This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 06 WELLINGTON 000045 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA AND EAP/ANP 
STATE PASS TO USTR-BWEISEL AND DKATZ 
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/GPAINE 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV NZ OPIC USTR
SUBJECT: NEW ZEALAND: INVESTMENT CLIMATE STATEMENT 2005 
 
REF: STATE 250356 
 
Per reftel, following is post's draft of the 2005 Investor 
Climate Statement on New Zealand. 
 
Begin draft: 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
Foreign direct investment in New Zealand is generally 
welcomed and encouraged without discrimination. 
 
However, certain types of foreign investment are screened by 
the Overseas Investment Commission (OIC).  Commission 
approval is required for all foreign investments that would 
result in 25 percent control or more of a business or 
property valued at more than NZ $50 million (US $33.2 million 
at NZ $1 = US $0.6641).  Approval also is required for 
certain land purchases, including land more than five 
hectares (12.35 acres) or worth more than NZ $10 million; 
land on most islands or over 0.2 hectares on or along the 
foreshore; and, "sensitive" lands more than 0.4 hectares. 
Sensitive lands include reserves, historic or heritage areas, 
and land near lakes, related to control of natural resources 
or considered culturally important to the indigenous Maori 
population. Restrictions and approval requirements also apply 
to investments in the commercial fishing industry. OIC 
consent is based on a national interest determination. No 
specific performance requirements are attached to foreign 
direct investment, although the OIC can impose conditions on 
any investment it approves. 
 
The OIC also monitors foreign investments after approval.  If 
foreign investors are found to have included deceptive 
statements on approval applications, the High Court can order 
the disposal of their New Zealand holdings. 
 
Amid a growing public outcry about the purchases of coastal 
properties by foreign buyers, the New Zealand government in 
November 2003 launched a review of OIC's powers.  That review 
led to proposed legislation in November 2004 that would raise 
the minimum threshold at which scrutiny of proposed business 
purchases is required, but toughen the screening and 
monitoring of land purchases.  Under the legislation, the 
threshold for screening non-land business assets would be 
increased to NZ $100 million (US $66.4 million), where a 
foreigner proposes to take control of 25 percent or more of a 
business.  Purchases of land over 5 hectares would require 
the commission's review, as would land in certain sensitive 
or protected areas.  For land purchases, foreigners who do 
not intend to live in New Zealand would have to provide a 
management proposal covering any historic, heritage, 
conservation or public access matters and any economic 
development planned.  That proposal would have to be approved 
and could be made a condition of consent.  In addition, 
investors would be required to report regularly on compliance 
with the terms of the consent.  Overseas persons would 
continue to have to demonstrate the necessary experience to 
manage the investment.  Any application involving land in any 
form still would have to meet a national interest test.  The 
proposed legislation would transfer the OIC's functions to a 
unit within the government agency Land Information New 
Zealand. 
 
In practice, the OIC approval requirements have not been an 
obstacle for U.S. investors. Very few applications have been 
turned down (only 28, versus 1,223 granted, from 1999-2003), 
and those usually involved land intended for farming 
purposes, residential subdivision or accommodation. In 2003, 
eight applications were refused, compared to nine in 2002. 
 
Net investment by foreigners amounted to NZ $1.6 billion in 
2003, the OIC reported. Australia (NZ $3.647 billion) was the 
largest net investor in New Zealand in 2003, followed by the 
United States (NZ $1.953 billion) and Austria (NZ $254 
million). 
 
For most countries except Australia, the stock of foreign 
direct investment (FDI) in New Zealand has declined from the 
late 1990s, when FDI spiked as a result of a massive wave of 
government privatization. Australia, which has a Closer 
Economic Relations agreement with New Zealand, has posted an 
increase in FDI stocks in New Zealand, partly arising from 
the purchases of New Zealand banks by their Australian 
counterparts. 
 
Very few government-owned enterprises remain to be 
privatized. The government has not discriminated against 
foreign buyers, but has limitations on foreign ownership of 
Air New Zealand and Telecom New Zealand. 
 
