VII. INVESTMENT CLIMATE OPENNESS TO FOREIGN INVESTMENT: New Zealand welcomes and encourages foreign investment without discrimination. The Overseas Investment Regulations 1985 (as amended) require approval by the Overseas Investment Commission (OIC) for investments over NZD 10 million (approx. USD 5.9 million) or investments of any size in commercial fishing or rural land. In practice, virtually all applications are approved. (From 1988- 1993, out of 2600 applications, only two were disapproved.) The OIC comprises four members: two from the private sector and two ex officio, one each from the Reserve Bank and the Ministry of Commerce. In assessing applications for foreign investment, the OIC considers the extent to which the proposal will promote New Zealand's economic growth and development. Factors such as increased competition or efficiency, transfer of technology or skills, increased exports and job creation are considered in the examination. The review of investments above NZD 10 million applies to greenfields investments, asset acquisitions, the acquisition of 25 percent or more of any class of shares or voting stock, or the issuance of shares by a New Zealand company to an "Overseas Person" when the issuer is an "Overseas Person" or will become one as a result of the share issue. An "Overseas Person" is any non- resident company or person or a New Zealand company where "Overseas Person(s) control 25 percent or more of any class of shares or voting stock. An "Overseas Person" may not hold a fishing quota without an exemption from the Director General of the Ministry of Agriculture and Fisheries. Therefore, foreign investment in commercial fishing is generally limited to a maximum holding of 24.9 percent. There are no restrictions on the level of ownership of rural land, but the foreign purchaser is required to demonstrate that the purchase will be beneficial for New Zealand. Very few government owned enterprises remain to be privatized, primarily electrical transmission, television and radio broadcasting, and the government computer center. The government has not discriminated against foreign interests, to the extent that the former government monopoly railroad and telephone systems are managed by American-owned companies, with large minority ownership shares. Foreign-owned firms may participate in government financed and subsidized research and development programs on a national treatment basis. The government does not offer incentives to foreign investors. A stable, low-inflation environment is viewed as the strongest incentive for investment that the government can provide. Resident companies are taxed at a rate of 33 percent of income, while non- resident companies are taxed at a higher 38 percent of income derived from New Zealand. There is no capital gains tax. New Zealand has double taxation agreements with 24 countries, including the United States. CONVERSION AND TRANSFER POLICIES: There are no restrictions on the inflow or outflow of capital, and the currency is freely convertible. All capital transactions can be accomplished through normal commercial banking channels. EXPROPRIATION AND COMPENSATION: Expropriation has not been an issue in New Zealand, and there are no outstanding cases. DISPUTE SETTLEMENT: Investment disputes are extremely rare, and there have been no major disputes in recent years. The mechanism for handling disputes is the judicial system. New Zealand is a party to the Washington Convention on the Settlement of Investment Disputes. It is not a member of the International Center for the Settlement of Investment Disputes (ICSID) or the New York Convention of 1958, and has no plans to become a member. Property and contractual rights are enforced by the British style legal system. The government does not interfere in the court system. The highest appeals court is the Privy Council in London. PERFORMANCE REQUIREMENTS: There are no performance requirements associated with foreign investment. