Tuesday, 2 February 2010
Foreign Acquisitions and Takeovers Amendment Bill 2009
Debate resumed from 26 November 2009, on motion by Senator Stephens:
That this bill be now read a second time.
I rise today in support of the Foreign Acquisitions and Takeovers Amendment Bill 2009. It is very important, with things such as the Foreign Investment Review Board and foreign acquisitions and takeovers, that we consider wanting not only our nation to be a vessel for the wealth of other nations but our involvement in our nation’s wealth to remain paramount among our concerns. We only have one country to live in and we have a responsibility not only to those who are part of Australia now but to those who will be part of Australia into the future—our children and grandchildren. We have a responsibility to hand over to them a legacy of wealth that they can use to support the desires and requirements of their lives. It is extremely important that we are prudent and have good oversight into exactly how the wealth of this nation is invested in by other countries.
The bill updates the Foreign Acquisitions and Takeovers Act 1975, the legislation which provides the basis for the Treasurer to rule on investments in Australian businesses and assets by foreign companies to ensure that they are in our national interest. Importantly, the bill explicitly requires foreign investors to notify the government when the types of acquisitions, investments or arrangements could deliver influence or control over an Australian company. The most significant aspect is that this requirement applies both now and in the future. This is mainly due to the fact that since the act came into force there have been a number of changes in financial structures, making them considerably more complex.
The current act does not adequately cover all modern investment arrangements. Lately, we have seen the more opaque way that investment has been carried out in our nation. We need more clarity in how we deal with this. By way of explanation, I will take a moment to outline how the foreign investment process works. Submissions are made by potential investments to the Foreign Investment Review Board, a non-statutory body which was established in 1976—it must have been by the coalition government—to advise the Treasurer on the government’s foreign investment policy and its administration. Its role is to examine the proposals and then make recommendations to the Treasurer. To the best of my knowledge, in the past generally the recommendation the Treasurer gets is one to approve. It might be to approve with conditions, but generally it is one to approve—and that is a debate for another day.
I thought it would be useful to provide some statistics from the Foreign Investment Review Board—FIRB, as it is known—to outline the significance of this growing investment sector. In its most recent annual report, which details activities in 2007-08, FIRB received and considered more than 8,500 requests—an increase of 22 per cent on the previous year. Nearly 8,000 investment proposals worth nearly $200 billion were approved in 2007-08. Of these, nearly 80 per cent were subject to conditions in one form or another, major or minor. The majority of these considerations were real estate projects rather than mining or other major propositions. Of those approved, most were in the mineral exploration and development sector. The value of these approvals was $64.3 billion—double the value of approvals in 2006-07, which is a sure sign of the strong desires by foreign investors to invest in our mining sector as they see it as having a great capacity for future wealth. The real estate sector ranked second, with a value of $45.5 billion—more than double the value of approvals in 2006-07. Services was the next most valuable, at $35.7 billion—an increase of one-fifth. Manufacturing approvals had a value of $31.3 billion—again, double that of the previous year.
The final decision on the fate of each proposal ultimately lies with the Treasurer. An important point I wish to make in supporting this bill is that it does not alter the role of the Treasurer in this regard. If the Treasurer decides the deal is going forward, the deal is going forward; if the Treasurer decides the deal is to stop, the deal is to stop. Another important point is that this bill contains no changes to the national interest test. While neither the act nor this bill defines this concept, the Foreign Investment Review Board understands it to mean that the government determines that it is contrary to the national interest by having regard to widely held community concerns of Australians. We have seen those concerns clearly ventilated in recent times. This allows for interpretation by the government of the day as it deems appropriate. It is important for us to acknowledge once more—and this has been elucidated in statements by people such as Peter Costello—that the Foreign Investment Review Board is almost exclusively in favour, maybe in favour with conditions, but in favour, of approvals.
The most recent example of the Treasurer exercising his right to amend an application was the case of China Minmetals Nonferrous Metals Company, known as Minmetals. This application was to purchase 100 per cent of OZ Minerals. But the section of OZ Minerals pertaining to Prominent Hill, which is in South Australia near Woomera, was prohibited. However, this did not stop Minmetals being allowed to purchase other significant mineral assets, the major one being what was formerly Century Zinc and now the second-largest open-cut zinc mine in the world. That is now owned by Minmetals, and of course we have to recognise that Minmetals is a wholly-owned subsidiary of the Chinese government. That in itself raises concerns among the public and those concerns should be acknowledged in this chamber.
