Identifier
Created
Classification
Origin
05WELLINGTON45
2005-01-14 04:22:00
UNCLASSIFIED
Embassy Wellington
Cable title:  

NEW ZEALAND: INVESTMENT CLIMATE STATEMENT 2005

Tags:  EINV EFIN ETRD ELAB KTDB PGOV NZ OPIC USTR 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 06 WELLINGTON 000045

SIPDIS

STATE FOR EB/IFD/OIA AND EAP/ANP
STATE PASS TO USTR-BWEISEL AND DKATZ
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/GPAINE

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV NZ OPIC USTR
SUBJECT: NEW ZEALAND: INVESTMENT CLIMATE STATEMENT 2005

REF: STATE 250356

Per reftel, following is post's draft of the 2005 Investor
Climate Statement on New Zealand.

Begin draft:

OPENNESS TO FOREIGN INVESTMENT
--------------
Foreign direct investment in New Zealand is generally
welcomed and encouraged without discrimination.

However, certain types of foreign investment are screened by
the Overseas Investment Commission (OIC). Commission
approval is required for all foreign investments that would
result in 25 percent control or more of a business or
property valued at more than NZ $50 million (US $33.2 million
at NZ $1 = US $0.6641). Approval also is required for
certain land purchases, including land more than five
hectares (12.35 acres) or worth more than NZ $10 million;
land on most islands or over 0.2 hectares on or along the
foreshore; and, "sensitive" lands more than 0.4 hectares.
Sensitive lands include reserves, historic or heritage areas,
and land near lakes, related to control of natural resources
or considered culturally important to the indigenous Maori
population. Restrictions and approval requirements also apply
to investments in the commercial fishing industry. OIC
consent is based on a national interest determination. No
specific performance requirements are attached to foreign
direct investment, although the OIC can impose conditions on
any investment it approves.

The OIC also monitors foreign investments after approval. If
foreign investors are found to have included deceptive
statements on approval applications, the High Court can order
the disposal of their New Zealand holdings.

Amid a growing public outcry about the purchases of coastal
properties by foreign buyers, the New Zealand government in
November 2003 launched a review of OIC's powers. That review
led to proposed legislation in November 2004 that would raise
the minimum threshold at which scrutiny of proposed business

purchases is required, but toughen the screening and
monitoring of land purchases. Under the legislation, the
threshold for screening non-land business assets would be
increased to NZ $100 million (US $66.4 million),where a
foreigner proposes to take control of 25 percent or more of a
business. Purchases of land over 5 hectares would require
the commission's review, as would land in certain sensitive
or protected areas. For land purchases, foreigners who do
not intend to live in New Zealand would have to provide a
management proposal covering any historic, heritage,
conservation or public access matters and any economic
development planned. That proposal would have to be approved
and could be made a condition of consent. In addition,
investors would be required to report regularly on compliance
with the terms of the consent. Overseas persons would
continue to have to demonstrate the necessary experience to
manage the investment. Any application involving land in any
form still would have to meet a national interest test. The
proposed legislation would transfer the OIC's functions to a
unit within the government agency Land Information New
Zealand.

In practice, the OIC approval requirements have not been an
obstacle for U.S. investors. Very few applications have been
turned down (only 28, versus 1,223 granted, from 1999-2003),
and those usually involved land intended for farming
purposes, residential subdivision or accommodation. In 2003,
eight applications were refused, compared to nine in 2002.

Net investment by foreigners amounted to NZ $1.6 billion in
2003, the OIC reported. Australia (NZ $3.647 billion) was the
largest net investor in New Zealand in 2003, followed by the
United States (NZ $1.953 billion) and Austria (NZ $254
million).

For most countries except Australia, the stock of foreign
direct investment (FDI) in New Zealand has declined from the
late 1990s, when FDI spiked as a result of a massive wave of
government privatization. Australia, which has a Closer
Economic Relations agreement with New Zealand, has posted an
increase in FDI stocks in New Zealand, partly arising from
the purchases of New Zealand banks by their Australian
counterparts.

