New Zealand To Revise Foreign Investment Rules

by Mary Swire, LawAndTax-News.com, Hong Kong

30 September 2010

A new ministerial directive letter to the Overseas Investment Office (OIO) will provide extra clarity and certainty for potential investors about the New Zealand government's general approach to foreign investment in sensitive assets.

The issue of the foreign large-scale ownership of farmland has been in the news recently following a controversial offer by the Hong-Kong-owned company, Natural Dairy New Zealand, to purchase the majority of Crafar Farms, which is in receivership but was the country's largest family-owned dairy business. That offer has still to be approved by the OIO.

"In recent months, ministers have carefully reviewed the current framework for considering overseas investment applications - particularly in light of issues with respect to farmland ownership," Finance Minister, Bill English, said.

"Overall, the measures I'm announcing today strike an appropriate balance,” he added. “They increase ministerial flexibility to consider a wide range of issues when assessing overseas investments in sensitive land, while at the same time they provide extra clarity and certainty for potential investors and the OIO."

The government has decided against changing the Overseas Investment Act, because it believed that it would cause a degree of uncertainty that would outweigh potential benefits. However, it has agreed to make several changes to regulations outside the Act.

They include a new "economic interests" factor, within the benefit test, allowing ministers to consider whether New Zealand's economic interests are adequately safeguarded and promoted. This will improve ministerial flexibility to respond to both current and future economic concerns about foreign investment, such as large-scale ownership of farmland.

In addition, there will be a new "mitigating" factor enabling ministers to consider whether an overseas investment provides opportunities for New Zealand oversight or involvement — for example, by appointing New Zealand directors or establishing a head office in this country.

To provide more clarity about the government's policy on overseas investment in sensitive assets, there will be a new ministerial directive letter from the Finance Minister to the OIO. This will provide advice to the latter about which factors in the benefit test are likely to be more or less important in assessing particular types of investments.

The government has also decided to retain the strategic asset test. Although the test has not been used in the two years since it was introduced, on balance ministers concluded that removing it would reduce their flexibility in dealing with investment applications for sensitive land.

However, in conclusion, English emphasized that: "It's important that we welcome beneficial foreign investment and recognize the positive contribution it makes to New Zealand through increased jobs, capital and access to export markets.”

These changes that are being made are expected to take effect from this December. They will apply to applications received after that date, and will not apply retrospectively, and, therefore, they will not apply to a future Crafar decision.

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