In order to help further safeguard our national interest this bill broadens the definition of what has to be reported to the government by potential foreign investors. It amends four definitions in the act: ‘aggregate substantial interest’, ‘potential voting power’, ‘substantial interest’ and ‘voting power’. The current meaning of ‘aggregate substantial interest’ is 40 per cent or more of the voting power of the issued shares. The bill redefines it as two or more persons taken together holding at least 40 per cent of the voting power, potential voting power, issued shares or rights to issued shares. This potential voting power refers to the number of votes that could be cast if it is assumed that a future right is exercised. ‘Substantial interest’ is currently defined as 15 per cent or more of the voting power of the issued shares. The bill changes this definition to holding at least 15 per cent or more, or one or more of the potential voting power, issued shares or rights to issued shares. ‘Voting power’ is currently defined as the maximum number of votes that can be cast at a general meeting. It has been clarified to explicitly include potential voting power. So the concept of assessment has been broadened.
The coalition believes that foreign investment in Australia is in Australia’s national interest. It provides the capital that is needed for a range of projects; it generates local wealth and creates jobs. We acknowledge that there has been a large involvement of foreign investment in the development of our nation. Our history and the wealth of this nation have been developed by foreign investment. In order to illustrate this point I will share with you a few examples of foreign investment by Japanese investors. We know that the development of the coalfields in Central Queensland was greatly assisted by investment from Japanese companies. Kestrel mine, for instance, 40 kilometres north-east of Emerald in Central Queensland, is an underground project which supplies world markets with up to 4.2 million tonnes of coking and thermal coal each year. Japanese trading house Mitsui holds a 20 per cent share in this mine. Blair Athol mine, 20 kilometres north-west of Claremont in Central Queensland, supplies Asia and Europe with 12 million tonnes of thermal coal each year. J-Power Australia Pty Ltd holds eight per cent and Japan Coal Development in Australia holds 3.4 per cent.
But we must acknowledge that at the start of this investment, especially by the Japanese, they were in joint ownership agreements, with Australian investors owning the majority. Those requirements have changed and there are concerns now, especially in what state owned enterprises might do with 100 per cent ownership of mines. This is a concern that is held and it is a concern no doubt the Foreign Investment Review Board looks at when considering investments. Hail Creek mine is located 90 kilometres south-west of Mackay in Central Queensland and supplies Asia and Europe with eight million tonnes of hard coking coal each year. Nippon Steel Australia Pty Ltd holds eight per cent, Marubeni Coal Pty Ltd holds 6.67 per cent and Sumisho Coal Development holds 3.33 per cent.
The mining leases that these coalmines are part of are paid substantially to state governments, especially to the governments of Queensland, New South Wales and Western Australia. The royalty income that flows from them goes a long way to propping up the finances of some of these state governments. We have to acknowledge, though, that sometimes there is a clash of interests when we see the mining interests and the interests that are held below the ground and the interests of those who hold the land above. That is evident in such places as the Liverpool Plains, especially around Breeza, at the moment. We are seeing it once more in areas such as around Toowoomba. These are the sorts of interests we also expect the Foreign Investment Review Board to have a mind to—the interests of the Australian people as represented by Australian farmers and Australian food producers. We want to make sure that those people are not unduly compromised by the development that is brought on board by foreign interests—or, in some instances, by domestic interests.
We have a problem at the moment because the finances of the state governments are so parlous that they have an insatiable desire to sell mining leases. They cannot manage the books and they are doing everything they possibly can to bring in money from wherever they can find it. Their idea, which we are seeing more and more among Labor governments at a state level, is that, if it is not nailed down, they are going to sell it because they have basically run out of money. In Queensland we are seeing a peculiar juxtaposition of lauded environmental credentials with commercial considerations, as the Queensland government so earnestly tells people what they can do above the ground while having no hesitation about selling anything below the ground. The reason for that is they make hundreds of millions of dollars from selling what is below the ground, and this is a situation that is leading to some of the concerns. For instance, there is their overnight moratorium on any further drilling for water in North Queensland for the rural sector. However, they have no problem with selling mining rights up there, they have no problem with selling anything that is under the ground and they have got no problem with going around Toowoomba and selling every mining lease they can find.
