Our processes for approving investment from abroad are puzzling and inconsistent with the way we govern the rest of our economy. We have well-developed laws and efficient institutions to review commercial practice, directors’ responsibilities, and transfer pricing and to ensure thatall Australians share in the economic benefits of growth.
Why then do we have the Treasurer standing at the door to our investment market making decisions on individual commercial relationships and on who may, or may not, have a seat on an Australian company’s board?
Should China’s largest resources and investment companies have to line up for lunch with the Prime Minister to ask whether they will be allowed to invest in Australia (“PM gives business heads-up off-course”, AFR 11 August)?
Here’s an analogy. Could you imagine our biggest customers asking the Prime Minister whether he will allow them to import from Australia?
Never. But investment and trade are faces of the one coin; complements, counterparts. Direct investment is the strongest tie to our customers and suppliers around the world. Even more than trade, investment makes a market bond.
Would it not be better to base our investment policies, like our trade policies, on long-term relationships and evolving commercial realities, rather than on arbitrary, one-off hurdles for firms at entry?
Wayne Swan recently gave us six ‘principles’—comprising five economic criteria and a nod to unexplained ‘national security’ concerns—to supplement the ‘national interest test’ that he wields under the Foreign Takeovers Act.
It’s difficult to know whether to applaud his effort at transparency or to question the absence of prior consultation on whether any of the items on his list deserves to be there.
The economic criteria, however, are far too broad and uncertain in application to be entrusted to a confidential tribunal like the FIRB. Those that are relevant to the conduct of a business in Australia—including competitive behavior— can appropriately and effectively be applied by existing authorities whose decisions are reviewed by the Courts.
Others such as ‘independence from foreign government’ and ‘adherence to business standards’ are little more than insinuations. Business standards and norms differ by country, and they are shaped constantly by society’s changing expectations; they do not lend themselves to one off assessments before the fact.
Regrettably, too, Mr Swan acknowledges there’s a seventh criterion that may trump them all, where China is concerned. He admits to a “predisposition to more carefully consider proposals by consumers to control existing producing firms.”
Why this extra caution on investment for vertical integration? Vertical integration is the conveyor belt. There seem to be no similar concerns when Japanese conglomerates (presumptively ‘independent of a foreign government’) invest in minerals or energy properties. You’ll find no evidence of any concern if you look at the ownership of coal mines in Queensland or NSW.
Why is Chinalco’s interest in Rio, or Sinosteel’s in Murchison, or Antam’s in Herald Resources or China Metallurgical in Cape Lambert Iron Ore any different?
It makes little sense, either, to distinguish between ‘greenfields’ and existing projects when considering investments by our export customers. The economic value of their direct investment is the same. If the project risks differ, the market will reflect that difference in the price.
This is not to say we should put no conditions on investment from abroad. But no one should have to appeal to a political leader to do business in Australia.
Instead, we should rely on existing, reviewable regulatory authorities to safeguard competition and business standards and on the market to set the price without guidance from obscure government strategists.
Shareholders and other asset owners are today’s losers from uncertainty in our rules for China’s investments. Consumers, taxpayers and the next generations of Australians will be losers, too. Arbitrary decisions on direct investment will have major implications for Australia’s future trade profile. China has other options; we have fixed assets.