SUBMISSION TO THE NZ FOREIGN AFFAIRS, DEFENCE AND TRADE SELECT COMMITTEE ON THE ANZCERTA AGREEMENT

SUBMISSION TO THE FOREIGN AFFAIRS, DEFENCE AND TRADE SELECT COMMITTEE ON THE ANZCERTA AGREEMENT

1. This submission focuses on the implications for New Zealand’s ability to maintain an independent policy and regulatory capacity of the current CER agreement and any moves to extend or intensify economic integration with Australia via that agreement, a common currency or otherwise.

2. The intensity of the TransTasman relationship, which is in part historical and partly a result of CER, means the impact of that agreement is arguably more significant than any other international treaty to which New Zealand is a party.

3. The terms of reference for this review encapsulate the failure of those who promote economic integration with Australia to examine and debate the negative, as well as the positive, implications of that strategy. Such predetermination undermines the credibility of the select committee’s review. This submission urges the Government and the Parliament to take a more responsible and systematic approach to examining this critically important issue.

4. Of particular concern is the failure to look beyond the theoretical economic gains from economic integration to empirical analysis of the actual and potential impact on New Zealand’s domestic economy, its social, cultural and regional development, national democratic governance and the Treaty of Waitangi.

5. Linked to this concern is the democratic deficit arising from CER. The secretive nature of treaty negotiations means there has been no opportunity to subject proposed CER commitments to examination or to debate their broad implications before they are entered into. It is of grave concern that bilateral agreements remain excluded from the limited new powers of select committee scrutiny of international treaties. As a result, the scope of CER progressively extended without the kind of scrutiny and debate which would be expected of ordinary domestic legislation that addresses similar issues—let alone legislation which seeks to entrench its provisions and tie the hands of future governments. There is no mechanism for withdrawal of CER commitments, only to extend them. As discussed below, this creates problems when a New Zealand government cannot implement policies for which it has an electoral mandate because of a potential breach of CER.

6. This submission provides four examples which illustrate the need for

(a) a moratorium on any further measures to promote economic integration with Australia; and

(b) in depth research into the broad-based implications of current and prospective CER commitments,

(c) a refocussing of the CER agreement away from purely economic considerations to reflecting the broad social, cultural, environmental and democratic rights and interests of all New Zealanders and Australians, and of the indigenous nations in those lands.

Example 1. The inflexibility of a one-way liberalisation process: the example of local content broadcast quotas

7. The CER services protocol is a top down agreement which covers all services not listed in the annex. Initially, radio and television broadcasting had reservations relating to foreign ownership and for broadcasting warrants which were at that stage issued by the Broadcasting Tribunal for radio and the Minister of Broadcasting for television. This reflected a prevailing view that broadcasting had a distinctive national role. Australia also reserved limits on foreign ownership in broadcasting and television.

8. New Zealand’s reservation was removed under the National Government in June 1992. That was shortly after the Government revised New Zealand’s proposed offer in the GATS negotiations by removing reference to local TV and radio quotas and to limits on foreign ownership. While this was consistent with the broadcasting regime then prevailing in New Zealand, the Minister of Communications was explicitly invited by officials at the time ‘to consider whether it would be desirable to include such areas to protect New Zealand’s future options’ and was warned that ‘once commitments are made, Parties may not introduce measures which have the effect of limiting market access or national treatment’.

9. Australia amended its reservation in March 1999 by updating the reference to the legislation which restricts foreign ownership in broadcasting.

10. New Zealand is therefore committed under CER to provide market access rights to Australian providers of broadcasting service that are no less favourable than those enjoyed by New Zealanders. These rights are not spelt out in the text of the agreement. Although the GATS was signed after the CER protocol on services, the GATS-consistent status of CER means the restrictions on market access that are listed under the GATS Article XVI would also apply CER, but that list would not be considered exhaustive.

11. The Agreement also requires national treatment when they supply those services in New Zealand. However, CER explicitly imposes no obligations and confers no rights with respect to procurement or subsidies, including in the area of audio-visual services, such as NZ On Air.

12. In 1994, the Australian Broadcasting Authority suggested that New Zealand programmes should be considered local programmes under CER. Following a public outcry, it reversed its position. Under the rubric of Project Blue Skies, New Zealand producers successfully challenged that decision in the Australian courts. This provoked a major campaign by the Australian film and television industry. In April 1998 the Australian High Court upheld the initial ruling that New Zealand productions had to be given the same market access as Australian ones. In March 1999, the Australian government announced it would not seek to renegotiate that aspect of CER.

