In November 2000, National and Labour used their combined vote in Parliament to approve the ratification of the New Zealand-Singapore "Closer Economic Partnership" (CEP) and to maintain the pace of opening the New Zealand economy that has occurred over the last 16 years. At a time when the world is reviewing the "There Is No Alternative" approach to globalisation which has dominated the last two decades, Labour is trying to show financial markets that nothing has changed in its international economic policies. It is now on to the next step: a similar agreement with Hong Kong.

CAFCA, with GATT Watchdog and the APEC Monitoring Group (GATT = General Agreement on Tariffs and Trade, now the World Trade Organisation; APEC = Asia Pacific Economic Cooperation), fought the free trade and investment Agreement intensively in the run up to the Parliamentary Select Committee hearings into the Agreement. We produced a substantial backgrounder on Singapore investment and the Agreement before the text was released. We spoke to numerous meetings (including the Alliance National Conference, by invitation) and local government representatives, released press statements (mostly ignored by the media), wrote feature articles (printed in at least three major dailies), lobbied MPs, and made an extensive submission to the Foreign Affairs, Defence and Trade Select Committee. The submission includes details of all Singaporean investment in New Zealand that has come through the Overseas Investment Commission since 1990. A summary of that submission follows. The full submission and other material, including Jane Kelsey’s devastating analysis of the Agreement, are available on CAFCA’s Web site, which is:

http://canterbury.cyberplace.org.nz/community/CAFCA

The Bulldozer Approach To Consultation

The outcome was never in doubt. Having carried out some of its commitments to the electorate, Labour now had to show it was still pro-business, and this was the ultimate demonstration. Even the Foreign Affairs, Defence and Trade Select Committee, which heard submissions on the Agreement, was completely cynical about its task. As it admitted in its report – a report which, as Jane Kelsey said, missed the point on just about everything –

"Some submissions believed that this committee’s examination of CEP was part of the Government’s consultation process. They saw it as being less than the undertaking that the Government had made in this regard. However, examination of an international treaty by a select committee is a separate process from any consultation the Government chooses to undertake during the negotiation phase of a treaty. By the time a treaty is presented to the House, it will normally have already been adopted by the States Parties and will often have been signed by the New Zealand government as well. ‘Two way’ consultation is not possible at this stage…".

Of course, it didn’t mention that until five days before submissions were called for, the text of the Agreement was secret, so all but a privileged few had to rely on the vague, sketchy and biased summaries released by the Ministry of Foreign Affairs and Trade (MFAT). Then the Select Committee gave citizens only a week (later extended to two weeks if a pro forma submission was sent in after a week) to obtain, understand, analyse, and prepare a submission on the complex 192 page document. Those individuals who made substantive submissions made them at considerable personal sacrifice. Many simply decided against doing so because of the lack of time and predetermined outcome. Over a hundred people sent in a letter protesting at the nature of the Agreement and the lack of time.

The Labour chair of the Committee came up to me after the hearing in which I made the CAFCA submission, and thanked me for the CAFCA submission, saying (sincerely, I thought) that it was particularly valuable in clarifying the situation. He then said that he felt terrible about the farcical timetable for hearings and the nature of the Agreement itself. That guilt was not expressed in the committee’s report or Parliament’s timetable. Orders had been given and had to be obeyed.

There is little doubt that the Agreement is a danger in itself, as well as being (as Asia 2000 head, and former head of the Agreement’s negotiating team, Tim Groser, famously remarked) a "Trojan Horse for the real negotiating end-game: a possible new trade bloc encompassing all of South East Asia and Australia and NZ" .

To give but one example, in an area of direct concern to CAFCA members, that of foreign investment, its unprecedented provisions could form a back door entry to New Zealand for overseas investors wanting to avoid tighter controls.

