Policies Towards Foreign Direct Investment
Foreign investment in New Zealand is generally encouraged without discrimination. New Zealand has an open and transparent economy, where businesses and investors can generally make commercial transactions with ease. Successive governments accept that foreign investment is an important source of financing for New Zealand and a means to gain access to foreign technology, expertise, and global markets. Some restrictions do apply in a few areas of critical interest including certain types of land, significant business assets, and fishing quotas. These restrictions are facilitated by a screening process conducted by the Overseas Investment Office (OIO), described in the next section.
New Zealand has a rapidly expanding network of bilateral investment treaties and free trade agreements that include investment components. New Zealand also has a well-developed legal framework and regulatory system, and the judicial system is generally effective in enforcing property and contractual rights. Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies.
The newly elected Labour Party government has indicated a tighter approach to screening some forms of foreign investment. The government has indicated an interest in differing aspects of trade agreement negotiation from the previous government, such as the consideration of investment screening thresholds for certain types of assets and an aversion to investor-state dispute settlement provisions. This is described in the next section.
Crown entity New Zealand Trade and Enterprise (NZTE) is New Zealand’s primary investment promotion agency. In addition to its New Zealand central and regional presence, it has 40 international locations, with half of its staff – about 580 – based overseas. In the United States the NZTE has offices in San Francisco, Los Angeles, New York, and Washington, D.C.
The International Investment Attraction Strategy launched in 2015 is specifically aimed at attracting high-quality overseas investment, increasing the number of multinational companies to undertake research and development in New Zealand, and attracting individual investors and entrepreneurs to reside in New Zealand. The Investment Attraction Taskforce is headed by NZTE and operates across several government agencies that include the Ministry of Business, Innovation and Employment (MBIE); the Ministry of Foreign Affairs and Trade (MFAT); Treasury; Immigration New Zealand; and Callaghan Innovation. Priority sectors identified by the taskforce include infrastructure, resources, food and beverage, high-value manufacturing, ICT, and primary industries.
The taskforce also introduced the Regional Investment Attraction Strategy to align and coordinate an approach to attracting investment. NZTE facilitates this work with regional economic development agencies to help channel investment to build capability and to promote opportunities in the regions. Other initiatives implemented by the taskforce include new visa categories created for investors and for entrepreneurs, and enabling foreign investors – under certain circumstances – to bid alongside New Zealand businesses for contestable government funding for research and innovation grants.
The New Zealand-United States Council, established in 2001, is a non-partisan organization funded by business and the government. It fosters a strong and mutually beneficial relationship between New Zealand and the United States through both government-to-government contacts, and business-to-business links. The American Chamber of Commerce in Auckland provides a platform for New Zealand and U.S. businesses to network among themselves and with government agencies.
Limits on Foreign Control and Right to Private Ownership and Establishment
The New Zealand government does not discriminate against U.S. or other foreign investors in their rights to establish and own business enterprises. It has placed separate limitations on foreign ownership of airline Air New Zealand and communications provider Spark New Zealand (Spark), the latter formerly known as Telecom Corporation of New Zealand until 2014.
Air New Zealand’s constitution requires that no person who is not a New Zealand national hold 10 percent or more of the voting rights without the consent of the Minister of Transport. There must be between five and eight board directors, and at least three directors must be ordinarily resident in New Zealand. In 2013 the government sold down its stake in Air New Zealand from 73 percent to 53 percent to raise money to pay down debt.
The constitution of telecommunications provider Spark requires at least half of its Board be New Zealand citizens, and at least one director must live in New Zealand. It requires 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 Spark Board, and no person who is not a New Zealand national can purchase a relevant interest in more than 49.9 percent of the total voting shares without approval from the Minister of Finance. This telecommunications service obligation (TSO) – formerly known as the “Kiwishare obligation” – has been in operation since Spark’s privatization in 1990, and was motivated in part because of the vital emergency (111) service it provides. There are TSOs for charge-free local calling (provided by Spark and supported by Chorus), and for the services for deaf, hearing impaired, and speech impaired people (provided by Sprint International).
The establishment of telecommunications infrastructure provider Chorus resulted from a demerger of Spark in 2011. Chorus owns most of the telephone infrastructure in New Zealand, and provides wholesale services to telecommunications retailers, including Spark. The demerger freed Spark from the TSO, but obligated Chorus as a natural monopoly and infrastructure provider. To date the New Zealand government has granted approval to two private companies – in April 2012 and December 2017 – to exceed the 10 percent threshold, and increase their interest in Chorus up to 15 percent.
New Zealand screens overseas investment mainly for economic reasons to ensure quality investments are made that benefit New Zealand. Failure to obtain consent before purchase can lead to significant financial penalties. The Overseas Investment Office (OIO) is responsible for screening foreign investment that falls within certain criteria specified in the Overseas Investment Act 2005. The OIO requires consent be obtained by overseas persons wishing to acquire or invest in significant business assets, sensitive land, farm land, or fishing quota, as defined below.
A “significant business asset” includes: acquiring 25 percent or more ownership or controlling interest in a New Zealand company with assets exceeding NZD100 million (USD 72 million); establishing a business in New Zealand that will be operational more than 90 days per year and expected costs of establishing the business exceeds NZD100 million; or acquiring business assets in New Zealand that exceed NZD100 million. For all three categories the threshold is higher for Australian non-government investors to NZD516 million (USD 372 million) for 2018, an amount reviewed each year in accordance with the 2013 Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement. Separately, upon entry into force, non-government investors from CPTPP countries will face a screening threshold of NZD200 million (USD 144 million).
