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Hong Kong FTA

Yesterday, Jim Sutton announced that negotiations with Hong Kong on a free trade agreement like that with Singapore are imminent.

Such an agreement will be even more dangerous than the Singapore one. There are at least two reasons for this.

Firstly, Hong Kong is part of China. It will be a very wide door through which Chinese companies can enter New Zealand. So in many ways it will be an FTA with China, not just Hong Kong. Rules of origin will be even more difficult to enforce. Chinese companies can use such an agreement to get privileged entry to investment, government procurement and services in New Zealand with ease.

Secondly, it is not widely known that New Zealand already has an Investment Promotion and Protection Agreement (IPPA) with Hong Kong (NZTS 1995, No 14). This was signed by Don McKinnon in 1995 and entered into force that year for a 15 year term. A very similar agreement was signed by David Lange with China itself in 1988, and came into force in 1989 for 15 years (NZTS 1988, No.10).

This IPPA has an extraordinarily dangerous expropriation provision (Article 6) which is almost identical in effect to that in the MAI. In particular it prevents, or forces compensation for, nationalisation or expropriation "or other measures having effect equivalent to nationalisation or expropriation".

Similar wording has been interpreted in NAFTA to mean any government action which reduces the value of an investment (such as by reducing its profits). Under NAFTA, companies have sued the Canadian government (by the Ethyl Corporation) and Mexican government (Metalclad Corporation) successfully, gaining settlements of US$13 million and U.S.$16.7 million respectively. In the Canadian case, an environmental law had to be repealed. A further case is currently in progress where Methanex Corporation is suing the Californian State government claiming its ban on methyl tertiary butyl ether (MTBE), made by the company in New Zealand and Chile, amounts to expropriation. In the Mexican case, Metalclad Corporation, a US waste disposal company, accused the Mexican government of violating Chapter 11 of NAFTA when the state of San Luis Potosi refused it permission to re-open a waste disposal facility. The State Governor ordered the site closed down after a geological audit showed the facility would contaminate the local water supply. The Governor then declared the site part of a 600,000 acre ecological zone. Metalclad successfully claimed that this constituted an act of expropriation.

Similar logic could be applied by investors based in Hong Kong (not necessarily owned there) to the Auckland City Council's halting of the Britomart scheme, the nationalisation of ACC, and the slowing of the fast ferries by the Marlborough District Council, for example. Even the threat of such investor action has a chilling effect on governments.

The IPPA also has enforcement provisions which allow investors to take action in international tribunals against the New Zealand government for compensation (Article 9).

Thus a Hong Kong FTA would explicitly or implicitly begin with much more potent and dangerous investment provisions than even the Singapore FTA.

Before the new negotiations gather any momentum, the Cabinet must call a halt until * Real public consultation procedures are in place, including realistic time lines and independent national interest analyses before and after the negotiations, and regular releases of drafts of the text during negotiations. * A full independent review of the free trade and investment strategy has taken place, including evaluating the costs and benefits of previous liberalisation, with full opportunities for public involvement.

This development is precisely what many of us feared in allowing the Singapore agreement to proceed without opposition at every stage. Now is the time to act to prevent a rash of such agreements opening up the New Zealand economy completely and irretrievably. Very similar IPPAs were signed by Lockwood Smith in 1999 with Chile and Argentina, and await only Cabinet approval to be put into effect for 15 years.

I strongly encourage people urgently to take whatever action they can to expose and oppose this next step in a full free trade area incorporating New Zealand, Australia and South East Asia.

Bill Rosenberg

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