Economics, Commerce and Industrial Relations Group
- Australian Industry Development Corporation
- Australian Competition and Consumer Commission
- Current Account Deficit
- Foreign Investment Review Board
- Inward Direct Foreign Investment
- Mass Circulation Newspapers
- Total Foreign Liabilities
- Trade Practices Commission
Growth in the overall level of inward direct foreign investment
(IDFI) and the sale of well-known Australia companies to foreign
interests have again become prominent economic and political
issues. The liberalisation of policy controls on IDFI has
contributed substantially to these trends. Some sections of the
community seek a return to an earlier time of strict controls while
other sections seek further liberalisation so that foreign-owned
firms are treated in the same fashion as Australian-owned firms in
their access to investment projects and assets in Australia.
Outward direct foreign investment from Australia has increased
even more rapidly than IDFI in the last decade but still remains
significantly below the level of inward direct foreign investment.
Currently, the level of IDFI is about 2.5 times the level of
outward Australian direct foreign investment.
Controls on IDFI began to be constructed in the early 1970s and
were reinforced and extended by the Whitlam and Fraser Governments.
From the mid 1980s onwards the Hawke and Keating Governments have
progressively liberalised these controls. Earlier concerns about
the deleterious effects of IDFI on the economic dynamism, national
power and cultural sovereignty of host countries such as Australia
gave way, in the eyes of Australian policymakers, to the need to
encourage IDFI in order to upgrade our technological base and
managerial skills, to increase competitive pressures on
Australian-owned firms, to reduce reliance upon foreign debt
accumulation to finance the current account deficit and to ease the
way for outward Australian direct foreign investment.
However, the public debate on IDFI continues. Those wanting more
restrictions on IDFI often seek to impose more extensive sets of
conditions on IDFI projects so that Australia can get a greater
share of the profits generated. Such conditions might be specified
in terms of export, employment and/or research and development
targets which must be met by the foreign investor. The role of the
Foreign Investment Review Board (FIRB) in monitoring such
conditions would be expanded. They also seek to quarantine larger
numbers of sensitive sectors/industries from foreign ownership and
control through legislated guarantees which exclude or limit
Those seeking more liberalisation want to place foreign and
domestic direct investors on an equal footing so that investment
patterns are not distorted by policy interventions. They seek the
abolition of the review process for IDFI applications organised
through the FIRB. Undesirable IDFI proposals would still be
rejected on grounds such as reductions in competition or
environmental despoliation but such decisionmaking will be done by
specialist regulatory bodies which do not take into account the
particular nationality of the investors making the proposal.
Similar proposals made by Australian investors would also be
Foreign ownership and control has been a perennial issue of
controversy in Australia, as most recently evidenced in the 1996
Federal election campaign. Foreign investment is often perceived as
bringing with it substantial costs and benefits, with different
sections of the community making diverging judgements about the
relative balance of these costs and benefits. Some emphasise the
costs and are led to support for substantial controls on foreign
investment, while others emphasise the benefits and are led to
support free flows of capital into and out of Australia, very
largely unhindered by policy controls.
This paper provides a broad overview of this important economic
and political issue. It begins with some discussion of definitions,
concepts and explanations of direct foreign investment flows and
then proceeds to a description of recent trends and outcomes for
foreign investment. It goes on to present an historical survey of
the evolution of policy controls on foreign investment, looking at
in turn the years before 1975, the Fraser Government period and the
The debate on foreign investment and the explanation of recent
policy trends are also addressed and the paper concludes with a
discussion of feasible policy reform options for both those uneasy
about foreign investment and those generally supportive of it.
It is important to place the discussion of IDFI within the
broader context of Australia's international transactions. This
enhances understanding of the role of IDFI in our international
Australia's international transactions are usually divided into
two classes: the Current Account and the Capital
Account. Current Account transactions are those which
impact directly upon current national income. For example, export
sales of goods and services add directly to national income and
import spending on goods and services directly subtracts from
national income; interest payments on foreign debt, dividend
remittances overseas on foreign-owned businesses and income
transfers from Australians to those overseas (e.g. gifts to family
members overseas, official foreign development assistance) also
reduce national income, while the relevant reverse transactions
increase our national income.
A Current Account Deficit (CAD) occurs when
total spending in these transactions exceeds total revenue from
these transactions. This deficit can only be financed by selling
Australian-owned assets or borrowing from overseas; Australia has
resorted to both types of financing for its CAD in recent
A CAD necessarily means a Capital Account
Surplus (i.e. a net capital inflow) since the Capital
Account merely shows the foreign sale of Australia assets and/or
the increase in foreign debt generated by the need to finance the
CAD. That is, these two accounts are the mirror image of each
other. However, when lay-people commonly speak of 'foreign
investment in Australia' they usually mean Inward Direct
Foreign Investment (IDFI) in the ownership and control of
businesses, and other forms of foreign asset ownership
rather than levels of foreign debt.
According to the Australian Bureau of Statistics (ABS), if 10%
or more of the ordinary shares or voting stock (or an equivalent
equity interest) of an enterprise operating in Australia is held by
a foreign investor then this gives that investor significant
influence, potential or actual, over the policies of the enterprise
and is thus an instance of IDFI. On the other hand, the Federal
Government's regulations on direct foreign investment use 15% of
shareholdings as their threshold for identifying instances of
The concept of Total Foreign Liabilities (TFL)
encompasses foreign debt, IDFI and all other forms of foreign
ownership such as in non-controlling shares and physical assets
such as personally-owned land. TFL and its debt and non-debt
components can be measured in gross or net terms; the latter
subtracts the Australian ownership of overseas assets and
Australian lending abroad while the former does not.
For the past two centuries Australia has usually had CADs rather
than surpluses on the current account. That is, Australia has
perennially been an importer of foreign capital since the start of
white settlement in 1788. This reflects the fundamental fact that
Australia's savings rate, although often quite high by
international standards, has not been sufficient to finance the
large volumes of investment needed to generate economic
In this case, national spending is greater than national output
and foreign savings are drawn upon to finance this gap between
investment and savings. This means that Australia's foreign
liabilities (both foreign debt and IDFI, in both gross and net
terms) have been increasing for the last two centuries (1). As
well, Australia's CAD has increased substantially in magnitude in
the last decade. This larger CAD has generated a more rapid rate of
increase in Australia's foreign liabilities.
However, the time path of the CAD, and the reliance on foreign
funding which it implies, may be very far from a full explanation
of the rise of IDFI levels in Australia and in other countries.
This argument is essentially a 'macroeconomic' explanation for the
evolution of IDFI levels. In addition to the obvious role of the
stance of policy controls on IDFI, there are important
'microeconomic' explanations for the evolution of IDFI which focus
upon the features and characteristics of investing firms and the
nature of the industries in which they operate.
These microeconomic forces can revolve around
the resort to foreign investment as a means of exploiting, on a
transnational scale, some internal commercial/operational advantage
which successful firms have developed. Such advantages may involve
superior technology, or better managerial/organisational/financial
skills. Here, the goal may be to succeed in the domestic market of
the host country for IDFI just as the firm has succeeded in its
home market. Their home market may have reached a phase of lower
growth and overseas expansion may be necessary in order to allow
the firm to keep growing strongly.
As well, direct foreign investment patterns will be strongly
influenced by other microeconomic forces such as the relative
production cost levels of countries in particular industries
(which, in more technical parlance, will be determined by their
'comparative advantage' in those sectors). Countries of low-cost
production will be sought out by participants, both actual and
potential, in those industries, with the aim of using such
production facilities to better compete on an international scale.