Very few government-owned enterprises remain to be
privatized. The government has not discriminated against
foreign buyers, but has limitations on foreign ownership of
Air New Zealand and Telecom New Zealand.

The New Zealand government offers virtually no incentives for
foreign investment, except for a tax incentive for
large-scale film and television projects produced in the
country. A stable, low-inflation environment and a skilled,
cost-effective labor force are viewed as the strongest
incentives for investment.

There is no capital gains tax. New Zealand has agreements
banning double taxation with 24 countries, including the
United States. The corporate tax rate is 33 percent for all
companies, domestic and foreign. The personal tax rate for
most foreign investors (from the combined effects of New
Zealand's nonresident withholding tax and company tax) also
is 33 percent, although the maximum personal tax rate is 39
percent.

Under legislation passed in 1995, foreign firms and investors
were granted national treatment on corporate taxes;
transfer-pricing rules were aligned so that New Zealand
adheres to Organization for Economic Cooperation and
Development (OECD) practices; and, thin capitalization
regulations were tightened to discourage foreign companies
from using excessive debt to avoid New Zealand taxes. The
rules offer foreign investors greater transparency and
predictability.

The Overseas Investment Commission operates a comprehensive
Internet website (www.oic.govt.nz) that explains New Zealand
investment policy and walks potential investors through the
application process.

Investment New Zealand, the government,s investment
promotion agency, works with offshore investors to facilitate
investment in New Zealand. Information about the agency and
contact details for its offices in the United States can be
obtained from its website www.investnewzealand.govt.nz.

CONVERSION AND TRANSFER POLICIES
--------------
There are no restrictions on the inflow or outflow of
capital, and the currency is freely convertible. Full
remittance of profits and capital is permitted through normal
banking channels.

EXPROPRIATION AND COMPENSATION
--------------
Expropriation has not been an issue in New Zealand, and there
are no outstanding cases.

DISPUTE SETTLEMENT
--------------
Investment disputes are extremely rare, and there have been
no major disputes in recent years. The mechanism for handling
disputes is the judicial system. New Zealand is a party to
the Convention on the Settlement of Investment Disputes
Between States and Nationals of Other States and to the New
York Convention of 1958. Property and contractual rights are
enforced by a British-style legal system. The highest appeals
court is a domestic Supreme Court, which replaced the Privy
Council in London and began hearing cases July 1, 2004.

PERFORMANCE REQUIREMENTS/INCENTIVES
--------------
There are no performance requirements or incentives
associated with foreign investment, although the government
has proposed legislation requiring foreign buyers of land to
report periodically on their compliance with the terms of the
government's consent to their purchase.

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
--------------
There are no restrictions on the right to establish, own and
operate business enterprises, aside from the requirement for
OIC approval of foreign investments over NZ $50 million and
investments in commercial fishing and rural land and limits
on investments in Air New Zealand and Telecom New Zealand.

A number of government entities have been transformed into
state-owned enterprises (SOEs),and a number of SOEs have
been privatized. Aside from the government equity holdings
established at the time of formation, SOEs are provided no
special advantages in their competition with private
entities. In general, there has been no restriction on
foreign purchasers in the privatization of assets. There is
no limit on foreigners buying into any sector or acquiring
100 percent ownership of any firm, except for the ceilings on
foreign ownership stakes in Air New Zealand and Telecom New
Zealand. To preserve landing rights, no more than 49 percent
of Air New Zealand, the national flagship carrier, can be
owned by foreigners. A single foreign investor can hold a
maximum of 49.9 percent of the total voting shares of Telecom
New Zealand. In addition, under the Fisheries Act 1983,
foreigners can only lease New Zealand fishing rights.