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT: Aside from the requirement of OIC approval of foreign investments over NZD 10 million or in commercial fishing and rural land, there are no restrictions on the right to establish, own and operate business enterprises. Since 1984, the government has moved aggressively to reduce its involvement in economic activities. A number of government entities have been transformed to state-owned enterprises (SOEs), and several SOEs have been privatized. Aside from the government equity holdings established at the time of formation, SOEs are provided no advantages in their competition with private entities. In general, there has been no restriction on foreign purchasers in the privatization of assets. However, in the sale of Air New Zealand, foreign ownership was restricted to 35 percent to protect its designation as a national carrier, and the terms of the sale of Telecom New Zealand (the former government monopoly phone system) required its U.S. buyers to sell their holding down to 49.9 percent within three years of the purchase. PROTECTION OF PROPERTY RIGHTS: The basis of intellectual property rights (IPR) protection in New Zealand is three laws passed in 1953, and based on British statutes of that era -- the Trade Marks Act 1953, the Patents Act 1953 and the Designs Act 1953; and the Copyright Act of 1962. There have been few revisions to the Patents, Trade Marks, and Designs Acts since passage, other than including protection for service marks in the Trade Marks Act in 1987. However, a comprehensive review of Trade Marks, Patents, and Designs legislation was begun in July 1990, when the Ministry of Commerce issued a two volume study on possible options for reform. Interested parties were invited to submit comments. The government has issued proposed recommendations papers and received comments from the public on several issues. It is likely that reform legislation will be introduced in 1994 on trade marks, patents and designs. Government policy on parallel imports was still being formed in early 1994, and public comments had not yet been solicited. In addition, during 1994, the government will introduce IPR legislation to implement New Zealand's commitments under the GATT Uruguay Round Agreement, including on Trade Related Aspects of Intellectual Property Rights (TRIPS), and increasing the patent term from 16 to 20 years. Another consideration in the review is assessing the benefits of adherence to additional World Intellectual Property Organization (WIPO) treaties. New Zealand is a party to the Paris Convention for the Protection of Industrial Property. New Zealand membership is based on the 1934 London Revision of the Convention with regard to substantive provisions, but in 1984 New Zealand acceded to the administrative amendments of the 1967 Stockholm Revision of the Convention. New Zealand also is a member of the Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods. The Patents Amendment Act 1992 provides for adherence to the Washington Patent Cooperation Treaty, which New Zealand accomplished on December 1, 1992. New Zealand also is a signatory of both the Universal Copyright Convention and the Berne Convention. The registration of patents, designs and trademarks is administered by the New Zealand Patent Office, in the Ministry of Commerce. The Patents Amendment Act 1992 repealed Section 51 of the Patents Act, which permitted compulsory licensing of pharmaceuticals under lenient conditions. The Copyright Act is administered by the Department of Justice. Computer programs and databases and semiconductor chip layout design are not explicitly covered by the Act, but case law has established that they are afforded copyright protection. Trade secrets are covered under common law. New copyright legislation was being considered in mid 1994, including coverage of computer software, and measures necessary to implement the GATT Uruguay Round Agreement. REGULATORY SYSTEM: LAWS AND PROCEDURES: The Commerce Commission administers the Commerce Act 1986, which governs restrictive trade practices. Generally, contracts, arrangements or understandings which have the purpose or are likely to have the effect of substantially lessening competition in a market, together with price fixing, are prohibited and unenforceable, unless authorized by