The financial crisis in Asia in 1997 was triggered by investors with "hot money" – short term investments – panicking at the state of indebtedness and current account deficits in several countries. Huge inward capital flows of previous years were rapidly reversed, causing severe financial, economic and social problems. Millions were thrown into unemployment and poverty. Governments fell. Whole industrial sectors were sold to US and European corporations.

Malaysia reacted by imposing capital controls to prevent further runs. China and India came through the crisis relatively unscathed because they already had controls in place, as had Chile. Consequently, many economists are favourably reconsidering such policies.

What if a New Zealand government decides it needs capital controls to prevent a similar crisis in New Zealand, or to reduce the dollar’s volatility? Under the Singapore Agreement, we can’t put controls on capital controlled by any investor with a legal presence in Singapore (Articles 27 and 31). That could be almost any major company in the world: most corporations with any international ambitions have a presence in Singapore because it is a commercial hub for much of South and East Asia.

Suppose, say, Bankers Trust (now part of Deutsche Bank) decided it wanted to protect its ability to pull money in and out at will. A Bankers Trust dealer speculated several hundred million dollars against the New Zealand dollar in 1987, crashing it by 10%, so it’s not an implausible scenario . All it needs to do is to make all its investments and do all its dealing through a Singapore subsidiary.

So the Singapore Agreement effectively rules out an extremely important tool for managing our economy and protecting our currency. To use capital controls, a New Zealand government would have to either negotiate back the right to use them from Singapore, making further concessions, or leave the Agreement. If it broke the Agreement, overseas investors (but not New Zealanders) could take action for compensation. There is a limited exception permitting controls in "in the event of serious balance of payments and external financial difficulties or threat thereof" (Article 73). By then, it may well be too late. In any case, such actions must be strictly temporary and under conditions consistent with the articles of the IMF.

To take another example, until November 1999, all overseas investment proposals worth more than $10 million required the approval of the Overseas Investment Commission. Only weeks before the election, the National government made buying our assets easier by increasing that threshold to $50 million, except for buying land or fishing quota.

The higher threshold means that that even fewer overseas investors are scrutinised under our feeble criteria to filter out undesirables. For example, there is a requirement that individuals controlling investments be of "good character".

Prior to the Singapore Agreement, the Government could return the threshold to $10 million. The right to tighten scrutiny further was given away in commitments to the World Trade Organisation’s (WTO) General Agreement on Trade in Services (GATS) in 1995. Now the $50 million threshold will be formally sealed into the Singapore Agreement.

Suppose after the Singapore Agreement has been ratified, a New Zealand government decides it wants more control of overseas investment and pulls back the threshold to $10 million. It could do that for all but investors from Singapore. But then all a company controlled by people of "bad character" has to do is make the New Zealand investment through its Singapore branch. If the takeover is worth less than $50 million, then they will still face no scrutiny at all, unless rural land or fishing quota is involved.

Tommy Suharto, son of ex-President Suharto of Indonesia, was sentenced to 18 months jail, in 2000, for massive corruption. He sold his Canterbury high country station, Lilybank, to business associate LYA Poh of Singapore for $1 in 1999. This Agreement will make it harder for us to stop the likes of the Suharto retinue hiding its wealth here.

Again, an important policy option for New Zealand is undermined. In the investment area alone, the Singapore Agreement freezes or weakens our laws that control overseas investment. Furthermore, there is a commitment to progressively lessen even the limited controls that remain.

This is no level playing field. Singapore’s investment rules are more stringent than New Zealand’s. Its investment in New Zealand, which, at $1.023 billion is over five times New Zealand investment in Singapore , is largely in the service industries, where New Zealand has made many new commitments in the Agreement.

The Committee’s report completely omitted any reference to the crucial issue of capital controls, though it mentioned concerns about the $50 million threshold and the loose definition of "investor".

It admits that consultation was insufficient and that its submission timeline was too short.