The New Zealand government offers virtually no incentives for 
foreign investment, except for a tax incentive for 
large-scale film and television projects produced in the 
country.  A stable, low-inflation environment and a skilled, 
cost-effective labor force are viewed as the strongest 
incentives for investment. 
 
There is no capital gains tax. New Zealand has agreements 
banning double taxation with 24 countries, including the 
United States.  The corporate tax rate is 33 percent for all 
companies, domestic and foreign.  The personal tax rate for 
most foreign investors (from the combined effects of New 
Zealand's nonresident withholding tax and company tax) also 
is 33 percent, although the maximum personal tax rate is 39 
percent. 
 
Under legislation passed in 1995, foreign firms and investors 
were granted national treatment on corporate taxes; 
transfer-pricing rules were aligned so that New Zealand 
adheres to Organization for Economic Cooperation and 
Development (OECD) practices; and, thin capitalization 
regulations were tightened to discourage foreign companies 
from using excessive debt to avoid New Zealand taxes. The 
rules offer foreign investors greater transparency and 
predictability. 
 
The Overseas Investment Commission operates a comprehensive 
Internet website (www.oic.govt.nz) that explains New Zealand 
investment policy and walks potential investors through the 
application process. 
 
Investment New Zealand, the government,s investment 
promotion agency, works with offshore investors to facilitate 
investment in New Zealand. Information about the agency and 
contact details for its offices in the United States can be 
obtained from its website www.investnewzealand.govt.nz. 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
There are no restrictions on the inflow or outflow of 
capital, and the currency is freely convertible. Full 
remittance of profits and capital is permitted through normal 
banking channels. 
 
EXPROPRIATION AND COMPENSATION 
------------------------------- 
Expropriation has not been an issue in New Zealand, and there 
are no outstanding cases. 
 
DISPUTE SETTLEMENT 
------------------ 
Investment disputes are extremely rare, and there have been 
no major disputes in recent years. The mechanism for handling 
disputes is the judicial system. New Zealand is a party to 
the Convention on the Settlement of Investment Disputes 
Between States and Nationals of Other States and to the New 
York Convention of 1958.  Property and contractual rights are 
enforced by a British-style legal system. The highest appeals 
court is a domestic Supreme Court, which replaced the Privy 
Council in London and began hearing cases July 1, 2004. 
 
PERFORMANCE REQUIREMENTS/INCENTIVES 
----------------------------------- 
There are no performance requirements or incentives 
associated with foreign investment, although the government 
has proposed legislation requiring foreign buyers of land to 
report periodically on their compliance with the terms of the 
government's consent to their purchase. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
There are no restrictions on the right to establish, own and 
operate business enterprises, aside from the requirement for 
OIC approval of foreign investments over NZ $50 million and 
investments in commercial fishing and rural land and limits 
on investments in Air New Zealand and Telecom New Zealand. 
 
A number of government entities have been transformed into 
state-owned enterprises (SOEs), and a number of SOEs have 
been privatized. Aside from the government equity holdings 
established at the time of formation, SOEs are provided no 
special advantages in their competition with private 
entities. In general, there has been no restriction on 
foreign purchasers in the privatization of assets. There is 
no limit on foreigners buying into any sector or acquiring 
100 percent ownership of any firm, except for the ceilings on 
foreign ownership stakes in Air New Zealand and Telecom New 
Zealand.  To preserve landing rights, no more than 49 percent 
of Air New Zealand, the national flagship carrier, can be 
owned by foreigners. A single foreign investor can hold a 
maximum of 49.9 percent of the total voting shares of Telecom 
New Zealand.  In addition, under the Fisheries Act 1983, 
foreigners can only lease New Zealand fishing rights. 
 
PROTECTION OF PROPERTY RIGHTS 
----------------------------- 
New Zealand is a member of the World Intellectual Property 
Organization, the Paris Convention for the Protection of 
Industrial Property, the Berne Convention and the Universal 
Copyright Convention. It fulfilled its TRIPS Agreement 
obligations in most respects with the passage of the 
Copyright Act 1994; Layout Designs Act 1994; and 1994 
amendments to the Patents Act 1953, the Trade Marks Amendment 
Act 1953, and the Plant Variety Rights Act 1987. Amendments 
made to existing intellectual property statutes came into 
force January 1, 1995.  The Trade Marks Act 2002 created new 
criminal offenses for counterfeiting trademarks and increased 
the penalties for pirating copyright goods.  Legislation has 
been proposed to bring the Patents Act 1953 into closer 
conformity with international standards by tightening the 
criteria for granting a patent, from a patentable invention 
being new in New Zealand, to being new anywhere in the world 
and involving an inventive step. 
 