OIO consent is required for overseas investors to purchase “sensitive land” either directly or acquiring a controlling interest of 25 percent or more in a person who owns the land. Sensitive land includes land that: is rural and exceeds five hectares (12.35 acres); is part of or adjoins the foreshore or seabed; exceeds 0.4 hectares and falls under of the Conservation Act 1987 or is land proposed for a reserve or public park; is subject to a Heritage Order, or is a historic or wahi tapu area (sacred Maori land); or is considered “special land” that is defined as including the foreshore, seabed, riverbed, or lakebed and must first be offered to the Crown. If the Crown accepts the offer, the Crown can only acquire the part of the “sensitive land” that is “special land,” and can acquire it only if the overseas person completes the process for acquisition of the sensitive land.
The Waitangi Tribunal was established by the Treaty of Waitangi Act 1975 to hear Maori claims relating to the loss of land and resources as a result of historical breaches by the Crown of the Treaty of Waitangi signed in 1840. Maori land claims may not be lodged relating to privately owned land and affect only land owned by the Crown. Some private land titles are noted with a memorial recording that the land, when Crown land, would be subject to a claim and therefore repurchased by the Crown for market value at some future time. No land in New Zealand has to date been the subject of a repurchase decision.
Where a proposed acquisition involves “farm land” (land used principally for the purpose of agriculture, horticulture or pastoral purposes), the OIO can only grant approval if the land is first advertised and offered on the open market in New Zealand to citizens and residents. The Crown can waive this requirement in special circumstances at the discretion of the relevant Minister.
Commercial fishing in New Zealand is controlled by the Fisheries Act, which sets out a quota management system that prohibits commercial fishing of certain species without the ownership of a fishing quota which specifies the quantity of fish that may be taken. OIO legislation together with the Fisheries Act, requires consent from the relevant Ministers in order for an overseas person to obtain an interest in a fishing quota, or an interest of 25 percent or more in a business that owns or controls a fishing quota.
For investments that require OIO screening, the investor must demonstrate in their application they meet the criteria for the “Investor Test” and the “Benefit to New Zealand test.” The former requires the investor to display 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.
The “Benefit to New Zealand test” requires the OIO assess the investment against 21 factors, which are set out in the OIO Act and Regulations. The OIO applies a counterfactual analysis to those benefit factors that are capable of having a counterfactual applied, the onus is upon the investor to consider the likely counterfactual if the overseas investment does not proceed. Economic factors are given weighting, particularly if the investment will create new job opportunities, retain existing jobs, and lead to greater efficiency or productivity domestically.
In December 2017, the government introduced regulatory changes that place greater emphasis on the assessment of significant economic benefits to New Zealand. For forestry investments, the OIO is required to place importance on investments that result in increased domestic processing of wood and advance government strategies. For rural land, importance is placed on the generation of economic benefits which were previously seldom applied for lifestyle rural property purchases that previously relied on non-economic benefits to gain OIO approval.
The OIO 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. Offenses include: defeating, evading, or circumventing the OIO Act; failure to comply with notices, requirements, or conditions; and making false or misleading statements or omissions. If an offense has been committed under the Act, the High Court has the power to impose penalties, including monetary fines, ordering compliance, and ordering the disposal of the investor’s New Zealand holdings.
In addition to placing emphasis on economic benefits in specific investments, in December 2017 the government issued new rules that reduced the area threshold for foreign purchases of rural land so that approval is required for rural land of an area over five hectares, rather than the previous metric of farm land “more than ten times the average farm size” (about 7,146 ha for sheep and beef farms, and 1,987 ha for dairy farms). They also issued a new rule that overseas investors intending to reside in New Zealand, move within 12 months and become ordinarily resident within 24 months, and ordered that the OIO place less importance on applicants’ sponsorship and donations in the application process.
In December 2017, the government introduced the Overseas Investment Amendment Bill to amend the 2005 Act in order to bring residential land within the category of “sensitive land.” The Bill in its current form will require foreigners to apply for OIO approval to purchase existing residential property and to sell-on any new home they build within 12 months of completion. Foreign investors can still purchase rural land less than five hectares but the Government said it will plan other measures to discourage “land bankers.” Due to New Zealand bilateral FTAs already in force, the ban will not apply to Australian or Singaporean investors. The government has announced it intends to pass the legislation before entry-into-force of the CPTPP agreement.
In March 2018, the government announced forestry cutting rights be brought into the OIO screening regime, similar to the screening of investments that exists for leasehold and freehold forestry land. Because the addition of a new asset class to the screening regime requires legislation, proposed legislation will enable foreign investors to purchase up to 1,000 ha of forestry rights per year or any forestry right of less than three years duration, without OIO approval. The government aims to introduce and pass this legislation before entry into force of the CPTPP agreement to preserve its future right to legislate in relation to forests.
Outside of the OIO framework, the previous government passed the Taxation (Bright-line Test for Residential Land) Bill. Under this Act, properties bought after October 1, 2015 will accrue tax on any gain earned if the house is bought and sold within two years, unless it is the owner’s main home. The bill requires foreign purchasers to have both a New Zealand bank account and a New Zealand Inland Revenue (IRD) tax number, and will not be entitled to the “main home” exception. The purchaser will also need to submit other taxpayer identification number held in countries where they pay tax on income. To assist the IRD in ensuring investors meet their tax obligations, legislation was passed in 2016 that empowered Land Information New Zealand (LINZ) to collect additional information when residential property is bought and sold, and to pass this information to the IRD.