the Commerce Commission. Before giving its authority, the Commission must be satisfied that the public benefit would outweigh the lessening in competition. The Commerce Commission may also prevent a merger or takeover which would result in the new company gaining a dominant position in the market. The use of a dominant market position to restrict, prevent, hinder, deter or eliminate various specified types of competition is contrary to the provisions of the Act, although the enforcement or attempted enforcement of any right under or existing by virtue of any copyright, patent, protected plant variety, registered design or trademark is not necessarily an abuse of a dominant position. The use of resale price maintenance by suppliers is prohibited completely. Advice should be obtained on the application of the Act to the setting up of exclusive distribution, selling and franchising arrangements in New Zealand. The Employment Contracts Act of 1991 has greatly enhanced the flexibility of labor. The old system of national wage awards by industry has virtually disappeared, and enterprise level contracts are becoming the new norm. More flexible hours and work arrangements are creating strong gains in labor productivity. Reforms to the accidents compensation regime are expected to provide a fairer sharing of risks between employers and employees. Reforms since 1984 have included deregulation as an objective. The most striking examples are the financial and telecommunications sectors, but the effort has been broad-based. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT: Since the removal of controls on the financial sector in the mid- 1980s money market activity has grown rapidly, particularly with regard to: foreign exchange trading; the development of a sizeable secondary market in government securities; the introduction of a range of new financial instruments, including forward contracts, options, and exchange rate futures; and the growing use of hedging devices to handle interest rate and exchange rate risks. There are 18 registered banks, and access to the credit system is unrestricted. The estimated total assets of the five largest banks is NZD 66 billion (approx. USD 39 billion). The issuance of securities is regulated by the Securities Commission under the Securities Act of 1978 and amendments. The Act requires prospectuses for public offerings of new securities and prescribes what information must be disclosed. An amendment in 1988 provided civil remedies for loss or damages resulting from insider trading. A number of New Zealand-listed firms also are traded in Australia, and Telecom and Fletcher Challenge have gained listings in New York. Legal, regulatory, and accounting systems are transparent. Accounting is based on British and U.S. systems. The New Zealand Society of Accountants has developed Statements of Standard Accounting Practice (SSAP) that are mandatory for its members. All companies listed on the Stock Exchange must comply with the SSAP and issue annual reports and abbreviated half-yearly reports to shareholders. In 1994, the Financial Reporting Act of 1993 came into effect, legally requiring firms to comply with financial accounting standards set out by an Accounting Standards Review Board established by the Act. The mandatory standards vary depending on the type of firm involved. While small companies, not listed on the New Zealand Stock Exchange (NZSE) may include in their constitutions measures to restrict hostile takeovers by outside interests, domestic or foreign, the NZSE does not permit such measures by companies listed on the NZSE. In mid 1994, New Zealand Government and business were considering legislation to regulate takeovers, including thresholds of ownership above which public disclosure would be required, and whether all sellers must be offered the same price by takeover buyers, regardless of the percent of ownership being sold. Whatever the outcome of the possible new takeover legislation, it will likely be neutral regarding the nationality of buyer. Foreign owned or controlled companies are not prevented from participating in industry standards-setting organizations. The