Since this was published, CAFCA has learned (via the OIO newsletter) that submissions actually closed on December 10, 2020. When we put in CAFCA's one, the date was August 31. Then we discovered that they were still open, with no cut off date stated. That remained the case when this article was written and this issue was laid out for printing, in December. We have no idea when that December 10 cut off date was announced. The Select Committee is due to report back to Parliament on March 4. Ed.

Amendments to the Overseas Investment Act 2005 under this Government have been an unusually long drawn out process, interrupted by the Covid crisis, then by the election which returned Labour for its second term. At the beginning of its first term, the Government issued a Ministerial Directive to the Overseas Investment Office (OIO) on the relative importance of different criteria under the Act.

The Government's general approach was to encourage overseas investment in forestry, as part of its "one billion trees" policy, and to restrict overseas ownership (but not development) of residential property, as this was a factor in the Auckland housing bubble. This directive was incorporated into the Act in August 2018.

The Government then began a Phase 2 review of the Act, led by Treasury, the department that administers the Act (although it is the OIO, housed with Land Information, which processes consents). Treasury released a consultation document in April 2019 on which CAFCA, and no doubt some of you, made a submission. Submitters' views were included in Treasury's Regulatory Impact Statement (RIS) advising the Government, released in March 2020.

An Overseas Investment Amendment Bill No.2 was introduced in March 2020, but quickly replaced with a rapidly passed Urgent Measures Bill, to protect New Zealand against vultures seeking Covid bargains, and a not-so-urgent Amendment Bill No.3, which was put on hold until after the election. The closing date for public submissions to the Finance & Expenditure Committee will be set as soon as the new Government gets its act together - check the Bill's progress on Parliament's website.

Urgent Measures & Regulations Passed By Government

On 16 June 2020, the Urgent Measures Amendment Act provided the "national interest" test and Ministerial power to decline consent that was proposed in the earlier consultation. This test will be applied only to "strategically important businesses", including "critical direct suppliers" to these businesses.

The definitions list identifies strategically important businesses as those related to military or dual-use technology; ports or airports; electricity and distribution; drinking, waste or storm water infrastructure; telecommunications; financial institutions or market infrastructure; media with significant impact; irrigation schemes; and any others set by Regulations. Note that, despite the context of Covid-19, medical, food and other essential supplies and services were not included. There are detailed rules about whether and when the names of protected businesses can be publicly listed or withheld.

The Urgent Measures also introduced a 90-day (renewable) emergency notification power to allow the Government to review overseas investments which change the control of a business. Similar Covid-related precautions have also been taken in Australia, Canada and some European Union countries. This is in addition to the OIO's usual screening of overseas acquisitions of businesses over a threshold of $100m (or $200m for buyers from Comprehensive and Progressive Agreement for Trans Pacific Partnership [CPTPPA] countries, or $500m for Australians under Closer Economic Relations [CER]).

On 1 September 2020, the Government renewed its emergency notification power for a further 90 days. When that power expires, the Minister will have a narrower "national security and public order call-in power". It also tightened the "investor test" with regard to character, capability and tax compliance, but this doesn't kick in until June 2021. Other changes proposed by Treasury were included, to allow investments it deemed "low risk" to proceed more quickly (e.g. for leased land, and repeat applicants). This Urgent Measures Bill was reviewed by the all-Party Covid Emergency Measures Committee, skipping the usual Select Committee and public submissions process.

On 28 July, over 100 pages of Regulations under the Act were signed off by Order in Council (that's Cabinet plus the Governor-General). The Regulations cover advertising farm land for sale, the Crown option to buy foreshore and riverbeds etc., and a long list of exemptions to the residential, forestry and other requirements recently enacted - looks like just about everybody who squealed - as well as the different thresholds and rules for "significant business assets" or "Government enterprises" because of our various free trade agreements. It's all horribly complex - the OIO will certainly need its larger staff - and harder for us public to monitor who the OIO ought to have monitored, let alone to know who now owns, and profits from, what bits of New Zealand.

What's In Bill No.3?

