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Posted on 22-7-2004
NZ
Government Bows To Foreign Owners
CAFCA has now had a chance to read and think about the proposed overseas
investment law changes announced yesterday by Dr Cullen, the Minister of
Finance. Predictably his press release was headed "Tougher protection for
sensitive sites" and the media have, by and large, unquestioningly brought
that line. Don't get us wrong, we congratulate the Government in making it
harder for foreigners to buy "iconic" land (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.
But "iconic" 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 "iconic" 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
"iconic" land sales. Indeed, the latter is a mere sop.
And even that alleged "tightening up" on some land sales is definitely
more illusory than real. Read the very interesting analysis of that
aspect, by CAFCA commiitte member, Joe Hendren, that follows below.
Cullen's July 20 announcement means that we are no longer dealing with a
review (which had been conducted since November 2003, behind closed doors)
but with a proposed Overseas Investment Amendment Bill. The Government has
announced that it plans to introduce this Bill around September, with the
intention of it coming into law on July 1, 2005. There will be the
opportunity for public submissions during the Select Committee phase.
What does the Government intend to have in this Bill?
* It will abolish the Overseas Investment Commission, whcih is the current
rubber stamp body administering the overeas 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, Cullen's recommendations, etc. Obviously something happened, in
Cabinet or caucus, to pull it back somewhat. We must be grateful for small
mercies.
* 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.
* The recommendations 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.
* 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 good a
system that is. They will only to have a file a report "every one or two
years" 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 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.
Raising that threshhold 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 threshhold 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 five 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.
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.
We welcome any tightening of restrictions on the sale of "iconic" 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. But it is a mere
sop and more than cancelled out by the other recommendations.
Murray Horton
Secretary/Organiser
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The following analysis is by CAFCA committee member, Joe Hendren. It is
his preliminary analysis only.
A stated public policy objective behind the changes to the OIA is to
"ensure the value of sensitive New Zealand property is recognised and
enhanced by any overseas owners. This recognises that for some land in New
Zealand there is an ‘ownership value’. That is, New Zealanders derive a
welfare benefit from knowing that particular pieces of land are owned by
New Zealanders. Thus, where the land is owned by an overseas investor,
this lack of ownership value is compensated by the imposition of controls"
(Cabinet Policy Paper (POL), 20/7/04)
It needs to be asked, as it is not clear in the review, why this very same
argument is not applied to businesses, forests and anything else for that
matter. Thus it could be just as easily said that New Zealanders derive a
welfare benefit from knowing that a particular business or service is
owned by New Zealanders, with the tangible benefit of an increased chance
of the profits being spent in New Zealand.
Cullen also needs to be asked, perhaps as a Parliamentary question, to
spell out the ‘non-optimal foreign investment outcomes’ referred to the
POL policy paper, for both land and the sale of NZ business to overseas
persons.
Despite the hype, economic factors remain the primary consideration in
land sales.
Under the subheading coverage a Cabinet Paper of 20th October 2003
(Preliminary Thinking On a Potential Review of the Overseas Investment
Regime) stated that "Ministers have expressed concern that the current
regime does not adequately protect some critical assets. The current
‘national interest’ criteria only take account of economic factors.
on-economic factors such as environmental and cultural importance are also
important, and should be given consideration. "
But the Cabinet minutes of the 5th of July released with the proposals
make no real provision for coverage of environmental concerns. Criteria
for land approvals are to be expanded to take into account natural
heritage; historic heritage; walking access; economic development; and
residency of the applicant. Natural heritage is envisaged to include
protecting existing areas of indigenous vegetation and fauna though pest
control and agreements reached over covenants over the land. Historic
heritage is envisaged to be about improved conservation of historic
heritage sites, areas or buildings, legal mechanisms such as the Historic
Places Act, covenants over the land and agreeing access to heritage sites
with relevant community groups as appropriate (such as Maori)
While Cullen in his press release of the 20th of July 2004 heralded that
"Overseas buyers wanting to buy sites of special heritage or environmental
value will be subjected to a tougher screening and compliance regime" it
is clear that the new environmental and cultural protections are far more
limited than they appear. Probably due to Treasury influence, it appears
that environmental grounds have been stripped back to the bone on the
grounds that other regulatory mechanisms such as the RMA will apply
equally to foreign and domestic land users.