primary fact of investment in New Zealand is that foreign investment is welcomed, encouraged, and prominent in the economy. POLITICAL VIOLENCE: New Zealand is a stable western democracy. There has been no significant political violence since the Maori wars in the mid 1800's. BILATERAL INVESTMENT AGREEMENTS: New Zealand has an agreement on the promotion and protection of investment with China, and in 1992, signed a Trade and Investment Framework Agreement with the United States. In 1994, the United States and New Zealand were considering negotiating a bilateral investment treaty (BIT). New Zealand adheres to the Organization for Economic Cooperation and Development (OECD) Code of Liberalization of Capital Movements and the OECD Code of Current Invisible Operations. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS: As an OECD member country, New Zealand is not eligible for OPIC programs. New Zealand does not intend to become a member of the Multilateral Investment Guarantee Agency. LABOR: New Zealand's labor force of about 1.7 million is well educated and trained. Unemployment which had risen rapidly, began to decline in early 1992, reaching 9.1 percent in early 1994. Unemployment should gradually abate as economic growth continues. By mid 1994, some shortages began to emerge among certain professions and higher skilled technical workers. This was mostly due to training cutbacks during the preceding economic downturn. While unions have the right to organize and bargain collectively, the Employments Contracts Act of 1991 ended compulsory unionism. The Act also prohibits strikes aimed at forcing companies to sign on to multicompany contracts, as well as sympathy strikes by workers not involved in a particular labor dispute. Minimum wages and workplace safety are provided for under other laws. Disputes are handled by an Employment Tribunal, and its decisions may be appealed in an Employment Court. Overall, the labor movement has lost members under the new law, but some unions have grown, particularly through mergers. Workdays lost to strikes have declined, but this may in part be due to the relatively high level of unemployment. In some firms, the Act has engendered more cooperative and innovative labor-management relations, and enhanced labor productivity. Labor law protects the workers from exploitation. In March 1994, however, in response to a complaint by the New Zealand Council of Trade Unions, the ILO's Freedom of Association Committee criticized provisions in the Employment Contracts Act as contrary to ILO Convention 87 on Freedom of Association and Convention 98 on the Right to Organize and to Bargain Collectively, neither of which New Zealand or the United States have ratified. FOREIGN TRADE ZONES/FREE PORTS: New Zealand does not have any foreign trade zones or free ports. CAPITAL OUTFLOW POLICY: The New Zealand Government places no restrictions on investment abroad by New Zealand citizens or companies. No incentives are offered for investing in developing countries. FOREIGN DIRECT INVESTMENT STATISTICS: Comprehensive statistics on foreign direct investment are not collected in New Zealand, particularly on a country-by-country basis. The Department of Statistics' latest data lists total foreign direct investment of NZD 28.4 billion (USD 15.1 billion) at the end of March 1993, while New Zealand had direct investment abroad of NZD 9.0 billion (USD 4.8 billion) at that time (see appendix A. 4, INVESTMENT Table 1). Foreign direct investment in New Zealand was equal to about 37 percent of GDP as of March 1993, and new investments equaled around 6.2 percent of GDP for the year. The U.S. Department of Commerce reported U.S. direct investment in New Zealand at USD 3.0 billion at the end of 1992. In recent years, the sectors receiving the most investment from the United States were telecommunications, transportation, forestry and food processing. Other sectors with significant U.S. investment include petroleum refining and distribution, automobile assembly, financial services and data processing equipment sales and service. Australia remains the largest investor in New Zealand, and Australian