So, what's left for Amendment Bill No.3 that we might actually have a say in? Bill No.3's Explanatory Note starts with a general statement of policy. The rather contradictory purposes of the Act and its amendments are: to manage the risks posed by foreign investment effectively, while better supporting productive overseas investment by reducing the regulatory burden, consistent with it being a privilege for overseas persons to own or control sensitive NZ assets. The statement says risk management will be strengthened by:

• "A higher threshold for acquiring farm land" and "a requirement to advertising to New Zealanders". All those squeals about foreigners turning good farm land into pine forest appear not to have deterred the Government from its "one billion trees" goal.
• "Considering negative impacts on water quality and sustainability in consents for water bottling but not for other water uses". Note, no suggestion of prohibiting exports of our drinking water taonga, so this may have little effect.
• "Better recognition for Māori cultural values". However, Treasury considered that Te Puni Kōkiri's proposal for manaakitanga, kaitiakitanga and whanaungatanga to be part of the Act's decision-making framework was outside its terms of reference (RIS, p.18).)
• "Requiring information for Inland Revenue Department (IRD) about corporate structures and tax treatment". Maybe IRD will ask why high proportions of our overseas investors are based in tax havens, and take tougher action than this Bill requires. We note NZ Police's Financial Intelligence Unit reported that the sale and purchase of land and of "significant business interests" are key means by which money is being laundered internationally (RIS p.40).
• "Regulatory power to reintroduce an emergency notification regime". Ready for the next time the crisis vultures circle.

Schedule 5 at the end of the Bill strengthens the Crown option on "fresh or seawater areas" of land (foreshore, seabed, riverbed or lakebed), paying compensation, etc. Currently, overseas land purchasers applying for consent may offer these to the Crown as a "benefit to New Zealand", and in August 2018 this became a mandatory requirement to meet the new "special forestry test" in s.16A. Treasury noted that surveying these areas is slowing forestry consents (RIS p.31). The issue of public access across private land to reach these areas, or to walking tracks, another potential "benefit", is not addressed.

Act Will Be Weakened

But the Act will be weakened, in my view, by amendments requiring fewer acquisitions to be screened. Firstly, there is to be a softer rule for NZX-listed companies with overseas ownership but "widely held" and apparently sufficiently Kiwi in Treasury's view. Currently, the definition of an "overseas person" requiring OIO consent includes any incorporated body that is more than 25% owned or controlled by people who are not NZ citizens or permanent residents.

The Bill rewrites this with a more complex statement on various corporate entities, including managed investment schemes: those with more than 25% of beneficial ownership or control in overseas hands will require consent. It then introduces a weaker definition for companies with overseas ownership that are publicly-listed in New Zealand.

These will be recognised as overseas-owned companies only if more than 50% of their beneficial ownership, or more than 10% of their controlling vote rights, is held by overseas persons; or if the overseas persons with more than 10% ownership each together control more than 50% of the governing board, or have more than 25% of the voting power. If you're not a corporate lawyer, you'd better read that twice.

Any company below that generous level will not require OIO consent to acquire sensitive land or significant business assets - and we probably won't hear about it. The change assumes a more optimistic view than mine that, in such companies, "Kiwi values" will prevail over offshore pressures to increase "shareholder value"; i.e. profits for export.

OIO consent will no longer be required for overseas persons to lease land for less than ten years, or three years for leases of residential land. Repeat overseas-owned customers will not need to repeat their character test, unless they do something naughty, and may apply for one of the multi-purchases Standing Consents that were added to the Act in August 2018.

In addition, the Bill reduces the kinds of sensitive land features for which overseas acquisitions of adjacent land are currently screened (cf. Schedule 1, Table 2 in the Act and in the No.3 Bill), although with a refocus on land adjacent to locations culturally important to, or collectively owned by, Māori. The consultation document called this protecting "Māori cultural values" - no one would call it Treaty partnership, let along sovereignty.

Te Puni Kōkiri proposed a change in the treatment of former Māori lands screened by the Act (particularly raupatu or confiscated land) to require them to be offered for purchase by Māori with an interest in that land before consent is granted. Treasury considered this, too, to be outside its terms of reference.

"Simplifying" & "Clarifying"

Importantly, the Bill will also be "simplifying and clarifying the counterfactual assessment". That innocuous-sounding "simplifying and clarifying" phrase in fact means that the Bill will overturn a High Court ruling on how "benefit to New Zealand" should be assessed. In 2012 the High Court undertook a judicial review of the OIO's consent for Shanghai Pengxin to acquire the 16 Crafar farms. It ruled that the s.17 factors, including particularly economic factors (s.17(20(a)) must be assessed by asking what would happen "with and without" overseas investment.

