Something unprecedented happened in October 2018. Treasury - which had never contacted CAFCA about anything in our 40+ years of existence - contacted us and asked if we'd like to be consulted as part of the "engagement process" of the Government's second stage review of the Overseas Investment Act (Stage 1 became law that same month). We agreed and I duly spent 30 minutes on the phone with several Treasury officials (you can read more about this in my "Hell Freezes Over. Treasury Consults CAFCA On Government's Review Of Overseas Investment Act" in Watchdog 149, December 2018.

In April 2019, the Government announced that the Stage 2 review was underway. CAFCA welcomed the announcement by Associate Finance Minister David Parker that it "might" give Ministers 'full discretion' to decide whether the purchase of assets worth more than $100 million by foreign investors should be allowed, with an expectation they would decline any deals that they did not think were in the national interest" (Stuff, 16/4/19). But that's where the good news ended. It begs credulity that Parker should have said: "I don't think it will change it (the Act) hugely. I think the big changes came when we banned foreign buyers of existing New Zealand homes" (Stuff, ibid.).

Really? Talk about looking through the wrong end of the telescope. CAFCA has never got terribly excited about the whole subject of "foreign buyers of existing New Zealand homes", precisely because it is such a small part of a much bigger picture. It has actually got more to do with immigration - which is not our issue - than foreign control, which definitely is. Such a ban was more about securing votes for Labour than anything else.

Loopholes & Exemptions

And it's a pretty threadbare sort of a ban, as it is, riddled with loopholes and exemptions. For a start, NZ's hands are tied by so-called "free trade" agreements, meaning that the entire populations of Singapore and Australia are exempt from the foreign house buyer "ban". The fact that Australia is the country of origin of the single biggest number of foreign investors into NZ shows just how threadbare the "ban" is.

Forget about the rats and mice stuff, like foreign house buyers. This Government's changes to the foreign land buyer regime are more significant but still riddled with exemptions (all of forestry, for a start). The real guts of foreign control of the New Zealand economy is that which involves transnational corporations (TNCs) and their relentless takeover of businesses, assets and land in all sectors, aided and abetted by both National and Labour governments. In 2018 the Overseas Investment Office (OIO) approved foreign investment totalling $12.5 billion. The average for the decade 2009-2018 was $8.2 billion. So, a substantial increase in the first full year of the Labour-led Government.

And Parker went on to say that the review "will consider streamlining some 'pernickety' checks on foreign investors to cut red tape, for example by reducing the 'hoops' faced by existing 'long-term reputable investors' who were already paying tax here" (Stuff, ibid). Conclusion: business as usual, despite this Government saying it would take steps to deal with what it claims to recognise as the problem of foreign control. Actions speak louder than words. Let's see some action. Everything points to this review being intended to make foreign "investment" easier, not harder, and that this Government sees the TNCs as its priority, not the New Zealand people.

What About Already Ensconced TNCs?

Any changes to the Act will only apply to new applicants, not to those already well ensconced in NZ. For example, what does the Government plan to do about the cosy cartel of Australian-owned banks, who suck billions out of the NZ economy every year? In 2009, when it was in Opposition, Labour was happy to take part in an inquiry into the banks. But, now that it is the Government, it refuses to countenance an NZ equivalent of the very recent Australian Royal Commission of Inquiry which uncovered systemic criminal and unethical behaviour by those very same banks in their home country.

Here's another specific example, although much bigger, older and much more entrenched. What is the Government going to do about the country's biggest bludger, the transnational owners of the Bluff smelter? They have twisted NZ governments, both National and Labour, around their little finger for 50 years. If Jacinda Ardern is serious that climate change is her Government's nuclear free issue, then she will have to confront and face down the smelter's owners. And do better than the Clark Labour government which folded when the smelter owners threatened to leave the country if Labour brought in an emissions trading scheme.

Memo to Jacinda - if they threaten to go, hold the door open for them and help them load their suitcases into the airport shuttle. And make sure that they (those recipients of corporate welfare par excellence), and not the NZ taxpayer, foot the bill for cleaning up their mess. That would involve Labour facing up to the 2003 and 04 indemnities signed by Michael Cullen, Labour's Minister of Finance at the time, accepting that the taxpayer, and not the smelter owners, would be responsible for the cost of cleaning up toxic waste produced by the smelting process.