Flows of mineral-related direct foreign investment to countries
with abundant and cheap mineral supplies, and flows of direct
foreign investment related to light manufactures to countries with
abundant sources of cheap and reliable labour are primes examples
These arguments lead to the important policy conclusion that
just eliminating or reducing the CAD may not produce much reduction
in, or slowdown in the growth of, IDFI levels. That is, IDFI may be
very largely determined by other factors. If reduced foreign
ownership and control really is a policy priority then other
measures (such as stronger direct restrictions on IDFI) will be
called for (3).
In Chart 1 can be seen the recent evolution of foreign direct
investment into, and out of Australia since 1985-86. Both are
expressed as a percentage of Gross Domestic Product (GDP) in order
to show their size and change relative to the overall size of the
Australian economy and to abstract from the effects of inflation.
Unfortunately, longer time series representations are not possible
since the ABS definition of direct foreign investment changed in
the mid 1980s and thus, data before and after 1985-86 are not
Chart 1. Levels of Direct Foreign Investment as % of GDP
Source: ABS 5305.0 and 5204.0, various issues.
Both inward and outward direct foreign investment increased
quite rapidly in relation to GDP in the second half of the 1980s
but have shown much slower rates of increase in the 1990s. Outward
direct foreign investment grew more rapidly than IDFI, on average,
in the second half of the 1980s so that the ratio of inward to
outward foreign investment fell. This can be seen in Chart 2. The
level of IDFI is now about 2.5 times the level of outward direct
As with the controls on IDFI discussed in the following
sections, controls on outward direct investment from Australia were
once reasonably strict. Before December 1983 proposals for outward
investment required Reserve Bank approval to gain access to foreign
exchange. Proposals were generally approved where there was
significant Australian managerial participation, or where the
promotion of exports or protection of existing investments were
involved. Other proposals were considered on their merits (4).
These controls were abolished with the floating of the exchange
rate in 1983.
Chart 2. Ratio of direct foreign investment in Australia to
Australian direct foreign investment abroad
Source: ABS 5305.0, various issues.
Australia traditionally had an 'open door' policy on foreign
capital inflow because of its perceived importance in supplementing
domestic savings to finance economic development. This began to
change in the aftermath to the Great Depression of the 1930s as
foreign exchange controls were put in place on all capital flows
into, and out of, Australia. In the first couple of decades after
World War Two, IDFI continued to be officially encouraged but new
foreign investment was excluded from certain sensitive industry
sectors such as banking, the mass media and civil aviation (5). For
example, from 1956 the Broadcasting Act contained
provisions which limited foreign ownership of the share capital of
television licence holders to 20% in aggregate (6).
Resistance to IDFI began to grow in Australia in the 1960s and
this was partially reflected in the conclusions of the Report of
the Committee of Economic Inquiry (the Vernon Report) in 1965. It
recommended, amongst other things, that all foreign takeover bids
for Australian companies should require specific government
approval and that foreign exchange control approval for IDFI be
made subject to some satisfactory undertaking from the company
concerned that it would not rely unreasonably on funds borrowed in
Australia. The Coalition Government immediately adopted this last
recommendation (but neglected the first) and, as a means of
encouraging the further inflow of foreign equity capital and thus
protecting the balance of payments, imposed guidelines (at first
voluntary but subsequently made mandatory) designed to discourage
foreign companies borrowing in Australia (7). Thus, this was not
really the beginning of controls on IDFI that it is sometimes made
out to be.
Serious efforts to control IDFI began under the Gorton
Government. In 1969 the guidelines of 1965 were strengthened so
that the proportion of their funding requirements which
subsidiaries of foreign companies were to be allowed to meet
through borrowing in Australia would vary directly with the
Australian share in their equity capital. For the first time a Code
on Foreign Takeovers was instituted and the Government formally
claimed the right to restrict foreign participation in firms deemed
to be of national importance. This right was implemented in the
case of uranium mining where foreign ownership was limited to 15
per cent of the two companies concerned with this activity. In 1970
the Gorton Government also established the Australian Industry
Development Corporation (AIDC) which was designed to borrow funds
from overseas in order to invest in Australian development
projects, thus increasing Australian ownership and furthering the
goal of, to use an evocative phrase associated with then Deputy
Prime Minister John McEwen, 'buying back the farm' (8).
The McMahon Government continued on with this policy direction
despite initial expectations that it would avoid further action; it
took up the, until then neglected, recommendation of the Vernon
Report and established the first administrative machinery for
vetting foreign takeover bids through the Companies (Foreign
Takeovers) Act 1972 (9). The controls on domestic borrowing by
foreign companies in Australia were abolished because they were
thought to encourage foreign capital inflows which were, at the
time, regarded as too large.
The Whitlam Government made even more vigorous efforts to
control and restrain foreign ownership and control. The legislative
basis and advisory machinery for vetting foreign takeovers was
progressively strengthened and this culminated in the Foreign
Takeovers Act 1975. The AIDC was expanded (through the
provision of more funds) and the four energy industries of oil,
natural gas, coal and uranium were closed to new foreign equity
investment. Foreign investment in the financial sector was
discouraged while it was severely restricted in the case of real
However, it should also be noted that by 1975 the ALP Government
had softened its hostility to IDFI somewhat in the face of economic
recession and, in this period before the advent of a floating
exchange rate, problems with the balance of payments which were
partly caused by a rapid fall in foreign capital inflow (10). By
the end of its term in power its policy on controlling IDFI could
be described as moderately and selectively restrictive.
The Fraser Government generally carried on the broad stance of
policy on IDFI which had been established by the end of the Whitlam
years. The administrative and advisory machinery for examining IDFI
was rationalised and streamlined through the creation of the
Foreign Investment Review Board (FIRB) in 1976. FIRB, to have a
three-person membership including a senior Treasury official and to
be serviced through the Treasury's Foreign Investment Division, was
to advise the Government on all 'examinable' IDFI proposals, as
defined by the Treasurer's statement to the House of
Representatives of 1 April 1976 (11). Essentially, all proposals by
foreign interests to:
- acquire, or subsequently sell to other foreign interests (an
offshore sale), an individual holding of 15 per cent or more, or an
aggregate holding of 40% or more, in an existing Australian
- establish new non-bank financial institutions and insurance
- establish new businesses or mining projects where the foreign
investment involved $1 million or more, and
- acquire certain types of real estate
were to be examined through the FIRB process.
Because of the sensitive and private commercial considerations
which FIRB would often focus upon in its analysis it was envisaged
that FIRB advice would, in general, be confidential to the
Government and not publicly released and that only in cases of
clear and significant public interest, and only where approval had
been given by the interests concerned, would the Government
publicly announce its decisions (and supporting reasons) on IDFI
Examinable proposals for IDFI were only to be approved if they
generated, either directly or indirectly, net economic
benefits to Australia in terms of criteria (which were not
all to be applicable in each case) such as competition, efficiency,
technological change, managerial and workforce skills, exports, use
of Australian inputs, research and development, royalty/licensing
and patent arrangements, impact on industrial relations and
employment opportunities, taxation outcomes, levels of Australian
involvement in management and policymaking boards, and conformity
with policies on Aborigines, decentralisation and environmental
protection. IDFI proposals in industries with already high levels
of foreign ownership would need to demonstrate commensurately
higher net economic benefits than other proposals.