PROTECTION OF PROPERTY RIGHTS
--------------
New Zealand is a member of the World Intellectual Property
Organization, the Paris Convention for the Protection of
Industrial Property, the Berne Convention and the Universal
Copyright Convention. It fulfilled its TRIPS Agreement
obligations in most respects with the passage of the
Copyright Act 1994; Layout Designs Act 1994; and 1994
amendments to the Patents Act 1953, the Trade Marks Amendment
Act 1953, and the Plant Variety Rights Act 1987. Amendments
made to existing intellectual property statutes came into
force January 1, 1995. The Trade Marks Act 2002 created new
criminal offenses for counterfeiting trademarks and increased
the penalties for pirating copyright goods. Legislation has
been proposed to bring the Patents Act 1953 into closer
conformity with international standards by tightening the
criteria for granting a patent, from a patentable invention
being new in New Zealand, to being new anywhere in the world
and involving an inventive step.

In two areas, New Zealand's legislation goes beyond its TRIPS
obligations. New Zealand's 1994 copyright legislation allows
its regime to keep pace with technological changes and
ensures compliance with the 1971 revision of the Berne
Convention. Brought into force in 1996, the Geographical
Indications Act 1994 establishes a regime for protecting New
Zealand and international geographical indications (e.g., for
wine) from misleading or deceptive use.

New Zealand has not signed or ratified the WIPO Copyright
Treaty or the WIPO Performances and Phonograms Treaty. The
government in June 2003 proposed amendments to the Copyright
Act 1994 that, if enacted, would allow it to determine
whether to accede to the two treaties.

In May 1998, the Copyright Act and the Medicines Act were
amended to remove a prohibition on parallel importing. This
amendment allows importation of legitimate goods into New
Zealand without the permission of the holder of the
intellectual property rights. Enacted by the government to
expand discounted prices for consumers, it also has resulted
in an increase in pirated goods entering New Zealand.
Manufacturers have expressed concern that parallel imports
will result in damage to their reputation due to imports of
dated products, products not suitable for New Zealand
conditions, and after market servicing problems. In addition,
parallel importing limits returns to the holders of
intellectual property by not allowing control over market
targeting, such as timing of releases. In October 2003, the
government enacted a ban on the parallel importation of
films, videos and DVDs for the initial nine months after a
film's international release.

TRANSPARENCY OF THE REGULATORY SYSTEM
--------------
The Commerce Commission administers the Commerce Act 1986,
which was amended by the Commerce Amendment Act 2001 and
governs restrictive trade practices. In general, price fixing
and contracts, arrangements or understandings that have the
purpose or effect of substantially lessening competition in a
market are prohibited, unless authorized by the Commerce
Commission. Before granting its authority, the commission
must be satisfied that the public benefit would outweigh the
reduction of competition.

The Commerce Commission also may block a merger or takeover
that would result in the new company gaining a dominant
position in the market. The use of a dominant market position
to restrict, prevent, hinder, deter or eliminate various
specified types of competition is contrary to the Act's
provisions. However, the enforcement or attempted
enforcement of any right under any copyright, patent,
protected plant variety, registered design or trademark do
not necessarily constitute abuses of a dominant position.
Suppliers' use of resale price maintenance is prohibited.
Advice should be obtained on the application of the Act
before the establishment of exclusive distribution, selling
and franchising arrangements in New Zealand.

Reforms adopted since 1984 have included deregulation as a
primary objective. The most salient examples are the
financial and telecommunications sectors, although the effort
has been broad-based.

To ensure competition in "natural monopolies," such as
telecommunications and electricity, the government has
considered increased oversight. Motivated largely by the
power industry's failure to provide adequate electricity
reserve capacity, the government set up an Electricity
Commission, which started supervising the electricity
industry and markets March 1, 2004. Under the 1997 WTO Basic
Telecommunications Services Agreement, New Zealand has been
committed to the maintenance of an open competitive
environment in the telecommunications sector. Key reforms of
the sector, through legislation enacted in December 2001,
included appointment of a commissioner responsible for
resolving commercial disputes. In November 2004, the
government began a review of the Telecommunications Act 2001,
aimed at improving the monitoring and enforcement of
agreements involving regulated services. The review was open
to public comment until February 4, 2005. The Ministry of
Economic Development will consider the submissions before
making recommendations to the government on possible
legislative changes.

