2011 Investment Climate Statement - New Zealand
Overview of Foreign Investment Climate
Foreign investment in New Zealand is generally welcomed and encouraged without discrimination. With minimal corruption, New Zealand has an open, transparent economy, where businesses and investors can generally make commercial transactions with ease. With few exceptions, foreigners may invest in any sector of the economy, and there are generally no limits on foreign ownership or control. New Zealand has a rapidly expanding network of bilateral investment treaties and free trade agreements with investment components to facilitate increased investment. New Zealand also has a well-developed legal framework and regulatory system, and the judicial system generally upholds the sanctity of contracts. There are no restrictions on the inflow or outflow of capital, and expropriation is not an issue. Investment disputes are rare, and there are no government-mandated performance requirements or incentives associated with foreign investment. Private entities generally have the right to freely establish business enterprises, and property rights (both real property and intellectual property) are generally well-protected. New Zealand has a sound financial system, but it is undertaking a review of its financial system to shore up investor confidence in the wake of the global financial crisis. Both inbound and outbound investment continues to increase. In international indices with investment related aspects, New Zealand consistently receives high scores.
New Zealand screens foreign investment that falls within certain criteria. Under the auspices of the Overseas Investment Act 2005, New Zealand’s Overseas Investment Office (OIO) screens foreign investments that would result in the acquisition of 25 percent or more ownership of, or a controlling interest in “significant business assets” (significant business assets are defined as assets valued at more than NZDD100 million). Government approval also is required for purchases of land larger than 5 hectares (12.35 acres) and land in certain sensitive or protected areas, or fishing quota. If the land or fishing quota to be purchased is owned by a company or other entity, approval will be required if the investor will be acquiring a 25 percent or more equity or control interest.
For those investments that require screening, the investor must demonstrate the necessary business experience and acumen to manage the investment, demonstrate financial commitment to the investment, be of good character, and not be a person who would be ineligible for a permit under New Zealand immigration law. Any application to purchase land must also satisfy a “benefit to New Zealand” test, unless the investor intends to live in New Zealand indefinitely. For land purchases, foreigners who do not intend to live in New Zealand indefinitely must provide a management proposal covering any historic, heritage, conservation, or public access matters and any planned economic development. That proposal would generally be made a condition of consent.
Recent large-scale foreign investment in farmland sparked public controversy over foreign investment, and the New Zealand Government sought to create greater ministerial flexibility to respond to economic concerns about foreign investment in “sensitive” assets. On March 17, 2009, the Government announced it would review the Overseas Investment Act 2005 and the Overseas Investment Regulations 2005. On September 27, 2010, the Minister of Finance Bill English announced the conclusion of the review. On December 9, 2010, the Government released the final Regulations and Directive Letter, which was provided to the Overseas Investment Office for implementation.
Although the Overseas Investment Act 2005 itself was not changed, the directive established new rules that went into effect at the beginning of 2011 and apply to applications received after this time. The new implementing rules essentially provide Government ministers with increased power to consider a wider range of issues when assessing foreign investment in sensitive assets, primarily large-scale overseas ownership of farmland and vertically integrated primary production companies. Two new factors, in addition to the existing factors and good character test, will be assessed under the benefit test: an “economic interests” factor that allows ministers to consider whether New Zealand's economic interests are adequately “safeguarded and promoted,” and a “mitigating” factor that enables ministers to consider whether an overseas investment provides adequate opportunities for New Zealand oversight or involvement. Besides applying to land such as that adjoining the foreshore or under conservation, the rules now include “sensitive land” defined as “large” areas of farmland ten times the average size of any given type of farm. For example, the average dairy farm is 172 hectares according to New Zealand statistics, which means the threshold that triggers the screening is 1,720 hectares. Likewise, the average sheep farm is 443 hectares, so the threshold would be 4,430 hectares.
The Government has also recently taken measures to cut red tape and reduce processing time of applications. According to Government reports the application processing time has dropped to an average of 38 days, down from 63 days in 2009.
The OIO also monitors foreign investments after approval. All consents are granted with reporting conditions, which are generally standard in nature. Investors must report regularly on their compliance with the terms of the consent. It is an offence to intentionally or recklessly make false or misleading statements, or any material omission, in any information provided to the OIO. If the High Court is satisfied that an offense has been committed, the High Court can order the disposal of the investor’s New Zealand holdings.
In practice, the government's approval requirements have not been an obstacle for U.S. investors. Very few applicants are denied (only 22, versus 905 granted, from 2004 - 2009). Those denied, for the most part, intended to purchase land in sensitive areas or for farming purposes, residential subdivision, or accommodation. For the 2009 calendar year, 188 applications by foreign investors were submitted to the OIO, of which 158 were approved. There were no applications disapproved, and 30 applications are still under consideration. Investors from the United States had a beneficial interest in 48 of the 158 approved applications.