In March 2018, the new government passed legislation to extend the “bright-line test” from two to five years as a measure to further deter property speculation in the New Zealand housing market.
Other Investment Policy Reviews
New Zealand has not conducted an Investment Policy Review through the OECD, WTO, or UNCTAD in the past three years.
The New Zealand government has shown a strong commitment to continue efforts to streamline business facilitation. According to the World Bank’s Ease of Doing Business 2018 report New Zealand is ranked first in “Starting a Business,” “Registering Property,” and is ranked second for “protecting minority investors.”
There are no restrictions on the movement of funds into or out of New Zealand, or on the repatriation of profits. No additional performance measures are imposed on foreign-owned enterprises, other than those that require OIO approval. Overseas investors must adhere to the normal legislative business framework for New Zealand-based companies, which includes the Companies Act 1993, the Securities Act 1978, the Financial Markets Conduct Act 2013, the Commerce Act 1986, the Financial Reporting Act 2013, and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
The Contract and Commercial Law Act came into effect in September 2017 and was designed to modernize and consolidate existing legislation underpinning contracts and commercial transactions. In March 2017 much of the omnibus Judicature Modernization Bill took effect which created five new Acts and 18 amendment Acts covering a range of areas including property, arbitration, copyright, and insolvency. Legislation currently going through Parliament to further streamline, modernize, and improve accessibility of New Zealand’s judicial system, include the Tribunals Powers and Procedures Legislation Bill, the Courts Matters Bill, and the Statutes Amendment Bill.
In order to combat the increasing use of New Zealand shell companies for illegal activities, the Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014 introduced new requirements for companies registering in New Zealand. Companies must have at least one director that either lives in New Zealand, or lives in Australia and is a director of a company incorporated in Australia. New companies incorporated must provide the date and place of birth of all directors, and provide details of any ultimate holding company. The Acts introduced offences for serious misconduct by directors that results in serious losses to the company or its creditors, and aligns the company reconstruction provisions in the Companies Act with the Takeovers Act 1993 and the Takeovers Code Approval Order 2000.
The Companies Office holds an overseas business-related register, and provides that information to persons in New Zealand who intend to deal with the company or to creditors in New Zealand. The information provided includes where and when the company was incorporated, if there is any restriction on its ability to trade contained in its constitutional documents, names of the directors, its principal place of business in New Zealand, and where and on whom documents can be served in New Zealand. For further information on how overseas companies can register in New Zealand: https://www.companiesoffice.govt.nz/companies/learn-about/starting-a-company/register-an-overseas-company-other
In 2016, Parliament passed the New Zealand Business Number (NZBN) Act, which allocates eligible entities a unique identifier to enable them to conduct business more efficiently, interact more easily with the government, and to protect the entity’s security and confidentiality of information. All companies registered in New Zealand have had NZBNs since 2013, and are also available to other types of businesses such as sole traders and partnerships.
Tax registration is recommended when the investor incorporates the company with the Companies Office, but is required if the company is registering as an employer and if it intends to register for New Zealand’s consumption tax, the Goods and Services Tax (GST), which is currently 15 percent. Companies importing into New Zealand or exporting to other countries which have a turnover exceeding NZD 60,000 (USD 43,200) over a 12 month period must register for GST. This was extended to non-resident suppliers of cross-border remote services and digital downloads under the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Act 2016. Separate conditions apply to cross-border suppliers of telecommunication services.
New Zealanders must pay GST on goods that are not considered “low-value imported goods” on a de Minimis basis as determined by Customs New Zealand, in addition to customs duty if applicable. The Customs and Excise Act passed in March 2018 replaces the Customs and Excise Act 1996. The new law aims to modernize many of the sections of the 1996 Act which became outdated in the digital era where supply chains can be more complex. Importers will be able to seek binding valuation rulings to get certainty as to how much duty they will owe on goods they bring into New Zealand, and businesses will be permitted store their records in the cloud or off-shore, in line with modern business practice.
There are a number of New Zealand government agencies that offer a range of support to new and established small businesses. Support includes mentoring, grants, and capability building. Most of the programs which are operated by MBIE, NZTE, Callaghan Innovation, and the Regional Business Partner Network provide support through skills and knowledge, or supporting innovative business ventures. Grants are available, but many are co-funded, requiring some investment by the business owner, and extra conditions apply to non-resident applicants. The NZTE provides more tailored information and assistance for overseas investors wanting to invest in New Zealand. For more see: https://www.business.govt.nz/how-to-grow/getting-government-grants/what-can-i-get-help-with/
In 2017 the Ministry for Women and MBIE launched a pilot to attract more women into the technology sector. “Return to IT” assists women with a digital technology backgrounds to return to work in the sector after taking a career break of between two and five years. Successful applicants are offered an opportunity to be placed with a participating organization, or assistance with seeking employment in the IT sector. Women currently occupy less than a quarter of technically skilled professions in the New Zealand digital technology sector.
