Chapter 3 Protocol on Investment to the Australia - New Zealand Closer
Economic Relations Trade Agreement
The Australia New Zealand Closer Economic Relations Trade Agreement
(ANZCERTA) was Australia’s first bilateral free trade agreement.
Australia’s economic relationship with New Zealand is conducted within the
framework of ANZCERTA. It covers all trans-Tasman trade in goods and services,
and is the principal instrument for the elimination of trade barriers between
the two nations.
According to the Department of Foreign Affairs and Trade (DFAT),
ANZCERTA has been recognised in the World Trade Organisation as among the most
comprehensive and effective free trade agreements.
The objectives of ANZCERTA are to:
- strengthen the
broader relationship between Australia and New Zealand;
- develop closer
economic relations between the Member States through a mutually beneficial
expansion of free trade between New Zealand and Australia;
- eliminate barriers to
trade between Australia and New Zealand in a gradual and progressive manner
under an agreed timetable and with a minimum of disruption; and
- develop trade between
New Zealand and Australia under conditions of fair competition.
Since 1 July 1990, all goods meeting ANZCERTA Rules of Origin criteria
have been traded across the Tasman free of duty and quantitative import
The Trade in Services Protocol, which was included in ANZCERTA from
January 1989, also allowed most services to be traded free of restriction
across the Tasman.
According to DFAT, since ANZCERTA came into force, bilateral trade
between the two countries has increased at an average of around 8 per cent
annually. In 2009-10, trans-Tasman
goods and services trade was valued at around $21.0 billion.
Australian merchandise exports to New Zealand in that year were valued
at $8.0 billion, and included the following significant categories:
- medicines and
veterinary medicines ($361 million);
- computer parts and
accessories ($276 million);
- refined petroleum
- passenger vehicles
($240 million); and
- printed matter ($213
Merchandise imports from New Zealand were valued at $7.0 billion and
included the following significant categories:
- crude petroleum
- gold ($504 million);
- alcoholic beverages
- foods ($248 million);
- paper and paperboard
Two-way trade in services amounted to $5.9 billion in 2009-10.
Australia is New Zealand’s largest trading partner. In contrast, New
Zealand is Australia’s eighth largest trading partner.
Treatment of Foreign Investment
Foreign investment occurs when a person in one economy invests in an
enterprise in another economy.
The Protocol on Investment to ANZCERTA defines an investment as:
... every kind of asset that an investor owns or controls,
directly or indirectly, that has the characteristics of an investment,
including such characteristics as the commitment of capital or other resources,
the expectation of gain or profit, or the assumption of risk.
Foreign investment is generally considered by Governments to be
beneficial. The Australian Government:
...welcomes foreign investment. It has helped build
Australia’s economy and will continue to enhance the wellbeing of Australians
by supporting economic growth and prosperity.
Foreign investment brings many benefits. It supports existing
jobs and creates new jobs, it encourages innovation, it introduces new
technologies and skills, it brings access to overseas markets and it promotes
competition amongst our industries.
Both Australia and New Zealand currently screen foreign investment
against national interest criteria.
In Australia, foreign investment is regulated by the Foreign
Acquisitions and Takeovers Act 1975. The Act established the Foreign
Investment Review Board (FIRB) to review certain types of foreign investment
and make recommendations to the Treasurer or Deputy Treasurer, who is
responsible for making a decision about whether the investment is in
Australia’s ‘national interest.’
The types of foreign investment subject to review are:
- all investments by
foreign governments and their related entities;
- foreign persons
acquiring a 15 per cent or more share of an Australian entity worth at least
$231 million, or acquiring an offshore entity whose Australian subsidiaries are
worth at least $231 million;
- foreign persons
acquiring a five per cent or more share in an entity in the media sector,
regardless of value;
- foreign persons
acquiring real estate, including private housing regardless of value, and commercial
real estate worth $50 million or more.
There is no definition of ‘national interest’ for the assessment
process. DFAT advised that an investment is assumed to be in the national
interest unless it raises some concerns that cannot be addressed through the
imposition of conditions on the investment. The FIRB indicates
The Government reviews foreign investment proposals against
the national interest case-by-case. We prefer this flexible approach to hard
and fast rules. Rigid laws that prohibit a class of investments too often also
stop valuable investments. The case-by-case approach maximises investment
flows, while protecting Australia’s interests... But, if we ultimately
determine that a proposal is contrary to the national interest, we will not
New Zealand’s foreign investment screening regime is principally
contained in the Overseas Investment Act 2005 (NZ). Applications to
invest in New Zealand are assessed by the Overseas Investment Office (OIO).
The OIO screens foreign proposals to acquire ‘sensitive New Zealand assets’.
These include business assets valued at more than $NZ100 million. The New
Zealand regime does not apply to portfolio investment below 25 per cent,
internal corporate reorganisations and offshore takeovers. However, New
Zealand screens all proposed foreign acquisition of ‘sensitive land’ and
The definition of sensitive land is complex, but in general covers
farmland, islands, the beds of lakes, lands of conservation value, and shorelines.
Two-way accumulated trans-Tasman investment now stands at over $110 billion.
New Zealand is the third largest market for Australian investment abroad, with
Australia the largest investor in New Zealand.
