VZCZCXRO0907
PP RUEHNZ
DE RUEHWL #0009/01 0140510
ZNR UUUUU ZZH
P 140510Z JAN 08
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC PRIORITY 4993
INFO RUEHBY/AMEMBASSY CANBERRA PRIORITY 5064
RUEHNZ/AMCONSUL AUCKLAND PRIORITY 1589
RUEHDN/AMCONSUL SYDNEY PRIORITY 0622
RUCPCIM/CIMS NTDB WASHDC PRIORITY
RUEHRC/USDA FAS WASHDC PRIORITY 0375
RUCPDOC/USDOC WASHDC PRIORITY 0202
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHC/DEPT OF LABOR WASHDC PRIORITY
UNCLAS SECTION 01 OF 08 WELLINGTON 000009
SIPDIS
SIPDIS
EAP/ANP, EEB/IFD/OIA, STATE PASS TO USTR
E.O. 12958: N/A
TAGS: EFIN EINV ELAB ETRD KTDB PGOV OPIC USTR NZ
SUBJECT: 2008 INVESTMENT CLIMATE STATE FOR NEW ZEALAND
REF: STATE 158802
1. Following is Post's submission for the 2008 Investment
Climate Statement (ICS) regarding New Zealand per request
reftel.
2. Begin text of ICS submission:
2008 Investment Climate Statement - New Zealand
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.
As of the 2007 statistical year, the level of total outside
investment in New Zealand was valued at US$193.2 billion, an
increase of US$14.7 billion over 2006. Australia was the
largest source of foreign investment in New Zealand valued at
US$60billion and the destination of US$23 billion of New
Zealand's investment abroad. The level of New Zealand total
investment abroad in 2007 was US$84.5 billion, an increase of
US$4.9 billion over 2006. Australia, the United States and
the U.K respectively are the three largest sources of foreign
direct investment (FDI) in New Zealand. For 2007, the level
of U.S. FDI equaled US$1.5 billion amounting to 16% of FDI in
New Zealand with Australia at 59% and UK at 6% of FDI
respectively.
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 46, versus 1,555 granted, from
2000- 2007), and those usually involved land intended for
farming purposes, residential subdivision or accommodation.
In 2007, 127 applications were approved estimated to be worth
US$19billion in contrast to 4 refused applications worth
US$1.5million.
Very few government-owned enterprises remain to be
privatized. The government has not discriminated against
WELLINGTON 00000009 002 OF 008
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
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
--------------------------
There are no restrictions on the right to establish, own and
operate business enterprises, aside from the requirement for
WELLINGTON 00000009 003 OF 008
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 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. The Ministry of
Economic Development released for public comment in December
2004 the draft Patents Bill intended to replace the Patents
Act 1953 and to bring New Zealand's patent law into closer
conformity with international standards. This draft would
keep the maximum patent term at 20 years, but would tighten
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. The bill is
expected to be introduced into Parliament by mid 2008 and
expected to be in force by end of 2008. The stated purpose
of the Bill is to ensure that New Zealand's patent regime
takes account of international developments. One such
development is the international trend for countries to
strengthen intellectual property protection through patent
term restoration. On average, the patent and regulatory
approval processes for new drugs in New Zealand take about
twelve years. As a result, many drugs have very few years of
patent protection remaining after the regulatory authority
grants marketing approval. Many countries, including the
U.S. and EU, have established mechanisms to restore patent
terms for pharmaceutical products to recover time lost due to
regulatory delays. The research-based industry has urged the
New Zealand legislature to amend the current bill to
include patent term restoration in keeping with international
best practices.
The New Zealand government introduced the Copyright
Amendments Bill at the end of 2006 which passed its first
reading. In 2007 the legislation was sent to Select
Committee for a comment period. The Bill was again taken up
by Parliament in November 2007 for a second reading but it is
uncertain whether the Bill in its current form has sufficient
votes to pass. If the current Bill does not pass the second
reading before the end of this year's legislative term, then
it is unlikely to be dealt with again until after the
election period, i.e., 2009. In March 2007, during the
comment period to the Select Committee, industry agreed that
the draft legislation would put New Zealand at odds with the
growing international consensus with respect to protection of
copyright in the online environment. The international
standards for protection of copyrightable material are
currently set by the WIPO Internet Treaties (the WIPO
Copyright Treaty and the WIPO Performances and Phonograms
Treaty) of which New Zealand is not a
WELLINGTON 00000009 004 OF 008
signatory.
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.
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 changes to the
act aimed at improving the monitoring and enforcement of
agreements involving regulated services which entered into
force on December 18, 2006.
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
WELLINGTON 00000009 005 OF 008
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, the Kiwibank, introduced
in 2001 by the Labour-Alliance government and operated out of
the NZ Post Shops and the Taranaki Savings Bank (TSB).
