NEW ZEALAND: INVESTMENT CLIMATE STATEMENT 2006

UNCLAS SECTION 01 OF 06 WELLINGTON 000985

SIPDIS

SIPDIS

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

E.O. 12356: N/A
TAGS: EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR NZ
SUBJECT: NEW ZEALAND: INVESTMENT CLIMATE STATEMENT 2006

REF: STATE 201904

Per reftel, following is post's draft of the 2006 Investment
Climate Statement on New Zealand.

Begin draft:

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

New Zealand screens certain types of foreign investment
through the Overseas Investment Office (OIO). Amid growing
public concern about purchases of coastal properties by
foreigners, the New Zealand government enacted legislation
in August 2005 that toughened the screening and monitoring
of land purchases, but raised the minimum threshold that
triggers a review of proposed business purchases. Under
the legislation, government approval is required for non-
land business investments of NZ $100 million or more, where
a foreigner proposes to take ownership or control of 25
percent or more of a business. Government approval also is
required for purchases of land larger than 5 hectares (12.35
acres) and land in certain sensitive or protected areas.
Any application involving land must meet a national interest
test. For land purchases, foreigners who do not intend to
live in New Zealand must provide a management proposal
covering any historic, heritage, conservation or public
access matters and any planned economic development. That
proposal would have to be approved and generally made a
condition of consent. Overseas purchasers also must
demonstrate the necessary experience to manage the
investment.

In addition, investors would be required to report regularly
on their compliance with the terms of the consent. The OIO
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. A U.S. citizen in November
2005 became the first person to be convicted of breaching
the Overseas Investment Act 1973, for failing to meet the
conditions of the government's consent to his purchase of
land. In the three years since purchasing the property, he
had not developed a chestnut orchard or fir tree plantation
as promised. A district court fined him NZ $17,000 and
ordered him to pay legal costs of NZ $5,000.

The OIO, part of Land Information New Zealand, took over the
functions of the Overseas Investment Commission in August

2005.

In practice, the government's approval requirements have not
been an obstacle for U.S. investors. Very few applications
have been turned down (only 37, versus 1,089 granted, from
2000-2004),and those usually involved land intended for
farming purposes, residential subdivision or accommodation.
In 2004, 10 applications were refused, compared to eight in

2003.

The stock of foreign direct investment in New Zealand
amounted to NZ $77.2 billion as of March 31, 2005.
Australia (NZ $35.2 billion) was the largest contributor to
foreign direct investment in New Zealand, followed by the
United States (NZ $9.2 billion) and the Netherlands (NZ $6.3
billion).

Very few government-owned enterprises remain to be
privatized. The government has not discriminated against
foreign buyers, but has in place 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 rebate for large-
scale film and television projects produced in the country.
A stable, low inflation environment and relatively open
economy are viewed as the strongest incentives for
investment.

There is no capital gains tax. New Zealand has agreements
banning double taxation with 29 countries, including the
United States. (Such an agreement between New Zealand and

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Poland was signed in 2005 but is not yet in force.) 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 Office operates a comprehensive
Internet website (www.oio.linz.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
http://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 and Incentives
--------------
There are no performance requirements or incentives
associated with foreign investment, although the government
may require 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
government approval of foreign investments over NZ $100
million where a foreigner proposes to take ownership or
control of 25 percent or more of a business, investments in
commercial fishing and certain land purchases, 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

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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.

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 "gray market" 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 Regulatory System
--------------
The Commerce Commission administers the Commerce Act 1986,
which 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 such authorization,
the commission must be satisfied that the public benefit
would outweigh the reduction of competition.

The Commerce Commission also can 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 lessen or prevent 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, in which
suppliers of goods set and enforce sale prices to be charged
by re-sellers, 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.

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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 on 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. After an almost year-long
review of the Telecommunications Act 2001, the Minister of
Communications on August 9, 2005, announced proposed changes
to the act aimed at improving the monitoring and enforcement
of agreements involving regulated services. The proposed
changes will require Parliament's approval.

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 85
percent of the total). There are only two New Zealand-based
banking institutions, including Kiwibank, introduced in 2001
by the Labour-Alliance government and operated out of the NZ
Post Shops. 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, resulting in three amendments
that took effect 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.
Financial accounting standards are issued by the Accounting
Standards Review Board, an independent body set up under the
provisions of the Financial Reporting Act 1993. The Act
makes the adoption of financial accounting standards
mandatory for registered companies and issuers of
securities, including entities listed on the New Zealand
Stock Exchange. The standards generally are adopted by
other entities as well. The Board's accounting standards
are based largely on international accounting standards, and
by 2007 the use of international accounting standards will
be universal. Smaller companies (except issuers of
securities and overseas companies) that meet proscribed
criteria face less stringent reporting requirements.
Entities listed on the stock exchange are required to
produce annual financial reports for shareholders together
with abbreviated semi-annual reports.

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.


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Foreign-owned or controlled companies are not foreclosed
from participation in domestic industry standards setting
organizations.

Political Violence
--------------
New Zealand is a stable western 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 Agreement 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 agreements with Singapore
(2001) and Thailand (2004) include investment chapters. 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. New Zealand does
not intend to become a member of the Multilateral Investment
Guarantee Agency. The New Zealand Government does not
provide a comparable program like OPIC to its investors. It
has a small export credit program that has so far not
attracted great commercial interest.

Labor
--------------
Unemployment was 3.4 percent of the labor force in September

2005. 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

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initial fears about the ERA, workdays lost to strikes have
continued an overall steady decline that began in the 1990s.
However, there were 34 work stoppages in 2004 -- six more
than in 2003 -- involving strikes, partial strikes and one
lockout.

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,
http://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 Trade Zones
--------------
New Zealand does not have any foreign trade zones or free
trade zones.

Foreign Direct Investment Statistics
--------------
The stock of foreign direct investment (FDI) in New Zealand
rose to NZ $77.2 billion (US $56.4 billion) as of March 31,

2005. That was equivalent to 52 percent of New Zealand's
GDP. (GDP in the year ending March 31, 2005, was estimated
at NZ $147.542 billion using the GDP of NZ $122.816 billion
in 1995/96 prices multiplied by a price deflator of 1.26.
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 and was down to 11.9 percent in March

2005.

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 $18.98 billion
(US $13.87 billion) as of March 31, 2005, or the equivalent
of 12.9 percent of GDP.

BURNETT