That is, the "substantial and identifiable benefit" to New Zealand from the overseas buyer should be over and above the production potential expected of any solvent purchaser (Tiroa vs Land Information 2012). Following that judgment, more consent summaries made mention of new technology, newly developed fruit types, substantial overseas marketing networks, and stated amounts of development capital over and above the acquisition price. That is, substantial and identifiable benefit arising from the privilege granted in allowing overseas persons to own our land, assets and profit streams.

Amendments to s.16A of this Bill will allow the OIO to revert to what the High Court described as a "before and after" assessment, which expected no more than the status quo under any owner. Was this what Parliament intended when they set these strict statutory criteria, and the "privilege" principle? The High Court said otherwise. The proposed changes will weaken the Act.

In addition, for acquisitions of five ha. or more of rural land, the requirement for overseas owners to show "substantial and identifiable" benefit to New Zealand will be removed, in favour of a vaguer "proportionate" approach - which will be much more difficult for us public to identify. For five ha. or more of land being farmed, however, there will be a "higher threshold".

The Bill requires that for farmland the Ministers must give higher relative importance to economic factors (jobs, technology, primary processing, exports), rather than environmental factors. All the factors to be considered in granting consents to acquire land will now be in the legislation, in a new section 17. No new factors may be added via Regulations, reducing flexibility.

Some of the changes in the No.3 Bill have already been happening under the July Regulations passed by Order in Council. This bill moves the broad mechanisms up into legislation. If you want to make a submission to the Finance & Expenditure Committee on one or more issues in the bill - and I hope you do - it will be worth checking the detail in the Regulations and taking a look at the relevant bit of Treasury's Regulatory Impact Statement advice to Government (135 pages). The Cabinet papers for all the amendments Bills are also available on Treasury's Website (search "overseas investment").

Overseas Investment And Trade Agreements

A further point to note comes from Bill Rosenberg. The influence of international trade and investment agreements is glaring throughout Treasury's Regulatory Impact Statement, despite much of it being redacted (under s.6(a) of the Official Information Act: "to avoid prejudice to the security or defence of New Zealand or the international relations of the Government"). Clearly, Treasury was wrestling with what it was allowed to do under the free trade agreements (FTA) New Zealand is now party to. One of the clearer examples relates to water. On p.85, the RIS states:

"Some stakeholders suggested making water a new class of sensitive asset subject to screening under the Act. This option is outside the scope of the terms of reference, and could raise issues of consistency with New Zealand's international obligations". In other words, Treasury is doubtful whether we can protect water from overseas ownership or control, even in the limited way we protect land.

The RIS makes heavy use of the "national security and public order" concept, which is a phrase used in general exceptions in many free trade agreements. It has the advantage of being self-judged - that is, a World Trade Organisation (or whatever) disputes panel can't second-guess the Government's judgment on this (or at least not on national security matters). This is what Trump is using, and heavily misusing, to impose tariffs and other penalties against China and others. It is hard to know how much this has affected the scope or limitations of changes in this No.3 Bill, but would certainly underpin the national security and public order sections of the Urgent Measures passed earlier this year.

An aspect of free trade agreements is that they have "ratchet" provisions that allow measures (such as the Overseas Investment Act) that are in conflict with the agreement at the time of signing, if agreed by all parties. But any changes that make them more "liberalised" (i.e. more in keeping with the FTA/favourable to overseas investors) cannot be reversed or retightened. It is a one-way track towards increased liberalisation. There is a risk that if any of these recent or proposed changes to the Act open new holes in the screening of overseas investments, we won't be able to reverse them.

Overseas Investment Amendment Bill No.3

Overseas Investment Act 2005, reprinted as at 1 August 2020

Overseas Investment Regulations 2005, reprinted as at 28 July

The Treasury, Reform of the Overseas Investment Act 2005 – Phase 2. Regulatory Impact Assessment, March 2020

Tiroa E and Te Hape B Trusts vs Chief Executive of Land Information HC WN CIV-2012- 485-101 15 February 2012 T