The New Zealand and Australian Governments signed an Investment Protocol in February 2011. The protocol aims to cut the amount of red tape involved in investment between the two countries. This article provides background on the Investment Protocol, and briefly explains how it will work in practice.

Background

New Zealand entered into its first free trade agreement with Australia in 1983 - the Closer Economic Relations Trade Agreement (CER). CER has become an iconic and integral part of the relationship between Australia and New Zealand. It is considered internationally to be one of the most comprehensive and effective free trade agreements in the world.

CER has provided many benefits, enabling efficient movement of goods, services and people. It has always lacked specific tools to accelerate and encourage investment between the two countries. The new Investment Protocol aims to change this, by relaxing the financial thresholds at which government approval is required for investment between the two countries.

Negotiations for the protocol began in 2005 and were concluded in 2010. The protocol is separate from the New Zealand Government's recently concluded review of overseas investment laws.

What are the changes?

New Zealanders investing in business assets in Australia currently require approval from the Australian Foreign Investment Review Board for any investment exceeding A$231 million. The new Investment Protocol increases this threshold to A$1.005 billion. Similarly, the Overseas Investment Office (OIO) approval threshold for Australians investing in New Zealand business assets will be increased from NZ$100 million to NZ$477 million.

This may appear to be a significant relaxation, but Australian investors, like any other foreign investor, will still require OIO approval for any investment that involves "sensitive land" in New Zealand. Large-scale investments almost invariably involve sensitive land which includes any lease of sensitive land for a term of three years or more. OIO consent will continue to be required for investments by Australians involving sensitive land, even if the total monetary value of the investment is under NZ$477 million.

The Investment Protocol was signed in February and is expected to come into force in the second half of 2011, following completion of certain procedural formalities.

Conclusion

The Investment Protocol will make it easier for Australians to undertake large-scale investments in New Zealand, where there is no sensitive land involved. Sensitive land is almost always involved in an investment and we do not expect that the overall effect of the Investment Protocol will be significant.