In two areas, New Zealand's legislation goes beyond its TRIPS 
obligations. New Zealand's 1994 copyright legislation allows 
its regime to keep pace with technological changes and 
ensures compliance with the 1971 revision of the Berne 
Convention. Brought into force in 1996, the Geographical 
Indications Act 1994 establishes a regime for protecting New 
Zealand and international geographical indications (e.g., for 
wine) from misleading or deceptive use. 
 
New Zealand has not signed or ratified the WIPO Copyright 
Treaty or the WIPO Performances and Phonograms Treaty.  The 
government in June 2003 proposed amendments to the Copyright 
Act 1994 that, if enacted, would allow it to determine 
whether to accede to the two treaties. 
 
In May 1998, the Copyright Act and the Medicines Act were 
amended to remove a prohibition on parallel importing. This 
amendment allows importation of legitimate goods into New 
Zealand without the permission of the holder of the 
intellectual property rights. Enacted by the government to 
expand discounted prices for consumers, it also has resulted 
in an increase in pirated goods entering New Zealand. 
Manufacturers have expressed concern that parallel imports 
will result in damage to their reputation due to imports of 
dated products, products not suitable for New Zealand 
conditions, and after market servicing problems. In addition, 
parallel importing limits returns to the holders of 
intellectual property by not allowing control over market 
targeting, such as timing of releases. In October 2003, the 
government enacted a ban on the parallel importation of 
films, videos and DVDs for the initial nine months after a 
film's international release. 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
The Commerce Commission administers the Commerce Act 1986, 
which was amended by the Commerce Amendment Act 2001 and 
governs restrictive trade practices. In general, price fixing 
and contracts, arrangements or understandings that have the 
purpose or effect of substantially lessening competition in a 
market are prohibited, unless authorized by the Commerce 
Commission. Before granting its authority, the commission 
must be satisfied that the public benefit would outweigh the 
reduction of competition. 
 
The Commerce Commission also may block a merger or takeover 
that would result in the new company gaining a dominant 
position in the market. The use of a dominant market position 
to restrict, prevent, hinder, deter or eliminate various 
specified types of competition is contrary to the Act's 
provisions.  However, the enforcement or attempted 
enforcement of any right under any copyright, patent, 
protected plant variety, registered design or trademark do 
not necessarily constitute abuses of a dominant position. 
Suppliers' use of resale price maintenance is prohibited. 
Advice should be obtained on the application of the Act 
before the establishment of exclusive distribution, selling 
and franchising arrangements in New Zealand. 
 
Reforms adopted since 1984 have included deregulation as a 
primary objective. The most salient examples are the 
financial and telecommunications sectors, although the effort 
has been broad-based. 
 
To ensure competition in "natural monopolies," such as 
telecommunications and electricity, the government has 
considered increased oversight.  Motivated largely by the 
power industry's failure to provide adequate electricity 
reserve capacity, the government set up an Electricity 
Commission, which started supervising the electricity 
industry and markets March 1, 2004. Under the 1997 WTO Basic 
Telecommunications Services Agreement, New Zealand has been 
committed to the maintenance of an open competitive 
environment in the telecommunications sector. Key reforms of 
the sector, through legislation enacted in December 2001, 
included appointment of a commissioner responsible for 
resolving commercial disputes.  In November 2004, the 
government began a review of the Telecommunications Act 2001, 
aimed at improving the monitoring and enforcement of 
agreements involving regulated services.  The review was open 
to public comment until February 4, 2005.  The Ministry of 
Economic Development will consider the submissions before 
making recommendations to the government on possible 
legislative changes. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
Since the removal of financial-sector controls in the 
mid-1980s, money market activity has grown rapidly, 
particularly foreign exchange trading and a sizable secondary 
market in government securities.  A range of financial 
instruments, including forward contracts, options and 
exchange rate futures, and the use of hedging devices to 
reduce interest rate and exchange rate risks have been 
introduced. The New Zealand banking system consists of 16 
registered banks with more than 90 percent of their combined 
assets under the ownership of foreign banks (Australian banks 
account for 87 percent of the total). Kiwibank, introduced in 
2001 by the Labour-Alliance government and operated out of 
the NZ Post Shops, is the only sizable New Zealand-based 
institution.  Aggregate banking system capital adequacy has 
been above minimum requirements since the introduction of 
Basel-based reporting in 1989. Access to the credit system is 
unrestricted. 
 