These are concerns which I hope that, in a true, open and frank discussion in the future, the Foreign Investment Review Board may look at. This legislation is certainly heading in the right direction, but there are certainly issues that need to be clarified, resolved and improved, and, with that purpose in mind, the coalition will be supporting this legislation.
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.
I rise briefly to add some comments to those of my colleague Senator Xenophon and indicate that the Greens support the second reading amendment that Senator Xenophon has moved and which we have signed on to. It is basically the logical consequence of the additional comments of the dissenting report that I submitted last year with Senators Joyce and Xenophon on exactly the issues that we have been discussing this afternoon. Essentially, our support for the Foreign Acquisitions and Takeovers Amendment Bill 2009 is conditional on many of these really serious issues being addressed. The system in Australia of how we evaluate foreign investment by state owned entities and by sovereign wealth funds should not just be up for some tweaking. It really needs some serious review in terms of the way that we manage the assets that we have here and also our relationships with the various entities that might seek to take up an interest, controlling or otherwise, in some of the strategic resources that we have in Australia. There seems to have been bipartisan consensus for such a long period of time that we do not make anything here. We chop things down, dig things up and then we buy the value added products back from overseas. We really do need to take a very close look in that case. If that is to be the economic strategy that the major parties will pursue over such a long period of time, then we had better pay very close attention to the ownership and the kinds of relationships that we have with companies or government entities that would seek to take ownership of those same resources.
One example that Senator Milne brought to my attention this morning, when we were discussing this, was China’s approach to rare earths. These are, for example, strategic minerals which are enormously important for the future of the renewable energy sector or for batteries for electric vehicles. These fields are going to be huge in the 21st century. They involve strategic resources. I do not know if I would say Australia has an abundance of them, but we do have assets in these kinds of mineral reserves. We have no real filters in place to prevent them from being snapped up, whereas the Chinese government takes a completely different view of the ownership of or access to those kinds of resources. That is the sort of thing, on the one hand, that is lacking in Australia and that I think our dissenting report went some way towards addressing, but I think my colleagues have covered that in a fair bit of detail.
What I really want to go to is the issue of the human rights obligations of the entities with which we have commercial relationships here in Australia. The policy document that came out of Treasury on the government’s approach to foreign investment just says:
The Government’s approach to foreign investment policy is to encourage foreign investment consistent with community interests.
So there is something there in which presumably there would be a degree of community interest. So if a particular investment was inconsistent with community interests then that investment would be blocked. But of course there is no consideration given by the Foreign Investment Review Board to the human rights record of the nation or the entity that is seeking to invest in Australia.
For the purposes of assessing it against human rights standards, I figure that the second principle under the FIRB guidelines—that the investor is subject to and adheres to the law and observes common standards of business behaviour—would seem to be the obvious benchmark against which to judge that kind of performance. It does not mention human rights—it needs to—but there is something there obviously. It became quite evident during Senate committee hearings that the sorts of checks and balances that are implied in this principle are really insufficient to block investment by institutions that operate in partnership with some of the world’s worst human rights abusers.
Senators by now would be familiar with the fact that I have an interest in the case of Burma. I recently visited the Thai-Burma border and was left, in no uncertain terms, with a sense of how the exiled community and campaigners working on the border view trade with the Burma regime—that in any instance it is a lifeline to the vicious and unlawful regime that needs to be cut off. We need to use all opportunities possible to strangle the financial resources that are propping up that brutal dictatorship. That is just one example that I would like to draw the chamber’s attention to. I have done a little bit of investigation. I put those questions at an estimates hearing, at which I believe Senator Sherry was present, to help us get some answers from the officers at the table, or to at least get an idea that the answers were certainly not going to be forthcoming, because it is simply not something that they are asked to consider.