The Ministry for Women has also partnered with business representative organizations, trade associations, and private enterprise to develop a practical and accessible resource to educate, inform and support small to medium enterprises (SME) business owners on providing for a diverse and flexible workforce. About 97 percent of businesses in New Zealand are small and often do not have available a human resource specialist. The Ministry works to address the underrepresentation of women in the construction, trades, engineering, and digital technology sectors, and has completed some initial work in the Canterbury region. The Ministry also offers tools, resources, and practical advice on their website to encourage more women to pursue leadership roles.
The NZTE has a dedicated Maori business team that specializes in engaging with a wide range of Maori businesses. NZTE plays an active role in the Crown-Maori Economic Development growth partnership, and work closely with MBIE, the Ministry of Maori Development, the Ministry for Primary Industries (MPI), the Treasury, and Callaghan Innovation to support best practice to grow Maori companies. This growth contributes to the regional economic development goals in priority regions and sectors across New Zealand. NZTE also supports Maori customers’ participation in both out-bound and in-bound Ministerial visits and trade delegations to priority markets overseas. NZTE has also developed an investment-readiness program that brings together local Maori companies and regional investment experts, to learn about the capital-raising process, approaches to assessing investment opportunities, and how investment can achieve their growth aspirations.
The Ministry of Maori Development runs the Maori Business Growth Support program to help Maori establish and grow their business. They provide information, advice on business growth and planning, and help broker relationships. The program focuses primarily on Maori SME’s that have a clear commercial focus, and requires that the owner self-identifies as Maori and that the business is an independent entity based in New Zealand.
The New Zealand government does not place restrictions on domestic investors to invest abroad.
NZTE is the government’s international business development agency. It promotes outward investment and provides resources and services for New Zealand businesses to prepare for export and advice on how to grow internationally. MFAT and Customs New Zealand each operates business outreach programs that advise businesses on how to maximize the benefit from FTAs to improve the competitiveness of their goods offshore, and provides information on how to meet requirements such as rules of origin.
Transparency of the Regulatory System
The New Zealand government policies and laws governing competition are transparent, non-discriminatory, and consistent with international norms. New Zealand ranks high on the World Bank’s Global Indicators of Regulatory Governance, scoring a 5.4 out of a possible 6, but is marked down on indicators relating to the method of conducting and reporting on public consultation.
Draft bills and regulations including those relating to FTAs and investment law, are generally made available for public comment, through a public consultation process.
The Regulatory Quality Team (RQT) within the New Zealand Treasury is responsible for the strategic coordination of the Government’s regulatory management system. Treasury exercises stewardship over the regulatory management system to maintain and enhance the quality of government-initiated regulation. The Treasury’s responsibilities include the oversight of the performance of the regulatory management system as a whole and making recommendations on changes to government and Parliamentary systems and processes. These functions complement the Treasury’s role as the government’s primary economic and fiscal advisor.
In 2015 the government announced a program to lift regulatory quality following a review of the performance and condition of the regimes in New Zealand’s seven major regulatory departments – the Department of Internal Affairs (DIA), IRD, MBIE, Ministry for the Environment, Ministry of Justice, MPI, and the Ministry of Transport. The government implemented most of the 44 recommendations after an independent report found New Zealand’s regulation framework was not sufficiently keeping up with the changing global environment.
In 2017, the government released their Expectations Good Regulatory Practice which sought to strengthen and embed regulatory stewardship and implement the report’s recommendations. These expectations have been incorporated into the Cabinet’s Impact Analysis Requirements, which are both a process and an analytical framework that encourages a systematic and evidence-informed approach to policy development, with key output being a revision to the Regulatory Impact Assessment (RIA) requirements. To help improve transparency in the regulatory process, RIAs are published on the Treasury’s website at the time the relevant bill is introduced to Parliament or the regulation is gazetted, or at the time of Ministerial release. A RIA provides a high-level summary of the problem being addressed, the options and their associated costs and benefits, the consultation undertaken, and the proposed arrangements for implementation and review.
While regulations are not in a centralized location in a form similar to the United States Federal Register, the New Zealand government requires the major regulatory departments to publish an annual regulatory stewardship strategy.
While some standards are set through legislation or regulation, the vast majority of standards are developed through Standards New Zealand, which is now a business unit within MBIE. The Standards and Accreditation Act 2015 set out the role and function of the Standards Approval Board which commenced from March 2016. Standards New Zealand operates as it did previously as a Crown entity, but by moving within MBIE it no longer offers membership subscription services, and instead operates on a cost-recovery basis. The majority of standards in New Zealand are set in coordination with Australia.
The Resource Management Act 1991 (RMA) often draws criticism from both foreign and domestic investors as a barrier to investment in New Zealand. The RMA 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. A government commissioned report released in 2015 estimated the RMA has added NZD 30 billion (USD 22 billion) to building costs.
There have been several cases in which companies have been found to use the RMA’s objections submission process to stifle competition. Investors have also raised concerns that the law is unequally applied between jurisdictions because of the lack of implementing guidelines. The Resource Management Amendment Act 2013 and the Resource Management (Simplifying and Streamlining) Amendment Act 2009 were passed to address these concerns.
The Resource Legislation Amendment Act 2017 (RLAA) is considered the most comprehensive set of reforms to the RMA since its inception in 1991. It contains almost 40 amendments and makes significant changes to five different Acts including the RMA, the Conservation Act 1986, Reserves Act 1977, Public Works Act 1981, and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2013. Broadly, the RLAA attempts to balance environmental management with the need to increase capacity for housing development. It also aims to align resource consent processes in a consistent manner among New Zealand’s 78 local councils, by providing a stronger national direction, a more responsive planning process, and improved consistency with other legislation.
