Foreign investment decisions need to be brought out of the shadows, writes Rebecca Mendelsohn.
In recent years, Australia’s foreign investment regime has come under fire on a number of different fronts. Chinese companies like Chinalco have perceived the regime as discriminatory. Others—like Barnaby Joyce MP, now Minister for Agriculture—have historically criticised the regulation of foreign investment as insufficiently rigorous.
The longstanding problems inherent in Australia’s foreign investment regime are revealed not by superficial criticisms, but by an analysis of actual foreign investment decisions. A case in point is the Australian Government’s November 2013 rejection of the proposed 100 per cent takeover of Australian grain storage and distribution company, GrainCorp, by US firm Archer Daniels Midland (ADM). The government cited two main concerns that led to its rejection of the proposal on the grounds that it was contrary to the Australian national interest.
First, it was implied that allowing the foreign company to acquire a near monopoly on grain storage and distribution sites in eastern Australia might reduce competition, thereby enabling ADM to hold Australian grain farmers to ransom. Second, it was noted that ADM’s bid was unpopular with interested parties and the Australian community at large.
The published decision to block ADM’s acquisition of GrainCorp lacked substance, particularly on the central competition question: the public was not offered a reasoned assessment of the proposal’s potentially anti-competitive effects.
Perhaps because the decision seemed unpersuasive, the Australian media widely speculated that the rejection was more about appeasing the Liberal Party’s junior partner, the National Party, than a genuine concern about the threat which the acquisition posed to fair competition.
Doubts over the motives for the decision can be traced to two related features of Australia’s foreign investment regime: the Treasurer’s sweeping discretion when reviewing foreign investment, and the opaque review process that leaves that discretion largely unsupervised.
While the Foreign Acquisitions and Takeovers Act 1975 (Cth) allows the Treasurer to block large-scale foreign investment in Australia if he or she believes that it is contrary to the ‘national interest’, the Act does not define that term.
The legislative gap is to some extent filled by the government’s Foreign Investment Policy, which sets out numerous factors that are relevant to determining whether a proposal contravenes the national interest.
The policy guidance does not, however, constitute a consistent and legally binding national interest test. For one, the policy is readily amenable to unilateral change by the government of the day. Moreover, it is clear that the policy is not intended to be an exhaustive list of factors that the Treasurer may take into account when making foreign investment decisions.
The broad ministerial discretion to determine the national interest creates a risk that considerations irrelevant to the merits of a particular foreign investment application may be taken into account in the Treasurer’s decision making.
The Treasurer’s sweeping discretion is magnified by the opacity of Australia’s foreign investment regime. There is no requirement for the Treasurer to keep the Australian public appraised regarding the details of foreign investment proposals. Nor is there a requirement that reasons be published for foreign investment decisions—indeed, only a tiny fraction of the decisions are made public.
Furthermore, foreign investment decisions are not subject to administrative review or parliamentary oversight. In practice, this means that much of the publicly available information on foreign investment proposals comes from company announcements to the Australian Stock Exchange and media reports. It also means that those who are adversely affected by a decision—including foreign investors and third parties—have little available recourse.
Criticisms of the foreign investment regime could be addressed by legislative amendments that codify the national interest, thereby reducing the Treasurer’s discretion. But this may not be the best approach for a number of reasons, including that creating a fixed definition of the national interest could omit considerations that later become important.
The preferable approach may be to kick start an ongoing and reasoned public debate in Australia about what the national interest really means.
We should insist that our politicians openly and persuasively make the case for what they think is in the national interest. We therefore need to embark on a process of demystifying Australia’s foreign investment regime and the Treasurer’s largely unfettered discretion.
The foreign investment regime should be brought out of the shadows and opened up, through measures like a requirement to provide reasons for decisions and some capacity for parliamentary oversight and administrative review.
Government officials and policy analysts have at times expressed reservations about such an approach. They argue that foreign investment is largely good for Australia, and that greater public scrutiny of the regulatory regime may produce calls for increased vigilance to the detriment of the Australian economy.
Although this argument may have some merit, it runs contrary to the democratic principles that are at the core of Australian society. The national interest is ultimately a matter for the Australian people to determine. It is served by greater openness that requires the government of the day to advocate convincingly for its own position on the national interest in the marketplace of ideas.
Now that’s something worth investing in.
This piece was first published in Asia and the Pacific Policy Society’s magazine, Advance in July 2014: https://crawford.anu.edu.au/research/advance-magazine