13. Now the tables are turned. The Labour/Alliance Government has announced its intention to introduce New Zealand content requirements for radio and free to air television. Officials have advised the Government that compulsory quotas would breach New Zealand’s obligations under both the GATS and CER.

14. An outcome consistent with the Blue Skies ruling would require New Zealand to treat Australian programmes and products as New Zealand local content for quota purposes. But that is inconsistent with the essence of Labour’s broadcasting policy:

In a global society it is important to recognise what makes us different from other peoples. Therefore we need to see and hear New Zealand stories and issues, New Zealand programmes for children, New Zealand faces and accents, New Zealand sport, New Zealand landscape and New Zealand music. Local content is an integral part of our cultural identity.

15. However, the alternative which might better satisfy concerns on each side of the Tasman that local broadcasting should be genuinely national, rather than TransTasman is to amend CER by withdrawing broadcasting from its coverage, or at least reserving the right to impose national local content quotas. There is some support for this from within the industry in each country.

16. This would require the New Zealand and/or Australian governments to seek to withdraw or modify their CER commitments on broadcasting, either unilaterally or reciprocally. The problem is that the CER agreement makes provision only for a member to extend its services commitments, either unilaterally or upon request, and for reviews to promote further liberalisation. There is no provision for reviewing commitments to resume national control over key services. Any move to implement such a policy would presumably be dealt with as a breach of CER. While both parties could agree not to take action where such a modification was reciprocal, that would rest on the continued goodwill on governments on both sides of the Tasman.

17. This situation seems absurd because:

(a) there is no provision in the agreement to reduce its coverage even where the governments of both countries agree.

(b) a Government elected on a clear policy platform to implement a perfectly reasonable domestic policy can face intensive pressure to abandon that policy because it is inconsistent with international commitments in which it had no say in entering.

(c) these commitments are driven by a notion of free trade in broadcasting services that denies consideration and validity to other concerns, such as the role of broadcasting in the transmission, generation and survival of language, culture, identity, historical knowledge, literature, critical analysis of local events, and other elements of a vibrant democratic society.

Example 2: The deliberate and anti-democratic use of CER by one government to liberalise further, and then multilateralise, domestic foreign investment regulations to entrench them against any risk of re-regulation by a future government.

1. Investment is not explicitly covered under CER. This is due to long-standing Australian resistance. As late as 1998 the Australian Government maintained that position on the grounds that there was no need, and it would conflict with Australia’s existing treaty with Japan.

2. However, the annual Prime Ministerial meeting on CER in February 1999 agreed to the establishment of a CER Prime Ministerial Task Force to review a number of issues, including investment.

3. At the June 1999 meeting of the Task Force, Australia proposed to increase its threshold for foreign investment screening to A$50 million, and make some other modifications. New Zealand undertook to explore the possibility of increasing its thresholds (the only area in which it could further liberalise).

4. This agreement was for each country to take unilateral action, on a bilateral basis, which would then be multilateralised. Investment still remained outside CER.

5. On 4 August 1999 the Australian Prime Minister announced that Australia would increase the acquisition threshold for foreign investment in existing businesses to A$50 million on a multilateral basis, and increase to the same level the voluntary notification threshold for the Australian asserts of an offshore company to be acquired by another offshore company. Other minor modifications were made to the Australian policy.

6. After considering a number of options, this change was achieved through an amendment to the Overseas Investment Regulations 1995, promulgated by an Order in Council dated 8 November 1999, just two weeks before the 1999 election. This timing and process suggests a deliberate strategy to further liberalise in advance of an anticipated change of government in which at least one of the coalition partners was likely to oppose such a measure.

7. The legal opinion for the OIC was withheld under the Official Information Act. An appeal against that has just been lodged with the Ombudsman. This contrasts with the release of the legal opinion commissioned by the Ministry of Commerce in 1998 on the GATS implications of local content quotas. Access to that opinion allowed not only a better understanding of the government’s arguments, but also provided the opportunity to offer officials and industry contesting advice. Open scrutiny of and debate on the legal opinions on which policy decisions are based can only improve the quality of policy decisions, and ensure that government is receiving the best possible range of advice. Withholding such documents fosters the sense that officials and Government are seeking to evade external scrutiny.

8. A variety of other documents have been secured under the Official Information Act, although aspects have been withheld. The following comments are based on those documents.

9. The purpose of this change appears to have been to lock in higher levels of foreign investment liberalisation, rather than secure tangible benefits.