In fact, the Deputy Prime Minister, Jim Anderton, has told us he asked MFAT to consult with opponents of the Agreement, yet GATT Watchdog and a number of other interested parties were not invited to briefings. Of course the briefings were (as even supporters of the Agreement who were invited attested at the Select Committee) an almost entirely one way affair. MFAT officials told those attending what they wanted them to know. Questioners asking for clarification were told it was still under negotiation, so no answer could be given. Even though the briefings were a crack of light ahead of the closed doors of the 1990s GATT Uruguay Round, for example, they were still a public relations exercise rather than a genuinely intended consultation.

The process the Committee followed was so hasty that its report is full of errors. It attributes comments to GATT Watchdog even though it never made a submission. It claims to have advertised for submissions on 9 September, before the Agreement was even presented to Parliament on 11 September. In fact it didn’t advertise until 16 September in Wellington and 18 September elsewhere.

It misquotes submissions and glosses over major issues. Concerns at the favourable position Singapore retains through its extensive Government-linked companies and regulations are barely covered. Worries that Singapore involvement in New Zealand tertiary education and research could undermine academic freedom are dismissed with an inaccurate reference to the law.

It dismisses significant local government concerns in less than a paragraph. Yet those concerns came from major councils including Christchurch, Manukau, and Horowhenua, and Local Government New Zealand. Dunedin City Council was not allowed to make a late submission despite its mayor’s attendance at the hearings.

It does not refute arguments that the tariff removals are in opposition to Government policy to freeze tariffs, nor that those tariffs are beneficial.

Even on the issue of process, where the Select Committee could have made a stand to ensure there is proper, informed consultation with the New Zealand public, with early release of drafts of the text, it makes only general statements of support for a longer time frame and more consultation. But it says that its future part in the process will again be a charade of inquiring into agreements that have already been committed to.

And then there is the inevitable conclusion: the majority of the Committee supports the Agreement – without even amendment to allay the faults to which the report admitted. The grand coalition of National and Labour overrode all concerns. Nothing that anyone could say – and did say at great personal cost – could have changed that. The hearing and submissions were just for show.

New Zealand has lost another piece of its independence after another stifled debate.

But perhaps the opposition it encountered on this one will eventually make the Government think again as it pursues even more dangerous agreements, intensifying Closer Economic Relations with Australia (CER), expanding it to the Association of South East Asian Nations (ASEAN), and others with the USA and Chile (see accompanying box). There is increasing concern within the Labour Party itself (including an excellent submission by Auckland’s Princes Street branch), and the Council of Trade Unions (CTU), in a significant change of direction, opposed the Agreement. The Greens have been staunchly opposed throughout, and the Alliance grass roots are readying for a fight. There is increasing concern from local government representatives. The effort will continue: it has not been wasted.

This submission principally addresses three issues regarding the Agreement: the process of consultation and adoption, Investment and Services.

We state our profound disappointment at the extraordinarily short time allowed for submissions and public debate on this Agreement, and the lack of information provided to inform the debate – particularly the secrecy surrounding the text of the Agreement itself until only two weeks before submissions closed.

This is a 192 page, highly complex document whose implications cannot be fully understood without reference to even more complex documents, such as those under the WTO, CER and APEC, as well as our own and Singapore’s body of law. Its implications, as this and other submissions will show, are far reaching. That is all the more significant because it is seen as a "Trojan Horse", in the words of Tim Groser, head of Asia 2000 , for more such agreements with many of the countries with which New Zealand has its most important trading and investment relationships.

Such agreements are akin to entrenched legislation. Policy options are closed off to future elected governments, and they cannot be regained without either negotiation with a foreign government or the extreme and unlikely step of abrogation of an agreement. They therefore require if anything more testing processes than normal legislation. Instead this Agreement is receiving essentially token scrutiny.

We therefore ask the Committee to delay its hearings and extend the date for submissions by at least a month to allow more time for the Agreement to be debated publicly and for submissions to be prepared.

We also submit that the process of ratifying such agreements and approving changes to them or their scope, be permanently placed in the hands of Parliament, accompanied by a rigorous, public and participatory process of scrutinising their principles and their detail. The process should take into account their entrenched nature.