The Government continued the existing restrictions on new
foreign investment in banking, radio, television, daily newspapers
and civil aviation. It also required at least 75 per cent
Australian equity and Australian control in new uranium mining
projects and, as a general rule that was to be administered with
some flexibility, at least 50 per cent Australian equity and 50 per
cent Australian representation on the board for new undertakings in
the production and development of oil, natural gas and other
minerals, as well as in agricultural, pastoral, forestry and
fishing projects. Controls on the foreign acquisition of real
estate continued to be quite restrictive in practice because it was
not perceived to generate any net economic benefit in most
During the first couple of years of operation of the FIRB
advisory process the Government's policy stance on examinable IDFI
proposals was moderately restrictive. Only sixteen proposals, 0.6
per cent of the total, were rejected out of 2 716 examined in the
period from 8 April 1976 to 30 June 1978, while 761 proposals, 28
per cent of the total, were approved subject to certain conditions
such as Australian equity involvement, development requirements or
eventual resale to Australian interests (12). These numbers take no
account of the cases of IDFI plans not submitted for examination by
their initiators because they were expected to be rejected by the
On 8 June 1978 the Treasurer announced to the House of
Representatives the first liberalisation of the Fraser Government's
controls on IDFI (13). In response to the large number of IDFI
proposals involving small businesses and small assets, the
Government decided that:
- Government approval of foreign investment in new projects and
businesses, except in the case of uranium mining or the financial
sector, would not be necessary unless it involved an investment of
$5 million or more
- the Government would not normally intervene in foreign
takeovers, except in specially restricted sectors, if the assets of
the company being taken over were less than $2 million, and
- individual real estate acquisitions of less than $250 000 would
no longer require Government approval.
The Government also announced a partial relaxation of its 50 per
cent rule for new projects in mining and primary production.
Companies (except in the case of uranium mining) which had at least
25 per cent Australian equity, a majority of Australian citizens on
its board, and had publicly announced a Government-approved
commitment to achieve 51 per cent Australian ownership, would be
deemed 'naturalised' companies and would be able to proceed with
new projects in their own right or in partnership with Australian
On 10 June 1979 the Treasurer announced a relaxation of
restrictions on foreign investment in new uranium mining projects
(14). Because of its desire to see the Yeelirrie uranium mining
project go ahead, the Government amended its guidelines so that
uranium mining projects which would generate significant net
economic benefits to Australia could proceed if Australian equity
was at least 50 per cent, but less than 75 per cent, and where
Australian interests would have a major role in determining policy
on the project, provided it could be satisfactorily demonstrated
that 75 per cent Australian equity was unavailable. In such cases
the Government stated that, in similarity to its naturalisation
policy on other mining and primary production projects, it might
require plans from the project operators to increase Australian
ownership and participation over time.
Policy guidelines on IDFI remained unchanged for the next couple
of years. Then, as part of the Review of Commonwealth Functions
conducted after the 1980 election, the Treasurer announced on 30
April 1981 that the IDFI review process would be streamlined
through exemption from examination of proposals for the takeover of
shell and shelf companies, and for certain corporate
reorganisations, while the minimum threshold for examination of
real estate acquisitions by foreigners would be raised to $350 000
(15). On 20 January 1982 the Treasurer announced the results of the
Fraser Government's first full review of its foreign investment
policy (16). Existing policy guidelines were reaffirmed but
controls on foreign acquisition of real estate were strengthened in
the face of the large volume of foreign capital inflow into that
sector then taking place.
As part of its policy response to the Final Report of the
Committee of Inquiry into the Australian Financial System, the
Treasurer announced on 13 January 1983 that the Fraser Government
had decided to allow the entry into Australia of about ten new
banks with foreign shareholdings, while no limit would be placed on
the number of new bank entrants with solely Australian ownership
(17). The foreign banks were to be required to operate through
subsidiaries incorporated in Australia rather than as branches,
would be subject to all the usual prudential and financial
standards imposed upon domestic banks, and would be required to
provide a wide range of bank services and a reasonable branch
network. Foreign banks (and foreign non-bank financial
intermediaries in other financial markets) would be allowed entry
with less than 50 per cent Australian equity if it could be
demonstrated that net economic benefits would flow to Australia
from such access.
In the period from 1 July 1978 to 30 June 1983 Government policy
on examinable IDFI proposals continued to be moderately
restrictive. Only 173 proposals, 2.8 per cent of the total, were
rejected out of 6 156 examined, while 1 750 proposals, 28 per cent
of the total, were approved subject to conditions (18). Again, IDFI
plans not proceeded with because of expected Government rejection
or those not requiring Government approval are not included.
The Hawke Government continued to implement the IDFI policy
guidelines of the Fraser Government while it conducted a review of
policy on foreign investment controls. An increase in the rejection
rate for IDFI proposals in the first few months of the new
Government indicated, despite the arguments of FIRB to the
contrary, some initial strengthening of resolve to control foreign
On 20 December 1983 the Treasurer announced that the Government
would continue the broad thrust of existing foreign investment
policy but some necessary policy changes were to be put in place
(20). Greater stress was to be put on expanding opportunities for
Australian participation in projects and businesses, with the AIDC
playing a greater role in those cases where private Australian
equity seemed unavailable; commercial interests for sale would have
to be made available for purchase by Australians. Companies
proposing to 'naturalise' under existing guidelines were to be tied
to agreed timetables for completion of the process, and controls on
foreign acquisition of urban real estate were again tightened.
Membership of the Board of FIRB increased from three to five
persons (but from 1985 it was reduced to four).
On 10 September 1984 the Treasurer announced that foreign and
domestic interests would be invited to apply for a number of new
banking licences to be issued for Australia (21). It was decided to
implement the Fraser Government's policy of allowing the entry of
foreign banks with less than 50 per cent Australian equity if
significant net economic benefits to Australia could be generated
by such access. New banks would be required to be subsidiaries
incorporated locally, and to provide a wide range of services and a
substantial geographical spread of activities. Controls on IDFI in
merchant banking were also temporarily relaxed. In October
proposals for five new foreign-controlled or joint-venture merchant
banks were approved. In December 1984 controls on IDFI in
stockbroking were liberalised. On 27 February 1985 the Treasurer
announced that sixteen proposed foreign-controlled or joint-venture
banks had been invited to establish operations in Australia,
subject to further discussions and more specific development of
their plans (22).
On 29 October 1985 the Acting Treasurer announced a package of
measures to liberalise controls on IDFI (23). These entailed:
- the abolition of the need for demonstrating the availability of
commercial interests to Australians for sale
- the increase in the threshold for the normal approval of
takeovers (except in sensitive sectors) from $2 million to $5
- the increase in the threshold for Government approval of new
foreign businesses and projects from $5 million to $10 million
- the increase in the threshold for Government approval of
foreign acquisition of real estate from $250 000 to $600 000
- the easing of controls on the foreign acquisition of land for
development and the transfer of Australian interests between
foreign owners (in April 1986 the foreign acquisition of rural land
was also made easier), while
- the liberalised policy stance on merchant banks was continued
and extended to other non-bank financial intermediaries.
On 28 July 1986 the Treasurer announced another package of
liberalisation measures (24). The most important of these was the
abolition of the requirements of Australian equity participation
and the demonstration of net economic benefits for IDFI proposals
in manufacturing, tourism, and parts of the non-bank financial
sector; proposals would be automatically approved unless they were
judged to be 'contrary to the national interest'. For these
sectors, the onus was now put on only restricting those types of
IDFI involving substantial net costs, as compared to the previous
policy of putting the onus on only allowing those types of IDFI
with substantial net benefits. However, similar existing controls
in other sectors were to remain in place. Controls on IDFI in urban
and rural properties were also eased.