statistics show cumulative investment of USD 5.3 billion at the end of June 1990. Australia's investment is broad-based, but is particularly strong in financial services. The United States is second, with an estimated USD 3.25 billion in March 1994. The United Kingdom ranks third as an investor, with USD 1.9 billion invested at the end of 1989. Japan comes fourth, with USD 0.9 billion of direct investment in March 1991. Investment from other Asian countries has increased in recent years, particularly in commercial real estate. The data in the Appendix A.4 tables are from Statistics New Zealand. MAJOR FOREIGN DIRECT INVESTMENTS: Major foreign investors in New Zealand since 1988 are listed below. Except where indicated, the investment is at least ten million New Zealand Dollars (USD 5.9 million). The source for most of this information is the New Zealand Overseas Investment Commission (OIC). INVESTOR INVESTMENT YEAR UNITED STATES: H.J. Heinz Food Processing (NZD 567 million) 1992 Wisconsin Central, New Zealand Rail (54 percent of 1993 Berkshire Partners a NZD 400 million investment) Ameritech and Telecommunications(NZD 4.3 billion) 1990 Bell Atlantic 1993 American Airlines Air New Zealand (5 percent) 1989 Chiquita Horticulture 1991 Pitman Moore Animal Vaccines 1991 Morrison Knudsen Construction 1991 Commodore Inc. Computer Hardware Distribution 1989 Nu-Skin International Skin Care Distribution 1993 CS First Boston Stockbroking 1990 Kraft Food Processing 1989 Mars Effem Foods Pet Foods 1993 Fibre Form Wood Products 1992 International Paper Forestry/Paper 1992 ITT Rayonier Forestry (NZD 366) 1992 RII NZ Forests SI Forestry 1992 Snavely Forest Products Pine Products 1992 Morgan Stanley Fund Appliance Manufacturing 1992 The Irwin Company Saw Blade Manufacturing 1991 Tyco Laboratories Fire Protection Manufacturing 1989 Unilever Detergent Manufacturing 1993 INVESTOR INVESTMENT YEAR (U.S. Continued) Ameritech, Bell Television Broadcasting 1991 Atlantic, Time-Warner, Tele Cable AMAX/ACM Gold Mining 1991 Cyprus Gold Gold Mining 1989 Borden International Carton Packaging 1990 EDS Financial Data Center 1994 (approx. NZD 100 million) PAC Enterprises Aluminum Cans 1991 Sobel Pharmaceuticals 1992 Grantham, Mayo, Van Investments 1991 Otterloo Fund Gulf Resources Commercial Property 1991 MCI Telecommunications 1990 Bell South Telecommunications 1992 Edenroc Holdings Hotel 1992 Hertz International Car Rentals 1990 Amax/ACM Gold Mining 1991 USA/Australia Caltex Oil/Boral Gas LPG Production 1990 USA/Australia JAPAN: Sumitomo Forestry Forestry (more than NZD 100 1989 million) 1992 Itoham Foods Beef 1991 Mitsui OSK Kogyokasha Flower Growers 1992 Canon Business Equipment Distribution 1990 Orix Leasing Motor Vehicle Leasing 1990 Asahi Chemical Food Processing 1991 INVESTOR INVESTMENT YEAR (JAPAN Continued) Suntory Food Processing 1990 Innosho Woods/National Wood Processing 1992 House Industrial Juken Nissho Forestry 1991 Nissho Iwai/Juken Forestry 1991 Sangyo Oji Paper and C. Itoh Forestry and Pulp Processing 1992 Tachikawa Forest Forestry 1990 Products Limited Shiseido Cosmetics Manufacturing 1992 Sumitomo Carpet Yarn Mill 1992 EIE Corporation Commercial Property 1989 Hando Commercial Property 1991 Nakano Corporation Commercial Property 1992 NZ Plan International Property Developer 1992 Pasco Corporation Commercial Property 1989 Hirai Family Resort 1992 Japan Air Lines Air New Zealand (five percent) 1989 Otaka Holdings Hotel 1990 Victoria Group Ski Fields 1991 AUSTRALIA: Industrial Equity Seeds 1989 ANZ Retail Banking 1989 Commonwealth Bank Retail Banking 1989 National Australia Retail Banking 1992 Bank Boral Building/Construction 1989 Burns Philp Building Products 1990 INVESTOR INVESTMENT YEAR (AUSTRALIA Continued) Pacific Dunlop Flooring 1990 Canon (Aust) Ltd Electronics Distribution 1991 Email Appliance Distribution 1989 Bain Refco Financial Services 1989 National Mutual Life Investment Services 1991 Assurance of Australia Ord Minnett Stockbroking Services 1990 Ord Westpac Financial Services 1990 Potter Partners Stockbroking Services 1990 Sydney Futures Financial Services 1992 Exchange J B Were & Co Stockbroking Services 