We also express concern at the shallowness and one sided nature of the National Interest Analysis. It fails to give more than a token cost-benefit analysis, and addresses only glibly the concerns that this Agreement will raise. It is little more than a marketing exercise for the Agreement, rather than a genuine assessment of its long term effects on New Zealand society and whether it should proceed in its final form.

We submit that National Interest Analyses should be compiled by a body independent from the Government, and taking into account public consultation and independent expert advice.

Foreign investment has rapidly increased its presence in New Zealand’s economy since the economic reforms started in 1984. Its influence has been economic and political. Government policy has been to encourage it by dismantling any restrictions, except where land and fishing quota are concerned (though remaining restrictions are largely unenforced other than in exceptional cases). Claims are frequently made by Government and business spokespeople for its beneficial effects.

Those claims are based on anecdote and theory, not on an examination of the actual experience of New Zealand and the APEC region. When those experiences are examined, current deregulatory policies towards foreign investment are seen to be highly dangerous and indeed damaging to New Zealand’s economic development and the welfare of its people. New Zealand simply cannot afford its current liability of both overseas borrowing and direct investment. Therefore, to the extent we accept foreign investment, on a number of grounds we must be selective. A robust filtering mechanism is essential with regard to foreign direct investment.

New Zealand is also at high risk from the same "hot money" that was the immediate cause of the 1997 financial crisis in Asia. It is therefore essential that New Zealand maintains the ability to control international capital movements and the proceeds from investments.

A detailed analysis of Singapore-sourced investment in New Zealand is provided. At March 2000, Singapore direct investment in New Zealand was $1.023 billion, or more than five times the $193 million owned by New Zealand direct investors in Singapore. It has been very strongly focused on Service industries.

The Services provisions in this Agreement are therefore highly significant, and Singapore has a head start in benefiting from them.

By no means all the effects of Singapore’s investment have been benign, and much of it has been takeovers and/or investment in property with little benefit to New Zealanders. Job creation, where it has occurred, has been overwhelmingly in low-paid, insecure and often deunionised work such as in tourism.

In stark contrast to New Zealand’s increasing deregulation – a pace which is forced by this Agreement, WTO agreements, APEC, and other arrangements – Singapore retains highly interventionist policies at home. It also contrasts strongly with Singapore’s advocacy of liberalisation in its international relationships.

Through joint Government and industry long term planning, tax incentives and other encouragement, Singapore is successfully seeking high value-added industry and services, in contrast to much of its investment here. At the same time as it encourages development of high-value services, it is aiming at maintaining industrialisation at around 25% of Gross Domestic Product (GDP).

That is greatly aided by continued Singapore government ownership of a large part of Singapore’s commerce. It controls around 1,000 "Government-linked" companies, whose value amounts to approximately one quarter of the value of the Singapore share market. It is through these companies that parts of Singapore’s investment in New Zealand is channelled.

Singapore’s function as a services, consulting, transport and financial centre for South East Asia and the south eastern Pacific is also important. A large number of transnational corporations are actively represented there, and use it as a base for investment and provision of services to the wider region.

With this background, it is possible to understand better the significance of what is being proposed in the Agreement’s investment and services provisions.

The very wide definition of investment (Article 27(1)) is reminiscent, though not identical to that in the ill-fated 1990s Multilateral Agreement on Investment (MAI).

It includes intellectual property, which could have significant results that are difficult to predict. Under some circumstances it could act as a back door means of giving investors the right to directly enforce the WTO’s TRIPs (Trade-Related aspects of Intellectual Property Rights) agreement, which forms the intellectual property provision of this Agreement.

The investment definition also includes "business concessions conferred by law or under contract, including any concession to search for, cultivate, extract or exploit natural resources". That apparently includes permits given by local governments, such as under the Resource Management Act, other environmental regulations or building codes. That has profound implications if expropriation is interpreted to include "equivalent effect", meaning that loss of an investment’s value through loss of profitability is treated as "expropriation". It would mean that any change in environmental regulations by central or local government which reduced the profitability of an enterprise (and hence the value of a permit or asset) could be subject to compensation and perhaps reversal of a law or regulation change.