The Government of New Zealand does not discriminate against foreign investors, but has placed separate limitations on foreign ownership of Air New Zealand and Telecom Corporation of New Zealand. The constitution of Telecom Corporation of New Zealand Limited (Telecom) provides that no person shall have a relevant interest in 10 percent or more of the voting shares without the consent of the Minister of Finance and the Telecom Board, and no person who is not a New Zealand national shall have a relevant interest in more than 49.9 percent of the total voting shares without the written approval of the Minister of Finance.
According to Air New Zealand’s constitution, no person who is not a New Zealand national may hold or have an interest in equity securities which confer 10 percent or more of the voting rights without the consent of the Minister of Transport. There must be a maximum of eight directors and a minimum of five directors of Air New Zealand. At least three directors must be ordinarily resident in New Zealand. The majority of the Air New Zealand Board of directors must be New Zealand citizens.
New Zealand’s main methods for taxation are the goods and services tax (GST), company tax, and income tax. In 2010, the New Zealand Government implemented sweeping changes to all three. The reform lowered personal and company income tax rates, increased indirect taxation, broadened the existing tax base, and tightened tax deduction rules. On October 1, 2010 New Zealand reduced its personal tax rate, which now ranges from 10.5 percent to 33 percent, as compared to the previous tax range of 12.5 percent to 38 percent. At the same time, GST was raised to 15 percent from 12.5 percent. The company tax was also cut from 30 percent to 28 percent, but will first apply to the 2011/2012 income year. For most companies, this will take effect on April 1, 2011. New Zealand also dropped its top tax rate for most portfolio investment entities (PIES) by 2 percent to 28 percent.
There is no capital gains tax, but some “gains”, such as the profits on the sale of patent rights, may be considered as income.
New Zealand has agreements on taxation with 35 countries or territories, including the United States. On November 12, 2010, a protocol amending the income tax treaty between the United States and New Zealand entered into force. The amendment was approved by the U.S. Senate on July 15, 2010 and entered into force when the United States notified New Zealand that the required procedures for bringing the protocol into force had been completed.
Provisions of the protocol include: elimination of source-country withholding tax on certain direct dividend payments; elimination of source-country withholding tax on certain interest payments, including interest paid to certain banks and financial enterprises; reduced source-country withholding tax on all royalty payments; a comprehensive limitation on benefits provision; and a comprehensive provision allowing for full exchange of information between the U.S. and New Zealand revenue authorities. With respect to taxes withheld at source, the protocol shall have effect for amounts paid or credited on or after January 1, 2011. For all other taxes, the protocol will generally have effect in the United States for taxable periods starting on or after January 1, 2011, and in New Zealand for taxable periods starting on or after April 1, 2011.
Under legislation passed in New Zealand in 1995, foreign firms and investors were granted a national treatment obligation on corporate taxes and transfer-pricing rules were aligned so that New Zealand adheres to Organization for Economic Cooperation and Development (OECD) practices. Additionally, 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. Investment New Zealand, the government’s investment promotion agency, works with offshore investors to facilitate investment in New Zealand.
TI Corruption Index
9.3 / 1
Heritage Economic Freedom
World Bank Doing Business
-- / 3
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. There is no difficulty in obtaining foreign exchange.
Expropriation and Compensation
Expropriation is not an issue in New Zealand, and there are no outstanding cases.
Investment disputes are extremely rare, and there have been no major disputes in recent years involving U.S. or other foreign investors. The mechanism for handling disputes is the judicial system, which is generally open, transparent and effective in enforcing property and contractual rights. 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. New Zealand courts are independent and impartial, and the decisions of judges are subject only to the law. The courts can recognize and enforce a judgment of a foreign court if the foreign court is considered to have exercised proper jurisdiction over the defendant according to private international law rules. New Zealand has well defined and consistently applied commercial and bankruptcy laws. Arbitration is a widely-used dispute resolution mechanism inside New Zealand, and is governed by the Arbitration Act 1996, Arbitration (Foreign Agreements and Awards) Act 1982, and the Arbitration (International Investment Disputes) Act 1979.
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 on the Recognition and Enforcement of Foreign Arbitral Awards.
The Government of New Zealand does not maintain any measures that are alleged to violate the Trade Related Investment Measures text in the World Trade Organization. There are no performance requirements or incentives associated with foreign investment. However, for those investments that require OIO approval and are subject to reporting requirements, investors must report regularly on their compliance with the terms of the consent agreement.