The trend to liberalisation, which began in 1984, continued with
another set of reforms to IDFI controls announced on 30 April 1987
(25). Up to this time all foreign takeovers required formal
Government approval, although this was normally forthcoming for
those involving businesses with assets of less than $5 million. The
Government announced that The Foreign Takeovers Act would
be amended so that takeovers below this threshold could proceed
automatically without the need for even notifying the Government.
As well, the liberalised controls introduced earlier for the
manufacturing, tourist and some non-bank financial sectors were now
extended to services, primary industries other than mining,
resource processing, insurance and stockbroking, while the freedoms
given to companies under the 'naturalisation' provisions were
On the other hand, in 1987 (after residential housing prices
began to increase rapidly) extra restrictions were put in place on
the foreign acquisition of developed residential real estate. Extra
restrictions were also put in place on 'in-house' foreign borrowing
by companies operating here from foreign interests owning, or
part-owning, those companies. In January 1988 the 50 per cent
Australian equity requirement for new oil and gas projects was
abolished and replaced with the now widely-used 'national interest'
In the four years from July 1983 to June 1987 Government policy
on examinable IDFI proposals remained only very moderately
restrictive. Only 113 proposals, 2.2 per cent of the total, were
rejected out of 5210 decided upon, while 2 437 proposals, 46.8 per
cent of the total, were approved subject to conditions. Again, data
on IDFI plans abandoned because of expected rejection or those not
requiring approval are not included. Most of the substantial
increase in the number of proposals conditionally approved related
to taxation conditions on 'in-house' foreign borrowing noted above;
this did not indicate some general upsurge of Government activism
in shaping the pattern of IDFI in Australia (26).
Policy on IDFI did not change much in the years between 1987 and
early 1992. On 1 August 1989 the Foreign Acquisitions and
Takeovers Act came into force, incorporating many of the
policy changes announce in the previous few years and containing
strengthened information requirements and higher penalties for
violations of its provisions (compared to the previous Foreign
Takeovers Act). In July 1991 the foreign acquisition of
residential real estate within designated integrated tourist
resorts was exempted from the need for Government approval. In 1990
and 1991 amendments to the Broadcasting Act strengthened
the ability of the Federal Government and the courts to monitor and
enforce the longstanding 20% aggregate limit on foreign ownership
in free-to-air television broadcasters. This limit was retained in
the Broadcasting Services Act 1992 (27).
Then, on 26 February 1992 the Prime Minister announced a further
package of substantial liberalisations to IDFI controls (28). These
- issuing additional licences to foreign banks and allowing
foreign banks to operate here in wholesale financial markets as
branches rather than as locally incorporated subsidiaries, where
bank supervision in the home country was sufficiently strong
- increasing the threshold, below which IDFI proposals are not
usually subject to the rigour of full examination, to $50 million
in all non-sensitive sectors (from $10 million in the case of new
projects and businesses, from $5 million in the case of foreign
takeovers, and from $3 million in the case of rural properties)
- abolishing the 50 per cent Australian equity requirement for
new mines (excluding uranium) and the 'net economic benefits' test
for foreign takeovers of existing mines (excluding uranium) in
favour of the 'national interest' test.
Liberalisation of controls continued in the following year. In
April 1993 controls on IDFI in real estate were eased somewhat.
Exemptions for foreign investment in residential real estate were
slightly widened and proposals by foreign interests to acquire
developed commercial real estate were no longer required to have 50
per cent Australian equity. In the same month it was announced that
the limit on foreign involvement in mass circulation newspapers
(MCN) by a single shareholder would be increased from 15 per cent
to 25 per cent of equity, while unrelated foreign interests could
hold non-portfolio shareholdings of up to 5 per cent of equity
(30). This policy on MCN has been reaffirmed on a number of
occasions since then. As well, in September 1995 it was announced
that the limit on foreign ownership in provincial and suburban
newspapers would be increased from 30% to 50% for controlling
(non-portfolio) shareholdings (31).
In contrast, foreign ownership limits were put in place
on the privatisation of many government assets. These
limits have usually been enshrined in legislation. Purchases by
foreign interests in the sale of the first two tranches of shares
in the Commonwealth Bank of Australia in 1991 and 1993 were
formally restricted, but such restrictions have been relaxed for
the sale of the third and final tranche of shares. However, the
provisions of the Banks (Shareholdings) Act (which place a
normal, prima facie limit on individual ownership of bank share
capital of 10% but which can be increased by the Treasurer and the
Governor General) will continue to restrict foreign ownership in
all banks (32). As well, the Qantas Sale Act 1992
restricted total foreign ownership to 35% of the issued share
capital, and individual foreign ownership was restricted to 25%. In
the Qantas Sale Act 1995 the total foreign ownership limit
was increased to 49% of share capital.
This policy direction was again seen in provisions of the
proposed legislation on the sale of airport leases. The
Airports Bill 1995 (which was not passed by Parliament)
restricted total foreign ownership in an airport lease to 49% (33).
Again, the Howard Government has proposed that foreign ownership be
restricted in the sale of one third of Telstra. The Telstra
(Dilution of Public Ownership) Bill 1996 contains provisions
to restrict total foreign ownership to 35% of the share capital
sold, while individual foreign ownership of the share capital sold
would be restricted to 5% (34).
In the eight years from July 1987 to June 1995 Government policy
on examinable IDFI proposals continued to be only moderately
restrictive. Only 587 proposals, 2.0 per cent of the total, were
rejected out of 28 959 examined, while 17 307 proposals, 59.7 per
cent of the total, were approved subject to conditions (35).
The upward trend in conditional approvals since the mid-1980s
indicates that the Government continued to be active and
interventionist in areas such as taxation arrangements and in
sectors such as real estate. However, by 1994-95 taxation issues
were no longer of much interest to FIRB and the vast majority of
conditional approvals (98 per cent of them) related to real estate;
such conditions specified the time period in which development or
redevelopment of the real estate should commence, or required that
temporary residents sell their established properties when they
ceased to reside in Australia (36). Again, data on IDFI plans
abandoned because of expected rejection or those not requiring
approval or notification are not included.
On the other hand, the Government had not completely abandoned
the use of conditions in other sectors. For example, in September
1995 it was announced that the sale of certain well-known food
operations to foreign investors by Pacific Dunlop would be approved
subject to the conditions that:
- the manufacturing operations continue to be based in Australia,
- the new owners actively pursue export opportunities in Asia and
elsewhere, either directly or by utilising the expertise of
affiliated companies already operating in those markets. The
Government promised to monitor the development of such export
We can now summarise the current policy system on IDFI. The
Federal Government examines, and makes decisions, on all IDFI
proposals above certain thresholds in non-sensitive sectors, and,
generally, on all IDFI proposals in sensitive sectors. It takes
these decisions after receiving confidential advice from the FIRB.
Decisions on IDFI proposals, and their supporting reasons, are
rarely made public by the Government. Only in high profile cases
does the Government announce its decision and the supporting case
This level of secrecy, and the occasional announcement of major
policy decisions on IDFI by press statements, seems to be
comparatively quite unusual in public policymaking in Australia.
