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RR RUEHNZ
DE RUEHWL #0985/01 3550205
ZNR UUUUU ZZH
R 210205Z DEC 05
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 2161
INFO RUEHBY/AMEMBASSY CANBERRA 4236
RUEHNZ/AMCONSUL AUCKLAND 0552
RUEHDN/AMCONSUL SYDNEY 0407
RUCPDOC/USDOC WASHDC 0005
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS SECTION 01 OF 06 WELLINGTON 000985 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA AND EAP/ANP 
STATE PASS TO USTR-BWEISEL 
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ABENAISSA 
 
E.O. 12356: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR NZ
SUBJECT: NEW ZEALAND: INVESTMENT CLIMATE STATEMENT 2006 
 
REF: STATE 201904 
 
Per reftel, following is post's draft of the 2006 Investment 
Climate Statement on New Zealand. 
 
Begin draft: 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
Foreign direct investment in New Zealand is generally 
welcomed and encouraged without discrimination. 
 
New Zealand screens certain types of foreign investment 
through the Overseas Investment Office (OIO).  Amid growing 
public concern about purchases of coastal properties by 
foreigners, the New Zealand government enacted legislation 
in August 2005 that toughened the screening and monitoring 
of land purchases, but raised the minimum threshold that 
triggers a review of proposed business purchases.   Under 
the legislation, government approval is required for non- 
land business investments of NZ $100 million or more, where 
a foreigner proposes to take ownership or control of 25 
percent or more of a business.  Government approval also is 
required for purchases of land larger than 5 hectares (12.35 
acres) and land in certain sensitive or protected areas. 
Any application involving land must meet a national interest 
test.  For land purchases, foreigners who do not intend to 
live in New Zealand must provide a management proposal 
covering any historic, heritage, conservation or public 
access matters and any planned economic development.  That 
proposal would have to be approved and generally made a 
condition of consent.  Overseas purchasers also must 
demonstrate the necessary experience to manage the 
investment. 
 
In addition, investors would be required to report regularly 
on their compliance with the terms of the consent.  The OIO 
monitors foreign investments after approval.  If foreign 
investors are found to have included deceptive statements on 
approval applications, the High Court can order the disposal 
of their New Zealand holdings.  A U.S. citizen in November 
2005 became the first person to be convicted of breaching 
the Overseas Investment Act 1973, for failing to meet the 
conditions of the government's consent to his purchase of 
land.  In the three years since purchasing the property, he 
had not developed a chestnut orchard or fir tree plantation 
as promised.  A district court fined him NZ $17,000 and 
ordered him to pay legal costs of NZ $5,000. 
 
The OIO, part of Land Information New Zealand, took over the 
functions of the Overseas Investment Commission in August 
¶2005. 
 
In practice, the government's approval requirements have not 
been an obstacle for U.S. investors.  Very few applications 
have been turned down (only 37, versus 1,089 granted, from 
2000-2004), and those usually involved land intended for 
farming purposes, residential subdivision or accommodation. 
In 2004, 10 applications were refused, compared to eight in 
¶2003. 
 
The stock of foreign direct investment in New Zealand 
amounted to NZ $77.2 billion as of March 31, 2005. 
Australia (NZ $35.2 billion) was the largest contributor to 
foreign direct investment in New Zealand, followed by the 
United States (NZ $9.2 billion) and the Netherlands (NZ $6.3 
billion). 
 
Very few government-owned enterprises remain to be 
privatized. The government has not discriminated against 
foreign buyers, but has in place limitations on foreign 
ownership of Air New Zealand and Telecom New Zealand. 
 
The New Zealand government offers virtually no incentives 
for foreign investment, except for a tax rebate for large- 
scale film and television projects produced in the country. 
A stable, low inflation environment and relatively open 
economy are viewed as the strongest incentives for 
investment. 
 