Right to Private Ownership and Establishment
Private entities generally have the right to freely establish, acquire, and dispose of business enterprises. There are a few exceptions in the treatment of domestic and foreign private entities. Government approval is required for foreign investments over NZD 100 million and investments in commercial fishing and certain land (as outlined in the “Openness to Foreign Investment” section above. In general, there has been no restriction on foreign purchasers in the privatization of assets, except for the ceilings on foreign ownership stakes in Air New Zealand and the Telecom Corporation of 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 recognizes and enforces secured interest in property, both movable and real. Most privately owned land in New Zealand is regulated by the Land Transfer Act 1952 (as amended) and the Land Transfer Regulations 2002. These provisions set forth the issuance of land titles, the registration of interest in land against land titles, guarantee of title by the State. The Register-General of Land develops standards and sets an assurance program for the land rights registration system. New Zealand’s legal system protects and facilitates acquisition and disposition of all property rights.
Regarding intellectual property rights (IPR) protection, New Zealand generally has a strong record and is an active participant in international efforts to strengthen IPR enforcement globally. It is a party to nine World Intellectual Property Organization (WIPO) treaties and actively participates in the Trade Related Aspects of Intellectual Property Rights (TRIPS) Council. However, New Zealand is not party to the WIPO internet treaties (the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty). New Zealand, the United States, multi-lateral Anti-Counterfeiting Trade Agreement (ACTA), which is aimed at establishing a comprehensive international framework that will assist Parties to the agreement in their efforts to effectively combat the infringement of intellectual property rights, in particular the proliferation of counterfeiting and piracy. The finalized text of the agreement was released in November 2010. New Zealand Government agencies, including the New Zealand Agency for International Development (NZAID), Ministry for Economic Development (MED) and the Intellectual Property Office of New Zealand (IPONZ) assist developing countries in the Asia-Pacific region with implementation of their obligations under the TRIPS Agreement through technical assistance and capacity building programs.
The principle legislation governing copyright protection in New Zealand is The Copyright Act of 1994. Under the legislation, copyright protection is granted for the author's lifetime plus 50 years from the calendar year, in which the author died, for literary, dramatic, musical, and artistic works; and for 50 years from the calendar year in which they were made, for sound recordings and films. In April 2008, New Zealand passed the Copyright (New Technologies) Amendment Act, which is aimed at bringing the original copyright law up to date with digital technology. Among other things, the amendment required that internet service providers (ISPs) have a policy in place to address termination for repeat offenders. The industry attempted to form a voluntary code to address how this would be accomplished; however, agreement between rights holders and ISPs was never reached. As a result, the Government intervened to establish a more prescriptive legislation.
On February 23, 2010, Commerce Minister Simon Power introduced the Copyright (Infringing File Sharing) Amendment into Parliament, repealing Section 92A of the Copyright Act. The bill puts in place a three-notice regime intended to deter illegal file sharing. Copyright owners who can provide evidence of infringement will be able to request that internet service providers (ISPs) notify alleged infringers to stop infringing activity. The account holder may receive up to three warnings within a nine month period that infringement has occurred. Should the alleged infringement continue, the legislation enables copyright owners to seek the suspension of the internet account through the district court for up to six months. The account holder has the right to challenge the notice. The Bill also extends the jurisdiction of the Copyright Tribunal, enabling it to hear complaints and award penalties of up to NZD 15,000 (USD 11,000). The bill unanimously passed its first reading in Parliament on April 22, and was referred to the Commerce Select Committee for review and public comment. On November 3, 2010, the Commerce Select Committee released a report with recommendations on the final shape of the Copyright (Infringing File Sharing) Amendment before it goes for its second and third readings in Parliament. Indications are that these readings will occur in February 2011. Rights holders have expressed concern that the new recommendations lack provisions on the cost of infringement notices being sent (an exorbitant cost to rights holders could undermine the legislation), the lengthy time given for issuing the three warning notices, and the exemption for mobile network infringement until August 1, 2013.
Trademarks in New Zealand are protected under the Trade Marks Act of 2002, which entered into force in 2003. The legislation has been amended several times, and the most recent proposed amendment is the Trade Marks (International Treaties and Enforcement) Amendment Bill, which was introduced to Parliament in September 2008. The proposed legislation has had its first hearing and was reported out from the Select Committee in September 2009. The bill has not yet been passed into law. The amendment will give the Ministry of Economic Development (MED) the legal authority to investigate and prosecute criminal offences for counterfeiting trademarks and infringing copyrights. In addition, the legislation will provide New Zealand Customs the authority to prosecute importers of counterfeits and seize pirated goods under their control. Once passed, the amendment will bring New Zealand law in line with the Madrid Protocol Relating to the Madrid Agreement, and the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks, as well as ratify the Singapore Treaty on the Law of Trademarks.
New Zealand meets the minimum requirements of the TRIPS Agreement, providing patent protection for 20 years from the date of filing. The New Zealand Government grants both product and process patents. Patents are protected under the Patents Act 1953, last amended in 1999. A new bill was introduced to Parliament on July 9, 2008, to replace the 1953 Act.
