Senate debates

Tuesday, 2 February 2010

Foreign Acquisitions and Takeovers Amendment Bill 2009

Second Reading

5:43 pm

Photo of Nick SherryNick Sherry (Tasmania, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

I would like to thank the senators who have contributed to this debate on the Foreign Acquisitions and Takeovers Amendment Bill 2009. The bill itself and the issues it goes to are relatively straightforward. I did not detect any opposition to the proposals contained in the bill, but the debate, as frequently occurs, particularly in the Senate, touched on issues beyond that contained in the bill. That is fair enough. Foreign investment is a legitimate issue of public interest, and therefore there are a range of matters that I will come to in more detail in responding to the second reading amendment—at least some of the areas that Senator Xenophon and Senator Ludlam touched on in their contributions. I have to congratulate Senator Joyce today. There has been a remarkable transformation since he became the shadow finance minister. I thought Senator Joyce was a paragon of restraint compared to some of the commentary from him we have heard in the past. I thought that was a generally welcomed contribution by Senator Joyce.

The bill implements the Treasurer’s announcements in February 2009 that the Foreign Acquisitions and Takeovers Act would be updated to reflect the more frequent use of complex investment instruments such as convertible notes and warrants. These types of arrangements have a solid commercial basis, but they were not in existence, they were not even envisaged, when the act was originally drafted. The bill clarifies that under the act the government can examine in the national interest any investment proposal that could deliver substantial influence or control now or in the future of an Australian company valued over the threshold. The bill applies from the date of the announcement—that is, 12 February 2009—to provide maximum certainty around the act’s application while providing flexible and sensible transition provisions. It is consistent with Australia’s international obligations by keeping to the act’s original policy intention.

The Australian foreign investment regime has stood the test of time, helping to deliver significant benefits to the Australian economy. Foreign investment is important for economic growth, competitiveness and jobs in the Australian economy. Access Economics has estimated that 14 per cent of all Australian jobs are attributable to foreign direct investment. Foreign investment also drives innovations, skills development, transfer, technology adoption and competition. The government is committed to a regulatory regime that does get the balance right, protecting the national interest while ensuring that Australia is a competitive destination for foreign investment. Reforms to the regulatory regime implemented in September specifically addressed the issue of balance. The foreign investment framework must keep pace with changes and trends if it is to remain effective. This means providing a strong national interest test but applying a light touch to foreign investments that do not have national significance.

The bill clarifies that the government can screen investments that involve complex financial arrangements in the same way as traditional shares or voting power. As I said earlier, the bill has received bipartisan support from Senator Joyce, who is the shadow finance minister, on behalf of the Liberal and National parties, and bipartisan support in the House of Representatives, with several members speaking in support of the bill, including the shadow Treasurer.

Supporting this bill will improve and safeguard the integrity of foreign investment screening. This is one important part of an effective foreign investment approach that is well established and familiar to international investors. It may not be particularly well known, but on delegation from the Treasurer, as Assistant Treasurer, I do receive the recommendations from the Foreign Investment Review Board for a considerable number of proposed investments into Australia. Amongst all of the issues that I need to consider in providing the ministerial and government approval, it is to me a matter of great pride that Australia is an attractive destination for foreign investment. Australia is a medium-sized economy and, on a world scale, a relatively small population. It is a resource rich economy, and we have historically had to rely on foreign capital to develop our resource base. So to those who argue no foreign investment, that would mean that a significant part of our resource base and other sectors of the Australian economy would simply go undeveloped. In the case of resources they would stay in the ground.

Foreign investment supports around one in four Australian workers in the mining industry, and foreign investment contributes almost half of all value-add in the industry. So in my various public comments from time to time on the issue of foreign investment I have been a strong supporter of foreign investment, provided the various criteria that are set down—the national interest and the other criteria—are met. I know the government and the Treasurer, Mr Swan, are strong supporters of foreign investment into Australia because it is needed. It is needed to assist in the economic development of the country.

There are some aspects of the debate that are a little unfortunate. There has been in some of the public commentary an overfocus on a country like China. It reminds me of the debate that occurred around the foreign investment that was coming from Japan in the sixties and seventies. And there are some unfortunate aspects to the debate. I do not have the figures in front of me, but as a matter of fact the largest source of foreign investment into Australia is from the European Union. I think the second-largest source is from the US. I think the third-largest source is from Japan. I am not sure that China is in the top five or six, but I do not have the figures here in front of me.

It is important to put into perspective that China is, very obviously, a significantly major rising economic power contributor to the world economy. As a consequence of that, it is only natural and reasonable that, given they are I think the most significant surplus saver in terms of capital saving countries in the world, they would seek to invest a proportion of their savings overseas. It is generally a good thing that they have such confidence in the strength of the Australian economy, in the future of the Australian economy and in our general corporate regulatory legal regime. Australia, for a whole range of reasons, is able to attract foreign investment so necessary to develop the country and one of those countries of course is China.

I will not read all of the proposals contained in the second reading amendment prepared and spoken to by Senator Xenophon and Senator Ludlam, but, in summation, the amendment largely reflects the minority report of the Senate Economics References Committee inquiry into foreign investment by state owned entities. That is reasonable. While the government is not going to support the amendment, the proponents of the amendment have consistency in the sense that they reflect concerns expressed in that report. I will not go to all of the provisions; I do not have sufficient time to do that; but I do want to go to some of the points made in the amendment—which, as I say, the government will not be supporting. The amendment provides that a foreign government shall not use any corporate vehicle which they control to purchase strategic assets within Australia. Further, for a non-state owned entity, a related entity test will be applied so that different corporate entities with the same ultimate majority controlling influence represented by equity debt or other mechanisms will be deemed as one entity for assessment as to whether it will result in more than 10 per cent of control of any strategic asset market in Australia.

