Government To Ram Through Overseas Investment Bill
9 June 2005
Government To Take Urgency Next Week To Ram Through Overseas Investment Bill Throws The Door Wide Open & Removes Scrutiny Of Nearly All Foreign Company Purchases
The Campaign Against Foreign Control of Aotearoa (CAFCA) has been informed that the Government intends to take Urgency next week (starting Tuesday June 14) to ram the controversial Overseas Investment Bill through its Second and Third Readings in Parliament. The Government hopes to have it in law by July 1 (and thus a fait accompli before the election).
CAFCA calls upon the Government to withdraw this Bill and replace it with legislation that considerably toughens up New Zealand's foreign investment regime, not further weakens it.
Don't get us wrong, we congratulate the Government in making it harder for foreigners to buy land of "special heritage or environmenlal value" (note: not actually stop them buying, just to make it harder). That arises directly from sustained public campaigning about issues such as the sale of Young Nick's Head, other coastal property and South Island high country stations.
When the Finance and Expenditure Select Committee reported it back, after hearing submissions (including that of CAFCA) it recommended the addition of one further provision, namely that foreign buyers of land connected to the sea, rivers or lakes will have to surrender 20 metre public access strips without compensation.
But, following the combined opposition of National, Act and, more crucially, the Government's ally, United Future, it appears that this provision has been dropped (these parties objected to the expropriation with no compensation proposal).
Anyway, such "special" land is a small part of the overall picture of rural land sales to foreigners (the vast bulk of which is forestry and farm land) and a very, very small part of the economy. The fact is that company takeovers by transnational corporations, in all the sectors that constitute the guts of the New Zealand economy, total billions of dollars per year (not the tens of millions of "special" land sales) and the Government plans to make it even easier for those transnational corporate takeovers to proceed. That more than wipes out any gains made in the area of tightening up "special" land sales. Indeed, the latter is a mere sop.
To put this into perspective. The most high profile recent land purchase by a foreigner was that of the two Otago high high country stations bought by Canadian singing superstar, Shania Twain, for $21 million. By contrast, Woolworths of Australia has just bought Foodlands of New Zealand for several billion dollars, which represents a considerable chunk of the supermarket sector of the NZ economy.
What Is In The Bill?
For an extremely detailed analysis of the Bill, and CAFCA's submission on it, go to www.cafca.org.nz and follow the Overseas Investment Bill Links. In brief:
* It will abolish the Overseas Investment Commission, which is the current rubber stamp body administering the overseas investment regime and will transfer its functions to a specialist unit within Land Information New Zealand (LINZ).
* The threshold for official approval for transnational corporations to buy NZ companies will be increased from the current $50 million up to $100m. Interestingly, Treasury had recommended that the threshold be increased to $250m and that is the figure cited all through the Cabinet papers, Dr Cullen's recommendations, etc. Apprehension about public outcry caused Cabinet to back away from the higher figure. We must be grateful for small mercies (it is worth noting that Treasury's original recommendation was that there be absolutely no overseas investment oversight regime but concluded that it was not politically possible, in light of public opinion).
* To remove the current need for approval of foreign land purchases of less than five hectares in area and/or more than $10m in value.
* To add insult to injury, the Government plans - "to keep costs to the taxpayer down" - to let the foreign investors be responsible for post-consent compliance and monitoring. New Zealanders have had 20 years of experience of "self-regulation" to not need to be told how just how lousy a system that is. They will only to have a file a report "regularly" on how they are complying witrh the terms of their consent and outline any reasons for non-compliance. Guess how many will say "No, we're not complying".
The Select Committee took notice of some of the numerous points raised in submissions by CAFCA and others (the great majority of submissions opposed the BIll). For example, the thresholds mentioned (such as the $100m one for company takeovers) were not actually in the BIll itself, but were to be added later by Regulation.
The Committee recommended that they be included in the Bill itself (which would make them subject to future Parliamentary debate). Another example: the Committee also recommnded that the new "oversight" body toughen up on the OIC's practice of willy nilly granting retrospective consents to non-complying applicants.
