Hong Kong-based investors have been active in New Zealand, but rarely have Hong Kong-owned investors put money into areas that would be of most benefit to New Zealand. They will have produced few jobs, and those jobs are likely to be low-paid and insecure. Indeed, there is strong evidence that much of the investment is for tax avoidance purposes rather than any interest in productive investment. Those investments in New Zealand that have some productive purpose generally come from third countries whose investors are using Hong Kong as a port of convenience, presumably to avoid tax or other requirements – or perhaps to gain protection from the IPPA. None of this is a good reference for the activities of “Hong Kong investors” in New Zealand.
It is very difficult to see what gains can be claimed from a wider Hong Kong-New Zealand agreement. Both countries have very open economies. In some ways – particularly in the important services sector – New Zealand has liberalized faster than Hong Kong. That leaves little for a formal agreement to do. Agreements reached in the SNZCEP on recognition of qualifications, for example, could be negotiated separately. Any real concessions by Hong Kong in the services area must be bought at a high price in terms of further commercialization of our social and environmental services here, or further tariff cuts in our textile, clothing and textiles industries which are extremely vulnerable to Hong Kong's exports.
Yet the dangers are very real. Such an agreement would reinforce the already dangerous IPPA, opening New Zealand to a high risk of continual threats of litigation by corporations who dislike environmental, economic and social policies that adversely affect them. Those threats will be very costly in money terms, and in intimidating central and local government, further reducing their options for policies that provide the social and economic development that New Zealanders need.
It would also reinforce the obstacles already in place against New Zealand being able to reinstate capital controls and effective regulation of overseas investment. Indeed, its intention would be to increase the speed of deregulation. Despite some signs of progress over the last year, New Zealand still has a mountainous foreign debt ($109.1 billion, or 105.3% of GDP at March 2000), and a precarious current account deficit ($8.542 billion, or 8.2% of GDP at March 2000). That could lead to crisis at any time.
Continued liberalization in itself will conflict with the Labour/Alliance Government's economic and regional development policies. Many options for economic development, and closing social and regional gaps will be permanently foreclosed to New Zealand national and local governments. It is paradoxical that Hong Kong's own domestic policies for encouraging local development often look more like those of the Alliance than of Labour (let alone National).
The government should declare its intentions with regard to the Hong Kong negotiations with urgency. Rather than continue its current secretive “talking about talking” stance on the negotiations, it should emulate the Canadian and U.S. governments, which have recently made public their negotiating positions on the Free Trade Area Of the Americas agreement, and have released a draft text.
If it decides to pursue these negotiations, it should make public its timetable, and periodically release draft texts for public comment. It should encourage and stimulate thorough public debate, rather than repeat its phoney consultation stance in the SNZCEP negotiations. There, “consultation” was a one-way briefing of hand-selected interested parties, and Parliamentary scrutiny was admitted by all involved to be simply an empty formality.
However from the evidence gathered here, there are considerably more dangers than benefits in such an agreement. The government is better advised to announce that it has decided not to proceed.
Instead, it should move to abrogate the Hong Kong-New Zealand and China-New Zealand IPPAs before the dangers of the expropriation and investor disputes provisions are exploited by corporations in the way that is occurring with increasing frequency under NAFTA.
18 March, 2001
Footnotes
1 Bill Rosenberg researches and writes on foreign investment and New Zealand's economic relationship with the world with Action, Research and Education Network of Aotearoa (ARENA), GATT Watchdog and the Campaign Against Foreign Control of Aotearoa (CAFCA), P.O. Box 2258, Christchurch. I would like to acknowledge the invaluable comments provided by Professor Jane Kelsey in preparing this paper.
2 This Agreement (NZTS 1995, No 14) was signed by Don McKinnon in 1995 and entered into force that year. A very similar agreement was signed by David Lange with China itself in 1988, and came into force in 1989 for a minimum of 15 years (NZTS 1988, No.10).
3 “Beyond CER: new trade options for NZ”, address by Tim Groser to the New Zealand Institute for Policy Studies, 15/3/00.