This is not merely a theoretical problem. The Investment Agreement signed with Chile in July 1999 (without any Parliamentary – let alone public – oversight, as far as we are aware) has MAI and North America Free Trade Agreement (NAFTA)-like expropriation provisions (its Article 6). If the Government, as it has signalled, negotiates a wider agreement with Chile, Singapore, and other countries, then the interaction of the two may become of considerable importance.

The definition of "investor" (Article 27(3)) does not capture what would commonly be thought of as a "Singapore" investor. It means that a company (etc) need not be owned in Singapore: all it needs is some form of presence in Singapore.

This allows any transnational company to take advantage of the provisions of this Agreement by the simple arrangement of passing ownership of its New Zealand subsidiaries to its Singapore subsidiary. This is particularly relevant given Singapore’s role as a key business centre for Southeast Asia.

It could be used as a loophole allowing corporations to avoid New Zealand laws and regulations related to investment from other countries, such as the Overseas Investment Act, or action to control hot money.

Article 29 introduces "National Treatment" for investment. That is the principle that overseas investors must be treated at least as well as local investors. It undermines the economic development policies of the Labour/Alliance government, which aim at the "incubation" of new industries and ensuring their longer term survival against overseas competition.

Article 31, on Repatriation and Convertibility, in most circumstances prevents New Zealand from instituting capital controls in any form on transfers to and from Singapore, with a limited number of exceptions which would be of little use to stabilise capital flows.

These provisions rule out a potent economic instrument that is used in Malaysia, Chile, China, and other countries. It is essential if New Zealand wishes to regain any substantial degree of economic sovereignty, and if we wish to maintain our own currency.

Article 34 is unprecedented for New Zealand, in that it provides for investor enforcement of alleged breaches of the investment provisions. It is extraordinarily dangerous, as members of NAFTA are finding, and was one of the strongest objections to the MAI. It is a potent basis for expensive litigation, the very threat of which may give overseas investors additional power in dealing with central government, and local government if central government (as is likely) passes on the results in precedent setting cases. It is discriminatory in that the same power is not available to New Zealand investors with respect to the New Zealand government – although they could gain it by owning their companies through a Singapore subsidiary! The procedures are secretive and allow for no involvement by interested parties such as a local government which may be the subject of the claim, nor the public.

The effect of these provisions is to immediately freeze or weaken our laws that control overseas investment, making it more difficult even than under the WTO’s General Agreement on Trade in Services (GATS) to put in place more stringent controls. However, there is a commitment to progressively weaken even those controls that remain.

Singapore in contrast has considerably stronger controls on foreign investment, which it too has frozen. However it clearly has got the better of the deal in being able to preserve those powers, and has more to bargain with in future reviews.

The Agreement’s Services provisions, while taking the same approach as GATS, increases the pace of liberalisation. The GATS is responsible, for example, for preventing the Government taking more assertive action to increase local content into broadcasting.

The increased pace of liberalisation is seen most directly in Article 20 which provides that (at least) two year reviews under Article 68 of the Agreement will "progressively expand these initial commitments … in accordance with the APEC objective of free and open trade in services by 2010". That is, the aim is complete removal of any limitations on overseas suppliers to provide our services within nine years.

Commitments in the Services area are listed by sectors the country is prepared to open up, in Annex 2 of the Agreement. Amendments can be made to the list, but they must expand the list or at least ensure that the "overall balance of benefits under the Agreement is maintained". Again, there is no going back.

New Zealand has added a significant number of Service sectors to its commitments compared to GATS.

Of concern is the addition of environmental and ambulance services. The inclusion of environmental services could be very significant for local government, which carries responsibility for important environmental services such as sewerage, and rubbish collections. Both will increase commercialisation in those sectors.