Under the proposed legislation, the patent term will remain at twenty years, and criteria for granting a patent will become stricter. An absolute novelty standard will be introduced as well as a requirement that requires all applications be examined for "obviousness" and utility. The legislation will also remove the 1953 Act provision for pre-grant opposition and will introduce a "re-examination" provision which can be invoked at any time after acceptance of an application, a provision potentially of concern, as it differs from international practice. Re-examination will be limited to issues of novelty and inventive step based on documentary prior art. The 1953 Act post-grant opposition provisions will be expanded, making it possible to invoke post-grant opposition at any time during the patent term. The legislation also provides for the establishment of a Maori Advisory Committee to advise the Commissioner of Patents where patent applications involve traditional knowledge and indigenous plants and animals. In addition, the legislation includes provisions that will reform the regulatory environment for patent lawyers. Pharmaceutical companies have expressed concern that the bill does not bring patent term restoration in line with international best practices.
The bill received its first reading in Parliament on May 5, 2009, after which it was open for public comment. In March 2010, the Bill was updated, and a new clause was inserted by the Commerce Select Committee that bars patents on all software. Although there was strong protest from the U.S. software industry, Commerce Minister Simon Power has publicly stated there will be no further amendment to the bill; however, the Government will first seek to formulate implementing guidelines before the legislation moves forward. The Intellectual Property Organization of New Zealand (IPONZ) has since drafted the guidelines and released them for public comment. In light of negotiations on the Trans-Pacific Partnership, the U.S. Government has expressed concern that a number of provisions in the draft Patents Bill (including, but not limited to its provision on software patentability) do not provide the high level of IPR protection reflected in past U.S. trade agreements.
Transparency of the Regulatory System
New Zealand’s regulatory, legal, and accounting systems are generally transparent and consistent with international norms. Proposed laws and regulations are regularly published in draft form for public comment via the internet, and law makers generally make every effort to give public submissions due consideration. While some standards are set through legislation or regulation, the vast majority of standards are developed through Standards New Zealand, the country’s leading standards setting body. Standards New Zealand is a Crown entity, but it operates autonomously and is self-funded. When setting standards, they rely on expert committee consensus, public input and widespread consultation with affected parties, both foreign and domestic. The majority of standards are set in coordination with Australia.
There are a number of laws and policies that govern New Zealand’s competition policy. The key competition law statute in New Zealand is the Commerce Act 1986, which covers both restrictive trade practices and the competition aspects of M&A transactions. It also sets forth regulation of industries and sectors with certain natural monopolies, such as electricity, airports, and telecommunications. The Commerce Act 1986 is overseen and enforced by New Zealand’s Commerce Commission. In general, any 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 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 of any right under any copyright, patent, protected plant variety, registered design, or trademark does 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 also prohibited. Advice should be obtained on the application of the Act before the establishment of exclusive distribution, selling, and franchising arrangements in New Zealand.
To ensure competition in "natural monopolies," such as telecommunications and electricity, the government has increased oversight. Under the 1997 WTO Basic Telecommunications Services Agreement, New Zealand committed to the maintenance of an open, competitive environment in the telecommunications sector. Key reforms of the sector, through legislation enacted in December 2001 and December 2006, included the appointment of a commissioner responsible for resolving commercial disputes, the introduction of regulated services (including local loop and bitstream unbundling), the strengthening of the monitoring and enforcement arrangements for regulated services, and the operational separation of Telecom New Zealand.
Mobile termination rates (MTRs) have long been unregulated in New Zealand’s small, isolated market, creating an environment for protectionist behaviour. Under the unregulated system in New Zealand, prices and other terms are negotiated commercially between network operators (fixed or mobile). New Zealand’s dominant telecommunication companies, Vodafone and Telecom, have historically had termination rates that were among the highest of all industrialized countries. These above-cost MTRs also created a framework for the other anticompetitive behaviour, such as significant on-net/off-net retail price differentiation resulting in highly concentrated geographic regions dominated by one or other of the incumbent networks. On a national basis however, Vodafone and Telecom control 51 percent and 46 percent of the market respectively.
On November 6, 2008, the New Zealand Commerce Commission initiated a proceeding to determine if MTRs should be regulated, and in June 2009, the Commission issued a draft determination that cost-based MTR regulation was warranted. Telecom and Vodafone issued statements in February 2010, voluntarily promising to lower MTRs over the next four years in exchange for the New Zealand Government forgoing regulation. The Commerce Commission agreed in principle, and in a February 22 Final Report, stated that, although there were good reasons to regulate MTRs, they should not be regulated and urged New Zealand’s Minister for Communications and Information Technology Steven Joyce to accept the promises made by Telecom and Vodafone. In February 2010, Vodafone announced a new Talk Add-on product, which was a combination of heavily discounted on-net retail prices that were below its proposed wholesale mobile termination rates, and off-net prices up to fifteen times higher which the New Zealand Government viewed as evidence that the voluntary rates were above cost and competition would be stifled if the proposals were accepted. Steven Joyce asked the Commerce Commission to reconsider its earlier recommendation in light of the new retail offering.