The process of public "consultation" got underway in May 2019 and myself and Committee colleague, James Ayers, attended the Christchurch session. It was interesting to see who was there - the overwhelming majority of people present were involved in the campaign against Chinese-owned water bottling plants, as well as the campaign on climate change. Treasury and Overseas Investment Office (OIO) officials went out of their way to make themselves known to James and I.

Following on from that, and at short notice, CAFCA decided to make a brief written submission, our first since Bill Rosenberg wrote CAFCA's extremely thorough and detailed submission the last time the Overseas Investment Act was amended (2005, also under Labour). You can read that here.

CAFCA's Submission

CAFCA is aware that this Stage 2 review of the Overseas Investment Act is not a "first principles" review. That is made clear in the consultation documents put out for discussion by Treasury. So, we won't spend any time on "first principles" (except point 13). It's no secret what our views are on the whole subject of foreign control - the answer is in our title. And you will find no shortage of explanatory detail on our Website. We will confine ourselves to a very brief submission, touching on a few points of concern arising from the consultation documents.

1/ We are pleased to see that the review includes a national interest test, with Ministerial powers to reject applications on the grounds of "not being in the national interest". CAFCA has long recommended this. But this test should not be confined only to large foreign investments, but should be a blanket requirement for all foreign investment applications.

2/ We are concerned at the evidence in the consultation documents that would effectively weaken the 24.9% threshold that triggers the definition of foreign ownership. Options are offered to change it but none to leave it alone. We have a suggestion to change it and it's the same suggestion we made the last time CAFCA submitted on an Overseas Investment Bill (the present 2005 one) - reduce that foreign ownership/control definition to 10%.

3/ Likewise, do not increase the $100m threshold which triggers the need for a foreign investor to apply for permission. You can still buy an awful lot for $99.99 million in this country. And none of those purchases below $100m show up in any public record of foreign ownership of this country - it is an awfully big loophole in any statistics on the subject.

And there are equally big loopholes in the other direction - Australia is the country of origin of the single biggest number of foreign investors but due to treaty provisions, the threshold for Australian investors is $530m. And it is $200m for applicants from various other countries (e.g. China), because of NZ's commitments under "free trade" agreements. In reality, that $100m threshold is more notional than real. Up until 1999, it was $50m and before that it was $10m. CAFCA recommends that the threshold be reduced to one of those two figures, preferably the lower one.

Replace OIO With Dedicated Regulator

4/ We believe that whole area of foreign investment is too big and important to be left to the Overseas Investment Office (which is simply part of Land Information NZ). We recommend that it be undertaken by a dedicated Regulator, one with the same independent status and statutory powers as the Parliamentary Commissioner for the Environment.

5/ The whole "good character" part of the Act needs to be considerably tightened up and defined. It is currently only applicable to individuals, including those owning and/or controlling applicant companies. We are pleased to see that the consultation documents are considering extending that "not of good character" test to the companies themselves, which is something that CAFCA has long advocated.

A corporate entity can be of bad character if it has a record of poor behaviour (which should include not just criminal and/or civil court matters, but the applicant's record in areas such as: the environment, treatment of workers and unions, health and safety, political interference in a country's internal affairs, profiteering, asset stripping, monopoly, tax dodging, etc, etc).

More and more applicants are private equity funds or freshly-minted companies set up in tax havens. This has the effect of concealing the ultimate owner/s, meaning that their character cannot be assessed under the current Act. That problem would be solved by extending the good character test to the applicant company or private equity fund.

6/ CAFCA is pleased that the consultation documents raise the prospect of treating water mining applications as a special category. Water usage and ownership, in all their various manifestations, are a major concern to the New Zealand people, right across the board. Water is the oil of the 21st Century and every such application should be subject to the national interest test. Not only that, the Act and the national interest test should be extended to capture those foreign companies simply buying existing water rights.

7/ The Act should be consistent with the Living Standards Framework that is being developed by Treasury. Meaning that it should take into account the impact on social, environmental and "human capital" issues, not simply its economic and financial considerations. We would single out impact on climate change as a major priority. It must be consistent with the Treaty of Waitangi.