At the time that the dissenting report was published, there was consideration of the $505 million deal that would deliver the state owned China Nonferrous Metals Mining (Group) Co. Ltd a 51 per cent stake in the Australian company Lynas Corporation, which owns the Mount Weld rare-earth mine near Laverton in WA. This brings together the two concerns that I was raising. It is thought to contain one of the world’s largest supplies of high-grade rare earth. This is the same entity that also operates the largest nickel mine in Burma. They could not do that without active partnership with the Burmese military regime. That entity is seeking further acquisitions in Burma. Obviously they have no problems at all in collaborating with that regime, as the Chinese government does in a number of ways. This particular entity is seeking to take a controlling stake in a rare-earth project in Western Australia. This is an outfit that also has mining operations in countries including North Korea, Iran, Zambia, Mongolia and Thailand, in joint partnership with the authorities of those nations. So it is not that it is only investing in Burma, but that is obviously a very major interest that it has.
I put the question to the General Manager of the Foreign Investment and Trade Policy Division, Mr Patrick Colmer, during an estimates committee hearing. His answer was really interesting. He said:
The position, as I understand it from the basis of the information that we have, is that the Chinese company is operating in Burma. That in itself does not tell us anything except that it is operating in Burma. The fact that a company may be operating in Burma-I believe we have an embassy in Burma.
At that point he was becoming a little bit flustered, I think. He said:
It does not seem, of itself, to be a relevant consideration. If there is information about its operations in Burma or anywhere else that are relevant to the way that it operates in Australia, then that would be something that we may be interested in.
But, effectively, regarding its offshore operations, we do not care. We would not even ask the question. If you put the question to the officers at the table they could legitimately say: ‘I have no idea what these people get up to. We’re only interested in their acquisition of assets in Australia.’ But the fact that these people are effectively collaborating with a regime of violent and organised criminals is of no effective interest to the Foreign Investment Review Board, even though it has the principle that it adheres to the law and observes common standards of business behaviour. That is a rather warped understanding, in my view, of what common standards of business behaviour should include.
In his submission to the committee—he is going to get two mentions in the same debate—the businessman and human rights activist Ian Melrose, who was referred to by Senator Xenophon just now, refers to China’s human rights record. He said:
This is not a Government we should allow to own Australian strategic mining resources which will be for the benefit, not ours.
That is partly for the reasons that I outlined at the outset—that they take a much more strategic view of control of their resources than Australia does, in my view. He also argues—and I think this argument is absolutely spot-on:
... politicians and businessmen who say you should not mix human rights with trade are cowards and opportunists.
I realise this is not something that we will solve in this debate in the Senate, because this is a long-running issue, but we need to take a very good look at some of the people we are partnering with in this country. The fact is that there is $50 million worth of trade between Burma and Australia every year, which makes up an important fraction of the revenue stream of that regime. All of this is slipping under the radar.
I believe that we have just missed a quite important opportunity to put some of those filters in place. Whether that is FIRB or whether the government believes that those filters or safety nets should occur somewhere else or in some other institution is fine—we would be interested in that—but as it stands we are effectively blind to the operation of some of these entities and their behaviour overseas. I believe that does all of us a disservice in the Australian business community, where we expect high standards of ethics and corporate practice, and it certainly does a disservice to the people struggling under these regimes who have spent, as in the case of the Burmese people, decades trying to get out from underneath what is effectively a hostile occupation by a brutal dictatorship. I believe that anything at all that we can do in a trade and investment sense to help their cause is worth trying.
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.
The coalition will not be supporting the second reading amendment that has been moved in relation to the Foreign Acquisitions and Takeovers Amendment Bill 2009. To be quite honest, there are issues with it which I am personally favourably inclined towards, but in this new wonderful world being in shadow cabinet means that my decision is not the decision that matters. There is a wider aspect to this. There are other areas which have been brought to light, especially in regard to the free trade agreements that have to be considered. So, although there are sections of it which I am fundamentally sympathetic to and I acknowledge the work done by Senators Xenophon and Ludlam in putting it together, I will be completely truthful with you and say that, on the wider aspect of the decision by the coalition, this amendment will not be supported.
That the amendment (Senator Xenophon’s and Senator Ludlam’s) be agreed to.
Original question agreed to.
Bill read a second time.