(a) A Treasury document dated 18 June reports the change was likely to be beneficial, but it was not possible to assess accurately the magnitude of such benefits and ‘expected benefits are most likely to be minor’.

(b) The same document then explains:

The Task Force provides the opportunity for New Zealand to make changes to the foreign investment regime consistent with New Zealand’s goals for the trans-Tasman relationship, for APEC, and more broadly for our integration into the global economy. Any liberalisation of our foreign investment regime would be beneficial to the New Zealand economy.

(c) That assessment is based on a contentious ideological assumption and ignores empirical evidence that contests the conclusion that unregulated or untargeted foreign investment has been of significant benefit to New Zealand.

(d) Objections to that assumption underpinned the widespread opposition within New Zealand and internationally to the proposed Multilateral Agreement on Investment being negotiated at the OECD until those negotiations were suspended in 1998.

(e) Opinion polls and values surveys show clearly that New Zealanders have serious reservations about unrestricted foreign investment. Future governments may therefore be elected on a mandate to impose greater restrictions on such investment. This strategy sought to ensure that such changes could not be made.

10. The rationale for multilateralisation was that bilateral liberalisation would violate the MFN principle that underlies APEC liberalisation and other international agreements. It would also create a regime that would be more difficult and costly to operate, with higher compliance costs. Without access to the legal opinion it is impossible to respond fully to this proposition. However, the basis for that conclusion is contestable.

(a) APEC’s investment principles have never been the subject of formal parliamentary debate and ratification and remain voluntary and non-binding.

(b) It is unclear what other international agreements are being referred to. The only WTO investment rules relate to services and the limited coverage of the provisions on trade-related investment measures (TRIMS). New Zealand’s investment rules are subject to a horizontal reservation on national treatment in the GATS schedule, which specifies a threshold of $10 million. CER is a WTO-approved regional economic agreement which offers its parties additional liberalisation consistent with Article V of the GATS and carries no requirement to multilateralise.

(c) Commitments made to the OECD may be considered binding by the parties, but again have not been incorporated into New Zealand law, formally ratified by Parliament (rather than the executive) and are unenforceable.

11. This is no level playing field. Australia’s regulatory regime for foreign investment remains significantly more rigorous than New Zealand’s. Notably,

(a) Australia’s threshold value refers to the total (or total Australian) assets of the business in which the investment is taking place, not the value of the proposed investment (as in New Zealand).

(b) Australia retains special restrictions on sectors including land, banking, aviation and media; New Zealand only has special restrictions on some land.

(c) New Zealand deems a foreign interest to be significant when a holding reaches 25% in aggregate; Australia’s level is an individual holding of 15% or aggregate holdings of 45%.

(d) Australia maintains a ‘national interest’ test which is determined by having regard to the widely held community concerns of Australians. New Zealand maintains a limited national interest test only in relation to some land.

12. Purported savings in lower transaction costs to investors were described in the official documents as ‘likely to be modest’.

Example 3: Policy and Regulatory decisions on Food Labelling for New Zealand are made by a body dominated by Australian State and Federal Ministers, and will fetter the options realistically available to the Royal Commission on Genetic Engineering.

1. While approval to develop and test genetically modified foods is subject to domestic approval processes through the Environmental Risk Management Authority (ERMA), decisions on food safety and labelling are made in a trans-Tasman regulatory forum over which the New Zealand government, let alone Parliament or iwi, have no control.

2. In 1995 the Australian and New Zealand Governments signed an agreement establishing a system for the development of joint food standards in 1995, to become effective in July 1996.

3. The stated objectives were to reduce unnecessary barriers to trade; to adopt a joint system to develop and promulgate food standards; to provide for the timely development and adoption of standards appropriate to members; and to facilitate the sharing of information on related matters.

4. That agreement extended the food standards system operating in Australia since 1991 to New Zealand. It operates through a multi-layered system:

(a) The Australia New Zealand Food Standards Authority is mandated to develop food standards. It has at least seven members, only two of whom can be nominated by the New Zealand Government.

(b) The Authority takes advice from the Australia New Zealand Food Authority Advisory Committee. Again, there are two New Zealand Government nominees out of seven. This body has been strongly criticised as being dominated by industry interests: in 1998, for example, executives from Coca Cola and Nestlé were official coopted as ‘independent experts’ by the Committee.