8/ The Act should prioritise greenfield applications, as opposed to ones that simply take over an existing New Zealand company. CAFCA has been analysing the Decisions of the OIO (and, before them, of the Overseas Investment Commission) for 30 years now, and we can say, without fear of contradiction, that greenfield applications have always been very thin on the ground. Very few applications offer any substantial investment in development over and above the cost of purchase (which is all too often at bargain rates). Any development capital promised (over and above the acquisition price) should be included in the consent summary. The consent summaries are far too cryptic.

9/ The Act should make it a condition that applicants based in or making substantial use of tax havens should be declined as a blanket policy. That act should make it very clear that tax dodgers are not welcome in New Zealand (either transnational corporations or individuals).

10/ A register of foreign-owned assets should be created (and it should include those below the current thresholds). There need to be much more readily available statistics.

11/ Too many applicants hide behind "commercial sensitivity". Approval should be conditional on the sale and/or purchase price being revealed.

12/ The full application should be publicly notified before any Decision is made. And the public should have the legally guaranteed right to submit on, and object to, the application before any Decision is made. This is standard procedure in other sectors. Why should would-be foreign investors be given special treatment? And the approving body needs to conduct regular follow ups and audits to assess the "benefits to New Zealand" stated by the applicant at the time of application.

Radical Shift In Emphasis Needed

13/ Finally, there needs to be a radical shift in emphasis in the foreign investment approval/oversight regime. The Government has said it is a privilege, not a right, for foreigners to buy land or companies in New Zealand. But the whole thrust of this proposed reform is to give foreign investors privileged treatment, to make things easier for them, to make the approval process more "efficient" and "streamlined". It needs to be written into the Act that the approving body works for the New Zealand people, not for the applicants. It is us who are the "clients".

Several other people sent us copies of their submissions. Linda Hill, who does an excellent job writing up the monthly OIO Decisions in Watchdog, sent in a detailed and thoughtful nine-page one, which fleshed out many of the points made in the CAFCA one. Jane Kelsey wrote: "This brief submission addresses one aspect of this review: the presumption that the parameters imposed by agreements negotiated in the World Trade Organisation and various 'free trade' agreements should be accepted as forever setting the base line for New Zealand's policy on foreign investment, and never be revisited when it is in the public interest to do so".

Other Submissions

Aotearoa Water Action, which is campaigning against Chinese-owned water bottling export plants, submitted on that subject but also declared its support for several of the points made by CAFCA (we have developed a good working relationship with AWA in the recent past). The submission that attracted mainstream media attention was from the Christchurch City Council, sent under the name of Mayor Lianne Dalziel. It can be read here. Its' conclusions were:

• "Water is more than a simple natural resource and needs to be afforded specific protection under the Act.
• Extracting water for bottling generally provides limited economic benefit and brings with it an undermining and devaluing of a community's sense of self and risks to the protection of the asset for future generations.
• Corporations carry a reputation and this, along with the character of its key personnel, should be considered explicitly in overseas investment applications.
• The concept of national security should extend to protection of natural assets".

Stop Tinkering Around The Edges

The review carries on but genuinely tackling the domination of the NZ economy by already entrenched TNCs would involve Labour in putting the real national interest ahead of its dread of upsetting "business confidence". Business in this country is, more and more, foreign business. What is needed is a Government prepared to tackle this transnational corporate colonisation, not one that tinkers around the edges to mollify public opinion while simultaneously making things even easier for the colonisers.

Small Victories

It's not all bad news in the world of foreign investment "oversight". In Watchdog 150 April 2019, "Hold The Phone! For First Time, OIO Does Something About One Of CAFCA's 'Good Character' Complaints", I reported that, based on the lack of good character of the individual in charge of the foreign investor, the OIO had required Chinese-owned Agria to sell down its 50.2% shareholding in PGG Wrightson. The OIO took the matter to the High Court and, in March 2019, Agria was ordered to pay $220,000 in civil penalties (the company to pay $100,000 and the individual $120,000), plus $30,000 in costs.

The OIO has also taken other recent High Court actions. In July 2019, Chinese buyers of two Warkworth rural properties were ordered to sell the properties for no profit and to pay the Crown $2.95 million. They had bought the land without OIO consent. Also, in July, a company which had bought Albany land for a subdivision was ordered by the High Court to sell the land and to pay the maximum civil penalty of $300,000, plus $288,000 costs. Once again, OIO consent had not been sought. It's commendable to see the OIO finally doing a little bit of its job but it's going to take a lot more than this to deal with the issue.