There is no capital gains tax. New Zealand has agreements 
banning double taxation with 29 countries, including the 
United States.  (Such an agreement between New Zealand and 
 
WELLINGTON 00000985  002 OF 006 
 
 
Poland was signed in 2005 but is not yet in force.)  The 
corporate tax rate is 33 percent for all companies, domestic 
and foreign.  The personal tax rate for most foreign 
investors (from the combined effects of New Zealand's 
nonresident withholding tax and company tax) also is 33 
percent, although the maximum personal tax rate is 39 
percent. 
 
Under legislation passed in 1995, foreign firms and 
investors were granted national treatment on corporate 
taxes; transfer-pricing rules were aligned so that New 
Zealand adheres to Organization for Economic Cooperation and 
Development (OECD) practices; and, thin capitalization 
regulations were tightened to discourage foreign companies 
from using excessive debt to avoid New Zealand taxes. The 
rules offer foreign investors greater transparency and 
predictability. 
 
The Overseas Investment Office operates a comprehensive 
Internet website (www.oio.linz.govt.nz) that explains New 
Zealand investment policy and walks potential investors 
through the application process. 
 
Investment New Zealand, the government's investment 
promotion agency, works with offshore investors to 
facilitate investment in New Zealand. Information about the 
agency and contact details for its offices in the United 
States can be obtained from its website 
http://www.investnewzealand.govt.nz. 
 
Conversion and Transfer Policies 
-------------------------------- 
There are no restrictions on the inflow or outflow of 
capital, and the currency is freely convertible. Full 
remittance of profits and capital is permitted through 
normal banking channels. 
 
Expropriation and Compensation 
------------------------------ 
Expropriation has not been an issue in New Zealand, and 
there are no outstanding cases. 
 
Dispute Settlement 
------------------ 
Investment disputes are extremely rare, and there have been 
no major disputes in recent years. The mechanism for 
handling disputes is the judicial system. New Zealand is a 
party to the Convention on the Settlement of Investment 
Disputes Between States and Nationals of Other States and to 
the New York Convention of 1958.  Property and contractual 
rights are enforced by a British style legal system. The 
highest appeals court is a domestic Supreme Court, which 
replaced the Privy Council in London and began hearing cases 
July 1, 2004. 
 
Performance Requirements and Incentives 
--------------------------------------- 
There are no performance requirements or incentives 
associated with foreign investment, although the government 
may require foreign buyers of land to report periodically on 
their compliance with the terms of the government's consent 
to their purchase. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
There are no restrictions on the right to establish, own and 
operate business enterprises, aside from the requirement for 
government approval of foreign investments over NZ $100 
million where a foreigner proposes to take ownership or 
control of 25 percent or more of a business, investments in 
commercial fishing and certain land purchases, and limits on 
investments in Air New Zealand and Telecom New Zealand. 
 
A number of government entities have been transformed into 
state-owned enterprises (SOEs), and a number of SOEs have 
been privatized. Aside from the government equity holdings 
established at the time of formation, SOEs are provided no 
special advantages in their competition with private 
entities. In general, there has been no restriction on 
foreign purchasers in the privatization of assets. There is 
no limit on foreigners buying into any sector or acquiring 
100 percent ownership of any firm, except for the ceilings 
on foreign ownership stakes in Air New Zealand and Telecom 
 
WELLINGTON 00000985  003 OF 006 
 
 
New Zealand.  To preserve landing rights, no more than 49 
percent of Air New Zealand, the national flagship carrier, 
can be owned by foreigners. A single foreign investor can 
hold a maximum of 49.9 percent of the total voting shares of 
Telecom New Zealand.  In addition, under the Fisheries Act 
1983, foreigners can only lease New Zealand fishing rights. 
 
Protection of Property Rights 
----------------------------- 
New Zealand is a member of the World Intellectual Property 
Organization, the Paris Convention for the Protection of 
Industrial Property, the Berne Convention and the Universal 
Copyright Convention. It fulfilled its TRIPS Agreement 
obligations in most respects with the passage of the 
Copyright Act 1994; Layout Designs Act 1994; and 1994 
amendments to the Patents Act 1953, the Trade Marks 
Amendment Act 1953 and the Plant Variety Rights Act 1987. 
Amendments made to existing intellectual property statutes 
came into force January 1, 1995.  The Trade Marks Act 2002 
created new criminal offenses for counterfeiting trademarks 
and increased the penalties for pirating copyright goods. 
Legislation has been proposed to bring the Patents Act 1953 
into closer conformity with international standards by 
tightening the criteria for granting a patent, from a 
patentable invention being new in New Zealand, to being new 
anywhere in the world and involving an inventive step. 
 