4 Source: Statistics New Zealand – New Zealand's International Investment Position to 31 March 2000.
5 Statistics New Zealand is moving to quarterly reporting of this data, and the use of the 10% threshold for defining foreign investment, which should address some of the problems in comparing data with other countries. The IMF is also trying to achieve some consistency of reporting, and to deal with the substantial reporting difficulties brought about by the funneling of investment through tax havens.
6 For example the “Study on Sustainable Development in Hong Kong for the 21st Century”, by the Planning Department of the Hong Kong Government, gives Gini Coefficients for households as 0.453 in 1986, rising to 0.476 in 1991 and 0.518 in 1996 – (ref Chapter 5, http://www.info.gov.hk/planning/susdev/report_5/sustaina_ch5_3.htm). Though it is not made clear what definition of household income was used, if it is actual market household income, it compares to figures of 0.399, 0.474, and 0.479 respectively in New Zealand. If the Hong Kong figures used a different definition then it is likely to indicate that Hong Kong is even more unequal than New Zealand. New Zealand has among the highest Gini Coefficients – is among the most unequal societies – in the OECD (“New Zealand Now: Incomes”, Statistics New Zealand, 1998, pages 69 and 94). (The Gini Coefficient measures inequality, zero corresponding to complete equality, one corresponding to complete inequality.) Sze Pang Cheung, in “Government Procurement and WTO's Neoliberal Project: the Case of Hong Kong” (2000), presents a comparison of Gini Coefficients between Hong Kong and much of the non-OECD, which puts Hong Kong at higher levels of inequality than all those compared, including the most unequal – Sub-Saharan Africa and Latin America/Caribbean. Sze Pang Cheung is a research activist in Hong Kong. He is one of the members in the editorial collective of Globalization Monitor, a Chinese bi-monthly bulletin based in Hong Kong.
7 “Intermediaries in Entrepôt Trade: Hong Kong Re-Exports of Chinese Goods”, by Robert C. Feenstra
Department of Economics, University of California, Davis and National Bureau of Economic Research (NBER), and Gordon H. Hanson, Department of Economics and School of Business Administration, University of Michigan and NBER, December 2000. Also published as NBER paper W8088.
8 HKCSD defines “imports from the Mainland related to outward processing” as “processed goods imported from the Mainland, of which all or part of the raw materials or semi-manufactures have been under contractual arrangement exported from or through Hong Kong to the Mainland for processing”. “Re-exports of Mainland origin to other places involving outward processing in the Mainland” is defined as “processed goods re-exported through Hong Kong, of which all or part of the raw materials or semi-manufactures have been exported from or through Hong Kong to the Mainland for processing with a contractual arrangement for subsequent re-importation of the processed goods into Hong Kong”. Source: Statistics on trade involving outward processing in the mainland of China for 3rd quarter 2000
9 Actually 50,000 Special Drawing Rights (a unit used by the IMF) which was equivalent to approximately NZ$125,000 when the SNZCEP was signed.
10 Australia, Austria, Belgium-Luxembourg, Denmark, France, Germany, Italy, Japan, Korea, Netherlands, Sweden, Switzerland, and the U.K. Their terms are up to 20 year terms (plus a further 20 years for existing investments; France) and in some cases are extended in 10 year periods beyond the initial term (Switzerland, Netherlands, Italy, France), rather than having the ability to terminate after the first term at one year's notice.
11 Article 11. NAFTA Article 1110 states: No Party may directly or indirectly nationalize or expropriate an investment of an investor of an-other Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment (“expropriation”), except: a) for a public purpose; b) on a non-discriminatory basis; c) in accordance with due process of law and Article 1105(1); and d) on payment of compensation in accordance with paragraphs 2 through 6.
12 Journal of Global Financial Markets, “NAFTA dispute Resolution: Secret Corporate Weapon?”, by Lydia Lazar, Vol 1. No. 3, Winter 2000.
13 The investors cannot “sue” the U.S., Canada or Mexico (i.e., file a complaint in a court of law); rather, they are empowered to submit claims against the states for resolution by arbitration according to the rules and procedures mandated by NAFTA [Lazar's footnote].
14 UN General Assembly Resolution 31/98