On May 12, 2010, the Commerce Commission reversed itself and urged Minister Joyce to regulate mobile termination access services and not accept promises of self-regulation from Telecom and Vodafone. On August 4, 2010, New Zealand’s Minister Joyce formally accepted the Commerce Commission’s recommendation to regulate termination rates. The Government has subsequently added mobile termination access services to Schedule 1 of the Telecommunications Act by regulation. The Commerce Commission will now go through a process to set wholesale access prices and determine other pro-competitive conditions, potentially around on-net / off-net retail price discrimination that mobile carriers must adhere to.
One law that draws consistent criticism as a barrier to investment (from both foreign and domestic investors) is the Resource Management Act 1991. The Act regulates access to natural and physical resources such as land and water. Critics contend that the resource management process mandated by the law is unpredictable, protracted and subject to undue influence from competitors and lobby groups. There have been several well publicized cases in which it was alleged that companies have used the objections submission process under the law to stifle competition. Investors have also raised concerns that the law is unequally applied between jurisdictions because of the lack of implementing guidelines. To address some of these concerns, the Resource Management (Simplifying and Streamlining) Amendment Act was passed in 2009.
Efficient Capital Markets and Portfolio Investment
New Zealand policies generally facilitate the free flow of financial resources to support the flow of resources in the product and factor markets. Credit is generally allocated on market terms, and foreigners are able to obtain credit on the local market. The private sector has access to a variety of credit instruments. It has a strong infrastructure of statutory law, policy, contracts, codes of conduct, corporate governance, and dispute resolution that support financial activity and allow it to thrive. The banking system, mostly dominated by foreign banks, is world class in electronic banking and is rapidly moving New Zealand into a “cashless” society. However, in November 2010, Standard & Poor’s downgraded its outlook for New Zealand’s credit rating from stable to negative, citing a weakening of the nation’s banks. New Zealand also has a full range of other financial institutions, including a securities exchange, investment firms and trusts, insurance firms and other non-bank lenders. Non-bank finance institutions experienced difficulties during the financial crisis due to risky lending practices, and the Government of New Zealand is undertaking legal changes to bring them into the regulatory framework.
New Zealand banks are regulated by the Reserve Bank of New Zealand (RBNZ) under the Reserve Bank of New Zealand Act 1989. The RBNZ is statutorily independent and is responsible for conducting monetary policy and maintaining a sound and efficient financial system. The New Zealand banking system consists of 19 registered banks and more than 90 percent of their combined assets are owned by foreign banks, mostly Australian. There is no requirement in New Zealand for financial institutions to be registered to provide banking services, but an institution must be registered to call itself a bank.
The RBNZ has no requirement to guarantee the viability of a registered bank or provide permanent deposit insurance. However, in response to the global financial crisis, the New Zealand Government announced in October 2008, that it would guarantee certain retail deposits up to NZD 1 million for two years. For investment-grade financial institutions that have substantial borrowing and lending operations in New Zealand, the Government also offered a wholesale funding guarantee facility. On April 30, 2010, the New Zealand Government ended its wholesale funding guarantee program (which helped banks access funding during the liquidity crisis) but the retail deposit guarantee will continue.
Despite the global financial crisis, banks in New Zealand have done relatively well. No banks have failed, and there are relatively low levels of mortgage defaults. In addition, credit ratings of banks in New Zealand have remained virtually unchanged. However, because banks in New Zealand predominately rely on foreign funding, they are heavily exposed to foreign liquidity risk. It is estimated that approximately 45 percent of total funding comes from overseas capital markets. The global financial crisis also spurred the Government of New Zealand to review banking regulation and crackdown on tax evasion by foreign-owned banks.
The Securities Commission, under the Securities Act 1978 and amendments, regulates the issuance of securities. The Act requires registration of prospectuses for public offerings of new securities and prescribes the information that must be disclosed. The Securities Markets Act 1988 provides civil remedies for loss or damages resulting from insider trading and market manipulation. Amendments in 2002 gave the Securities Commission additional powers to increase its effectiveness in monitoring and enforcement, including criminal sanctions for insider trading and market manipulation. In September 2008, New Zealand passed the Financial Advisers Act and the Financial Service Providers (Registration and Dispute registration) Act, which also gave the Securities Commission authority to regulate the financial services industry, including market participants, intermediaries, investors and consumers.
Legal, regulatory, and accounting systems are transparent. Financial accounting standards are issued by the Accounting Standards Review Board. 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 (NZX). The standards generally are adopted by other entities as well. The Board's accounting standards are based largely on international accounting standards, and 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. Stocks in a number of New Zealand listed firms are also traded in Australia and in the United States.
