On March 3, 2005, the Christchurch Press reported as follows (1):

"The Japanese Government has asked for an inquiry into a mysterious New Zealand insurer, who is allowing ships from rogue state North Korea to beat a shipping clampdown. New Zealand officials have told the Japanese that nothing can be done, because the insurer is not subject to New Zealand law.

"The Japanese Embassy has asked the Government to look into the activities of the Auckland company Maritime Mutual Insurance Association (NZ) which has emerged as the insurer of 16 North Korean ships. It is a hugely sensitive issue for the Japanese who have been trying to put the squeeze on North Korea after a string of accidents in their ports involving uninsured vessels…

"The issue has put the spotlight on New Zealand’s outdated insurance laws, with the local industry fearing the publicity could damage its reputation. … MMIA’s two directors are Paul Rankin and Andrew Baker, who live in Guernsey and Liechtenstein respectively.

"The company was incorporated (in 2004) along with the London Insurance Company, but it is understood the pair are yet to visit New Zealand to set up their new ventures. … Gavin Quigan, manager of the insurance and superannuation unit at the Ministry of Economic Development, said: … ‘If they are touting themselves as New Zealand-registered insurance companies then the politicians where they are trading would have cause to regard their statements as fraudulent’".

Here we have yet another example of a company which is apparently acting within the letter of the law of New Zealand yet is threatening New Zealand’s well being. In this case it is by undermining New Zealand’s reputation in Japan and potentially elsewhere. The company escaped any oversight by the Overseas Investment Commission, feeble as that is, because it came under the current $50 million threshold (2) and its only registered shareholder, which owns 1,000 of its one million shares, is a company, Transnational Trustees Limited, owned by an Auckland barrister John Hart. Hart denies any part in running the company: he told the Press: "I’m the legal adviser, I provide the registered office. I’m not involved in the commercial operations of the company and I can’t comment further". It is clearly controlled by its tax haven resident overseas directors.

In September 2004, Ernslaw One Limited, owned by the Tiong Family of Malaysia, bought 33,000 hectares of forest around Gisborne from Huaguang Forests Co. Limited (In Receivership) of China for $51,591,000. Huaguang received Overseas Investment Commission approval to buy the Waipaoa Forest in April 2002 for $147,674,419 from Rayonier New Zealand Ltd, owned in the USA. According to the Overseas Investment Commission at that time, Huaguang had been a regular purchaser of logs since December 2000. The main objective of the purchase was to secure a log supply for making medium density fibreboard (MDF) in China. The company operated the Huaguang Decorative Board plant in China, with three MDF lines. The proposal at best was assuring us that we would remain log exporters, with added value processing being carried out elsewhere in the world. In fact it was far worse.

Within two weeks of purchasing the forests in May 2002, Huaguang defaulted on all its payments to its contractors. It appears Huaguang had insufficient capital to maintain the operation, and that dividends were being paid to shareholders ahead of needed operational costs. This was despite the OIC declaring (as it does routinely) that it was "satisfied that [Huaguang] has significant business experience and acumen relevant to and is demonstrating financial commitment towards the investment".

Huaguang was in fact heavily in debt internationally, and unable to repay some US$482 million to state-owned Chinese banks. The OIC also said that the Huaguang proposal was likely to result in the following benefits:

(a) the creation of new employment opportunities;

(b) added market competition/productivity;…

But contractors and forestry workers were no happier with the new owner, Ernslaw One. They mounted blockades of the Mangatu and Ruatoria forests after the new owners announced they would be cutting production and laying off workers. A number of forestry truck owner operators were put into receivership or had their rigs repossessed.

Ernslaw One is part of the Lumberbank group owned by the Tiong family of Malaysia. In May 2004, the New Zealand Timber Importers Association, which has 80% of timber importers as members, expelled the Lumberbank group for breaking its rules. The Tiongs also own logging company, Rimbunan Hijau which was the subject of a detailed report from Greenpeace International, in the Netherlands, in January 2004 (3). Rimbunan Hijau dominates the logging industry in Papua New Guinea and is a powerful industry player in Malaysia and Equatorial Guinea, with significant forestry interests elsewhere in the world. Greenpeace reports that Lumberbank is importing timber from Rimbunan Hijau’s illegal operations in Papua New Guinea. The report concludes:

"The findings illustrated in this report have clearly identified Rimbunan Hijau as being involved in significant forest crime. It is destructively logging vast areas of ancient forest in defiance of national laws, local customs and the rights of resource owners. It is causing large-scale environmental damage and increasing the poverty of local people under the protection of political elites. Rimbunan Hijau controls industrial-scale logging operations in at least eight countries and operates across three continents. Many of its logging operations are characterised by illegal access, environmental damage, human rights abuses, social conflict and political corruption".

We live in an age where huge transnational corporations (TNCs) with more power than countries larger than New Zealand are being given ever freer rein to operate across borders. It is not only in New Zealand that we see that freedom being taken advantage of: it is happening around the world with increasing frequency. Our concerns are not some kind of harking back to primordial fears of the unknown. They are about dealing with the known and widely experienced risks of globalisation, whose direction is formed by powerful corporate interests.

The regime New Zealand has run for the last two decades for corporate investment is one of virtually non-existent control, and the government is now proposing to reduce that control even further. Even the vestigial controls which exist have been made a nonsense by governments and officials who have gone out of their way to avoid enforcing them.

Overseas investment dominates our economy like few other developed nations. The stock of foreign direct investment in New Zealand has a value equivalent to almost half our Gross Domestic Product (47.6% at March 31, 2004). Probably half of our commercial economy is overseas controlled. Yet it is widely acknowledged that it has not lived up to the promises made for it. It has overwhelmingly been takeovers rather than greenfield investment. New Zealand’s experience in raising productivity has been disappointing – contrary to the promises of defenders of foreign direct investment. Despite its huge share of the commercial economy, foreign direct investment contributes less than 20% of our private gross fixed capital formation (18.3% in the decade to March 2004), and only 17% of our employment (2003). Our gaping current account deficit is largely driven by the huge deficit on investment income.