New Zealand has not signed or ratified the WIPO Copyright 
Treaty or the WIPO Performances and Phonograms Treaty.  The 
government in June 2003 proposed amendments to the Copyright 
Act 1994 that, if enacted, would allow it to determine 
whether to accede to the two treaties. 
 
In May 1998, the Copyright Act and the Medicines Act were 
amended to remove a prohibition on parallel importing. This 
amendment allows importation of legitimate goods into New 
Zealand without the permission of the holder of the 
intellectual property rights. Enacted by the government to 
expand discounted prices for consumers, it also has resulted 
in an increase in "gray market" goods entering New Zealand. 
Manufacturers have expressed concern that parallel imports 
will result in damage to their reputation due to imports of 
dated products, products not suitable for New Zealand 
conditions, and after-market servicing problems. In 
addition, parallel importing limits returns to the holders 
of intellectual property by not allowing control over market 
targeting, such as timing of releases. In October 2003, the 
government enacted a ban on the parallel importation of 
films, videos and DVDs for the initial nine months after a 
film's international release. 
 
Transparency of Regulatory System 
--------------------------------- 
The Commerce Commission administers the Commerce Act 1986, 
which governs restrictive trade practices. In general, price 
fixing and contracts, arrangements or understandings that 
have the purpose or effect of substantially lessening 
competition in a market are prohibited, unless authorized by 
the Commerce Commission. Before granting such authorization, 
the commission must be satisfied that the public benefit 
would outweigh the reduction of competition. 
 
The Commerce Commission also can block a merger or takeover 
that would result in the new company gaining a dominant 
position in the market. The use of a dominant market 
position to lessen or prevent various specified types of 
competition is contrary to the Act's provisions.  However, 
the enforcement or attempted enforcement of any right under 
any copyright, patent, protected plant variety, registered 
design or trademark do not necessarily constitute abuses of 
a dominant position. 
 
Suppliers' use of resale price maintenance, in which 
suppliers of goods set and enforce sale prices to be charged 
by re-sellers, is prohibited. Advice should be obtained on 
the application of the Act before the establishment of 
exclusive distribution, selling and franchising arrangements 
in New Zealand. 
 
Reforms adopted since 1984 have included deregulation as a 
primary objective. The most salient examples are the 
financial and telecommunications sectors, although the 
effort has been broad based. 
 
WELLINGTON 00000985  004 OF 006 
 
 
 
To ensure competition in "natural monopolies," such as 
telecommunications and electricity, the government has 
considered increased oversight.  Motivated largely by the 
power industry's failure to provide adequate electricity 
reserve capacity, the government set up an Electricity 
Commission, which started supervising the electricity 
industry and markets on March 1, 2004. Under the 1997 WTO 
Basic Telecommunications Services Agreement, New Zealand has 
been committed to the maintenance of an open competitive 
environment in the telecommunications sector. Key reforms of 
the sector, through legislation enacted in December 2001, 
included appointment of a commissioner responsible for 
resolving commercial disputes.  After an almost year-long 
review of the Telecommunications Act 2001, the Minister of 
Communications on August 9, 2005, announced proposed changes 
to the act aimed at improving the monitoring and enforcement 
of agreements involving regulated services.  The proposed 
changes will require Parliament's approval. 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
Since the removal of financial-sector controls in the mid- 
1980s, money market activity has grown rapidly, particularly 
foreign exchange trading and a sizable secondary market in 
government securities.  A range of financial instruments, 
including forward contracts, options and exchange rate 
futures, and the use of hedging devices to reduce interest 
rate and exchange rate risks have been introduced. The New 
Zealand banking system consists of 16 registered banks with 
more than 90 percent of their combined assets under the 
ownership of foreign banks (Australian banks account for 85 
percent of the total). There are only two New Zealand-based 
banking institutions, including Kiwibank, introduced in 2001 
by the Labour-Alliance government and operated out of the NZ 
Post Shops.  Aggregate banking system capital adequacy has 
been above minimum requirements since the introduction of 
Basel based reporting in 1989. Access to the credit system 
is unrestricted. 
 