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
-------------- --------------
Since the removal of financial-sector controls in the
mid-1980s, money market activity has grown rapidly,
particularly foreign exchange trading and a sizable secondary
market in government securities. A range of financial
instruments, including forward contracts, options and
exchange rate futures, and the use of hedging devices to
reduce interest rate and exchange rate risks have been
introduced. The New Zealand banking system consists of 16
registered banks with more than 90 percent of their combined
assets under the ownership of foreign banks (Australian banks
account for 87 percent of the total). Kiwibank, introduced in
2001 by the Labour-Alliance government and operated out of
the NZ Post Shops, is the only sizable New Zealand-based
institution. Aggregate banking system capital adequacy has
been above minimum requirements since the introduction of
Basel-based reporting in 1989. Access to the credit system is
unrestricted.

The Securities Commission, under the Securities Act 1978 and
amendments, regulates the issuance of securities. The Act
requires prospectuses for public offerings of new securities
and prescribes the information that must be disclosed. An
amendment in 1988 provides civil remedies for loss or damages
resulting from insider trading. The Securities Markets and
Institutions Bill in December 2002 gave the Securities
Commission additional powers to increase its effectiveness in
monitoring and enforcement, including enforcement of laws
against insider trading. Stocks in a number of New
Zealand-listed firms also are traded in Australia and in the
United States.

A takeovers code that took effect July 1, 2001, requires any
person who tenders an offer for 20 percent or more of a
publicly traded company to make that same offer to all
shareholders.

Legal, regulatory, and accounting systems are transparent.
Accounting is based on elements of British and U.S. systems.
The Institute of Chartered Accountants of New Zealand has
developed Statements of Standard Accounting Practice (SSAP)
that are mandatory for its members. All companies listed on
the Stock Exchange must comply with the SSAP and issue annual
reports and abbreviated semiannual reports to shareholders.
The Financial Reporting Act 1993 requires firms to comply
with financial accounting standards prescribed by an
Accounting Standards Review Board established by the Act. The
mandatory standards vary depending on the type of firm
involved.
Small, publicly held companies not listed on the New Zealand
Stock Exchange (NZSE) may include in their constitution
measures to restrict hostile takeovers by outside interests,
domestic or foreign. However, NZSE rules prohibit such
"poison pill" measures by its listed companies.

Foreign-owned or controlled companies are not foreclosed from
participation in domestic industry standards-setting
organizations.
POLITICAL VIOLENCE
--------------
New Zealand is a stable democracy. There has been no
significant political violence since the Maori wars in the
mid-1800s.

CORRUPTION
--------------
New Zealand is renowned for its efforts to ensure a
transparent, competitive, and corruption-free government
procurement system. It is government policy to give local
producers a fair chance to compete, but departments are
responsible for limiting costs and seeking the best value for
the money. Stiff penalties against bribery of government
officials as well as those accepting bribes are strictly
enforced. New Zealand ranked second in the world on
Transparency International's corruption-free scale. New
Zealand has ratified the OECD Anti-Bribery Convention. New
Zealand has opted not to join the GATT/WTO Government
Procurement Code because the benefits would not justify the
compliance costs amid New Zealand's totally deregulated
government procurement system, according to the government.
Nonetheless, New Zealand supports multilateral efforts to
increase transparency of government procurement regimes.

BILATERAL INVESTMENT AGREEMENTS
--------------
New Zealand in 1988 signed an agreement with China on the
promotion and protection of investment and in 1992 signed a
Trade and Investment Framework Agreement with the United
States. New Zealand's free-trade agreement with Singapore
took effect in 2001 and includes an investment chapter. An
agreement concluded by New Zealand and Thailand in November
2004 also includes an investment chapter, but at the end of
2004 had not yet been signed or implemented. New Zealand
adheres to the OECD Code of Liberalization of Capital
Movements and the OECD Code on Current Invisible Operations.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
--------------
As an OECD member country and developed nation-state, New
Zealand is not eligible for OPIC programs, nor does the New
Zealand government provide a program like OPIC to its
investors. New Zealand does not intend to become a member of
the Multilateral Investment Guarantee Agency. It has a small
export credit program that so far has not attracted great
commercial interest.