The Public Works Act (PWA) 1981 enables the Crown to acquire land for public works by agreement or compulsory acquisition and prescribes landowner compensation. New Zealand continues to face a significant demand for large-scale infrastructure works and the PWA is designed to ensure project delivery and not be a barrier to infrastructure development. Compulsory acquisition will be exercised only after an acquiring authority (through an accredited supplier) has made all reasonable endeavors to negotiate in good faith the sale and purchase of the owner’s land, without reaching an agreement. The land owner retains the right to have their objection heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment to the PWA aims to improve the efficiency and fairness of the PWA compensation, land acquisition, and Environment Court objection provisions.
Parliament passed the Land Transfer Act in July 2017. It aims to simplify and modernize the law to make it more accessible and to improve certainty of property rights. It empowers courts with limited discretion to restore a landowner’s registered title in rare cases in the event of fraud or other illegality where it is warranted to avoid a manifestly unjust result.
In 2014 New Zealand joined the Open Government Partnership, and the government published its second National Action Plan in October 2016. Areas of commitment include advancements in access to open data, public engagement, openness with the government budget process, and access to legislation. In October 2017 the government released a report of a mid-term self-assessment of progress on the Action Plan. As part of the Independent Reporting Mechanism, an OGP-appointed independent reporter reports twice on each two-year OGP national plan, a progress report at the end of the first year and a further report at the end of the second year. New Zealand’s reporter made their mid-term review of New Zealand’s progress available on the OGP International website in January 2018. In March 2018 New Zealand became one of 19 countries to sign the Open Data Charter.
Statistics New Zealand is responsible for the management of the Government’s Open Government Information and Data Program (Open Data NZ). Recent initiatives include websites dedicated to helping business, granting online access for businesses to Stats NZ surveys, convening public consultation on ways to improve data supply, and the Data Futures Partnership.
International Regulatory Considerations
In recent years the New Zealand government has introduced laws to enhance regulatory coordination with Australia as part of their Single Economic Market agenda agreed to in 2009. In February 2017 the Patents (Trans-Tasman Patent Attorneys and Other Matters) Amendment Act took effect creating a single body to regulate patent attorneys in both countries. Other areas of regulatory coordination include insolvency law, financial reporting, competition policy, consumer policy and the 2013 Trans-Tasman Court Proceedings and Regulatory Enforcement Treaty, which allows the enforcement of civil judgements between both countries.
In 2016 the Financial Markets Authority issued two notices, the Disclosure Using Overseas GAAP Exemption and the Overseas Registered Banks and Licensed Insurers Exemption Notice, which ease compliance costs on overseas entities by allowing them under certain circumstances to use United States statutory accounting principles (overseas GAAP) rather than New Zealand GAAP, and the opportunity to use an overseas approved auditor rather than require a New Zealand qualified auditor.
New Zealand is a Party to the World Trade Organization’s (WTO) Agreement on Technical Barriers to Trade (TBT). Standards New Zealand is responsible for operating the TBT Enquiry Point on behalf of MFAT. From 2016, Standards New Zealand became a business unit within MBIE administered under the Standards and Accreditation Act 2015. Standards New Zealand establishes techniques and processes built from requirements under the Act and from the International Organization for Standardization.
The Standards New Zealand TBT enquiry point service provides a website for producers and exporters for recently proposed TBT Notifications and associated documents such as draft or actual regulations or standards. They also provide contact details for the Trade Negotiations Division of MFAT to respond to businesses concerned about proposed measures.
In August 2017 the government launched an online “Clearing House” to provide a centralized point of contact for businesses to access information and support on trade barriers. The website allows exporters to report issues, seek government advice and assistance with non-tariff barriers (NTB) and other export issues. The Clearing House tracks and traces the assignment and resolution issues across agencies on behalf of the exporter, and aims to provide the Government with an accurate and timely account of NTB and other issues encountered by exporters. The online portal involves the participation of Customs, MFAT, MPI, MBIE, and NZTE. The Clearing House can be found at: https://tradebarriers.govt.nz/
New Zealand ratified the WTO Trade Facilitation Agreement (TFA) in September 2015 and entered into force in February 2017. New Zealand was already largely in compliance with the TFA which is expected to benefit New Zealand agricultural exporters and importers of perishable items to enhanced procedures for border clearances.
Legal System and Judicial Independence
New Zealand’s legal system is derived from the English system and comes from a mix of common law and statute law. The judicial system is independent of the executive branch and is generally open, transparent, and effective in enforcing property and contractual rights. 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 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 and is governed by the Arbitration Act 1996, Arbitration (Foreign Agreements and Awards) Act 1982, and the Arbitration (International Investment Disputes) Act 1979.
In 2016 the omnibus Judicature Modernization Bill was passed to improve and consolidate older pieces of legislation governing the New Zealand court system. The legislation enables the sharing of court information, the establishment of a new judicial panel to hear certain commercial cases, increases the monetary limit of the District Court’s civil jurisdiction, and improves accessibility to final written judgments by publishing them online.
During 2017 the government continued efforts to modernize and improve the efficiency of the courts system, by introducing several pieces of legislation including the Courts Matters Bill, the Tribunals Powers and Procedures Legislation Bill, the Trusts Bill (which clarifies and simplifies core trust principles and essential obligations for trustees to improve understanding about how trusts operate. Importantly, it also preserves the flexibility of the common law, allowing trust law to continue to evolve through the courts), and the Legislation Bill (to enhance accessibility to all types of New Zealand legislation).
