA Arrangement in 2003. The review provides the opportunity to deepen the level of regulatory integration with Australia with a view to supporting a single trans-Tasman market for goods and services.
I have outlined some of the steps the Government is taking to deepen the relationship between New Zealand and Australia. There are many others, for example, the passing of the Electronic Transactions Act, which has a common foundation with the Australian Act and assists in minimising transaction costs for New Zealand companies selling in the Australian market. However, many aspects of the relationship between our two countries are beyond the direct influence of the Government. In my view, other groups and interests within New Zealand, in particular the business community, can and should play a greater role in understanding the relationship better and contributing constructively to it. Dialogue between New Zealand and Australian business sectors is valuable in identifying areas for further trans-Tasman co-operation. I hope that our discussions at this function will encourage all of you to be involved in the CER relationship.
2003 is the 20th Anniversary of CER, and I believe we should use that opportunity not only to celebrate what has been achieved over that time, but also to strengthen the relationships and partnerships between governments and business on both sides of the Tasman, to ensure we have a secure foundation for the 20 years ahead.