Today I release a set of principles to enhance the transparency of Australia's foreign investment screening regime.
The principles set out the main factors that are considered in determining, on a case‑by‑case basis, whether particular investments by foreign governments and their agencies are consistent with Australia's national interest.
Assessing the national interest in any given case requires a balanced view of the proposal against these principles.
The principles set out the additional factors that need to be considered in relation to investment proposals by foreign governments and their agencies over and above those that apply to normal private sector proposals.
The Australian Government welcomes foreign investment because it can make an important contribution to national prosperity and the development of our industries and resources.
The purpose of Australia's foreign investment screening regime is to ensure that such investment is consistent with our national interest.
BRISBANE
17 February 2008
Principles Guiding Consideration of
Foreign Government Related Investment in Australia
Australia maintains a welcoming stance towards foreign investment in recognition of the substantial benefits that it provides to our community.
The purpose of Australia's foreign investment screening regime is to ensure that foreign investment into Australia is consistent with our national interest. The Treasurer can reject proposals that are deemed contrary to the national interest or impose conditions on them to address national interest concerns.
Significant foreign investment proposals must be notified to the Australian Government and examined by the Foreign Investment Review Board (FIRB). This includes all proposed investments by foreign governments and their agencies. This requirement is a longstanding feature of Australia's foreign investment policy that has been maintained in place by successive governments.
While the FIRB plays an important advisory role, determining whether a proposal is consistent with the national interest is ultimately a matter for the Treasurer.
To ensure they are consistent with Australia's national interest, the FIRB examines whether proposed foreign investments may have any adverse implications for Australia's national security or economic development and ensures they are consistent with any specific foreign investment legislation in areas such as transport and telecommunications. It also examines whether proposals have implications for other Government policies, competition and the operations of Australian businesses.
If the Treasurer forms a view that a foreign investment would be inconsistent with Australia's national interest, it may be blocked or made subject to conditions to address any problems that have been identified.
Guidelines for foreign government investment proposals
Proposed investments by foreign governments and their agencies (e.g. state‑owned enterprises and sovereign wealth funds (SWF)) are assessed on the same basis as private sector proposals. National interest implications are determined on a case‑by‑case basis.
However, the fact that these investors are owned or controlled by a foreign government raises additional factors that must also be examined.
This reflects the fact that investors with links to foreign governments may not operate solely in accordance with normal commercial considerations and may instead pursue broader political or strategic objectives that could be contrary to Australia's national interest.
The Government is obliged under the Foreign Acquisitions and Takeovers Act 1975 to determine whether proposed foreign acquisitions are consistent with Australia's national interest. In examining proposed investments by foreign governments and their agencies, the Australian Government will typically have regard to the following six issues.
- An investor's operations are independent from the relevant foreign government.
In considering issues relating to independence, the Government will focus on the extent to which the prospective foreign investor operates at arm's length from the relevant government.
It also considers whether the prospective investor's governance arrangements could facilitate actual or potential control by a foreign government (including through the investor's funding arrangements).
Where the investor has been partly privatised, the Government would consider the size and composition of any non‑government interests, including any restrictions on governance rights. - An investor is subject to and adheres to the law and observes common standards of business behaviour.
To this end, the Government considers the extent to which the investor has clear commercial objectives and has been subject to adequate and transparent regulation and supervision in other jurisdictions.
The Government will examine the corporate governance practices of foreign government investors. In the case of an SWF, the Government would also consider the fund's investment policy and how it proposes to exercise voting power in relation to Australian companies.
Proposals by foreign government owned or controlled investors that operate on a transparent and commercial basis are less likely to raise additional national interest concerns than proposals from those that do not. - An investment may hinder competition or lead to undue concentration or control in the industry or sectors concerned.
These issues are also examined by the Australian Competition and Consumer Commission in accordance with Australia's competition policy regime. - An investment may impact on Australian Government revenue or other policies.
For example, investments by foreign government entities must be taxed on the same basis as operations by other commercial entities. They must also be consistent with the Government's objectives in relation to matters such as the environment. - An investment may impact on Australia's national security.
The Government would consider the extent to which investments might affect Australia's ability to protect its strategic and security interests. - 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.
The Government would consider any plans by an acquiring entity to restructure an Australian business following its acquisition. Key interests would include impacts on imports, exports, local processing of materials, research and development and industrial relations.
The Government would also consider the extent of Australian participation in ownership, control and management of an enterprise that would remain after a foreign investment, including the interests of employees, creditors and other stakeholders.