The Government justifies such secrecy on the grounds that public
announcement of its decisions would, in many cases, unfairly
discriminate between Australian and foreign investors and cause
unnecessary and undesirable market fluctuations in the affected
In non-sensitive sectors the thresholds for full examination are
set at IDFI proposals to establish new businesses with a total
investment of $50 million or more, or to takeover existing
Australian-owned businesses with total assets of $50 million or
more. Much less rigorous examination is made of proposals valued at
under $50 million but more than the thresholds for compulsory
notification. Such thresholds are $20 million for offshore
takeovers, $10 million for the establishment of new businesses, $5
million for the takeover of existing businesses, and $3 million for
purchases of rural properties. IDFI proposals above these
notification thresholds are generally approved unless "contrary to
the national interest". In practice, in recent years only a very
small proportion of such proposals have been rejected or only
approved subject to conditions.
Sensitive sectors in which IDFI proposals are subject to special
scrutiny include real estate, civil aviation, television
broadcasting, mass circulation newspapers and telecommunications.
In many of these sectors restrictions on IDFI have been relaxed in
recent years so that actual levels of foreign ownership and control
have increased. The imposition of conditions on IDFI has occurred
very largely in relation to foreign investments in real estate. It
is not clear whether the remaining restrictions are being
effectively monitored and enforced in some of the above
In all of the sectors under the jurisdiction of the Foreign
Acquisitions and Takeovers Act the Government has the
discretionary power to alter at will its existing policy on
examination and approval of proposals for foreign takeovers (38).
It has the very same broad discretionary power in relation to the
establishment of new businesses which are foreign-controlled. It is
only in rare and special cases, such as in television broadcasting
and in the cases of Qantas and the proposed sales of airport leases
and of Telstra, that the Government's discretion has been, or will
be, restrained by specific limits on foreign ownership and control
contained in relevant specific legislation governing commercial
conduct in these sectors and businesses. Again, it is not clear
whether such limits are being effectively monitored and enforced in
We now turn to consider the ongoing debate about IDFI. Many
arguments have been presented which assert the dangers to countries
hosting IDFI of losing their economic and cultural sovereignty.
Such arguments against IDFI have been both narrowly economic and
more broadly nationalist (geopolitical, social and cultural) in
The economic arguments against IDFI have centred on the view
that IDFI hinders the overall economic dynamism of the
receiving/host country. IDFI may bring highly visible
short-term economic benefits but it often generates longer-term
problems which are usually far less obvious. The principal
arguments are as follows. First, that IDFI disadvantages the host
country by hindering its exports. This can be
because of restrictive export efforts of the foreign-owned
operation which have been dictated by the global strategies of the
transnational investor. Each operating unit in the global network
of the transnational corporation may have been given some quite
restrictive geographical sphere of trading activity by head office
so that competition between the operating units is restricted and
global profitability can be maximised. Thus, exports may be less
than if the equivalent operation had been owned and operated by
residents of the IDFI-host country.
Second, the host country can be disadvantaged by the transfer
overseas of excessive profits from the foreign-owned operation.
Transnational corporation operations will often be very profitable
(compared to other activities and industries in the host country)
because of the superior skills of its managers in discovering such
opportunities and negotiating advantageous deals with domestic
players and interests. This generates great scope for the
repatriation of profits back to head office and can often be
assisted by transfer pricing practices which
undermine the taxation base of the host country. Here, the pricing
of transactions between the various parts of the transnational
corporation's global network are designed to transfer profits from
high-taxed countries to lower-taxed countries in order to maximise
global after-tax income for the corporation. Thus, host country
attempts to collect tax from the foreign investor through
relatively high tax rates will be frustrated, especially if the tax
administration of the host is poorly developed (and cannot detect
and/or stop such activity) or open to corruption.
Third, IDFI can discourage the longer term development of
indigenous managerial and technical talent (because of the
domination of foreign 'head office' personnel), and also discourage
domestic efforts in research, development and innovation (because
of reliance upon already-developed technology which may be unsuited
to local conditions). The foreign operation may begin with the
fanfare of new managers and technology but, the argument runs, such
short-term benefits hide the longer-term dependence upon such
external stimuli and the retarded expansion of domestic resources
and activity in these areas. Domestic ownership and control of the
equivalent operation would, it is argued, much better serve such
economic goals of the host country. Learning to "do it
yourself" might be difficult and unproductive in the short
term but can become effective in the long term if persevered
Overall, on this view, countries selectively restricting IDFI
and encouraging domestic firms to take its place will, other things
being equal, enjoy stronger and more durable economic growth and
development over the long run than those countries not restricting
IDFI. Domestic firms can still gain the benefits of both foreign
technology, through licensing and royalty agreements, and foreign
skilled labour, through short term contracts for visiting foreign
personnel. In this way the package of economic benefits offered by
IDFI can be "unbundled" by the host country and its own economic
But such restrictions on IDFI need not necessarily involve
outright bans or non-negotiable limits on foreign ownership and
control. Instead, they could take the form of specific performance
conditions which can be placed upon direct foreign investors so
that the economic problems associated with IDFI are avoided or
minimised. If exports or repatriation of profits are seen as the
main problem with IDFI then minimum export targets or maximum
levels of profit repatriation can be imposed. If transfer pricing
is seen as the problem then conditions on extra access to pricing
and accounting information of the foreign investor by host tax
authorities might be imposed. Similarly, if employment of citizens
of the host country or research and development are seen as the
problem then such conditions can be imposed. Of course, such use of
conditionality regimes should be designed so that the
administrative burden on both the host country government and the
direct foreign investor are not excessive.
However, even in the absence of the above problems associated
with IDFI, the imposition of conditions can be justified in cases
of the existence of excess, "super-normal" profits generated by
foreign-owned and controlled operations and the consequent use of
conditionality to redistribute such excess profits away from the
foreign investor and to the host country. This is further discussed
in the next section.
The broader nationalist argument against IDFI has essentially
been that Australia needs to better control its own destiny by
limiting the degree to which power over Australian assets are ceded
to foreign economic interests. It is argued that substantial levels
of foreign ownership and control of such assets undermines
Australia's national independence and geopolitical power.
It does this by increasing foreign leverage over the domestic
economy and society and, by implication, the political system. Key
decisions are made in the head office boardrooms of foreign
countries rather than in the host country. Transnational
corporations form alliances with their home country governments and
their coordinated actions and strategies limit the room for
manoeuvre of host countries. The host country effectively becomes,
in a broad and penetrating sense, a "dependent country".
As well, it is argued that IDFI weakens valued indigenous
socio-cultural norms, patterns and traditions by imposing the norms
and modes of behaviour of the source country of the investor (where
its headquarters is located). Unique cultural traditions are lost
as the culture of the home country of the investor takes over and
conquers the host country. "Cultural imperialism"
results in which the new values and behaviour implanted by the
presence of the transnational corporation create a cringing and
destructive social allegiance in the host country to the home
country of the investor. The "periphery" country imitates the
There has been a clear pattern of the liberalisation of
Australian IDFI controls since the mid-1980s (40). Many industry
sectors once regarded as too sensitive and important to be allowed
to slip into foreign hands have been opened up to foreign
participation. This has added to the momentum created by the
liberalisation of general controls on IDFI applicable to all other
sectors of the economy, as most clearly seen in the progressive
abolition of the 'net economic benefits' test in decisions on IDFI
proposals. In its place has been established a 'national interest'
test which puts the burden of evidence on those opposing the IDFI
proposal, whereas the test for net economic benefits put the burden
of evidence on those supporting the IDFI proposal. In effect, IDFI
is now judged as 'innocent until proven guilty' rather than the
previous situation of 'guilty until proven innocent'.
