John Armstrong: Not-so public process backfires in Crafar case

Crafar farm. Photo / Christine Cornege

The High Court's shock blocking of the sale of the Crafar farms to a Chinese conglomerate has raised more questions than there are currently answers. But it is cast-iron proof of one thing. Try as you might, you cannot quarantine overseas investment regimes from politics.

You can draft all the regulations and directives you like to try and cover every conceivable application.

But sooner or later one is going to land on your desk which is too politically-charged for your carefully-crafted regime to cope.

That happened to Labour with the Canadian bid for a majority shareholding in Auckland International Airport. Ditto the Crafar properties for National.

In both cases, the supposedly neutral procedures for handling the applications strained under the intense political pressure not to grant consent.

In the end, Labour's regime buckled. The party changed the rules. National's didn't buckle. But the outcome might be worse in its case. The High Court has changed the rules for National. And National is flummoxed as to what to do about it.

The glum faces on National's benches in Parliament on Wednesday said as much. They realised the court had made the decision the two Cabinet ministers charged with the final say on the Overseas Investment Office's recommendation should have made.

According to the judgment, Land Information Minister Maurice Williamson and Associate Finance Minister Jonathan Colman had "misdirected themselves" in law by adopting the wrong approach to determining the economic benefits of the Chinese bid which were anyway "materially overstated" by the office.

The robust nature of Justice Miller's ruling made the ministers and thus the Government look weak and ineffectual in approving the sale to Milk NZ Holding, a subsidiary of Shanghai Pengxin. Worse, it made it look like the Government was also kowtowing to Beijing.

The judgment has blasted major holes in Bill English's "striking a balance" approach to overseas investment.

The Finance Minister has sought to develop a regime which - to use his words - ensures "sensitive" assets like farmland are adequately protected while "facilitating" overseas investment that provides benefit to the New Zealand economy.

That sounds like worthy stuff on first hearing. But it disguises National's shameless attempt to curry favour with both sides of the overseas investment argument.

As public angst has intensified over the growing amount of land falling into foreign hands year by year, National has been keen to be seen to be tightening up on approvals.

In late 2010 English issued a fresh directive instructing the Overseas Investment Office to take greater heed of the "economic benefit" test plus the Government's concerns about land aggregation in determining whether applications for farm land met the required criteria. This has counted for diddly-squat. Almost all the applications which have come before the office have still been approved, though sometimes as in the Crafar case with conditions. The consent process is supposedly public. It has more in common with the practices of some secretive sect.

Land subject to purchase by an overseas investor has to be advertised in New Zealand as being for sale. But the Overseas Investment Office is not obliged to consult with affected third parties and can ignore any submissions from that quarter. Applicants can seek to have their details kept confidential - even after the office's verdict has been published. It is not until that point that the public may get wind of a sale to foreign interests. By then - barring going to court as the rival Sir Michael Fay-led bid for the Crafar farms did - the horse has long bolted.

As parties welcoming foreign investment, National and Labour have kept this archaic and flawed process in place to ensure public fuss is minimised.

This backfired in the Crafar case, however. This had all the ingredients to attract and hold an audience long before the Overseas Investment Office got involved. The sale covered a large area of land (just short of the size of Hamilton). It concerned dairying, New Zealand's most iconic industry. There was the patriotic drum-beat of rival New Zealand bids waiting in the wings. Above all, the potential buyers were Chinese with all the connotations that brought to this already politically-explosive mix.

This was not a case which the Government could treat as business-as-usual. However, the Government allowed itself to remain hostage to the approve-until-you-drop culture inside the Overseas Investment Office and the notion that the ministers who had the final say should simply follow the office's advice.

The question now is whether the High Court ruling will provide the catalyst for a sensible debate about foreign investment. Or whether once the fate of the Crafar farms is finally determined - and the Government might be inclined to swallow its pride and now reject the Chinese bid - things simply revert to an unsatisfactory state of occasional temporary fixes to the overseas investment regime.

The Government is unwilling to either appeal the judgment - that would be neverending - or to override it by legislating - that would be political suicide and National probably would not get the numbers anyway.

That could leave the judgment as setting precedent and effectively tightening up interpretation of the criteria requiring the economic benefit to be "identifiable and substantial".

What passes for debate is going on in a vacuum. For starters, no one knows how much productive land is foreign-owned.

The Prime Minister claims the figure for farms is less than 1 per cent. The left-leaning Campaign Against Foreign Control of Aotearoa, which has assiduously collected data over the past two decades, puts the figure closer to 7 per cent.

International comparisons offer some much-needed perspective. Debate about foreign control of farm land is beginning to become a major issue in many other countries. In Australia, more than 11 per cent of agricultural land is foreign-owned. In Argentina, which exercises no control, a bill was put before the country's Parliament to limit foreign ownership to 20 per cent of total rural land.

New Zealand is already tougher than people think. In an OECD-produced index of 50 developed countries, New Zealand comes in at No 7 in terms of "restrictiveness" of foreign direct investment overall and No 10 with regards to agriculture and forestry.

The Greens, New Zealand First and Labour to a lesser degree would make the regime even tougher still.

That is their prerogative. But the facts also need a forum.

That justifies some kind of commission of inquiry whose prime task would be to determine first how much land actually is in foreign hands and then assess how much should be.