But the essence of the Bill is unchanged. For instance, the $100m threshold might now be included in the law itself, but the Committee did not accept the numerous submissions that it be reduced to its previous, more modest, level.
The removal of the Overseas Investment Commission is no great tragedy in itself. CAFCA has always said that its job could be done by a monkey with a rubber stamp. But its replacement agency will see a significant weakening of any oversight. By definition, Land Information NZ is experienced with land.
But land sales are very much the smaller part of the much bigger picture, maybe totalling in the tens or hundreds of millions of dollars per year. Company takeovers are where the foreign investment action is, totalling in the billions per year. There is no proposal for any new agency with any expertise in that field to be involved.
Dr Cullen points out the last time a non-land transaction was refused permission was in 1984, and therefore we might as well virtually give up monitoring company takeovers. On the contrary - that is an indictment of 21 years of rubberstamping neglect by the OIC and Government; and a clarion call for the transnational corporate oversight regime to be significantly toughened up, not weakened.
Raising that threshold for company takeovers will remove all but the biggest of them from any scrutiny. Huge chunks of the NZ economy will be bought and sold without any official oversight at all. And remember - until just days before the 1999 election, the threshold for company takeovers was just $10m. We urged the incoming Labour-led government to roll it back to that level. They have refused to do so and are now going to raise it to $100m (an increase of 1000% in less than six years).
The removal of the need for approval for foreign land purchases of less than five hectares in area and/or more than $10m in value removes the need for any scrutiny of central business district projects that involve land.
We welcome the tightening of restrictions on the sale of "special" land. This concession has been brought about by public opposition to the sale of the likes of Young Nick's Head and the sale of coastal land (primarily in the North Island) and South Island high country stations.
However, this "tightening" wouldn't have stopped any of those purchases, not Young Nick's Head, nor the 2004 purchase of two Otago high country stations by Shania Twain. The Bill increases penalties for breaches. Sounds good but the proof of the pudding is in the prosecuting. It would be very interesting to know how many foreign investors have been taken to court. In the words of Scribe: "Not many, if any".
The official recommendations preceding the Bill cite NZ's obligations under the General Agreements on Trade in Services (GATS) and the free trade agreement with Singapore as inhibiting NZ's ability to set restrictions on foreign investment. Indeed the official papers say that the proposed new threshold for company takeovers by transnationals will become the benchmark for all future free trade agreements and the officials were anticipating that threshold would be $250m.
What we've been saying all along about the dangers of NZ getting entangled in free trade agreements (whether multilateral, like GATS or bilateral, such as with Singpore) is made glaringly obvious. We lose the right to control foreign investment.
The Select Committee explicitly spells this out in its Report, saying: "The majority (of the Committee) also notes that New Zealand is a party to a number of international agreements on freedom of overseas investment. These agreements were developed on the basis of the current overseas investment regime, and take into account the current restrictions and scrutiny requirements.
Any amendments, such as those sought by submitters and petitioners (i.e the Green Party petition to ban rural land sales to foreigners), that further restrict overseas investment could be regarded as breach of our obligations under these agreements, and could result in New Zealand undergoing a consultation and arbitration process, rectifying its regulations, or being subject to trade retaliation under World Trade Organisation rules".
That's pretty clear isn't it? Let's have no illusions that these agreements the Government is hellbent on locking us into (the latest being the one signed last week with Singapore, Brunei and Chile) have much to do with "free trade". They are primarily foreign investment agreements that permanently hold New Zealand's door open to transnationals, backed up with the threat of WTO muscle and penalties.
The OIC's brief has been to facilitate, not "hinder" foreign investment and this new Bill facilitates the OIC out of existence, and delivers what Dr Cullen describes as a very "effective overseas investment regime". And so it is - an effective surrender of economic sovereignty. The minor concessions on some land sales are simply a smokescreen to conceal that central fact. The Government is saying to transnationals: "Come on in and help yourselves. Make yourselves at home".
There is a whole page of our Website devoted to this Bill, including articles, a regularly updated leaflet, our submission, etc, etc. You can check that out at www.cafca.org.nz , follow the Links.