Over half of Australia's total investment in New Zealand is foreign
direct investment, reflecting the high level of economic integration. 
Recent investment activity from Australia has involved investment in New
Zealand's transport and banking sectors.
The Protocol on Investment
The Protocol on Investment to ANZCERTA is a proposed addition to the
Agreement extending its application to trans-Tasman investment.
The Protocol on Investment proposed to be included in ANZCERTA is based
on the Investment Protocol in the Australia – United States Free Trade
Agreement. According to the
National Interest Analysis (NIA):
The Investment Protocol is in the national interest because
- reduce red tape faced
by Australian investors by removing or reducing existing investment barriers;
- reduce red tape for
New Zealand investors by bringing the treatment of New Zealand investors under
Australia’s foreign investment regime in line with that granted to United
States (US) investors under the Australia United States Free Trade Agreement
- maintain Australia’s
capacity to screen major New Zealand investment proposals and investments in
prescribed sensitive sectors that are most likely to raise potential national
interest concerns to ensure that they do not proceed in a way that would be
inconsistent with Australia’s national interest. 
The AUSFTA Investment Protocol establishes a threshold below which
investments will not be subject to screening. The investment screening
threshold is $1,005 million for enterprises outside of sensitive categories.
Ratification of the ANZCERTA Protocol on Investment would result in New
Zealand investors receiving preferential treatment equivalent to that provided
to US investors in Australia (that is, a $1,005 million threshold). In
exchange, the New Zealand threshold for Australian investors will be indexed up
from $NZ100 million to $NZ477
million. According to DFAT, the different screening thresholds committed
to by Australia and New Zealand reflect the relative size of the Australian and
New Zealand economies.
Consequently, the Protocol on Investment will reduce the range of
transactions that are subject to screening by introducing higher monetary
thresholds at which inward foreign investments of private investors would be
The advantage of this approach will be that compliance costs in the form
of application preparation expenses and fees for New Zealand investors will
only be incurred on investments in Australia of $1,005 million, and for
Australian investors on investments in New Zealand of $NZ477 million.
According to New Zealand Treasury calculations, the amendments will
reduce current costs for investment in business assets by around two thirds.
It does not appear possible, using the available statistics, to
determine how many applications for foreign investment from New Zealand would
be subject to screening under the proposed threshold. However, in 2009-10, 24
applications from New Zealand were screened and approved.
These applications had a total value of $5,831 million. Given this figure, it
seems reasonable to assume that the number of investments from New Zealand that
will be subject to screening under the new threshold will be very small.
Article 9 of the Protocol on Investment permits a number of exemptions
to the new threshold based on existing restrictions that do not conform with
the proposed threshold. These exemptions are listed in Annex i and Annex ii of
the Protocol on Investment.
Exemptions that will require review and approval identified by Australia
- direct investment of
any size in the media sector;
- portfolio investment
of more than five per cent of a media entity;
- investments of more
than $231 million in telecommunications, transport, military or nuclear
- the right by
Australia to adopt or maintain measures relating to direct foreign investment
in urban land (such as urban residential land).
There are no exemptions relating to rural properties or properties with
heritage value outside of the exemptions listed above.
New Zealand’s identified exemptions include:
- direct investment in
the dairy industry;
- direct investment in
- investment in
‘protected areas’, which appears to be similar to the current definition of
‘sensitive land’, discussed above.
In addition to the threshold below which investments will not be subject
to screening, the Protocol on Investment will impose a range of other
obligations intended to facilitate a liberalised but secure framework for
In particular, the Protocol on Investment will require:
- an immediate
commitment to equal treatment for investors of both nations (Article 5 );
- a future commitment
to match any more favourable agreement with a third nation, excluding dispute
resolution procedures (Article 6);
- Parties not to impose
export, domestic content or technology transfer target requirements or offer
incentives (such as taxation incentives) to investors (Article 7);
- that neither Party restrict
the composition of the senior management or board members of an enterprise by
nationality or residency, with such restrictions limited to a minority where
this would not materially impair the ability of the investor to exercise
control over its investment (Article 8); and
- each Party is to guarantee
free transfer of investor’s funds and gains made on those funds in and out of
the country, subject to certain exceptions (Article 10).
Article 9(1)(c) provides for a ‘ratchet mechanism’, so that future
unilateral liberalisation by either country will automatically be bound by the
agreement and cannot be rolled back.
Articles 12, 13, 14 and 15 respectively require minimum standards of
treatment under customary international law; equal compensation for losses
resulting from natural disaster or conflict; for expropriation to be
non–discriminatory and that all laws, regulations and other information
relevant to investors is available to them.
The Committee is of the view that, overall, the Protocol on Investment
to ANZCERTA will be a significant benefit to Australians investing in New
Zealand, and, given the amount of New Zealand investment in Australia, is
likely to remove all barriers to New Zealand investment in Australia to all but
the most significant handful of investments.
The Committee supports the Protocol on Investment to the
Australia - New Zealand Closer Economic Relations Trade Agreement and
recommends that binding treaty action be taken.
Kelvin Thomson MP
Navigation: Previous Page | Contents | Next Page
Back to top