Investment disharmony

Press, 6 July 1983, Page 12

Investment disharmony

The wisdom of what Mr Muldoon, the Prime Minister, is doing over New Zealand investment in Australia is open to doubt both in his over-all aims and in his method of going about it. He has been insulting to the Australian Treasurer, Mr Keating, who is regarded in Australia not only as capable and clever, but as someone who is a possible future leader of Australia. Mr Muldoon has not exactly threatened the future existence of either the Westpac Corporation or the A.N.Z. Bank in New Zealand; but he has made some remarks in highlighting the different positions of banks in the two countries that come close to being interpreted as threats. Mr Muldoon has extended the problems of foreign investment to considering “the whole trans-Tasman relationship.” He has said that, if there were no movement in Australia on investment from New Zealand, “we have to go through a very distressing experience of moving New Zealand policy into line with Australia. That will take time and it will cause no end of difficulty and upset to both Australian investors in New Zealand and the whole transTasman economic relationship.” The effect of these comments by the Prime Minister is that he has got off to a bad start with a new Government in Australia.

Mr Muldoon’s argument is that the foreign investment policies of New Zealand and Australia should be in harmony. At present, they are not. Mr Muldoon wants Australia to liberalise its policies towards New Zealand to give this country what would amount to more favourable treatment than Australia accords to other countries. New Zealand’s foreign investment guidelines generally make it rather easier for Australian investors to invest in New Zealand than it is for New Zealand investors to invest in Australia.

There is some justice in the New Zealand complaints, particularly about the 90-day waiting period for take-overs required by the Foreign Investment Review Board in Australia. This enables a New Zealand company’s competitors to discern a company’s intentions and to forestall a move. It is also ridiculous that a New Zealand company can buy up an ailing Australian company and, having made the company profitable, be required to shed half the shareholding to bring the New Zealand shareholding down to 50 per cent. There may also be some reluctance on the part of the Australian Government to accept the fact that, in time, the Closer Economic Relations agreement will lead inevitably to a freeing of investment policies. It may be questioned whether the best way of solving this problem is by defining the rules

that each country applies to foreign investment more specifically. One of the virtues of the present practice in New Zealand is that the Overseas Investment Commission has wide discretionary powers. The process of harmonisation may well remove some of these discretionary powers, to New Zealand’s disadvantage. The result would be that the rules would become inflexible and New Zealand would be forced to follow them.

The biggest fear among manufacturers in New Zealand is that the bigger companies in Australia could take them over. This might occur either because the Australian investors see commercial opportunities in New Zealand or because New Zealand companies are penetrating the Australian market and an Australian competitor might consider that the threat is best dealt with by a take-over of the threatening company. If the New Zealand rules became more inflexible, as they might if an investment harmonisation policy is formulated, New Zealand would be left relatively powerless to counter any take-overs. It would seem to be more sensible to make arrangements to overcome particular problems and not be tied down to a rigid policy regarding Australian investment. In due course, the New Zealand Government may even want to apply investment rules more strenuously than Australia has ever contemplated.

What is needed is not an overthrow of Australia’s foreign investment policies in favour of New Zealand, but an acknowledgement by Australia that investment from New Zealand should have some favourable treatment because of C.E.R. In fact, Mr Keating has given such an assurance. The proof of the pudding lies in the eating and, if New Zealand can establish that it is not getting reasonable treatment, the C.E.R. agreement provides for a discussion. It has become very clear indeed that the Australian Government is not going to be moved by Mr Muldoon’s sabre rattling. It is unthinkable that New Zealand would prevent one of the big Australian banks from doing business here. Mr Muldoon has admitted as much. Even if it did so, New Zealand would suffer the more. Apart from domestic concern about banking and about the employment of bank officers, the removal of a bank would do untold harm to New Zealand’s reputation as a sound place for investment, and New Zealand’s credit ratings overseas would certainly slip. Mr Muldoon’s reaction to not getting his way in Australia appears uncommonly like pique. The same course is unlikely to make Australia change its mind, but may easily do damage to the New Zealand economy.