Tuesday, 2 February 2010
Foreign Acquisitions and Takeovers Amendment Bill 2009
There is no question that foreign investment is crucial to Australia. It boosts economic growth, it can ensure competitive industries, it creates jobs and it can increase exports. According to the Department of Foreign Affairs and Trade, the stock of foreign investment in Australia as at 31 December 2007 totalled $1.6 trillion. However, it remains crucial that these investments be monitored, that, in the context of foreign investment approval, there be appropriate regulations and, above all, that they be in the national interest and never at the expense of our local industries in the short or long term.
As at 31 December 2008, the United States and the United Kingdom where the largest foreign investors in Australia with 24.8 per cent and 24.3 per cent respectively. Japan, Hong Kong and Singapore were ranked third, fourth and fifth while China was ranked 15th. But China’s interest in Australia is growing, and I welcome the fact that Australia and China have a strong and positive bilateral relationship of mutual benefit to both countries. In 2006, China’s investment in Australia was around $3.5 billion. In the financial year to June 2009, investment applications from China rose to $10 billion and by the end of this financial year they are forecast to hit around $30 billion. Indeed, Treasurer Wayne Swan has previously noted that since November 2007 he has approved Chinese investment applications at an average of one every nine days.
Under the current Foreign Acquisitions and Takeovers Act 1975, determinations are assessed by the Foreign Investment Review Board according to a national interest test which is designed to have:
… regard to the widely held community concerns of Australians.
During the recent Senate Economics Committee inquiry into foreign investment by state owned entities, Mr Patrick Colmer from the Foreign Investment and Trade Policy Division of Treasury was asked when a foreign investment might be considered bad for Australia. Interestingly, Mr Colmer advised the committee:
If you look back at the cases that we have rejected, you can see that we have not rejected outright very many at all.
He went on to say:
In fact our best information is that 16 cases have been rejected since 1990. That is out of something in the order of, on average, about 500 business cases a year.
The national interest test conducted by the Foreign Investment Review Board currently follows six principles, based on whether:
An investor’s operations are independent from the relevant foreign government …
An investor is subject to and adheres to the law and observes common standards of business behaviour …
An investment may hinder competition will lead to undue concentration or control an industry or sectors concerned …
An investment may impact on Australian government revenue or other policies …
An investment may impact on Australia’s national security …
An investment may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community.
According to the explanatory memorandum for this bill:
… foreign investors—
will be required—
to notify the Government where there is a possibility that the type of arrangement being used will deliver influence or control over an Australian company, either currently or at some time in the future.
This compulsory requirement will be applied in tandem with the Foreign Investment Review Board’s current assessment, but certainly places extraordinary trust in the foreign investor to comply with this mandatory reporting provision and assumes that the investor would be willing to give insight into their future business plans. Although I do agree with Senator Joyce that this is a step in the right direction, I believe that it ought to go much further. Given this, the current assessment test by the Foreign Investment Review Board needs to be tightened to further ensure that any and all foreign investment is in Australia’s national interest. To deal with these concerns, I move the following amendment in my own name and that of Senator Ludlam:
At the end of the motion, add:
but the Senate calls on the Government to bring forward the changes to law and policy necessary to ensure that:
(a) foreign governments cannot use corporate vehicles they control to purchase strategic assets within Australia;
(b) for non-state-owned entities, a ‘related entity’ test is applied, so that different entities under the same ultimate majority control are treated as one entity in assessing whether an acquisition will result in more than 10 percent of control of any strategic asset market in Australia;
(c) the Foreign Investment Review Board (FIRB), in considering decisions on foreign ownership, is required to assess whether Australia has reciprocal rights of investment in the proposer’s country;
(d) effective laws are in place to prevent creeping acquisitions by foreign, state-owned entities of Australian businesses and assets;
(e) the FIRB provides clear criteria of what the ‘national interest’ test is;
(f) abbreviated versions of FIRB advice to the Minister are tabled in both Houses of the Parliament;
(g) clear definitions are advanced of ‘community interest’ and ‘common standards of business behaviour’, and major investment proposals are subjected to rigorous public scrutiny to ensure that they meet genuine common standards of business behaviour; and
(h) the human rights records of the country of state-owned entities seeking to invest in Australia be a key factor during consideration by the FIRB, and that all foreign non-state-owned entities be subject to consideration of their other investment activities and whether these conflict with Australia’s ethical positions.