The broad thrust of liberalisation of IDFI controls seems to
have been generated by the influence of a number of economic and
international considerations on policymakers. These considerations
have been powerful enough to over-ride previously influential
concerns, noted above, about the dangers of unrestricted IDFI.
The first economic consideration underlying recent policy change
has been the perceived need to upgrade Australia's
technological base and managerial skills through enhanced
access to world "best practice" benchmarks to be found in the
successful transnational corporations. Reduced barriers to IDFI
would encourage a stronger presence in Australia of such
corporations. Such intensified IDFI activity would generate direct
benefits to Australia in terms of higher productivity growth (an
emerging preoccupation of policymakers), better product quality and
range and increased international competitiveness and
capacity for exports (a central concern of policymakers)
and, indirectly through the normal processes of market competition,
would help ensure that their technological and managerial
advantages would diffuse out to Australian-owned firms as imitation
took place (41). IDFI has come to be seen by Australian
policymakers as a strongly beneficial force for productivity growth
and exports rather than a hindrance to them.
The second consideration supporting policy change has been the
related issue of the extension of the Government's
microeconomic reform program to the case of IDFI
controls. Microeconomic reform has sought to increase competition
in a vast range of markets and industries in Australia,
particularly through the internationalisation of the economy and
heightened exposure to global economic forces and trends. This has
been based on the expectation that enhanced integration into global
competition would reap substantial gains for Australia in terms of
greater economic efficiency, productivity, exports and real income
On this view, IDFI controls have been liberalised in order to
increase the threat to domestic firms of new foreign-owned
competitors or foreign takeovers if cost efficiencies, technical
innovation and profitability are not pursued to the maximum. A
freer inflow of foreign direct investment increases the competitive
pressures on domestic firms and thus forces them into more
disciplined and better economic performance. Liberalisation of IDFI
controls is an important concomitant to other types of
microeconomic reform (42).
At the same time, those cases of IDFI which might diminish
competitive pressures have continued to be the subject of
investigation, and prohibition where appropriate, by the Trade
Practices Commission/Australian Competition and Consumer Commission
through its general oversight function for mergers and takeovers in
Australia. Prime examples of such cases would be proposals by major
overseas producers/suppliers to merge with or acquire significant
Australian producers/suppliers in the same industry with the intent
of reducing competition either within Australia or in Australian
The third consideration concerns the rapid escalation of
foreign debt which has occurred since the mid-1980s. CADs
have continued to be substantial and have been funded largely
through ongoing foreign borrowing by the Australian private sector,
although state and local governments have also increased their
foreign debt exposure. The Federal Government has regarded this
foreign debt escalation as a matter of concern and has attempted,
through various policy measures, to reduce CADs which underlie the
foreign debt buildup. But it has also sought to reduce the reliance
upon foreign borrowing as the principal means by which the deficits
Specifically, the Federal Government has attempted to encourage
greater IDFI through liberalisation of IDFI controls. Capital
inflow in the form of IDFI was to be substituted, in part, for
capital inflow in the form of foreign borrowing (43). Foreign
investment in portfolio, non-controlling, equities was also
encouraged as a way of reducing reliance upon foreign borrowing.
This strategy to rebalance the debt and equity components of
capital inflow seems to have achieved some degree of success
The fourth consideration concerns the growth of
Australia's outward direct foreign investment; this has
developed rapidly in the last decade upon the back of the abolition
of Australian restrictions on such investment. This outward
investment is now applauded as a way of raising the international
competitiveness and sophistication of Australian companies. In
order both to protect existing access to other economies and to
promote expanded access for Australian outward direct investment,
the Australian Government has recognised that it needed to show
good faith towards other nations by, in turn, increasing access to
Australia for foreign investors, especially in the form of IDFI
On the other hand, Australia has not generally imposed any
direct reciprocity conditions on our liberalisation of IDFI
controls. That is, it has not demanded direct access as a condition
of extending access to direct investment in Australia. As with
trade policy, it has pursued the option of unilateral
liberalisation rather than the option of negotiated bilateral
liberalisation to help open up other nations to direct investment
by Australian firms (46).
The increasing openness of the Australian economy to foreign
ownership and control, and the higher actual levels of such
ownership and control, remain the subject of considerable conflict
and controversy. Many sections of public opinion remain quite
hostile to IDFI and this provides the political basis for recurrent
calls to strengthen controls on IDFI and, eventually, reverse the
process of 'selling off the farm'. On the other hand, those
supporting the free play of markets argue that Australia needs to
go much further and ensure that Australian and foreign investors
are placed on a completely equal footing in their competition for
assets and investment projects within Australia.
This debate has been further fuelled by the relative lack of
conclusive empirical evidence on many of the arguments used by both
opponents and proponents of IDFI. Much of the crucial empirical
research still awaits to be done in this area.
Many sections of the community condemn the economic outcomes and
policy trends described above and argue for a return to an earlier
era of much stricter controls on IDFI. There seem to be a number of
strands to their arguments and policy prescriptions.
Their most prominent argument has been that the aggregate social
and economic costs of foreign ownership and control have been
drastically underestimated in recent economic and policy
discussions and that policy should seek to ensure that only those
IDFI projects with some genuine net economic and social benefit to
Australia actually go ahead. This entails a retreat from the
wholesale policy liberalisation of recent years.
One form of policy intervention often mentioned is the
greater use of conditionality in approving IDFI
proposals (47). Foreign direct investors will have in mind some
minimum real rate of return on their investments in Australia which
they must expect to receive, over some substantial planning
horizon, before they will be willing to invest here. Policy
controls which diminish expected returns below these minimum levels
will thus prevent some cases of IDFI from going ahead. However,
prospective rates of return on many IDFI projects will be far above
these required rates of return and thus one longstanding
nationalist argument has been that Australia should bargain with
individual foreign investors to ensure that a substantial share of
these "above normal" profits are appropriated by Australia rather
than the foreign owners.
This can be done by imposing various conditions on IDFI which
must be satisfied when the IDFI project is in operation. These can
involve higher tax or royalty payments to federal or state
governments, export performance targets, investment and employment
targets (especially for managers and technically demanding
positions), or research and development effort (48). Careful
evaluation and negotiations are required to ensure that the
conditions generate extra benefits for Australia but are not so
onerous that they deter IDFI projects which will actually generate
net economic and social benefits to Australia.
Under this option the role of FIRB would be
expanded to impose much stricter sets of conditions on a
much larger set of IDFI proposals. The use of conditionality would
become much more extensive in those sectors of the economy where
there were not mandatory legislative limits on IDFI in operation
(49). The staff resources of FIRB, already seemingly too small to
allow effective monitoring of the existing use of conditions in
IDFI approvals, would need to be increased. In this context, some
have also argued that FIRB (or a successor organisation) needs to
become an independent, statutory body in order to distance itself
from control by the Treasurer, and Government, of the day in regard
to such decisions (50).
Of course, the greater use of conditionality for IDFI by
Australia might provoke other countries to themselves make greater
use of conditionality to extract extra benefits from Australian
(and other) direct investments in their economies. This would
increase international economic frictions and reduce the net
benefits to Australia from pursuing such a policy course. However,
other countries may not retaliate in this way. As well, given that
our outward direct investment levels are still substantially below
our levels of IDFI, the net benefits could still be substantial if
Australia's use of conditionality was carefully managed.
