International Finance Agreements Amendment Bill

As is well noted, the International Finance Agreements Amendment Bill pretty much had the broad consent of the Foreign Affairs, Defence and Trade Committee. As members will note, new section 1A, to be inserted by clause 5, sets out the purpose of this legislation. It really is part of the international framework of financial and monetary institutions to which New Zealand belongs. The bill ties in effectively with the International Monetary Fund and the International Bank for Reconstruction and Development, as is noted in the proposed new section 1A(1).

The purpose of this particular agreement—which one might loosely say is to complete that framework of agreements—is to assist and promote investment in developing countries where there is significant political risk. That is fundamentally set out in new section 1A(3), which states that the purpose of the bill is to enable the Government of New Zealand to fulfil its obligations as a member of the OECD—and I want to stress that—to provide for the Multilateral Investment Guarantee Agency. We do not have to guarantee investments in Britain, Australia, or the United States. All of these countries, and many other countries, of course, have robust independent legal institutions. Any New Zealander can invest his or her money safely in those countries, or make an investment in those countries, and that person will face only the normal business risks.

However, New Zealand companies may well wish to invest in places in the world where there is substantially serious political risk. It may interest members to know that I did my doctorate in investments in Iran. There was immense political risk there, because of the hostage crisis. A special arbitral procedure had to be set up to effectively protect the United States investments and to compensate for the huge wide-scale expropriations. Members will be interested to know that that particular tribunal drew on a whole body of litigation and arbitral decisions that primarily related to South America and the Middle East, and that were built primarily around investments in oil exploration, investments in steel, and, generally speaking, resource development contracts. Those are the sorts of contracts that investors are primarily entering into with countries that do not have, let us say, robust legal systems and that are lacking in any sort of independence and protection. So in order to give an incentive for developed nations to invest in some of these developing nations, we have to have this guarantee agency.

The purpose of the Multilateral Investment Guarantee Agency, as is clearly set out in the purpose provision in Part 1, is to make it easier for developed nations or investors in developed nations to invest in developing countries in order to lift the wealth of those developing countries. We know that many of those countries have weak institutions. They are not democratic. They do not have a sense of independent judiciary, and the like. Agreements are often made on a person-to-person basis. There are problems around corruption, and so forth. Yet such countries still need the investment. And, to be truthful, developed countries need access to the resources. It is—and I might say this, actually, to the Māori Party—a relationship that benefits both parties; both the developed countries and the developing countries benefit. The developing countries do not have the financial resources to develop those resources, and they need, essentially, external finance. Without that, those resources remain idle and the people remain poor. The countries that have really accepted foreign investment are the ones that have had the fastest levels of development.

I will just briefly finish on this point. This agreement is to assist developing countries to build their prosperity. I say to the Māori Party that after it has considered the bill it should decide to vote for it, because the bill is actually about assisting developing countries in a symbiotic relationship that is beneficial to both parties. That is why National supports this bill. Thank you.

I rise in support of this bill, and to speak on Part 1. I particularly want to direct my comments to small businesses, because it is quite interesting to see that the members from our region include Australia, the Federated States of Micronesia, Palau, Papua New Guinea, Samoa, Vanuatu, Fiji, Indonesia, Thailand, and Viet Nam. This legislation can be used by small businesses. Set up under the Multilateral Investment Guarantee Agency is a section that is particularly designed for small to medium sized investors.

In order for small New Zealand businesses, or even medium sized New Zealand businesses, to get access to a guarantee, the reciprocating party, the other country in which the investment is to be based, also has to be a member of the agency. So those member countries that I have named are really quite important. I think that the encouragement of growth in small to medium sized enterprises in the countries we are talking about, in our immediate neighbourhood, is critical to the creation of jobs and economic growth. I think the agency will be useful because it will help investors in New Zealand, especially those that are small or medium sized, to invest in these countries. For example, if we think about Fiji and the failing sugar industry, it ought to be quite possible for a New Zealand company to go in there and encourage the development of an ethanol industry on the back of that sugar industry.

The areas that we will have to be in, to take up the purpose of this legislation, will be those associated with the expansion, modernisation, or financial restructuring of existing projects. Also eligible for New Zealand companies will be acquisitions that involve the privatisation of State-owned assets, and that will be particularly relevant, for example, in Papua New Guinea, where a lot of privatisation is going on. The types of foreign investments that this legislation will provide a guarantee for will include equity, shareholding loans, and other shareholder loan guarantees, provided there is a maturity of 3 years. I am talking only about dealing with the small to medium sized enterprise investment.

Before the guarantee office will pick up an investment and protect it for a New Zealand company, it will have to be satisfied the project is financially and economically viable, environmentally sound, and consistent with the labour standards in New Zealand and the licensing agreements that would apply in New Zealand. The eligible investors will include nationals of member countries of the convention—and those will soon include ourselves—and corporations if they are either incorporated or have their principal place in a member country, or if they are majority owned by nationals of member countries. If they are majority-owned New Zealand companies, they will be eligible.

New Zealand companies that wish to invest in the immediate region will be required to meet a few other criteria. First of all, the entity is to have no more than 300 employees. It must have assets of less than US$15 million, so it could conceivably include, for example, some of the tourist infrastructure in Fiji. The total annual sales must not be more than US$15 million. This scheme, which has been specifically designed for small and medium investors, has no restrictions in respect of the size of the investor, but it is specifically designed to assist small and medium sized investors, and most New Zealand companies would fit that arrangement.

The second comment I would like to make while I am on my feet is that this convention was signed up to in Australia back in 1996. It came into force there in 1998. The one thing to think about is that the Labour Government has been in power here for the last 8 years, and what progress has it made? What has it been doing to help our small to medium sized businesses? That Government could have signed up to this convention. [Interruption] I say to the Minister that he could have organised this 8 years ago, and the Government could have been supporting New Zealand industries. The Government could have been supporting small businesses in Papua New Guinea, in Fiji, in Palau, and in the Federated States of Micronesia, and the Minister has not failed to do that.

💬 Hon Clayton Cosgrove: I haven’t failed to do it. Thank you very much.

I beg your pardon?

💬 Hon Clayton Cosgrove: I’m just quoting you. You said that I haven’t failed to do it.

Well, I think that the Minister has, actually, because—

💬 Hon Clayton Cosgrove: That’s what you said—that I haven’t failed.

The Minister has failed. He has failed to put this measure in place, and I think small New Zealand businesses and our immediate neighbouring countries can be really concerned that this legislation has taken so long to get into this Parliament.

With those comments I would like to offer our support for this bill, because I can see it helping, in particular, our small Pacific Island States and small to medium sized enterprises here in New Zealand. Thank you.

Part 1 agreed to.

Part 2 Membership of Agency