As I mentioned earlier, Australia welcomes foreign investment for the benefits it offers in boosting economic growth, ensuring competitive industries, creating jobs and increasing exports. But it cannot and must not be at the expense of our ability to remain competitive in the national and international marketplace and it cannot and must not enable another nation to have indirect control over Australia’s independence, governance, ethics or values.
The Foreign Investment Review Board should, as part of its considerations for any investment proposal by a foreign entity, acknowledge its possible consequences, which go far beyond a simple monetary investment, including ethical considerations, and its impact on consumers as well as its broader political ramifications. It is important, for instance, that foreign governments are not able to use corporate vehicles they control to purchase strategic assets in Australia.
Investment may come in many forms, and one may be from state owned entities, such as those from China—there are a number of state owned entities from China that are seeking to invest here in Australia. The implications of this on a political level must be considered and the question must be asked: do we know the outcome when a dispute arises with an entity that is majority state owned by another nation?
When there is a dispute between two corporate entities, the matter is normally taken to court or to a system of arbitration and a ruling made that is abided to by both parties. However, when a dispute about a corporate matter involves another nation’s government, matters such as bilateral trade agreements and broad diplomatic relations come into play. Commercial considerations can be subsumed by purely political considerations, with potentially adverse consequences for consumers and also for the national interest.
In early 2009 aluminium maker Chinalco sought approval to buy a $27.69 billion stake in Rio Tinto’s strategic mineral assets. Had this purchase gone through, it would have increased the stake of Chinalco, a Chinese government state owned enterprise, in Australia’s second largest resource company from 11 to 18 per cent and would have given the Chinese government-owned company two board seats. There was very real concern about the impact that this could have had on the price of one of our strategic assets. I said then and I still believe this now—and I note that Senator Joyce and I did some advertisements in the media opposing this deal—that it does not make sense for an arm of the Chinese government to be in a position to control and set the prices of Australian resources. Furthermore, the reverse question has to be asked: would the Chinese government allow an Australian company to have such a stake in one of its key strategic assets?
Investment offshore is as vital to Australian companies as it is to foreign investors seeking to enter the Australian market. According to the Department of Foreign Affairs and Trade, Australian investment abroad was worth $884 billion at the end of 2007. So the case of reciprocity must be raised. We allow into Australia foreign investors whose governments deny our investments, and that does seem unfair. A country’s human rights record should also be taken into account when deciding whether or not we allow investment from a particular nation. In this regard I note the evidence to the Senate committee by Ian Melrose, the Australian businessman whose company funded the ads in relation to the Chinalco deal. As some of my colleagues might be aware, this is the same man who has also funded ad campaigns on important human rights issues such as East Timor and a whole range of other issues. He is a champion of human rights in this country. He expressed a real concern that a country’s human rights record should be taken into account in the context of decisions made with respect to foreign investment, particularly where it involves a state owned enterprise. China’s approach to human rights, for example, is in stark contrast to Australia’s stance and, as such, should surely be a factor of consideration when deciding whether to allow the government of China, through its state owned entities, to take over an Australian company, particularly its strategic assets. These questions, among others, as I have detailed in the second reading amendment that I have moved with my colleague Senator Ludlam, should all be included in assessments conducted by the Foreign Investment Review Board of all business cases. That is why I believe that more reform is needed and that is why I urge my colleagues to support this second reading amendment.
I also seek, in the second reading amendment that I have moved with Senator Ludlam, that the Foreign Investment Review Board be charged with monitoring a country’s interest in specific sectors to ensure that we do not have creeping acquisitions, which would negatively impact on Australia’s economy and Australian companies and jobs. In addition, I think it is imperative that the Minister for Trade be required to table the advice that the minister receives from the Foreign Investment Review Board in both houses of parliament on a regular basis. Given the number of investment applications that come before the Foreign Investment Review Board and the Treasurer each year and the number which are approved, which is in the majority, I believe it is in the national interest to see where the Foreign Investment Review Board is coming from in its decisions and to find out where the foreign investment is coming from and in which industries and sectors it is in.
I welcome the amendments proposed by the government in this bill. Again, I agree with Senator Joyce that they are a step in the right direction towards ensuring greater scrutiny of foreign investment cases. But I believe the government can do and ought to do better given the considerations in relation to the national interest. I believe the national interest test itself needs to be further defined and strengthened to ensure Australia’s industries, jobs and economy remain strong, independent and Australian.