Small, publicly held companies not listed on the NZX may include in their constitution measures to restrict hostile takeovers by outside interests, domestic, or foreign. However, NZX rules generally prohibit such measures by its listed companies.
As a result of the global financial crisis, New Zealand has undertaken a review of its financial system to shore up investor confidence. Reforms are focused on establishing a regime to supervise financial advisors, enforcing of rules related to finance companies and the selling of financial products, and legal reforms to facilitate the raising of capital. Much of the impetus for the reforms stems from finance companies that engaged in high risk property lending through the issuance of debentures and their “mis-selling” of financial products. Many such finance companies collapsed or froze repayments. The Government of New Zealand is currently reviewing disclosure requirements under the Securities Regulations and legislative changes to the Securities Act, which may affect trustee responsibilities and supervision, supervision of funds managers, and disclosure rules for securities offerings, among other things.
In April 2010, the New Zealand Cabinet agreed to establish a new consolidated market conduct regulator for the financial sector, the Financial Markets Authority (FMA), as well as a new register of securities offerings. In September 2010, the New Zealand Government introduced the Financial Markets (Regulators and KiwiSaver) Bill into Parliament, and it passed its first reading on September 23. The Bill is under consideration by the Commerce Select Committee and is due to be reported back to Parliament on February 28, 2011. If the bill is passed, the FMA will replace the current Securities Commission. It will also carry out some of the current work of the Ministry of Economic Development, including the regulatory role of the Government Actuary and some of the roles of the Registrar of Companies. The FMA will have a strong hand in regulating registered exchanges. The New Zealand Markets Disciplinary Tribunal (NZMDT) will become an independent body supported by the FMA. The regulation will also create a register for all public offers of securities that will facilitate comparisons between financial products. If the law is passed, the FMA will start operating on April 1, 2011.
Competition from State-Owned Enterprises (SOEs)
The Government of New Zealand owns a variety of commercial assets, including 18 state-owned enterprises (SOEs), eight Crown research institutes, four Crown financial institutions, five non-financial Crown companies, 76.5 percent of Air New Zealand Limited, and other Crown shareholdings in a shipping line and four airports. Although the SOEs are set up by the State-Owned Enterprises Act of 1986, they are regulated by the provisions of the Companies Act and are registered as public companies. Unlike Crown entities, the SOEs are structured as companies because they provide public services via market determined prices. The Crown Ownership Monitoring Unit (COMU), which is part of the New Zealand Treasury, is responsible for overseeing the SOEs and provides “shareholding” ministers with advice on the SOE performance. The board of directors of each SOE reports to two ministers, the Minister of Finance and the relevant portfolio minister.
Most of New Zealand’s SOEs are concentrated in the energy and transportation sectors. Private enterprises are allowed to compete with public enterprises under the same terms and conditions with respect to markets, credit, and other business operations. For example, Contact Energy, a publicly listed company, is allowed to sell energy in direct competition with Meridian Energy Limited, which is an SOE. Under SOE Continuous Disclosure Rules, SOEs are required to continuously report on any matter that may materially affect their commercial value.
Corporate Social Responsibility
The Government of New Zealand actively promotes corporate social responsibility (CSR), which is widely practiced throughout the country. There are a number of New Zealand NGOs that are dedicated to facilitating and strengthening CSR, including the New Zealand Business Council for Sustainable Development, the Sustainable Business Network, and the American Chamber of Commerce in New Zealand.
New Zealand is a stable western democracy.
New Zealand is renowned for its efforts to ensure a transparent, competitive, and corruption-free government procurement system. Stiff penalties against bribery of government officials as well as those accepting bribes are strictly enforced. New Zealand consistently achieves top ratings in the Transparency International’s Corruption Perception Index (CPI). In the 2010, Transparency International ranked New Zealand number one in the world (out of 180 countries and territories), with a rating of 9.3. The highest possible score (i.e. least corrupt) is ten.
The legal framework for combating corruption in New Zealand consists of domestic and international legal and administrative methods. Domestically, New Zealand’s criminal offences related to bribery are contained in the Crimes Act 1961 and the Secret Commissions Act 1910. The New Zealand Government has a strong code of conduct, The Standards of Integrity and Conduct, which applies to all State Services employees and is rigorously enforced. The New Zealand Police has its own Code of Conduct that applies to all New Zealand Police employees, and the Office of the Judicial Conduct Commissioner was established in August 2005 to deal with complaints about the conduct of judges. New Zealand’s Office of the Controller and Auditor-General and the Office of the Ombudsman take an active role in uncovering and exposing corrupt practices. The Protected Disclosures Act was enacted to protect public and private sector employees who engage in “whistle-blowing”.
