Labour house buying ban blocked by Helen Clark's China FTA?

The Labour Party’s new policy to prevent non-residents from buying existing houses seems inconsistent with the equal treatment Article of the NZ-China Free Trade Agreement.

That FTA was a proudly-claimed achievement of the last Labour PM – Helen Clark.

The FTA's definition of "investor" refers to a person "who seeks to make, is making, or has made an investment….". So it clearly looks at prospective investments.

But a technical reading of the equal treatment Article suggests that it may demand equal treatment once an investment has been made, but does not protect intending investors.

Under Article 138 of the NZ China FTA (National Treatment)  all investments and activities associated with such investments made by investors of both parties must be treated, "with respect to management, conduct, operation, maintenance, use, enjoyment or disposal"  no less favourably than investments of its own investors. The list does not include "acquisition" or similar words.

So under that provision a Chinese house buyer must be treated the same as a New Zealander after acquiring residential property, but the protection does not extend to prospective buyers. Whew for Labour!

But wait – another Article (the most favoured nation clause) commits New Zealand not to pass law that discriminates against Chinese investors in comparison with other overseas investors (such as Australians).

Article 139 requires that investors of [China] be treated no less favourably than investors of any third country [Australia] "with respect to admission, expansion, management, conduct, operation, maintenance, use, enjoyment and disposal" of investments.

So Chinese would-be  investors do not get direct rights to insist on investor equality but they can't be treated worse than Australians.

Labour has said Australians would still be allowed to buy residential property under their policy. This would breach Article 139.

And each FTA is different. The prospective investor exclusion does not apply, for example, to Malaysians. They can insist on equal rights to be there at Auckland auctions, whatever Labour wants.

There are exceptions to Article 138, such as existing non-conforming measures or not being within the scope of a bilateral investment treaty. But these do not apply to Article 139.

What would happen if Labour got the numbers to legislate such a policy irrespective of the FTA? Parliament can, after all, legislate contrary to international law.

There would be serious legal, economic and political ramifications. The Chinese government could invoke the dispute settlement procedures in the agreement.  NZ exporters may lose their benefits under the NZ China FTA. NZ’s international standing as a good treaty partner would suffer.

Proposed ban could work
It is natural to be hostile to overseas investors who own properties but keep them empty when there is a housing shortage.  

But is there a housing shortage? The comparatively lower increases in rentals (than in house prices) suggest that the scarcity producing higher prices may be in property for speculation, more than for occupation. If that is true, eliminating marginal speculators could affect prices disproportionately. The proposed ban could work.

Even if the Australian approach could be sensible, we have traded away our sovereignty. We probably will not be able to risk adopting it. I discussed this sovereignty issue in my recent opinion for the Green Party, linked in a post in June - Our constitution and crony capitalism.

I would prefer that Labour was not handicapped in this way.

I rather hope that I've missed something, and the new policy can be defended better than the man-ban fizzer . 

Unfortunately it may be just as much an own goal.

Former ACT MP turned National Party candidate Stephen Franks is principal of Wellington commercial and public law firm Franks and Ogilvie. He blogs at www.stephenfranks.co.nz.

* The China Free Trade Agreement explained

Do you need to understand FTA complexities in detail?

My colleague Rob Ogilvie has drawn my attention to an excellent paper, Uncertain Opportunities: Chinese Investors Establishing Investments in New Zealand by Paul Comrie-Thomson published by the NZ Contemporary China Research Centre of Victoria University this year.

I commend it to the Labour Party research unit.

Their Leader said Monday evening to NewsTalk ZB's Susan Wood that his colleagues responsible for the China FTA tell him it was not meant to prevent NZ from barring investment it does not want.

If that was what they meant, it is not what they signed. They should read Mr Comrie-Thomson's paper. There may be room as some readers have argued,, to protect an Australian privilege under CER 1983, but it will not be straightforward. More importantly the proposed prohibition is simply not permitted by our ASEAN FTA ( as well as the Malaysian FTA mentioned in the previous post).

The sooo boring detail of deals that stitch us up may have eluded the politicians who actually signed them. But until they are properly understood Mr Shearer, stop digging.