It should also be noted here that the greater use of
conditionality in IDFI approvals would probably pose substantial
problems for those seeking much greater openness and transparency
in the decisionmaking process on applications for IDFI. A
case-by-case use of conditionality would generate a wide variation
in the nature and stringency of the conditions imposed and would
need to be based upon detailed specific information about each
potential direct investor; such information might need to be kept
confidential in order not to undermine the Government's bargaining
position in future negotiations with foreign firms. General rules
for policymaking would not be followed (exploiting specific
opportunities would be the order of the day) and much information
underlying particular decisions would be withheld from public
Another nationalist argument which is commonly used against IDFI
is that many sectors and industries remain so important, in terms
of national identity and power, that high levels of foreign
ownership and control must not be tolerated. They argue for
imposing divestiture of foreign ownership in these sectors so as to
return to earlier conditions of predominant Australian ownership
and, subsequently, the enshrining of such Australian ownership in
legislative guarantees against future foreign encroachment. More
use of specific legislative limits on foreign ownership and
control would help ensure Australian ownership by taking
discretionary power over such issues out of the hands of the
Treasurer, and Government, of the day and placing it into majority
control in both houses of the Federal Parliament (51).
Overall, the nationalist position seems to be one of stricter
controls to reduce the total level of IDFI and foreign ownership
and control, and better bargaining and the use of imposed
conditions to ensure that Australia gets more benefits from the
IDFI projects which do go ahead. Industries and sectors to be
quarantined from IDFI should be given legislative protection and
removed from being the subject of the discretionary power of the
Government of the day.
Nationalists on IDFI seem to be equally repelled by other forms
of foreign investment such as foreign debt accumulation and thus,
in response to critics who argue that restrictions on IDFI would
merely generate higher foreign debt escalation, they usually argue
that national saving levels must be increased so as to reduce the
CAD which capital inflow, in all its forms, must finance. In this
way, both IDFI and foreign debt escalation can be restrained and
Australia's "economic independence can be regained".
There is a completely different reform agenda which argues that
liberalisation of policy controls has not gone far enough and that
further effort in this direction is necessary. This view argues
that the entire FIRB process of review and examination might be
abolished so that IDFI policy places foreign and Australian firms
on exactly the same footing (in the technical parlance this is
called giving foreign investors "national
treatment" in their access to assets within Australia) so
that that there is the maximum amount of competitive pressure on
the performance of firms within Australia (52). While no country
seems to have yet reached full national treatment of direct foreign
investors some (such as the United States) are much closer to this
ideal than others.
Here, both Australian and foreign firms are subject to exactly
the same array of regulatory controls and requirements. For
example, both would be subject to the requirements of the ACCC in
regard to predatory pricing activities and to proposed takeovers.
Both would be subject to the existing array of environmental and
safety requirements. However, no extra impositions would be made on
foreign firms, potential or actually operating in Australia, so as
to achieve complete 'competitive neutrality' in their treatment by
public policy. Foreign firms would be treated in exactly the same
fashion as Australian firms by the array of operating policy and
regulatory systems in place.
The FIRB system of regulation would become
redundant and thus could be abolished. This would be a
major step towards making Australia's policy on IDFI clear and
transparent to prospective foreign investors. FIRB deliberations
have always been shrouded in secrecy and the criteria for
decisionmaking on IDFI proposals often seems to have been
mysteriously changeable from case to case.
In order to achieve complete equality of treatment of
Australian-owned and foreign-owned firms, specific foreign
investment limits in sensitive sectors and industries would need to
be abolished. In practical terms, this reform approach would
recommend at least a substantial further scaling back of such
limits. They could even be completely replaced by more economically
efficient instruments of supporting Australian ownership such as
subsidies to Australian-owned firms in targeted sectors or
government procurement preferences for Australian-owned firms over
It is important to note that this competitive neutrality policy
system would stop instances of IDFI where these reduced competition
(such as in some foreign takeovers) or threatened environmental
despoliation, but it would do this on the grounds of the inherent
nature of the proposal rather than the particular nationality of
the owners of the firms involved. That is, whether these owners
held Australian or overseas passports, or resided here or overseas,
would finally be made irrelevant to their treatment by
Advocates of this policy reform approach are also keen to see
non-discrimination in access to IDFI amongst source countries. They
argue that countries should not offer bilateral concessions to
other countries (as in reciprocity-of-access agreements for
example) since these will distort the flows of direct foreign
investment by artificially encouraging some investors over others.
This will reduce the economic efficiency, and benefit to the host
country, of such investment. Barriers to IDFI, if they are to
exist, should not favour some countries (or their investors) over
others. Australia has generally not undertaken such a policy course
on IDFI. Of course, the achievement of full 'national treatment'
for foreign investors itself implies full non-discrimination on
IDFI and the former is thus the dominant concept in this policy
These policy recommendations for national treatment of, and
non-discrimination towards, foreign direct investing firms are
motivated essentially from concerns for maximising economic
efficiency on a international and world-wide scale by
removing national barriers against more competitive international
investment markets. They neglect the possibilities of individual
host countries increasing their benefits from IDFI (and thus
reducing the benefits accruing to source countries from such direct
investments) through selective interventions such as the use of
greater conditionality. The failure to consider such opportunities
seems to be based upon fears that these interventions will be so
mismanaged by the national authorities that they will make all
countries (host and source) worse off as a result.
- Although it can be argued in the case of IDFI going into new
'greenfields' investments, where there is no strong domestic
competition in the host country, that such capital inflow directly
adds to the CAD by increasing the level of national investment in
the host country.
- The relative merits of these rival explanations for IDFI flows
are concisely reviewed in Graham, Edward and Krugman, Paul. Foreign
Direct Investment in the United States. Washington D.C.: Institute
for International Studies, 1989: chapter 2. They conclude that the
microeconomic explanations for IDFI are the more powerful in the
case of the US.
- This point does not seem to have been appreciated by recent
commentators such as Ian Henderson. 'Foreign investment, the new
reality: foreign affairs', The Australian, 29 January 1996:
- Australia. Interim Report of the Committee of Inquiry into the
Australian Financial System (The Campbell Report). Canberra: AGPS,
- Arndt, Heinz. 'Foreign investment', in Australian Economic
Policy, eds. John Nieuwenhuysen and Peter Drake. Melbourne:
Melbourne University Press, 1977: 134.
- Department of Communications. Ownership and Control of
Commercial Television: Future Policy Directions. Volume 1,
Canberra: AGPS, 1986: 50.
- Ibid: 136; Kasper, Wolfgang. Capital Xenophobia: Australia's
Controls on Foreign Investment. Policy Monograph 6, St Leonards:
Centre for Independent Studies, 1984: 41-42.
- Arndt, Heinz. 'Foreign investment', in Australian Economic
Policy, eds. John Nieuwenhuysen and Peter Drake. Melbourne:
Melbourne University Press, 1977: 137.
- Ibid: 138.
- Organisation for Economic Cooperation and Development Economic
Surveys: Australia. Paris: OECD, April, 1974: 48-50; Arndt, Heinz.
'Foreign investment', in Australian Economic Policy, eds. John
Nieuwenhuysen and Peter Drake. Melbourne: Melbourne University
Press, 1977: 139-140.
- Lynch, Phillip, MP, 'Foreign investment in Australia',
Attachment A in Foreign Investment Review Board. Annual Report
1977. Canberra: AGPS, 1977: 26-38.
- Data from Table 1 of FIRB's 1977 Annual Report and Table 1.1 of
its 1978 Annual Report.
- Howard, John, MP, 'Review of foreign investment policy and
exchange control procedures impinging on capital inflow',
Attachment A in Foreign Investment Review Board. Annual report
1978. Canberra: AGPS, 1978: 41-45.
- Howard, John, MP, 'Foreign investment in uranium Yeelirrie
uranium project', Attachment A in Foreign Investment Review Board.