The Tribunals Powers and Procedures Legislation Bill (the Tribunals Bill) and the Courts Matters Bill. The Tribunals Bill and the Courts Matters Bill amend tribunals and courts legislation respectively to: reduce the time it takes to hear and resolve matters and improve users’ experience of the courts and tribunals system; enable greater use of modern technology to further improve efficiency, effectiveness, and timeliness; simplify and standardize statutory powers and procedures to improve productivity and efficiency; and provide better consumer protection and redress, and greater access to justice.
Legislation to modernize and consolidate laws underpinning contracts and commercial transactions came into effect on September 1, 2017. The Contract and Commercial Law Act 2017 consolidates and repeals 12 Acts that date between 1908 and 2002.
Laws and Regulations on Foreign Direct Investment
Overseas investments in New Zealand assets are screened only if they are defined as sensitive within the Overseas Investment Act 2005, as mentioned in the previous section. The OIO, a dedicated unit located within LINZ, administers the Act. The Overseas Investment Regulations 2005 set out the criteria for assessing applications, provide the framework for applicable fees, and whether the investment will benefit New Zealand. Ministerial Directive Letters are issued to the OIO by the Government to instruct the OIO on their general policy approach, and matters relating to the OIO’s functions, powers, and duties as regulator. Letters have been issued in December 2010 and November 2017. Substantive changes, such as inclusion of another asset type within “sensitive land,” requires a legislative amendment to the OIA. The government ministers for finance and for land information are responsible for assessing OIO recommendations and can choose to override OIO recommendations on approved applications. Ministers’ decisions on OIO applications can be appealed by the applicant in the New Zealand High Court. For more see: http://www.linz.govt.nz/regulatory/overseas-investment
In situations where New Zealand companies are acquiring capital injections from overseas investors that require OIO approval, they must meet certain criteria regarding disclosure to shareholders and fulfil other responsibilities under the Companies Act 1993. Failure to do so can affect the overseas company’s application process with the OIO.
The LINZ website reports on enforcement actions they have taken, including the number of compliance letters issued, the number of warnings and their circumstances, referrals to professional conduct body in relation to OIO breach, and disposal of investments.
Competition and Anti-Trust Laws
The New Zealand Commerce Commission is an independent Crown entity charged with enforcing legislation that promotes competition. The key competition law statute in New Zealand is the Commerce Act 1986, which covers both restrictive trade practices and the competition aspects of merger and acquisition transactions. In addition, the Commerce Commission enforces a number of pieces of legislation that, through regulation, aim to provide the benefits of competition in markets with certain natural monopolies, such as the dairy, electricity, gas, airports, and telecommunications industries.
The Commerce Act 1986 prohibits contracts, arrangements, or understandings that have the purpose, or effect, of substantially lessening competition in a market, unless authorized by the Commerce Commission. Before granting such authorization, the Commerce Commission must be satisfied that the public benefit would outweigh the reduction of competition. The Commerce Commission has legislative power to block a merger or takeover if it would result in the new company gaining a dominant position in the market.
The Dairy Industry Restructuring Act 2001 (DIR) authorized the amalgamation of New Zealand’s two largest dairy co-operatives to create Fonterra Co-operative Group Limited (Fonterra). The DIR is designed to manage Fonterra’s dominant position in the dairy market, until sufficient competition has emerged. Among other things, the DIR requires that Fonterra must accept all applications from farmers wanting to become supplying shareholders. The DIR’s automatic expiry provisions were triggered in 2015, when other dairy processors collected more than 20 percent of milk solids in the South Island.
A review by the Commerce Commission in 2016 found competition was not yet sufficient to warrant the removal of the DIR provisions, but it made recommendations to create a pathway to deregulation, and for another review to be conducted in five years’ time. In 2017 the new Government announced it would conduct a review of key issues facing the dairy industry and the DIR, including, environmental impacts, land use, Fonterra’s obligation to collect milk, and optimizing outcomes for New Zealand farmers and consumers. The Dairy Industry Restructuring Amendment Act was passed in February 2018 as an interim measure – pending the review – to ensure that the DIR provisions will not expire in the South Island on May 31, 2018.
The Commerce Commission is also charged with monitoring competition in the telecommunications sector. Under the 1997 WTO Basic Telecommunications Services Agreement, New Zealand has committed to the maintenance of an open, competitive environment in the telecommunications sector. Key reforms of the sector, through legislation enacted in 2001 and 2006, include the appointment of a commissioner responsible for resolving commercial disputes, the introduction of regulated services, the strengthening of the monitoring and enforcement, and the operational separation of Spark.
In 2016 the government announced a review of the Telecommunications Act 2001 to provide better support for competition, innovation and investment in the sector. As mentioned in the previous section, Chorus is considered a natural monopoly for providing New Zealand’s telecommunications infrastructure following its demerger from Spark in 2011.
Chorus won contracts from the government to build 70 percent of New Zealand’s new ultra-fast broadband fiber-optic cable network and has received subsidies. Chorus is listed on the NZX stock exchange and the Australian Stock Exchange (ASX), and has American Depositary Shares traded on the over the counter market in the United States.