While Singapore’s additions superficially appear longer, that is largely because they are more specific to sub-sectors, rather than the full sectors that New Zealand has generally committed to.

Again, it is difficult to escape the conclusion that New Zealand is liberalising more quickly, and has left itself with considerably less bargaining power for future negotiations, even if further liberalisation were desirable. That disadvantage is all the more so given Singapore’s substantial stake in our services industries. It is well placed to expand that into new, related areas.

And again, the effect is to lock the growing services sector into rapidly increasing commercialisation and overseas ownership. We have seen the effects of this on social services, rural areas and on small users of services, in telecommunications, electricity, rail, banks, local government services and many other sectors.

Both the preamble and objectives essentially make liberalisation an end in itself. While paying lip service to employment opportunities, standards of living and "consumer welfare" (whatever that is), the overwhelming focus is on trade and investment. Human and labour rights, the environment, New Zealand’s cultural identity, and the Treaty of Waitangi rights of Maori are unrecognised or relegated to token clauses.

The Agreement is built on a foundation that will lead to further economic and social impoverishment of our society. Human rights, labour rights, environmental and Treaty of Waitangi clauses could not patch up that fundamental fault.

There are provisions on Competition in the Agreement. Competition in a small economy is difficult to ensure in many sectors. Relatively few local firms can reach a sustainable economy of scale, simply because of the small size of the market in their sector. An approach that sees competition as an end in itself, rather than one of a number of desirable means to an end, forces overseas ownership of services and industry, as that may be the only "market" way to introduce competition. A careful balance is therefore needed between competition and regulation.

We support concerns expressed by unions and local industry at the removal of tariffs on textiles, clothing, footwear, furniture and carpets from Singapore, and the low (40%) content requirement (Rules of Origin) for goods to be eligible for the zero tariff. It raises concerns that products produced in appalling conditions from neighbouring low-wage free trade zones, such as Batam (on a nearby Indonesian island), will find entry to New Zealand through this Agreement. It negates the tariff freeze on which this Government was elected, which was a recognition of the loss of jobs and production that the country suffered as a result of previous governments’ tariff cuts. More than that, it makes it even more difficult to reinstate tariffs and other support should that prove to be necessary, as we believe it will, to rebuild New Zealand’s productive base in this and other sectors. The weakening of anti-dumping rules, and complete removal of safeguards are equally regrettable.

New Zealand has experienced the "hollowing out" of its economy in the experiment of the last 16 years. The economy has lost international competitiveness, as revealed in recurring danger level current account deficits – with even a goods trade deficit in the year to March 2000, an exceptional occurrence. The economy has also lost much of its ability to substitute for imports. That is being seen now, despite a low dollar which makes imports more expensive.

The effect of the Government procurement provisions is likely to be that central government and local government, will not be able to use their spending power to simultaneously achieve social aims. Those aims typically include supporting non-profit groups, creating employment, and regional economic development. Commercialisation will be encouraged, as described in relation to services.

This Agreement will further reduce our ability to regain the controls needed to build a healthy economy. But more, it is another agreement that forces continued liberalisation of New Zealand’s trade and investment policies. Continued liberalisation will conflict with the new Government’s economic and regional development policies. Our ability to take anything more than superficial action to close social and regional gaps will be permanently foreclosed to New Zealand central and local governments.

In addition, and perhaps most importantly, the Agreement is of special and wider concern because of its significance as a "Trojan Horse" or catalyst for further similar agreements with other ASEAN nations, and as a back door entry for investors from other countries.

We therefore reject the whole principle of this Agreement. We submit that, given the increasing and widespread New Zealand and international opposition to the effects of trade and investment liberalisation, most clearly represented by the events inside and outside the WTO meeting at Seattle in December 1999, and increasing evidence of the falsity of the theories and concepts on which it is based, that a moratorium and public inquiry should be held before embarking on yet another act of liberalisation.