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 (NZX) 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 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 number one with a score of 9.4
(e.g., U.S. ranked number 20 with score of 7.2) in
Transparency International's 2007 "Corruption Perceptions
Index," which looks at perceptions of public sector
corruption in 180 countries and territories. The highest
possible score (i.e., least corrupt) is ten. This is the
second year New Zealand was ranked least corrupt. New
WELLINGTON 00000009 006 OF 008
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 (TIFA) with the
United States. New Zealand's Closer Economic Partnership
(CEP) with Singapore (2002) and Thailand (2004) include
investment chapters. New Zealand concluded a Strategic
Economic Partnership Agreement with Brunei, Chile and
Singapore in June 2005. New Zealand is currently negotiating
separate Free Trade Agreements with China, Malaysia and Hong
Kong. 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
-----
The overall unemployment rate decreased to 3.5 percent in the
2007 statistical year. The number of unemployed decreased to
79,000 persons. There were 2,150,000 persons employed in the
workforce (out of a population of 4.24 million) yielding a
labor force participation rate of 68.3 percent. 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.
The New Zealand Parliament passed into law the Employment
Relations (Flexible Working Arrangements) Amendment Bill on
November 26, 2007, which changes the Employment Relations Act
to provide employees who care for others with the statutory
right to request part-time or flexible hours. The changes
aren't limited to hours of work but can also include the
place of work, such as working from home, compressing the
work week into fewer days, flexi-time, staggered hours, shift
swapping and job sharing. The law applies to people employed
for six months or longer. If benefit is initially granted
then employees must wait at least 12 months before they are
entitled to make another request.
Employers have grounds for refusing requests due to:
-Inability to reorganize work among existing staff.
-Inability to recruit additional staff.
-Detrimental impact on quality or performance.
-Insufficiency of work during the period the employee
proposes to work.
-Planned structural changes.
-Burden of additional costs.
-Detrimental effect on ability to meet customer demand.
-Undermining the terms of a collective agreement.
Unions have the right to organize and collectively bargain.
WELLINGTON 00000009 007 OF 008
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 an
overall steady decline since a peak in the late 1970s.
From annual levels of over 400 in the late 1970s, the number
of work stoppages has declined to relatively steady levels of
under 100 since the 1990s. Thirty-five (35) work stoppages
occurred in the 2007 statistical year, much fewer than the 60
stoppages recorded in 2006. The 35 work stoppages that
occurred in 2007 consisted of 28 complete strikes and seven
partial strikes. They involved 6,474 employees, and a loss of
21,015 person-days of work and US$2.7 million in wages and
salaries. In comparison, the 60 stoppages that occurred in
2006 involved 16,628 employees, and a loss of 27,536
person-days of work and US$4 million in wages and salaries.
The manufacturing industry had the highest number of
stoppages in 2007, with 13 of the 35 stoppages (37 percent).
However, the health and community services industry had the
highest number of employees involved (contributing 36 percent
of the total).
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 Ports
------------------------------
New Zealand does not have any foreign trade zones or free
ports.
Foreign Direct Investment Statistics
------------------------------------
As of the 2007 statistical year, the level of total outside
investment in New Zealand was valued at US$193.2 billion, an
increase of US$14.7 billion over 2006. Australia was the
largest source of foreign investment in New Zealand valued at
US$60billion and the destination of US$23 billion of New
Zealand's investment abroad. The level of New Zealand total
investment abroad in 2007 was US$84.5 billion, an increase of
US$4.9 billion over 2006. Australia, the United States and
the U.K respectively are the three largest sources of foreign
direct investment (FDI) in New Zealand. For 2007, the level
of U.S. FDI equaled US$1.5 billion amounting to 16% of FDI in
New Zealand with Australia at 59% and UK at 6% of FDI
respectively.
Australia continues to be New Zealand's predominant
investment partner, both as a destination for New Zealand
investment abroad, and as a source for foreign investment
into New Zealand. Australia's significance as an investment
partner has increased over recent years. By contrast, in
WELLINGTON 00000009 008 OF 008
2002, Australia was the destination for 19.8 percent of New
Zealand's total level of investment abroad, and was the
source of 19.3 percent of the total level of foreign
investment in New Zealand. In 2007, the U.S. and the UK,
together with Australia, were the destination for 59.1
percent of the level of New Zealand investment abroad, and
the largest source of foreign investment in New Zealand.
Portfolio investment (stocks and bonds) is the most
significant form of New Zealand investment in the U.S. and
the UK.
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.
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.
Web Resources
--------------
Commerce Commission: http://www.comcom.govt.nz
Department of Labour: http://www.ers.dol.govt.nz
Investment New Zealand: http://www.investnewzealand.govt.nz
The Overseas Investment Office: http://www.oio.linz.govt.nz
End text.
Keegan