As it will be up to the relevant ministers to decide which are appropriate
to a particular proposed sale, it could easily be decided that the
conservation department only need to be consulted when the sale affects or
adjourns conservation estate.
The fact that Cullen will still treat sale of forestry cutting rights as
just another business sale, and does not come under land provisions means
that there are no additional environmental protections for an industry
that can have negative environmental outcomes.
Maori Land
"42. The sale of Maori freehold land is currently exempt from the
provisions of the Overseas Investment Act if it has been confirmed by the
Maori Land Court under section 152 of the Te Ture Whenua Maori Act 1993.
In confirming a sale to an overseas person, the Maori Land Court is
required, as far as possible, to act in conformity with the relevant
provisions of the Overseas Investment Act and regulations; and must have
regard to the matters required to be taken into account by that Act or
those regulations. Thus both processes are currently required to be
undertaken, but with the Overseas Investment Act process carried out by
the Maori Land Court."
It is very interesting there is so much material related to the seabed
foreshore issue in the documents, it was not signalled at the start of the
review - was Cullen waiting until submissions had closed on the S+B bill
perhaps?
Crown purchase of foreshore and seabed (From Cabinet Minutes (04) 22/6)
n.. agreed that the Act provide for a right of first refusal in favour
of the Crown in respect of any foreshore or seabed land subject to the
Act; (ie that could be sold to a foreign person) o.. directed officials
to report to the Minister of Finance by the end of July 2004 on
proposals for a right of first refusal in respect of foreshore and
seabed land, and the possibility of compulsory acquisition of foreshore
strips; It is to be assumed that compulsory acquisition of S+F land from
a foreign investor would involve paying compensation, something that is
denied to Maori. There is also an obvious lack of consideration to
Maori interests in the recommendations, and what is there only seems to
relate to the sale of Maori land to foreign investors and vague examples
such as 'access' to tapu sites under heritage provisions. But there are
options included in the review to remove jurisdiction of Maori Land
Court from sales of Maori land to overseas persons!
Under Treaty Implications in the POL document
"105: The underlying principles that allow foreign investment in private
property have not been altered under these proposals, thereby not creating
new Treaty risks. This is expected to be the case even if responsibility
for applying Overseas Investment Act criteria to Maori freehold land is
transferred to the overseas investment regulator. Further work on the
proposed right of first refusal will include treaty implications."
There is more evidence that Maori interests are regarded as threats and
barriers to FDI in discussion of the disadvantages of the current system
governing the sale of Maori land.
"Disadvantages: The regulator’s role is likely to become more difficult,
with a wider range of factors (environmental, heritage and walking access
being explicitly added to the criteria) being taken into account in
deciding applications. "(I.e. the regulator is not there to oversee
investment but to promote it)
It is concerning that the recommendations do not include requirements to
consult with Maori over relevant approvals, especially if Maori land sales
were removed from the jurisdiction of the Maori Land Court. One would hope
there would be a Supplementary Order Paper to the bill to this effect if
there are any changes in this area (such as a requirement to consult with
Te Puni Kokiri).
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What You Can Do
a.. Contact your MP urgently and register your opposition to the
weakening of the current overseas investment law and regulations.
b.. Write to your local paper. Call talkback.
c.. Argue for strengthening the controls over foreign investment, the
conditions that are placed on it, and the monitoring that should follow.
d.. Advocate strongly for tighter control on overseas ownership of land
and fisheries.
e.. Become informed. Join CAFCA and gain access to a wealth of
information and analysis that you will not find in your local newspaper.
Membership is $20 per year (or $15 unwaged). Payments to CAFCA, Box
2258, Christchurch.
a.. The Government plans to introduce legislation by September, so it is
critical to act now.
There are background articles on the subject. You can access them at:
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