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Inward Direct Foreign Investment in Australia: Policy Controls and
Economic Outcomes
Phil Hanratty
Economics, Commerce and Industrial Relations Group
Abbreviations
- AIDC
- Australian Industry Development Corporation
- ACCC
- Australian Competition and Consumer Commission
- CAD
- Current Account Deficit
- FIRB
- Foreign Investment Review Board
- IDFI
- Inward Direct Foreign Investment
- MCN
- Mass Circulation Newspapers
- TFL
- Total Foreign Liabilities
- TPC
- 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 foreign ownership.
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 rejected.
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 Hawke/Keating period.
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 economic relations.
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 years.
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 IDFI.
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
development.
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 (2).
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 strictly comparable.
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 foreign investment.
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 estate.
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 company
- establish new non-bank financial institutions and insurance companies
- 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 proposals.
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 cases.
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 Government.
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
companies.
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
investment (19).
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 million
- 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 extended.
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' test.
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 entailed:
- 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) (29), and
- 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, and
- 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 activity (37).
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 for it.
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 industries.
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 sectors.
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 some cases.
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 nature (39).
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 with.
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 dynamism strengthened.
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 "centre"
country.
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 growth.
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 export markets.
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 are
funded.
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 (44).
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 (45).
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 scrutiny.
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 foreign ones.
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 policymakers.
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 approach.
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: 37.
- Australia. Interim Report of the Committee of Inquiry into the Australian
Financial System (The Campbell Report). Canberra: AGPS, 1980: 274.
- 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 1983.
- 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 1985.
- 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 Report.
- 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 April 1993.
- 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 1995-96.
- 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: AGPS 1996:35.
- 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: chapter 10.
- 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
5.
- 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 10.
- 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.
Acknowledgments
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.
Comments to: web.library@aph.gov.au
Last reviewed
19 July, 2004
by the Parliamentary Library Web Manager
© Commonwealth of Australia
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