Herald views on Saudi farm deal

I haven’t blogged to date on the Saudi farm deal, because frankly I haven’t seen what the fuss is about.

Don’t get me wrong – as a form of government spending, it appears to be wasteful and unjustified, but it was a decision made to further NZ’s interests and trade relations. There was no personal benefit to any Minister from it.

I don’t support it, as it is a form of corporate welfare – just like the Rio Tinto subsidy. It has been referred to the Auditor-General, and that is a good idea. But on the facts known to date, I don’t see any wrong-doing.

Audrey Young has a useful article looking at the case for and against it. The case against it (the prosecution):

It is conceded that the ban on live-sheep exports to Saudi Arabia caused losses to Hamood Al Ali Khalaf and has been an irritant in relations between New Zealand and Saudi Arabia.

But that was a consequence of a government exercising its sovereign right to impose laws, in this case in the interests of animal welfare concerns.

If the Government had not acted as it did, New Zealand’s international reputation could have been seriously damaged by continuing a trade with possible consumer backlash.

Mr Al Khalaf was not the only farmer or investor affected by the decision. He could have filed a case for damages in court and taken his chances.

Mr McCully is known as something of a cowboy who does things his way or not at all. His paper to the Cabinet was clearly written in his own office without some of the usual cautions that would accompany a paper with more rigorous input from the Ministry of Foreign Affairs and Trade.

Most seriously, it gives no caution to the Cabinet about how the $4 million could be seen as a facilitation payment which, while legal in New Zealand, is considered bribery in many countries.

The paper says the contract for services between Mfat and the Saudi interest “includes an obligation to use their best offices to connect New Zealand Government and trade interests with key government and commercial decision-makers in Saudi Arabia … there will be strong incentives for the Saudi parties to promote the ratification of the NZ-GCC [Gulf free trade agreement] as a basis for expanding this new business.”

This is a case of Mr McCully getting approval to pay a Saudi investor to use his influence to get NZ a free trade agreement, all disguised as a deal for the promotion of NZ agriculture in the Gulf. He should be sacked.

It was a sordid, secretive deal and if it was not, why did the Government not reveal the $4 million payment until it released the Cabinet paper?

Mr McCully has taken an intemperate approach on the issue in the House and suggested the deal was the Government’s response to legal threats that had been caused by the previous Government “poisoning” NZ’s relationship with Saudi Arabia.

He misled the House and the Cabinet if he suggested there was a legal threat. There is no evidence of a legal threat ever having been made.

He was also part of a Government that extended the ban that supposedly poisoned the relationship.

Former agriculture minister David Carter also began negotiations with Saudi Arabia to resume live-sheep exports, but they failed and National followed Labour in banning them.


And the case for the deal, or the defence:

Murray McCully identified an issue that has been a major impediment to New Zealand’s relationship with Saudi Arabia, a vitally important member of the Gulf Co-operation Council.

It is the duty of the Foreign Minister to try to resolve such differences, especially when its resolution is likely to lead to tangible benefits to New Zealand.

Nothing Mr McCully has done has been motivated by anything other than New Zealand’s best interests.

The Cabinet made the decision in a proper way approved by the Cabinet office.

This is not Fifa.

Mr McCully has acted lawfully and in accordance with Cabinet process.

He is about to chair the United Nations Security Council (next month) and the Opposition’s characterisation of him is putting petty politics ahead of the national interest.

Regarding the issue of a legal threat, the prosecution is putting up a straw man.

Mr McCully at no stage said a cause of action had been filed, nor that there was a live case against the Government.

He informed the Cabinet that Mr Al Khalaf’s own legal advice was that he pursue a claim for between $20 million and $30 million.

Any thought Mr Al Khalaf may have had of pursuing legal options was likely disregarded once he was confident the Government was committed to finding a solution.

The fact is that even if there had been no suggestion of legal action, Mr McCully and the Government had an obligation to do what they could to resolve the dispute.

The way the Saudi Government operates is that a slight to one of its own is a slight to itself and that unless the dispute was resolved, there would be no progress on a free trade agreement.

There was no question of paying compensation to Mr Al Khalaf for stopping the shipment of live-sheep exports to Saudi Arabia because that would have created a precedent and opened the Government to other claims. But the commercial solution developed by Mr McCully and officials – of vide a platform to benefit funding an agri-hub in Saudi Arabia – was a win-win-win proposition.

It benefited Mr Al Khalaf, who lost millions in his investments in New Zealand after being encouraged to invest here, it will provide a platform to benefit New Zealand exporters to the region, and it will resolve a dispute that has disadvantaged New Zealand exporters.

The Government’s involvement in the agri-hub has not been a secret. Primary Industries Minister Nathan Guy released a speech about it in March 2014 when he outlined the detail of it.

The $4 million was not initially disclosed because part of the payment was for settlement of the dispute and it was commercially and politically sensitive.

Audrey’s conclusion:

This deal is what is known in politics as a “McCully Special”.

It is creative, inventive, highly unorthodox and may worry sticklers for process in public service but it was done within the parameters of legitimate Cabinet decision-making processes.

It is not unlawful. It was a pragmatic solution to a bilateral problem that needed fixing.

It was the Cabinet’s decision, not Mr McCully’s.

He is not guilty but he could never be called innocent.

He should stay in his job but pledge to do better next time.

A pretty fair summary.

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