Cunliffe David: International Finance Agreements Amendment Bill — In CommitteeText is incorporated into the Bound VolumeCunliffe David: International Finance Agreements Amendment Bill — In Committee[Sitting date: 10 November 2015. Volume:710;Page:7818. Text is incorporated into the Bound Volume.]Hon DAVID CUNLIFFE (Labour—New Lynn): Thank you for this opportunity to contribute in the Committee stage on Part 2 of the International Finance Agreements Amendment Bill and I reiterate that Labour is supporting the bill. Part 2 contains a number of operative provisions in clauses 6 7 8 9 and 10—and importantly clause 10 is the linking section that attaches schedule 8 which is the Articles of Agreement of the Asian Infrastructure Investment Bank. I will make only a brief point about clause 8 which is to note that subclause (2) inserts new section 5(e) which says “all payments required to be made … to the … Bank under the terms of the Infrastructure Bank Agreement.” and new subsection (2) which says “Expenses … may be incurred without further appropriation …”. I would like the Minister in the chair Craig Foss to clarify for the Committee whether that means there is a contingent liability risk on New Zealand beyond the US$92.3 million I think it is to which our initial contribution amounts; if so what is the nature of that liability risk and can he put a top-end quantum on it. I think it is important for the Committee to be aware of that.Turning to new schedule 8 and with the preface that I understand that a former New Zealand Secretary to the Treasury Mr John Whitehead was instrumental in contributing to these articles of agreement I say that it is clear that they have been carefully worked through and I wish to turn in particular to the operating principles in article 13. This contains I think it would be fair to say a blend of banking principles and principles that reflect the international nature of the bank. The bank will be guided by sound banking principles; it will not finance any undertaking in the territory of a member if that member objects to such financing; it will pay due regard to the ability of the recipient to obtain financing on reasonable terms from other sources—which I think is important because what that says is that this bank is trying to fill in the financial funding gaps for Asian regional infrastructure not—The CHAIRPERSON (Hon Trevor Mallard): I apologise for interrupting the member. I have been consulting with Standing Orders and I do want to talk to Mr Tabuteau about a comment that he made previously. I want to refer him to Speaker’s ruling 48/2 which states: “The offence of calling another member a liar or implying that another member of the House is a liar is an offence against the House …”. It then goes on to make it very clear that that is not acceptable. I therefore require the member to withdraw the comment and to apologise.Fletcher Tabuteau: I withdraw the comment and I apologise.Hon DAVID CUNLIFFE: Clause 5 of article 13 talks about the ability of the recipient to obtain financing from elsewhere which goes to the point as I said that this is a supplementary or gap-filling fund and that reflects us back on the earlier debate that we had in the first reading of this bill when we were debating whether the creation of this bank represented in some ways a vote of no confidence on the existing Bretton Woods institutions and the sufficiency of the World Bank and the Asian Development Bank. From there that led us into a discussion of the relative interests of the United States as the sponsor of the Bretton Woods institutions and to reflect upon the rise of China as a very important country in the region which had been the principal driver of the creation of this additional institution.I think it is important to turn to chapter V in the articles of agreement and in particular the governance section in articles 22 23 24 and 25. What that does is it separates out the composition of the board of governors from the board of directors and I want to reflect upon those two different roles. New Zealand in agreeing at the outset to be a founder member of the Asian Infrastructure Investment Bank acquires a seat on the board of governors and an alternate governor if our regular member is not able to attend. That allows New Zealand to participate in exercising the powers under article 22 23 and 24 which include appointing directors and the powers thereof are set out later. It includes appointing under article 29 the president and overseeing the role and functions of the bank.It is instructive that in appointing the board of directors the governors are divided into two groups: nine shall be elected under article 25 by the governors reflecting regional members and three shall be elected by governors representing non-regional members thus making it clear that in all ordinary circumstances it will be regional members who will hold the power of appointment over directors or the board of directors. That is significant because it goes to the point of the shifting balance of influence between the non-regional Bretton Woods powers and the regional powers that are largely sponsoring this initiative but with whom New Zealand is pleased to associate on this occasion. The powers of the directors are set out in articles 26 27 and 28 and it is important to note the allocation of voting under article 28. Founding members are allocated 600 founding member votes and then other votes that are proportionate to their financial contributions.New Zealand does indeed get a seat at the table of an important new institution. New Zealand does get visibility to governance—or at least high-level governance—documents. I guess in the articles of agreement we have yet to see the precise nature of the reporting from the board of directors to the board of governors and we would of course anticipate that it is mainly the directors to whom management information will flow. It will be very interesting to see—and the Minister may wish to comment on that—whether New Zealand as one of the smaller founding participants could expect to see New Zealanders on the board of directors of the bank. If that is not the case could the Minister please let the Committee know the extent to which New Zealand will have visibility to reports and paperwork that are going to the board of directors as opposed to the board of governors. We would not want to see New Zealand in a situation where because it is on the higher-level appointment board but not on the day-to-day governance board it loses some degree of visibility to the operations of the bank. So we would like the Minister to take a call on that point.The Foreign Affairs Defence and Trade Committee has commented on a number of the features of the founding documents of draft policies contained in the schedule. It comments for example on the innovative governance mechanisms and attests that the model has adapted from and learnt from the World Bank and the European Investment Bank noting the non-resident board of directors which is less expensive to operate it says than some of the models requiring resident investors. It notes that New Zealand advocated for open transparent and merit-based appointments and that the Asian Infrastructure Investment Bank agreed to write that into the articles of agreement that the president is required to come from a regional member country and that a range of other safeguards have been inserted. The select committee report notes that a lot of emphasis was put on ensuring that the bank has the right safeguards in place including environmental social and procurement safeguards.I have a couple of notes on that. Firstly the articles make clear that procurement can be openly conducted from any regional country which includes New Zealand so we would hope to see New Zealand contractors and service providers getting a share of procurement and I invite the Minister to comment on whether the national interest analysis background documents contain any estimates of the value of the procurement flows in which New Zealand might be expected to participate. The select committee notes that it will be expected to collaborate with global and regional institutions and I do believe that we are going to need reporting on that in the future. The Minister may wish to comment on how he expects to keep tabs on that issue because there is both the potential for constructive gap-filling by the Asian Infrastructure Investment Bank and some degree of overlap and/or competition with the Asian Infrastructure Investment Bank and the World Bank. So exactly how the New Zealand Government would seek to form a view given that it is on the board of governors of the Asian Infrastructure Investment Bank and the IMF - World Bank system to tell whether those relationships are constructive or destructive would be a very important I think thing to consider.I turn the attention of the Committee to article 31 about the international character of the bank. I think there are some important safeguards there. Clause 1 of article 31 states: “The Bank shall not accept Special Funds loans or assistance that may in any way prejudice limit deflect or otherwise alter its purpose or functions.” It is important that its purpose which is infrastructure and other productive development in the region be underlined. There is a very important statement in clause 2 of article 31 especially given the controversy on its founding.