Internationally, New Zealand has signed and ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In October 2006, the OECD examined New Zealand for compliance with the convention. New Zealand has also signed and ratified the UN Convention Against Transnational Organized Crime. In 2003, New Zealand signed the UN Convention Against Corruption and is currently working to ratify it. New Zealand has opted not to join the GATT/WTO Government Procurement Agreement because, according to New Zealand Government officials, the benefits would not justify the compliance costs amid New Zealand's totally deregulated government procurement system. Nonetheless, New Zealand supports multilateral efforts to increase transparency of government procurement regimes. New Zealand also engages with Pacific Island countries in capacity building projects to bolster transparency and anti-corruption efforts.
Bilateral Investment Agreements
New Zealand currently has signed bilateral investment treaties (BIT) with four partners: Argentina (August, 1999), Chile (July, 1999), China (November, 1988), and Hong Kong (July, 1995). Besides these treaties, the country has concluded a number of economic agreements that also contain provisions on investment:
- New Zealand and Australia trade through a Closer Economic Relationship (CER), which is a free trade agreement eliminating all tariffs between the two countries. However, the rules of origin under the CER do not permit products to enter Australia duty free from New Zealand unless the products are of at least 50 percent New Zealand origin. Additionally, the last manufacturing process must be carried out in New Zealand. The enactment of the Free Trade Agreement between Australia and the United States on January 1, 2005, removes any tariff disadvantage to U.S. firms that choose to re-export products from New Zealand to Australia.
- New Zealand concluded a Closer Economic Partnership (CEP) agreement with Singapore that entered into force on January 1, 2001.
- New Zealand concluded a concluded a CEP agreement with Thailand that entered into force on July 1, 2005. The FTA contains a specific chapter on investment.
- New Zealand concluded an FTA with China that entered into force on October 1, 2008. The FTA contains a specific chapter on investment.
- New Zealand and Malaysia signed an FTA October 26, 2009, but is yet to enter into force. The FTA contains a specific chapter on investment.
- New Zealand concluded work on an FTA with the Gulf Cooperation Council (GCC) on October 31, 2009, but the agreement has not yet been signed.
- New Zealand concluded a CEP with Hong Kong, which entered into force on January 1, 2011.
- A Free Trade Agreement between New Zealand, Australia and the Association of South East Asian Nations (ASEAN) was signed on February 27, 2009. The FTA contains a specific chapter on investment.
- The Trans-Pacific Strategic Economic Partnership Agreement (TPP, previously known as the “P4”) between Brunei Darussalam, Chile, New Zealand and Singapore was signed in 2005. In 2010, the United States, Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam began negotiating a regional Asia-Pacific trade agreement called the Trans-Pacific Partnership (TPP), with the objective of shaping a high-standard, broad-based regional agreement. This agreement will create a potential platform for economic integration across the Asia-Pacific region, and a means to advance U.S. economic interests with the fastest-growing economies in the world.
· New Zealand is also currently negotiating separate FTAs with India and Korea, as well as a block trade agreement with Russia, Belarus, and Kazakhstan.
OPIC and Other Investment Insurance Programs
As an OECD member country and developed nation, New Zealand is not eligible for OPIC programs. Although the New Zealand Government does not provide OPIC-like services to encourage New Zealand investment in developing countries, New Zealand is a member of the Multilateral Investment Guarantee Agency (MIGA). It also has an export insurance program administered under the New Zealand Export Credit Office (NZECO). NZECO provides credit guarantees to protect exporters against uncontrollable events and aims to help build the capacity of New Zealand exporters to offer long-term finance terms to international buyers.
The seasonally adjusted unemployment rate at the end of the September 2010 quarter declined to 6.4 percent from 6.9 percent in the previous quarter. Although unemployment remains volatile, the trend clearly shows that unemployment is decreasing from its peak of 7.1 percent in the December 2009 quarter, and the labor market is expected to continue improving. New Zealand’s unemployment rate is now well below the OECD average of 8.5 percent and the country has the eleventh lowest unemployment rate of the 33 OECD countries.
As of the end of the September 2010 quarter, there were 3,430,000 people in the working age population; 2,344,000 persons employed in the workforce (68.3 percent), and 1,089,000 persons not in the labor force (31.7 percent). Of those in the workforce, 2,193,000 are employed (93.6 percent) and 150,000 are unemployed (6.4 percent). Approximately 77 percent of those employed were full-time workers.
In comparison with a year ago, employment is increasing quickest in agriculture, forestry and fishing, education and training, and arts, recreation and other services. Manufacturing employment remains flat. The unemployment rate within certain parts of the population continues to rise. Unemployment rates among Maori and Pacific Islanders now stands at 18.4 percent, 14.8 respectively, as compared to 14.2 percent and 12.3 percent at the end of September 2009. New Zealand continues to lose many of its workers to Australia (where any New Zealander can legally work). New Zealand workers are drawn there by relatively higher wages and more plentiful job opportunities.