(c) The Authority’s recommendations are considered by the Australia New Zealand Food Standards Council. This is comprised of ministers from each Australian state and territory, and one New Zealand minister, who has a single vote.

5. Similar imbalances of voting power will arise wherever a policy matter is the subject of state or state and federal jurisdiction.

6. The agreement required the Food Authority to develop, and the Food Council to approve, an Australia New Zealand Food Standards Code. This would cover food safety, composition, testing methods, production, containers, packaging and labelling, and other matters affecting consumer health. Article 5 effectively strips the New Zealand Parliament of independent authority over such matters. It requires:

(a) all member governments to ensure that those standards are incorporated automatically into their domestic law, without amendment.

(b) Any New Zealand food standards coming within the scope of the agreement must be approved by the Food Council, except in emergencies.

(d) The same standards would apply in both countries. However, where the New Zealand minister decided the standard was inappropriate because of ‘exceptional health, safety, third country trade, environmental, or cultural factors’, the Australian-dominated Authority could be asked to prepare an alternative.

7. The process was to be run by the Food Authority. It would receive applications for the development or variation of standards, which would be assessed, then put out for public submission and possibly public hearings. The agreement required ‘transparency, timeliness and accountability, including a commitment to consultation and public involvement’. Consultation would involve ‘industry and other interested parties’.

8. In July 1998, the Food Council accepted the recommendations of the Food Authority that ‘substantially modified’ foods that did not imitate natural foods should be labelled. Assessments of food safety would be based on tests by the manufacturers because of their ‘commercial sensitivity’. The Authority’s proposed labelling guidelines advised that ‘claims should not arouse or exploit fear in the consumer’.

9. New Zealand critics claimed that most genetically modified food would escape labelling, including products that contained genetically modified soybeans or maize. The environmental working party of the Royal New Zealand College of General Practitioners challenged the Food Council as an inappropriate authority to decide what should be introduced into the human body.

10. The Council deferred a decision on the labelling of ‘substantially equivalent’ food (modified food that looked and tasted like conventional food) until December. The Food Authority subsequently recommended against mandatory labelling of such food, which was also the position of the Australian and New Zealand governments. Yet, presumably because of pressure on the Australian state health ministers, the Food Council voted by a majority of six to four to require the labelling of ‘substantially equivalent’ genetically modified food. Officials were asked to draw up a definition of genetically modified food, and regulations for ministers to approve early in 1999.

11. The food companies exercised their market power, and failed to submit applications for approval of genetically modified food for sale by the May 1999 deadline. Officials estimated that around 500 products on New Zealand shop shelves contained genetically modified ingredients, yet the Food Authority had issued only two companies with approvals by April 1999. In a major victory for the industry, the deadline was extended by over a year to June 2000.

12. One of the Food Authority’s first rulings was approval for the American biotechnology group Monsanto to market genetically altered soybeans and cottonseed, used in foods such as salad dressing and ice cream. Approval was based on information supplied by the company and not independently tested.

13. According to the ANZFA website, the Australia New Zealand Food Authority Act 1991 (the Act) has very recently been amended by the Australian Parliament. So far as I have been able to establish, there has been no parallel consideration of the legislation by the New Zealand Parliament, despite the fact that these changes of substance and process are of direct relevance to New Zealand.

14. There was no parliamentary debate in New Zealand on the adoption of this agreement. It was signed and ratified by the Executive. Subsequent amendments to the Food Act that were required to bring New Zealand law into line were passed by Parliament in June 1996, after the agreement had been signed. Again, Hansard debates indicate that the long-term implications of this agreement for New Zealand sovereignty were not well understood.

15. A review of this Agreement was built in for 1999. However, few people concerned about the food labelling issue seem to have been aware of that review. I am not aware of how extensive it was, and what conclusions it reached, as I have yet secured the relevant documentation.

16. In March 2000, the Labour/Alliance Government established a Royal Commission on Genetic Modification whose primary objective is to inquire into and report on the strategic options available to enable New Zealand to address genetic modification now and in the future; it may also recommend any changes in the current legislative, regulatory, policy or institutional arrangements for addressing genetic modification technologies and products in New Zealand. This cannot avoid dealing with issues of food standards and labelling. As with broadcasting policy, there is a contradiction between the stated policies of the parties and the constraints imposed by CER.

17. Unlike other aspects of CER, however, the New Zealand Government can withdraw from the agreement by giving twelve months notice. It is important that the Royal Commission is aware of this in making its recommendations. The Government should also actively consider exiting the agreement, to enable Parliament to decide on this critical issue on a national basis.

