This guidance is an explanation of UK-New Zealand FTA Chapter 14: Investment
Key benefits from the UK-New Zealand Free Trade Agreement
Fewer UK investments will need to be reviewed under New Zealand’s overseas investment regime. Now, only investments over $200 million New Zealand dollars, other than those in certain sensitive sectors, will be subject to review, doubling the UK’s previous threshold.
For the first time New Zealand agreed to a whole economy market access provision within the investment chapter. This reflects that the investment chapter covers more than just investment in services and improves market access for all investors.
New Zealand has gone further than ever before on their restricting nationality and residency requirements for senior managers and boards of directors. This allows UK enterprises to maintain control over business operations and recruitment.
UK investors will be covered by a range of investment protections. This includes 'Expropriation' and 'Minimum Standard of Treatment' provisions which guarantee UK investors protection from the unlawful expropriation of assets and discriminatory, unfair, or arbitrary treatment by New Zealand.
The investment chapter in the UK-New Zealand Free Trade Agreement (FTA) includes liberalising provisions which ensure a level playing field for UK investors – making it easier for them to invest in New Zealand, through securing favourable conditions and facilitating market access. However, these are subject to certain exceptions, as outlined further below.
The chapter also includes legally-binding investment protection commitments, which are included to provide investors with certainty and reaffirm both countries’ commitment to upholding a high standard of treatment for investors and their investments.
The market access provision prohibits certain restrictions on the establishment of enterprises and investments. For example, it prohibits foreign equity caps, and restrictions on the number of enterprises that may carry out a specific economic activity (e.g. through the imposition of an ‘economic needs test’). The provision serves to lock in current levels of market access and prevent new barriers from being introduced in the future.
The national treatment provision protects investors and their investments from nationality-based discrimination, meaning that New Zealand investors will not, broadly speaking, be treated more favourably than UK investors.
Most favoured nation
The most favoured nation provision ensures that if the UK or New Zealand provide more generous access and treatment to investors from other countries, this, broadly speaking, will be extended to UK or New Zealand investors.
The performance requirements provision seeks to eliminate distortive requirements for investments that increase risk and impact profit. The article prohibits requirements being imposed that would unduly distort the market or increase the real costs of investments.
Senior management and boards of directors
The senior management and boards of directors provision prohibits nationality and residency requirements for directors and senior managers. That is to say, neither New Zealand nor the UK can require that companies must have nationals or residents as directors or senior managers.
Minimum standard of treatment
The minimum standard of treatment provision is a commitment that investments made by the other party are treated in accordance with relevant international law standards. The provision for instance ensures that investments are treated fairly and equitably, and are afforded “full protection and security”, such as protection by the police of physical assets.
Treatment in case of armed conflict or civil strife
The treatment in case of armed conflict or civil strife provision ensures that investors are protected in the case of losses incurred as a result of armed conflict or civil strife in the host state. The provision ensures compensation relative to that afforded to domestic investors, and an absolute guarantee of compensation in specific circumstances.
The transfers provision ensures the free movement of capital and returns (such as profits) relating to investments in and out of the UK and New Zealand, thereby increasing the openness of both markets and increasing certainty for investors.
Expropriation and compensation
The expropriation and compensation provision commits that the UK and New Zealand cannot directly nor indirectly expropriate (nationalise) a private asset, unless they do so for a legitimate purpose and provide prompt, adequate and effective compensation in respect of the asset that has been taken.
The subrogation provision makes it possible for insurers or designated agencies to step into the shoes of the investor and receive any compensation to which the investor would have been entitled, where such insurers or agencies have already paid out to the investor for losses that they have suffered.
Denial of benefits
The denial of benefits provision enables each of the UK and New Zealand to deny the benefits of the treaty to certain of each other’s investors in certain circumstances. Essentially, it is about preventing third country nationals who own or control a corporate investor from gaining access to treaty protection, when it would not be appropriate for them to do so.
Investment and environmental, health, and other regulatory objectives
The investment and environmental, health, and other regulatory objectives provision reaffirms that both countries recognise that the investment chapter maintains environmental, health and regulatory objectives as a valid treaty objective within the context of the investment commitments. For the first time, in line with the UK’s net zero ambitions, New Zealand agreed to include a specific reference to environmental protection and climate in the context of investments.
Corporate social responsibility
The corporate social responsibility provision reaffirms the UK and New Zealand’s shared commitment to champion sustainable business practice and deliver on multilateral obligations, such as the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights.
Exceptions and how to navigate the annexes/schedules
Exceptions where investment commitments do not apply are identified in the Non-Conforming Measures article within the core Investment chapter text, and the Cross-Border Trade in Services and Investment Schedules of Non-Conforming Measures of the UK-New Zealand FTA; where Annex I covers existing measures and Annex II covers future measures.
A negative list approach is used to present the exceptions, meaning that the UK and New Zealand have listed only those sectors or subsectors that they limit or exclude, and everything else is open to investment.