A number of employment statutes govern the work place in New Zealand. The most important is the Employment Relations Act (ERA) 2000, which repealed the Employment Contracts Act 1991. Other key legislation that supplement the ERA include the Employment, Equal Pay Act 1972, Health and Safety in Employment Act 1992, Holidays Act 2003, Minimum Wage Act 1983, the Parental Leave and Employment Protection Act 1987, Volunteers Employment Protection Act 1973, and Wages Protection Act.
Some notable changes to New Zealand’s labor law in recent years include a 2004 revision of the ERA, which strengthens collective bargaining, good faith provisions, and dispute resolution mechanisms. It also provides additional protection for workers in the event that company ownership changes. The Employment Relations (Flexible Working Arrangements) Amendment Bill, which was passed in 2007, 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 are not 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. In 2007, the mandatory minimum annual leave time increased to four weeks. In November 2010, the New Zealand Government amended the Holidays Act 2003 and the Employment Relations Act 2000. The amendments introduced a wide range of changes, including: the ability for employees to cash in a maximum of one week of annual holidays, the ability to transfer public holidays to another working day, extending trial periods to all employers, changes to the personal grievance provisions, requiring consent to be given before a union can access a workplace, requiring employers to retain employment agreements, and extending the role and powers of labor inspectors. The changes for both amendments will take effect on April 1, 2011.
Another notable change in New Zealand’s labor law occurred in 2010 with the promulgation of the Employment Relations (Film Production Work) Amendment. After Warner Bros threatened to move the production of the movie The Hobbit elsewhere because of a dispute with acting unions, the Government of New Zealand, on short notice, amended the Employee Relations Act 2000. The amendment essentially changed the law so that workers involved with film production work will be considered as independent contractors rather than employees, unless they choose to be employees by entering into an agreement that provides that they are such. This includes production work for video games as well but not for programs initially intended for television. The amendment aims to provide clarity and certainty about the status of workers in the film industry and removes courts’ authority to reclassify independent contractors as employees despite the type of work agreement. In most other sectors, New Zealand courts have the authority to determine the nature of the work agreement between employer and employee regardless of the type of contract entered into.
Labor laws are generally well enforced, and disputes are usually handled by the New Zealand Employment Relations Authority. Its decisions may be appealed in an Employment Court. The New Zealand Department of Labor is responsible for enforcement of laws governing work conditions. Unions have the right to organize and collectively bargain. The proportion of union members in the total employed labor force is roughly 17 percent. The New Zealand Council of Trade Unions is the umbrella organization for 350,000 union members in 40 affiliated unions. Work stoppages continue to decline. In the year ending June 2010, there were 29 work stoppages, up ten stoppages from the June 2009 year. Of the 29 stoppages, 21 were complete strikes, six were partial strikes, and two were lockouts. The stoppages involved 13,829 employees and a loss of 17,989 person-days. This represented the first increase in the annual number of stoppages since 2006. Employment rights mandate that every employee has a written employment agreement. The adult (employees who are 16 and over and are not new entrants or trainees) minimum wage is NZD 12.75 per hour. The new entrants and training minimum wage is NZD 10.20 per hour.
Foreign Trade Zones/Free Ports
New Zealand does not have any foreign trade zones or free ports.
Foreign Direct Investment Statistics
As of the year ending in June 2010, New Zealand’s direct investment abroad (stock) was NZD 21.43 billion, down NZD 3.52 billion (16 percent) from year ending June 2009. Total foreign direct investment (stock) in New Zealand was NZD 92.49 billion, an increase of NZD 1.3 billion (1 percent). As a percent of GDP, New Zealand’s investment abroad and foreign investment in New Zealand was 16 percent and 69 percent respectively. (Note: GDP for the same time period was NZD 133.29 billion and is expressed in 1995/96 prices.) Australia remains New Zealand’s largest investment partner; it accounts for 51 percent of total New Zealand investment abroad and 51 percent of total foreign investment in New Zealand. Together with Australia, the United Kingdom and the United States make up New Zealand’s three biggest investment partners.
Direct investment in the United States is 17 percent of New Zealand’s direct investment overseas, and the United States is the source of 11 percent of total foreign direct investment in New Zealand. As of the year ending June 2010, the total value of New Zealand’s investment in the United States was NZD 3.56 billion (down 60 percent over the same period 2009), and the total value of U.S. investment in New Zealand was NZD 10.62 billion (down 5 percent over the same period in 2009).
U.S. investment in New Zealand is concentrated in the telecommunications, forestry, transportation, food processing, and electronic data processing sectors. Increasingly U.S. investments are going into petroleum refining and distribution, financial services, information technology, and biotechnology. New Zealand primarily invests abroad in the financial and insurance industry and manufacturing.
For reference purposes, NZD 1 roughly equals USD 0.75 (January 2011).
Source: Statistics New Zealand