Annual Report 1979. Canberra: AGPS, 1979: 33-35.
- Australia. Treasurer (John Howard). 'Review of Commonwealth
Functions'. Press release, no.67, 30 April 1981.
- Howard, John, MP, 'Foreign investment policy', Attachment C in
Foreign Investment Review Board. Annual Report 1982. Canberra:
AGPS, 1982: 74-79.
- Australia. Treasurer (John Howard). 'Participation in banking,
including foreign bank entry'. Press release, no.3, 13 January
- Data from Table 1.1 of FIRB's 1983 Annual Report.
- Foreign Investment Review Board. Annual report 1983. Canberra:
AGPS, 1983: 6.
- Keating, Paul, MP, 'Review of foreign investment policy', in
Foreign Investment Review Board. Annual report 1984. Canberra:
AGPS, 1984: 1-4.
- Australia. Treasurer (Paul Keating). 'Participation in banking
in Australia and other issues of financial deregulation'. Press
release, no.142, 10 September 1984.
- Australia. Treasurer (Paul Keating). 'New banking authorities'.
Press release, no.20, 27 February 1985.
- Australia. Treasurer, Acting (Chris Hurford). 'Review of
foreign investment policy'. Press release, no.136, 29 October
- Australia. Treasurer (Paul Keating). 'Foreign investment policy
relaxations'. Press release, no.79, 28 July 1986.
- Australia. Treasurer (Paul Keating). 'Foreign investment
policy'. Press release, no.40, 30 April 1987.
- Data from Tables 1.1 and 1.7 in FIRB's 1986-87 Annual
- Bailey, Brendan. Cross-Media, Takeover, Foreign Investment
Limits. Parliament of Australia. Parliamentary Research Service.
Research Note No.14, 7 March 1995:2.
- Australia. Prime Minister (Paul Keating). One nation. Canberra:
AGPS, 1992: chapter 3.
- However, the thresholds on requirements to notify the Federal
Government about direct foreign investment proposals remained at
the three different levels set out in this dotpoint. It should also
be noted here that the One Nation statement was misleading in the
sense that it asserted that "the Government will cease to examine"
proposals below $50 million (page 87) whereas, in practice, such
proposals continue to be examined but at a much reduced level of
rigour and detail.
- Australia. Treasurer (Ralph Willis). 'Foreign investment
policy: mass circulation newspapers'. Press release, no. 32, 20
- Australia. Treasurer (Ralph Willis). 'Government response to
the reports by the Senate Select Committee on certain aspects of
foreign ownership decisions in relation to the print media'. Press
release, no.82, 26 September 1995.
- Bailey, Brendan. Commonwealth Bank: Foreign Investment Issues.
Parliament of Australia. Parliamentary Research Service. Current
Issues Brief No. 12, 22 November 1995.
- Airports Bill 1995. Parliament of Australia. Parliamentary
Research Service. Bills Digest No.42, October 1995-96.
- Telstra (Dilution of Public Ownership) Bill 1996. Parliament of
Australia. Parliamentary Research Service. Bills Digest No. 72, May
- Data from Tables A.1 and 2.1 in FIRB's annual reports of
1989-90 and 1994-95 respectively.
- Foreign Investment Review Board. Annual Report 1994-95.
Canberra: AGPS, 1996:14.
- Australia. Treasurer (Ralph Willis). ' Foreign investment
proposals: acquisition of Pacific Dunlop food group'. Press release
no. 76, 8 September 1995.
- See the concise description of this Act in Bailey, Brendan.
Commonwealth Bank: Foreign Investment Issues. Parliament of
Australia. Parliamentary Research Service. Current Issues Brief
No.12, 22 November 1995: 5-6.
- Many of these arguments are discussed in Parry, Thomas.
Arguments for and Against Foreign Investment in Australia,
Parliament of Australia. Parliamentary Research Service, Discussion
Paper no.6, 1983. For a classic warning about these dangers and
problems of IDFI see: Australia. House of Representatives.
Parliamentary Debates. Bill Hayden. 11 March 1981: 641-644.
- Similar liberalisation occurred in many other OECD countries.
See: Organisation for Economic Cooperation and Development.
International Direct Investment: Policies and Trends in the 1980s.
Paris: OECD, 1992: chapter 2.
- Australia. House of Representatives. Parliamentary Debates.
Paul Keating. 9 November 1988: 2687.
- Australia. House of Representatives. Parliamentary Debates.
Paul Keating. 9 November 1988: 2687- 2689. See also Kelly, Paul.
The End of Certainty, Sydney: Allen and Unwin, 1992: 667.
- This seems to have originally been a Coalition argument which
was subsequently taken up by the Labor Government. See Australia.
House of Representatives. Parliamentary Debates. John Howard. 17
February 1987: 149.
- See the interesting but small trend in the relative stocks of
foreign debt and foreign equity since the mid 1980s in Chart 3.1 in
Foreign Investment Review Board. Annual Report 1994-95. Canberra:
- Viviani, Nancy. 'Foreign economic policy' in Jennett, Christine
and Stewart, Randall (eds) Hawke and Australian Public Policy.
MacMillan: Melbourne, 1990: 402.
- In the case of foreign banks, for example, the 1991 Martin
Report on Banking and Deregulation recommended that Australia only
admit those foreign banks from countries which provide Australian
banks with similar access. This recommendation was rejected by the
Government in favour of a unilateral liberalisation approach. See
Australia. House of Representatives. Standing Committee on Finance
and Public Administration. A Pocket Full of Change, November 1991:
- This option has often been raised by some Federal
Parliamentarians in discussions with the author.
- See the concise discussion of such conditions and requirements
in LaPalombara, Joseph. "International Firms and National
Governments: Some Dilemmas". The Washington Quarterly. 17(2),
Spring 1994: 89-99. See also the fuller discussion, with some
Australian examples, in Bureau of Industry Economics.
Multinationals and Governments: Issues and Implications for
Australia. Research Report No.49, Canberra: AGPS, 1993: Chapter
- For example, a Senate Select Committee has recommended that
FIRB be replaced with a new body, the Foreign Investment Commission
(FIC), which would be, amongst other increased responsibilities,
much more involved in the monitoring and policing of all conditions
placed upon IDFI approvals. See: Australia. Senate. Select
Committee on Certain Aspects of Foreign Ownership Decisions in
Relation to the Print Media. Percentage Players. June 1994: chapter
- Ibid: Recommendation 10.8
- This option has often been raised by some Federal
Parliamentarians in discussions with the author.
- Bora, Birjit, 'The Trade winds blow", The Australian, 2
February 1996: 29. See also his paper 'The implications of
globalisation for Australian foreign investment policy', in
Economic Planning Advisory Commission, Globalisation: Issues for
Australia. Commission Paper no.5, March 1995: 91-111, and the work
of Makin, Tony, "Value of Foreign Hallmark", Australian Financial
Review, 9 April 1996 and Makin's paper "Liberalising Australia's
Foreign Investment Policy", Agenda. 3(2), 1996: 135-142.
I wish to thank June Verrier, John Kain, Marilyn Stretton, Leo
Terpstra, Tony Kryger, Kim Jackson, Brendan Bailey, and especially
Vernon Joice, for the helpful comments and suggestions they made
during the preparation of this paper. Special thanks to Tony Kryger
for preparing the charts used in the paper.
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