We do not support that aspect of the amendment. The government is committed to a case-by-case examination of all foreign investment proposals. That approach ensures Australia can maximise investment flows while protecting our national interest. The government does recognise that sovereign wealth funds and other SOEs are increasingly part of the global financial system and notes that Australia has its own sovereign wealth fund—our Future Fund. Reflecting this trend, the government supports the efforts of the International Monetary Fund and the International Forum of Sovereign Wealth Funds to develop a set of voluntary best-practice principles to maintain the free flow of cross-border investment. Last time I looked, the chair of the International Forum of Sovereign Wealth Funds was our own Mr Murray, who is the chair of the Future Fund. The government applies a rigorous national interest test to all SOE investments. This is designed to examine whether SOE investments are transparent and commercial in manner.

Another part of the amendment concerns the Foreign Investment Review Board being required to consider whether Australia has reciprocal rights of investment in the proposer’s country. Again, the government does not consider it appropriate to penalise foreign investors for the investment policies of their home country government. This would be inconsistent with Australia’s international obligations, including to the Organisation for Economic Cooperation and Development, the World Trade Organisation and Australia’s free trade agreement commitments. The role of the act is to provide for the screening of incoming investment. It has no role in outward investment—and I would argue it should not. Assessment of the national interest could include such considerations, but, in general, reciprocity is not a useful guide to Australia’s national interest. However, the government will continue to advocate for foreign governments that have restrictive investment policies to liberalise their regimes for the benefit of Australian investors. I know that in the negotiations my colleague Simon Crean, the Minister for Trade, participates in—and he is a very rigorous advocate of Australia’s interests—he raises this issue, and I know that in some cases there are responses and changes occur.

The issue of creeping acquisitions of Australian businesses and assets owned by state owned entities is raised. I point out that there are a separate set of laws that cover what are known as creeping acquisitions of Australian companies and businesses. The Foreign Acquisitions and Takeovers Act allows the government to review any increase in ownership beyond 15 per cent of an Australian company or business valued above $231 million. For investments by SOEs and other entities with links to foreign governments, the foreign investment policy allows the government to review any direct investments in Australian companies or businesses regardless of the value of the company or the business.

I will make a peripheral but important point: in terms of governments that own, part or whole, entities which seek to invest in Australia, we are not just dealing with countries such as China or sovereign wealth funds et cetera. There are a range of investments that I am certainly aware of, given my responsibility as Assistant Treasurer, from a range of European and US financial institutions that now—as a consequence of the financial crisis, I would have to say—do have a substantial government stake for a range of reasons concerned with the financial crisis. It has to be given consideration when those entities which in the past were fully private are now owned or partly owned by governments. They are given the same examination by FIRB and ultimately, if they come to my or the Treasurer’s attention, they are given the same consideration as the more commonly understood government enterprises that have part or whole ownership, such as sovereign wealth funds or any of the state owned enterprises that exist. Singapore is another example—it has extensive government investments through subsidiaries of its provident fund, I think. A very complex set of issues may need to be considered.

The amendment calls for clear criteria of what the national interest test is and for abbreviated versions of the FIRB advice to the minister to be tabled in both houses of parliament. It also calls for the government to define what is meant by ‘community interest’ and ‘common standards of business behaviour’. I point out that in February 2008 the government published guidelines that explain the factors we consider when evaluating the national interest implications of foreign government related investments. Specifically, the government looks for evidence of a commercial basis for the investment. It considers the commercial and legal conduct of the investor—that is, do they adhere to the law and do they abide by common standards of business behaviour? The government also considers competition issues, the impact of the investment on Australia’s revenue base, national security of course, and the impact of the investment on the Australian company, our economy and the broader community.

The government does take seriously the commercial-in-confidence nature of the investment proposals that it receives. You have to take it very seriously because if the information you are receiving became public knowledge it would have—in some cases at least—a significant impact on markets and the value of particular entities that are listed on the Australian Securities Exchange, for example. Certainly in exercising my powers in this area I am very mindful of the commerciality and the need for very strict confidence. In exercising my responsibilities as the Assistant Treasurer there are many areas where commercial-in-confidence is important but this would have to be one of the most sensitive areas for maintaining commercial confidentiality.

Another paragraph of the amendment relates to human rights. The government considers that it is not appropriate to hold investors accountable for actions taken by the home country government except in limited circumstances where Australia maintains formal sanctions against that country. However, if there is evidence that the investor itself has breached human rights or undertaken other unethical behaviour, such actions will be considered when determining if the investment would be contrary to Australia’s national interest, and that has always been the case. I do not think that is generally well known, but that has always been the case.

I thank senators for their contribution. The government does not support the amendment. I do appreciate the contribution of those senators who have spoken in favour of the amendment. Foreign investment is an important issue. It is a sensitive issue, but I advocate that the amendments in this legislation are important. In general we should welcome foreign investment in this country. It is very important for our economic development. Particularly in Australia, which is so resource rich, the reality is that the development of our economy and the value adding and the jobs that result from so many of these resources would not occur without foreign investment. Australia would be much the poorer if we did not receive that investment.


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