The telecommunications service obligations (TSO) regulatory framework established under the Telecommunications Act 2001 enables certain telecommunications services to be available and affordable. A TSO is established through an agreement under the Telecommunications Act between the Crown and a TSO provider. Currently there are two TSOs. Spark (supported by Chorus) is the TSO Provider for the local residential telephone service, which includes charge-free local calling. Sprint International is the TSO Provider for the New Zealand relay service for deaf, hearing impaired and speech impaired people. Costs for subsidizing telecommunications services supplied under TSOs are funded through the Telecommunications Development Levy (TDL) collected from the telecommunications industry. The Commerce Commission determines the TSO charge paid to a TSO Provider and the proportion of the TDL borne by each liable telecommunications service provider.
As a monopoly providing wholesale services to retailers and not directly to consumers, the Commerce Commission regulates the amount Chorus can charge retailers to access its network based on what it would cost to replace the Chorus copper-line network, using the most efficient combination of modern technologies. In 2014 a case brought by Chorus against the Commerce Commission that eventually went to the Court of Appeal, after Chorus claimed the price determination issued by the Commerce Commission was too low. Chorus was ultimately allowed to charge a higher price, and the largest retail provider Spark raised their price to consumers and alleged that the lack of a stable and predictable pricing framework over a four-year period had affected their financial performance.
In February 2017 the government announced a review of the regulation of copper line services, and build a regulatory framework primarily on New Zealand’s fiber-optic cable network to establish a stable and predictable regulatory framework. The Telecommunications (New Regulatory Framework) Amendment Bill which passed its first reading in August 2017, will deregulate copper lines in areas where Ultra-Fast Broadband (UFB) fibre-optic cable is also available, and eliminate copper line regulation from 2020. The Commerce Commission would be required improve accessibility and its reporting retail service quality and to review the Telecommunications Dispute Resolution Service to maintain its efficacy. The Commerce Commission will also be able to make codes that address retail service quality, if the industry fails to develop industry-led codes that are adequate. It is seeking remove the Telecommunications Service Obligation TSO obligation. In areas, typically rural, where fiber is not available, the TSO obligation will be retained and Chorus will be required to continue supplying copper services at prices capped at 2019 levels.
The Commerce Commission has a regulatory role to promote competition within the electricity industry under the Commerce Act and the Fair Trading Act 1986. As natural monopolies, the electricity transmission and distribution businesses are subject to specific additional regulations, regarding pricing, sales techniques, and ensuring sufficient competition in the industry. The International Energy Agency (IEA) released its five-yearly review of the New Zealand energy market in February 2017 and made recommendations for the structure, governance and regulation of the electricity distribution service sector, and for network regulation and retail market reforms to ensure efficient transmission pricing.
The New Zealand motor fuel market became more concentrated after Shell New Zealand sold its transport fuels distribution business in 2010, and Chevron sold its retail brands Caltex and Challenge to New Zealand fuel distributor Z-Energy in 2016. The Commerce Commission approved Z-Energy’s application to acquire 100 percent of the shares in Chevron New Zealand on the condition it divest 19 of its retail sites and one truck stop in locations where it considered competition would be substantially reduced as a result of the merger. Z-Energy holds almost half of the market share for fuel distribution in New Zealand.
In August 2017 the Commerce (Cartels and Other Matters) Amendment Act was passed to enable easier enforcement action against international cartels. It created a new clearance regime allowing firms to test their proposed collaboration with the Commerce Commission and get greater legal certainty before they enter into the arrangements. It also expands the range of prohibited conduct to include price fixing, restricting output, and allocating markets, and expands competition oversight to the international liner shipping industry. It empowers the Commerce Commission to apply to the New Zealand High Court for a declaration to determine if the acquisition of a controlling interest in a New Zealand company by an overseas person will have an effect of “substantially lessening” competition in a market in New Zealand.
The government introduced the Commerce (Criminalization of Cartels) Amendment Bill in February 2018 to criminalize cartel behavior – a provision that was removed from the 2017 amendment during its passage through the Parliament process. If passed, the bill will introduce imprisonment as a penalty for engaging in cartel conduct. The government acknowledges it is not currently a significant issue but believes the existing civil regime is an insufficient deterrent and criminalizing cartel behavior provides a certain and stable operating environment for businesses to compete. It also aims to bring New Zealand in line with overseas jurisdictions that impose criminal sanctions for cartel conduct, enhancing the ability of the Commerce Commission to cooperate with its overseas counterparts in investigations of international cartels.
The Commerce Commission has two international cooperation arrangements (signed with Australia in 2013 and Canada in 2016) that allow the sharing of compulsorily acquired information, and provide investigative assistance. The arrangements help effective enforcement of both competition and consumer law.
Expropriation and Compensation
Expropriation is generally not an issue in New Zealand, and there are no outstanding cases. New Zealand ranks first in the World Bank’s 2017 Doing Business report for “registering property” and for “protecting minority investors.”
The Public Works Act 1981 provides the government with the statutory authority to acquire land for a public work. While the government’s powers are wide, it can only acquire land, whether by negotiation or compulsorily, in accordance with the Act. Where voluntary agreement cannot be reached the Act provides for compulsory acquisition by the Crown through the Minister of Lands. This power is exercised only after reasonable endeavors have been made to negotiate in good faith the sale and purchase of the land. The owner has the right to object in the New Zealand Environment Court but only in relation to the land, and not to the amount of compensation payable. If the owner objects to the compensation offered, they can request it be determined by the Land Valuation Tribunal.