The Securities Commission, under the Securities Act 1978 and 
amendments, regulates the issuance of securities. The Act 
requires prospectuses for public offerings of new securities 
and prescribes the information that must be disclosed. An 
amendment in 1988 provides civil remedies for loss or damages 
resulting from insider trading.  The Securities Markets and 
Institutions Bill in December 2002 gave the Securities 
Commission additional powers to increase its effectiveness in 
monitoring and enforcement, including enforcement of laws 
against insider trading. Stocks in a number of New 
Zealand-listed firms also are traded in Australia and in the 
United States. 
 
A takeovers code that took effect July 1, 2001, requires any 
person who tenders an offer for 20 percent or more of a 
publicly traded company to make that same offer to all 
shareholders. 
 
Legal, regulatory, and accounting systems are transparent. 
Accounting is based on elements of British and U.S. systems. 
The Institute of Chartered Accountants of New Zealand has 
developed Statements of Standard Accounting Practice (SSAP) 
that are mandatory for its members. All companies listed on 
the Stock Exchange must comply with the SSAP and issue annual 
reports and abbreviated semiannual reports to shareholders. 
The Financial Reporting Act 1993 requires firms to comply 
with financial accounting standards prescribed by an 
Accounting Standards Review Board established by the Act. The 
mandatory standards vary depending on the type of firm 
involved. 
Small, publicly held companies not listed on the New Zealand 
Stock Exchange (NZSE) may include in their constitution 
measures to restrict hostile takeovers by outside interests, 
domestic or foreign.  However, NZSE rules prohibit such 
"poison pill" measures by its listed companies. 
 
Foreign-owned or controlled companies are not foreclosed from 
participation in domestic industry standards-setting 
organizations. 
POLITICAL VIOLENCE 
------------------ 
New Zealand is a stable democracy. There has been no 
significant political violence since the Maori wars in the 
mid-1800s. 
 
CORRUPTION 
---------- 
New Zealand is renowned for its efforts to ensure a 
transparent, competitive, and corruption-free government 
procurement system. It is government policy to give local 
producers a fair chance to compete, but departments are 
responsible for limiting costs and seeking the best value for 
the money. Stiff penalties against bribery of government 
officials as well as those accepting bribes are strictly 
enforced. New Zealand ranked second in the world on 
Transparency International's corruption-free scale.  New 
Zealand has ratified the OECD Anti-Bribery Convention.  New 
Zealand has opted not to join the GATT/WTO Government 
Procurement Code because the benefits would not justify the 
compliance costs amid New Zealand's totally deregulated 
government procurement system, according to the government. 
Nonetheless, New Zealand supports multilateral efforts to 
increase transparency of government procurement regimes. 
 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
New Zealand in 1988 signed an agreement with China on the 
promotion and protection of investment and in 1992 signed a 
Trade and Investment Framework Agreement with the United 
States. New Zealand's free-trade agreement with Singapore 
took effect in 2001 and includes an investment chapter.  An 
agreement concluded by New Zealand and Thailand in November 
2004 also includes an investment chapter, but at the end of 
2004 had not yet been signed or implemented. New Zealand 
adheres to the OECD Code of Liberalization of Capital 
Movements and the OECD Code on Current Invisible Operations. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
As an OECD member country and developed nation-state, New 
Zealand is not eligible for OPIC programs, nor does the New 
Zealand government provide a program like OPIC to its 
investors. New Zealand does not intend to become a member of 
the Multilateral Investment Guarantee Agency. It has a small 
export credit program that so far has not attracted great 
commercial interest. 
 