Example 4: All discussion of a common currency to date has focused on theoretical economic arguments and the implications for business. The much broader implications for New Zealand people and communities, and for Maori as tangata whenua, have been ignored.

1. Continued economic integration with Australia logically leads to a currency union, which in effect means New Zealand adopting the Australian currency. Pressure to advance that objective has been mounting over the past year.

2. In March 1999, the National Government admitted that the issue of a single currency was on the agenda of the CER taskforce established after Australian Prime Minister Howard’s visit in February. The then Prime Minister Shipley insisted that the talks would not be substantive.

3. Two months later a 40-page paper entitled ‘Economic Integration and Monetary Union’ appeared on Treasury’s website. It stated in bold type at the beginning: ‘The consideration of monetary union is not on the Government’s agenda’ and reflected the views of the author, not Treasury. Nevertheless, the appearance of the paper signalled the issue was on the Treasury’s agenda.

4. That study conceded there would be little practical difference for New Zealand between forming a monetary union and simply adopting the currency of another country, such as Australia or the US, given the limited weight New Zealand would have in any such union.

5. Since then, a number of further reports and statements from current and former politicians and the chair of the New Zealand Business Roundtable have promoted the policy. Notably, the Institute of Policy Studies released a report on the issue (An ANZAC Dollar? Currency Union and Business Development by Arthur Grimes and Frank Holmes with Roger Bowden) funded by the New Zealand Employers and Manufacturers Association. I have major difficulties with the methodology and conclusions of this study, but will not address them here.

6. A common currency would force enormous changes on New Zealand’s people and communities, with serious implications for domestic policies in a broad range areas including economic policy, economic development, regional development, social well-being, democratic governance, sovereignty and constitutionalism and the Treaty of Waitangi.

7. These issues need to be very carefully examined in light of the experience of countries which have developed a sophisticated monetary union, accompanied by supra-national governance structures at the executive, legislative and judicial level, and which are balanced by social and human rights charters, such as the European Union. It should be noted that the adoption of the European Monetary Union was predicated on economic, political and social integration within the European Community. The decision to proceed had an historical and political motivation, not just an economic one. It is equally important to examine the impacts in countries which have voluntarily or through loan conditionalities adopted the currency of another country via mechanism of dollarisation and a currency board.

8. None of the studies prepared in New Zealand to date have addressed these broader issues. For example, the author of the Treasury paper expressed an economist’s view of what was good for the New Zealand economy. It took for granted that this would also be good for New Zealand’s people.

^9.Significantly, that paper referred only in passing to the possible distributional impact of integration, noting that ‘the benefits of integration will not necessarily flow to residents remaining in the country’. A region could decline as resources migrated elsewhere or competition had a negative effect. Because economic integration placed priority on economies of scale and market access, production would tend to locate near large cities, although this might reverse over time as wages increased in those centres. In an integrated Australasian economy, ‘it is reasonable to consider cities such as Sydney or Melbourne at the local “core”, and smaller cities such as Brisbane, Auckland or New Plymouth as the periphery’. There was already considerable relocation of economic activity within New Zealand and with the rest of the world; this would be no different: ‘Some New Zealand industries would move overseas, and some overseas industries would move to New Zealand.’

10. A footnote outlined the social and national implications even more starkly: ‘The distinction between residents and citizens is important. Even if people remaining in New Zealand were worse off after closer integration, it would not necessarily be a disadvantage to all New Zealanders, as some will migrate to take advantage of the higher wages in the benefiting regions’.

11. For a Government committed to regional economic development, and rebuilding the intellectual capital and internal strength of the nation, such a policy must be simply untenable.

12. The broader policy constraints imposed by adopting Australia’s currency need to be clearly understood. Economic autonomy would be severely constrained, with a common currency requiring harmonisation of the monetary policy controlled by each country’s central bank. Shifts in currency value would be determined by the fortunes of the dominant economy, Australia, with a quite different economic cycle and economic base. Fiscal policy, both expenditure and revenue, would be subject to common disciplines. Many downstream policy options, especially in social and industry development, would consequently be constrained.

13. Common currency is not just a social and economic issue. A national currency is perhaps the most potent symbol of a country’s sovereignty. Moves to a single Australasian currency would be seen by many New Zealanders as a de facto political integration with Australia, and by Maori as a further denial of tino rangatiratanga, without the accompanying constitutional debate.

Professor Jane Kelsey

Faculty of Law

University of Auckland

14 June 2000