The RLAA has amended the Public Works Act 1981 (PWA) with higher compensation limits. The land owner retains the right to have their objection to a compulsory acquisition heard by the Environment Court, but only in relation to the taking of the land, not to the amount of compensation payable. The RLAA amendment aims to improve the efficiency and fairness of the PWA compensation, land acquisition, and Environment Court objection provisions.
The new government has indicated it will use compulsory acquisition under the PWA if there is evidence of land banking, and if it is delaying new government housing development. The government has established a KiwiBuild program that aims to build 100,000 affordable homes over ten years, with half being in Auckland.
ICSID Convention and New York Convention
New Zealand is a party to both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention), and to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Proceedings taken under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979. Proceedings taken under the New York Convention are now administered under the Arbitration Act 1996.
Investor-State Dispute Settlement
Investment disputes are rare, and there have been no major disputes in recent years involving U.S. companies. The mechanism for handling disputes is the judicial system, which is generally open, transparent and effective in enforcing property and contractual rights.
Investment disputes brought against other foreigners by the New Zealand government have been largely due to non-compliance of the investors’ obligations under the OIO Act or their failure to gain OIO approval before making their investment.
Most of New Zealand’s recently enacted FTAs contain Investor-State Dispute Settlement (ISDS) provisions. The new government signaled it will seek to remove ISDS from future FTAs, having secured exemptions with several CPTPP signatories in the form of side letters.
International Commercial Arbitration and Foreign Courts
Arbitrations taking place in New Zealand (including international arbitrations) are governed by the Arbitration Act 1996. The Arbitration Act includes rules based on the United Nations Commission on International Trade Law (UNCITRAL) and its 2006 amendments. Parties to an international arbitration can opt out of some of the rules, but the Arbitration Act provides the default position.
The Arbitration Act also gives effect to the New Zealand government’s obligations under the Protocol on Arbitration Clauses (1923), the Convention on the Execution of Foreign Arbitral Awards (1927), and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Obligations under the Washington Convention are administered under the Arbitration (International Investment Disputes) Act 1979 as mentioned previously.
The New Zealand Dispute Resolution Centre (NZDRC) is the leading independent, nationwide provider of private commercial, family and relationship dispute resolution services in New Zealand. It also provides international dispute resolution services through its related entity, the New Zealand International Arbitration Centre (NZIAC). The NZDRC is willing to act as an appointing authority, as is the Arbitrators’ and Mediators’ Association of New Zealand (AMINZ).
Forms of dispute resolution available in New Zealand include formal negotiations, mediation, expert determination, court proceedings, arbitration, or a combination of these methods. Arbitration methods include ‘ad hoc,’ which allows the parties to select their arbitrator and agree to a set of rules, or institutional arbitration, which is run according to procedures set by the institution. Institutions recommended by the New Zealand government include the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA).
The Arbitration Amendment Act passed in 2016, amends the Arbitration Act 1996 to provide for the appointment of an “appointed body” to exercise powers which were previously powers of the High Court. It also provides for the High Court to exercise the powers in the event that the appointed body does not act, or there is a dispute about the process of the appointed body. These amendments came into force in March 2017. Since then the Minister of Justice has appointed the AMINZ the default authority for all arbitrations sited in New Zealand in place of the High Court.
In 2017 AMINZ issued its own Arbitration Rules based on the latest editions of rules published in other Model Law jurisdictions, to be used in both domestic and international arbitrations, and consistent with the 1996 Act.
In March 2017 the Arbitration Amendment Bill was introduced to bring New Zealand’s approach to the preserving the confidentiality of trust deed clauses in line with foreign arbitration legislation and case law. If passed the bill ensures arbitration clauses in trust deeds are given effect to extend the presumption of confidentiality in arbitration to the presumption of confidentiality in related court proceedings under the Act because often such cases arise from sensitive family disputes. The bill also defines the grounds for setting aside an arbitral award and confirms the consequence of failing to raise a timely objection to an arbitral tribunal’s jurisdiction.
Bankruptcy is addressed in the Insolvency Act 2006, the Receiverships Act 1993, and the Companies Act 1993. The Insolvency (Cross-border) Act 2006 implements the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law in 1997. It also provides the framework for facilitating insolvency proceedings when a person is subject to insolvency administration (whether personal or corporate) in one country, but has assets or debts in another country; or when more than one insolvency administration has commenced in more than one country in relation to a person.
New Zealand bankrupts are subject to conditions on borrowing and international travel, and violations are considered offences and punishable by law.
In the World Bank’s Doing Business 2018 Report New Zealand is ranked 32nd in “resolving insolvency”. Relative to other high-income OECD countries, New Zealand scores lower on the strength of its insolvency framework, specifically citing fewer opportunities for creditors to participate directly in the insolvency and reorganization processes.
The registration system operated by the Companies Office within MBIE, is designed to enable New Zealand creditors to sue an overseas company in New Zealand, rather than forcing them to sue in the country’s home jurisdiction. This avoids attendant costs, delays, possible language problems and uncertainty due to a different legal system. An overseas company’s assets in New Zealand can be liquidated for the benefit of creditors. All registered ‘large’ overseas companies are required to file financial statements under the Companies Act 1993. See: https://www.companiesoffice.govt.nz/companies/learn-about/overseas-companies/managing-an-overseas-company-in-new-zealand