LABOR 
----- 
Unemployment was 3.8 percent of the labor force in September 
¶2004.  The demand for labor has been strong, and shortages of 
skilled labor remain a problem throughout the economy. 
Several factors have caused the shortages, including lower 
wages compared to those in Australia, where any New Zealander 
can legally work; lack of training; and, falling immigration 
numbers.  Labor shortages are especially pronounced in the 
construction industry. 
 
Employees are entitled to a minimum three-week paid annual 
leave after the first year of employment.  The mandatory 
minimum will be increased to four weeks' annual leave 
beginning April 1, 2007.  Paid leave also can be taken for 
illness, bereavement or parenthood. 
 
Unions have the right to organize and collectively bargain. 
About 21 percent of New Zealand's wage and salary workers are 
union members. 
 
The Employment Contracts Act 1991 (ECA) ended compulsory 
unionism and prohibited certain strikes. Overall, the law 
spurred a reduction in union membership, although some unions 
grew, particularly through mergers. In 2000, the Labour-led 
government replaced the ECA with the Employment Relations Act 
(ERA), contending the change was necessary to restore balance 
in the powers of employers and employees.  The ERA promotes 
collective bargaining, strengthens unions and places strong 
emphasis on good faith bargaining.  Employment relationships 
are based on contracts, and workers may negotiate an 
employment contract with their employer individually or 
collectively.  Despite the business sector's initial fears 
about the ERA, workdays lost to strikes have continued a 
steady decline that began in the 1990s.  In 2003, there were 
28 work stoppages, involving strikes and partial strikes. 
A 2004 revision of the ERA strengthened its collective 
bargaining and good faith provisions.  It provides additional 
protections for workers in the event of company ownership 
changes.  It also allows unions to charge bargaining fees for 
non-union workers who enjoy the same wages and conditions 
negotiated by unions for their members, although workers can 
opt out of paying the fee if they negotiate their own 
contracts. The government made a number of changes to initial 
drafts of the bill to address business concerns. Prospective 
entrants to the New Zealand market are encouraged to examine 
the details of the labor legislation. (Information on New 
Zealand's employment law is available on the Department of 
Labour's website, www.ers.dol.govt.nz.) 
 
Minimum wage and workplace safety regulations are 
incorporated under other laws. An Employment Relations 
Authority handles disputes, and its decisions may be appealed 
in an Employment Court. 
 
FOREIGN TRADE ZONES/FREE PORTS 
------------------------------ 
New Zealand does not have any foreign trade zones or free 
ports. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
The stock of foreign direct investment (FDI) in New Zealand 
rose to NZ $64.289 billion (US $42.7 billion) as of March 31, 
¶2004.  That was equivalent to 46.8 percent of New Zealand's 
GDP. (GDP in the year ending March 31, 2004, was estimated at 
NZ $137.42 billion using the GDP of NZ $118.09 billion in 
1995/96 prices multiplied by a price deflator of 1.146. 
Source: Statistics New Zealand) 
 
The privatization of many state-owned enterprises and 
monopolies in the 1990s brought a flood of U.S. investment 
into New Zealand over a five-year period, 1994-1998. U.S. 
investment approvals amounted to NZ $8.7 billion during the 
period, or the second-largest share at 24.8 percent of total 
foreign investment approved, with Australia taking a 27.5 
percent share. 
 
The U.S. share of FDI stock in New Zealand peaked at around 
28 percent in 1997 before sliding to 10 percent by March 
¶2003. 
 
U.S. investment is concentrated in the telecommunications, 
forestry, transportation, food processing and electronic data 
processing sectors. Increased U.S. investments are being 
directed into petroleum refining and distribution, financial 
services, information technology and biotechnology. 
 
New Zealand's direct investment abroad was NZ $13.39 billion 
(US $8.89 billion) as of March 31, 2004, or the equivalent of 
10 percent of GDP. 
 
End draft. 
Swindells