The quick answer is New Zealand’s participation in the TPP11 – the Trans-Pacific Partnership, minus the United States.
Labour has now stated that its proposed ban on foreigners buying existing housing stock would require a renegotiation of the Free Trade Agreement (FTA) with Korea and an amendment to the TPP. There are also implications for the NZ-China FTA.
These are deviations from the bipartisan approach that has typically applied between National and Labour on foreign and trade policy.
Differences over TPP
National is full steam ahead. Trade Minister Todd McClay has said that New Zealand will be pushing for the minimal number of changes possible to the original TPP text as the remaining 11 countries seek to hammer out a proposal to present to the APEC Leaders meeting in November this year.
Labour withheld its support for ratification of the TPP during the parliamentary treaty examination process and wants an exception negotiated into TPP11 which would allow New Zealand to block offshore buyers from buying existing housing stock. Jacinda Ardern continues to talk up Labour’s free trade credentials, but has not ruled out the possibility that Labour would pull out of the TPP unless able to win this concession.
She has also suggested that blocking offshore buyers would require a renegotiation of the New Zealand Korea FTA.
National is promising to deliver New Zealand’s “boldest ever trade push”, including new FTAs with the European Union, the UK, Sri Lanka, and with Brazil, Argentina, Paraguay and Uruguay (MERCOSUR). These agreements would also likely be pursued by a Labour-led government.
What is the issue about trade and housing policy?
Many of our existing FTAs require us to treat investors of the other party or parties no less favourably than we treat New Zealand investors. But only two agreements – the NZ-Korea FTA and the TPP (which is not yet in force):
apply this non-discrimination rule to investors even before they have made an investment, and
contain a binding dispute resolution mechanism, such that the obligations can be enforced by investors.
Both agreements provide exceptions to this non-discrimination rule.
The exceptions under the TPP are not the same for each member country, but tend to reflect laws and policies in place when the TPP was negotiated.
For instance, Australia has an exception which allows it to impose a ban on offshore buyers buying existing housing stock. That was established Australian domestic policy before the TPP negotiations began. New Zealand does not have this exception. Unlike Australia, we did not have such a ban in place at the time of the negotiations and neither was it proposed domestic policy at the time.
New Zealand has certain other exceptions under the TPP:
one permitting us to maintain the investment screening mechanism in the Overseas Investment Act 2005 (OIA) and its associated regulations, and
another allowing us to vary the criteria against which potential investments are assessed.
The NZ-Korea FTA contains similar obligations but has slightly more flexibility to change the definition of sensitive land. The exact wording of these exceptions may not matter particularly as it may not be administratively feasible or good policy to try to insert residential housing within the complex OIA model.
The discussion is accordingly really about whether New Zealand needs the right to impose a new form of ban targeting foreign residential purchasers and what this means for the NZ-Korea FTA and the TPP11 negotiations. There are also implications for the NZ‑China FTA (which is presently being upgraded), as it contains most-favoured nation (MFN) rights with respect to the admission of third party investments.
What does it all boil down to?
Labour will seek to introduce a ban in its first 100 days.
In making this decision, Labour has elected not to try to use flexibility in the NZ‑Korea FTA and the TPP text to instead impose discriminatory land taxes (and, in the case of the TPP, discriminatory stamp duties). Such a policy response could potentially have been included within the remit of Labour’s proposed tax working group.
A policy to ban foreign non-residents from purchasing existing housing stock would likely require New Zealand to substantively renegotiate the NZ-Korea FTA and TPP11 to provide an express exception to the national treatment obligation. Because of the MFN clause in the NZ-China FTA, that agreement would also need to be addressed.
This approach obviously carries risk. Negotiations do not work by one country gaining something new without compromises being made in return.
There are two risks in renegotiating TPP11 commitments.
Other countries will likely insist on substantive amendments to their obligations – that is, greater amendments than those necessary to proceed without the US – with the effect that the deal could unravel or take significant additional time to complete.
Other TPP11 countries may decline to substantively renegotiate and invite New Zealand to take or leave the deal as it stands. It remains to be seen whether Labour would, if it really came to it, be willing to leave New Zealand exporters outside the tent.
But this may not be the only option. A policy would only fall foul of New Zealand’s obligations if it discriminates against investors from our trading partners. A policy that focuses on buyers without a real connection to New Zealand housing, which encompassed in some manner non-resident New Zealand buyers, would be harder to attack under any of New Zealand’s FTAs.
It is possible that, if Labour’s policy is developed following the election, this route will be considered.