The Securities Commission, under the Securities Act 1978 and 
amendments, regulates the issuance of securities. The Act 
requires prospectuses for public offerings of new securities 
and prescribes the information that must be disclosed. An 
amendment in 1988 provides civil remedies for loss or 
damages resulting from insider trading.  The Securities 
Markets and Institutions Bill, resulting in three amendments 
that took effect in December 2002, gave the Securities 
Commission additional powers to increase its effectiveness 
in monitoring and enforcement, including enforcement of laws 
against insider trading. Stocks in a number of New Zealand 
listed firms also are traded in Australia and in the United 
States. 
 
A takeovers code that took effect July 1, 2001, requires any 
person who tenders an offer for 20 percent or more of a 
publicly traded company to make that same offer to all 
shareholders. 
 
Legal, regulatory, and accounting systems are transparent. 
Financial accounting standards are issued by the Accounting 
Standards Review Board, an independent body set up under the 
provisions of the Financial Reporting Act 1993.  The Act 
makes the adoption of financial accounting standards 
mandatory for registered companies and issuers of 
securities, including entities listed on the New Zealand 
Stock Exchange.  The standards generally are adopted by 
other entities as well.  The Board's accounting standards 
are based largely on international accounting standards, and 
by 2007 the use of international accounting standards will 
be universal.  Smaller companies (except issuers of 
securities and overseas companies) that meet proscribed 
criteria face less stringent reporting requirements. 
Entities listed on the stock exchange are required to 
produce annual financial reports for shareholders together 
with abbreviated semi-annual reports. 
 
Small, publicly held companies not listed on the New Zealand 
Stock Exchange (NZSE) may include in their constitution 
measures to restrict hostile takeovers by outside interests, 
domestic or foreign.  However, NZSE rules prohibit such 
"poison pill" measures by its listed companies. 
 
 
WELLINGTON 00000985  005 OF 006 
 
 
Foreign-owned or controlled companies are not foreclosed 
from participation in domestic industry standards setting 
organizations. 
 
Political Violence 
------------------ 
New Zealand is a stable western democracy. There has been no 
significant political violence since the Maori wars in the 
mid-1800s. 
 
Corruption 
---------- 
New Zealand is renowned for its efforts to ensure a 
transparent, competitive, and corruption-free government 
procurement system. It is government policy to give local 
producers a fair chance to compete, but departments are 
responsible for limiting costs and seeking the best value 
for the money. Stiff penalties against bribery of government 
officials as well as those accepting bribes are strictly 
enforced. New Zealand ranked second in the world on 
Transparency International's corruption-free scale.  New 
Zealand has ratified the OECD Anti-Bribery Convention.  New 
Zealand has opted not to join the GATT/WTO Government 
Procurement Agreement because the benefits would not justify 
the compliance costs amid New Zealand's totally deregulated 
government procurement system, according to the government. 
Nonetheless, New Zealand supports multilateral efforts to 
increase transparency of government procurement regimes. 
 
Bilateral Investment Agreements 
------------------------------- 
New Zealand in 1988 signed an agreement with China on the 
promotion and protection of investment and in 1992 signed a 
Trade and Investment Framework Agreement with the United 
States. New Zealand's free-trade agreements with Singapore 
(2001) and Thailand (2004) include investment chapters.  New 
Zealand adheres to the OECD Code of Liberalization of 
Capital Movements and the OECD Code on Current Invisible 
Operations. 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
As an OECD member country and developed nation-state, New 
Zealand is not eligible for OPIC programs. New Zealand does 
not intend to become a member of the Multilateral Investment 
Guarantee Agency. The New Zealand Government does not 
provide a comparable program like OPIC to its investors. It 
has a small export credit program that has so far not 
attracted great commercial interest. 
 