1989 Ray White Realty Residential Real Estate 1992 Allied Food Co Bread 1991 Amcor Food 1990 Mars Food 1992 MMI Insurance 1992 Adelaide Brighton Building Products Manufacturing 1989 Cement Allbright & Wilson Chemicals Manufacturing 1989 BHP Steel Manufacturing 1991 Email Appliance, Aluminium, Plastics 1989 Manufacturing ICI Australia Chemicals Manufacturing 1989 McPherson Metals Manufacturing 1989 Metal Manufactures Cable Manufacturing 1990 Nutrimetics Cosmetics Manufacturing 1992 INVESTOR INVESTMENT YEAR (AUSTRALIA Continued) Tubemakers Metals Manufacturing 1989 Consolidated Press Magazines 1991 Hoyts Cinemas 1992 News Corp Newspapers 1989 North Broken Hill/ Ilmenite Mining 1989 Peko Group Orion Resources Gold Mining 1991 Union Gold Mining Gold Mining 1991 Western Mining Oil & Gas 1992 Amcor Carton Packaging 1989 BTR Nylex Packaging 1990 Dancette Printer 1992 South Australia Brewing Aluminium Cans 1991 Spicers Stationery 1990 Spicers Paper & Stationery 1992 Tag Pacific Property Development 1990 Action Holdings/Vox Retail/Wholesale Chain 1992 (Foodland Associated) Dick Smith Retail Electronics 1992 Spotless Catering Linen Cleaning 1991 Quality Pacific Corp. Hotels 1992 QANTAS Airline (Air New Zealand 20%) 1991 Wolf Blass Wines Wine 1990 UNITED KINGDOM: National Bank of New Rural Banking 1992 Zealand (Lloyds) Bank of Scotland Retail Banking 1992 INVESTOR INVESTMENT YEAR (UNITED KINGDOM Continued) Barclays Bank Corporate Banking 1991 Countrywide Bank Retail Banking 1992 (Bank of Scotland) General Accident Insurance & Banking 1988 Norwich General Insurance 1989 Prudential Life Life Insurance 1989 Sun Alliance Life Insurance 1991 Barbour & Sons Clothing 1989 BBA Group Plastics 1990 Bowater plc Printing 1991 McKechnie plc Metals 1989 GPG plc Oil Exploration 1991 TKM Vehicle Distributors 1991 1992 Norton Opax Printing 1989 Glaxo Pharmaceuticals (NZD 14 million) 1992 David Murray Retail Electronics 1990 Budget International Motor Vehicle 1990 Rentokil Group plc Plant Hire 1990 Blueport ACT Shipping 1989 Stagecoach Buses 1992 SINGAPORE: CDL Hotels Inc Investment Banking 1992 Gozian Limited Debt Collectors 1991 Transco Investment ptc Plastics/Brushes 1991 Cycle & Carriage MV Dealerships 1992 Albizia Investments Commercial Property 1991 INVESTOR INVESTMENT YEAR (SINGAPORE Continued) Mick Aw Asian Developer 1991 Bumi Raya Commercial Property 1992 Hind Hotels Property 1992 Name Undisclosed Commercial Property 1992 1993 OW Kiat Asian Developer 1991 Alpine Country Resort Hotel 1992 Casuarina Enterprises Hotel 1991 Jit King Hotel 1989 Wedson Holdings Hotel 1991 (Singapore/Malaysia) HONG KONG: Shiro Group Home Appliances 1991 Templeton Fund Home Appliances/Pulp & Paper 1991 Milano Investments Mining/Exploration 1991 Group Colwall Enterprises Commercial Property 1992 Hang Lung Morningside Commercial Property 1990 Kw Ok Wai To Commercial Property 1992 Dairy Farm Group Retail Chain 1990 SWITZERLAND: Indu Farm Holdings AG Meat Packing 1991 H P Weidmann Horticulture 1992 Nestle Dog Food 1992 Zuellig Group Tractor & Pharmaceutical 1990 INVESTOR INVESTMENT YEAR CANADA: Tayeba Deer Farms Farming 1990 Canwest Global Television 1991 Communications/Westpac Apotex Pharmaceuticals 1992 Bell Canada, MCI Telecommunications (40%) 1990 Canada/USA INDONESIA: Budiman Family Commercial Property 1991 Hutomo Mandala Putra Tourism 1992 KOREA: Dong Won Fisheries Fishing 1991 Komew Fisheries Fishing 1992 NORWAY: Fiskeriselskap A/S Fishing 1991 Dynochem Formaldehyde Plant 1991 MALAYSIA: Public Bank Merchant Banking 1991 Asia-Pacific Breweries Brewing/Liquor 1991 (Malaysia/Singapore) Kah Motors Hotels 1991 FRANCE: SFIE Animal Products 1991 INDIA: Britannia/BSN Biscuits 1989 (India/France) TAIWAN: Suncern Properties Commercial Property 1991 INVESTOR INVESTMENT YEAR (TAIWAN Continued) Tang Shuo (Trust Fund) Housing Development 1992 CAYMAN ISLANDS: Worldwide Duty Free Ltd Retail Chain 1991 CHINA: Sino-Chem Oil Importing 1989 FINLAND: Huhtamaki Plastic Packaging 1990 SWEDEN/GERMANY: Vladi Private Islands Tourism 1992 GUERNSEY: Cadenza International Wines & Spirits 1992 UNDISCLOSED: Orizaba Holdings/ Commercial Property 1992 Xakeila Holdings