LABOR
--------------
Unemployment was 3.8 percent of the labor force in September

2004. The demand for labor has been strong, and shortages of
skilled labor remain a problem throughout the economy.
Several factors have caused the shortages, including lower
wages compared to those in Australia, where any New Zealander
can legally work; lack of training; and, falling immigration
numbers. Labor shortages are especially pronounced in the
construction industry.

Employees are entitled to a minimum three-week paid annual
leave after the first year of employment. The mandatory
minimum will be increased to four weeks' annual leave
beginning April 1, 2007. Paid leave also can be taken for
illness, bereavement or parenthood.

Unions have the right to organize and collectively bargain.
About 21 percent of New Zealand's wage and salary workers are
union members.

The Employment Contracts Act 1991 (ECA) ended compulsory
unionism and prohibited certain strikes. Overall, the law
spurred a reduction in union membership, although some unions
grew, particularly through mergers. In 2000, the Labour-led
government replaced the ECA with the Employment Relations Act
(ERA),contending the change was necessary to restore balance
in the powers of employers and employees. The ERA promotes
collective bargaining, strengthens unions and places strong
emphasis on good faith bargaining. Employment relationships
are based on contracts, and workers may negotiate an
employment contract with their employer individually or
collectively. Despite the business sector's initial fears
about the ERA, workdays lost to strikes have continued a
steady decline that began in the 1990s. In 2003, there were
28 work stoppages, involving strikes and partial strikes.
A 2004 revision of the ERA strengthened its collective
bargaining and good faith provisions. It provides additional
protections for workers in the event of company ownership
changes. It also allows unions to charge bargaining fees for
non-union workers who enjoy the same wages and conditions
negotiated by unions for their members, although workers can
opt out of paying the fee if they negotiate their own
contracts. The government made a number of changes to initial
drafts of the bill to address business concerns. Prospective
entrants to the New Zealand market are encouraged to examine
the details of the labor legislation. (Information on New
Zealand's employment law is available on the Department of
Labour's website, www.ers.dol.govt.nz.)

Minimum wage and workplace safety regulations are
incorporated under other laws. An Employment Relations
Authority handles disputes, and its decisions may be appealed
in an Employment Court.

FOREIGN TRADE ZONES/FREE PORTS
--------------
New Zealand does not have any foreign trade zones or free
ports.

FOREIGN DIRECT INVESTMENT STATISTICS
--------------
The stock of foreign direct investment (FDI) in New Zealand
rose to NZ $64.289 billion (US $42.7 billion) as of March 31,

2004. That was equivalent to 46.8 percent of New Zealand's
GDP. (GDP in the year ending March 31, 2004, was estimated at
NZ $137.42 billion using the GDP of NZ $118.09 billion in
1995/96 prices multiplied by a price deflator of 1.146.
Source: Statistics New Zealand)

The privatization of many state-owned enterprises and
monopolies in the 1990s brought a flood of U.S. investment
into New Zealand over a five-year period, 1994-1998. U.S.
investment approvals amounted to NZ $8.7 billion during the
period, or the second-largest share at 24.8 percent of total
foreign investment approved, with Australia taking a 27.5
percent share.

The U.S. share of FDI stock in New Zealand peaked at around
28 percent in 1997 before sliding to 10 percent by March

2003.

U.S. investment is concentrated in the telecommunications,
forestry, transportation, food processing and electronic data
processing sectors. Increased U.S. investments are being
directed into petroleum refining and distribution, financial
services, information technology and biotechnology.

New Zealand's direct investment abroad was NZ $13.39 billion
(US $8.89 billion) as of March 31, 2004, or the equivalent of
10 percent of GDP.

End draft.
Swindells