Labor 
----- 
Unemployment was 3.4 percent of the labor force in September 
¶2005.  The demand for labor has been strong, and shortages 
of skilled labor remain a problem throughout the economy. 
Several factors have caused the shortages, including lower 
wages compared to those in Australia, where any New 
Zealander can legally work; lack of training; and, falling 
immigration numbers.  Labor shortages are especially 
pronounced in the construction industry. 
 
Employees are entitled to a minimum three-week paid annual 
leave after the first year of employment.  The mandatory 
minimum will be increased to four weeks' annual leave 
beginning April 1, 2007.  Paid leave also can be taken for 
illness, bereavement or parenthood. 
 
Unions have the right to organize and collectively bargain. 
About 21 percent of New Zealand's wage and salary workers 
are union members. 
 
The Employment Contracts Act 1991 (ECA) ended compulsory 
unionism and prohibited certain strikes. Overall, the law 
spurred a reduction in union membership, although some 
unions grew, particularly through mergers. In 2000, the 
Labour-led government replaced the ECA with the Employment 
Relations Act (ERA), contending the change was necessary to 
restore balance in the powers of employers and employees. 
The ERA promotes collective bargaining, strengthens unions 
and places strong emphasis on good faith bargaining. 
Employment relationships are based on contracts, and workers 
may negotiate an employment contract with their employer 
individually or collectively.  Despite the business sector's 
 
WELLINGTON 00000985  006 OF 006 
 
 
initial fears about the ERA, workdays lost to strikes have 
continued an overall steady decline that began in the 1990s. 
However, there were 34 work stoppages in 2004 -- six more 
than in 2003 -- involving strikes, partial strikes and one 
lockout. 
 
A 2004 revision of the ERA strengthened its collective 
bargaining and good faith provisions.  It provides 
additional protections for workers in the event of company 
ownership changes.  It also allows unions to charge 
bargaining fees for non-union workers who enjoy the same 
wages and conditions negotiated by unions for their members, 
although workers can opt out of paying the fee if they 
negotiate their own contracts. The government made a number 
of changes to initial drafts of the bill to address business 
concerns. Prospective entrants to the New Zealand market are 
encouraged to examine the details of the labor legislation. 
(Information on New Zealand's employment law is available on 
the Department of Labour's website, 
http://www.ers.dol.govt.nz). 
 
Minimum wage and workplace safety regulations are 
incorporated under other laws. An Employment Relations 
Authority handles disputes, and its decisions may be 
appealed in an Employment Court. 
 
Foreign-Trade Zones/Free Trade Zones 
------------------------------------ 
New Zealand does not have any foreign trade zones or free 
trade zones. 
 
Foreign Direct Investment Statistics 
------------------------------------ 
The stock of foreign direct investment (FDI) in New Zealand 
rose to NZ $77.2 billion (US $56.4 billion) as of March 31, 
¶2005.  That was equivalent to 52 percent of New Zealand's 
GDP. (GDP in the year ending March 31, 2005, was estimated 
at NZ $147.542 billion using the GDP of NZ $122.816 billion 
in 1995/96 prices multiplied by a price deflator of 1.26. 
Source: Statistics New Zealand) 
 
The privatization of many state-owned enterprises and 
monopolies in the 1990s brought a flood of U.S. investment 
into New Zealand over a five-year period, 1994-1998. U.S. 
investment approvals amounted to NZ $8.7 billion during the 
period, or the second-largest share at 24.8 percent of total 
foreign investment approved, with Australia taking a 27.5 
percent share. 
 
The U.S. share of FDI stock in New Zealand peaked at around 
28 percent in 1997 and was down to 11.9 percent in March 
¶2005. 
 
U.S. investment is concentrated in the telecommunications, 
forestry, transportation, food processing and electronic 
data processing sectors. Increased U.S. investments are 
being directed into petroleum refining and distribution, 
financial services, information technology and 
biotechnology. 
 
New Zealand's direct investment abroad was NZ $18.98 billion 
(US $13.87 billion) as of March 31, 2005, or the equivalent 
of 12.9 percent of GDP. 
 
BURNETT