Australia's foreign investment review framework
Legislative and regulatory framework
The legislative and regulatory foundation of Australia's foreign
investment review framework is provided by the Foreign Acquisitions and
Takeovers Act 1975 (FATA) and the Foreign Acquisitions and Takeovers
Fees Imposition Act 2015 (FATFIA), along with their associated regulations:
the Foreign Acquisitions and Takeovers Regulation 2015 and the Foreign
Acquisitions and Takeovers Fees Imposition Regulation 2015.
In order to provide a framework for the implementation of the Acts and their
associated regulations, the Commonwealth Government has produced a Foreign
Investment Policy, which guides the Government's decision-making process in
relation to proposals for foreign investment.
The Foreign Investment Review Board (FIRB) was established in 1976 as a
non-statutory body tasked with advising the Treasurer and the Government.
FIRB's primary responsibility is to examine proposals for foreign investment in
Australia that are subject to FATA. It is also responsible for providing the
Treasurer with advice on the operation of, and compliance with, the
requirements set out in FATA. As a non-statutory body, FIRB only provides
advice to the Treasurer and Government, with the Treasurer exercising final
responsibility for making a determination on all proposals for foreign investment
that fall under FATA.
FIRB also provides advice to the Treasurer in relation to the Government's
Foreign Investment policy and its administration.
FIRB consists of five part-time members, including a Chairman, Mr Brian
Wilson, who was appointed to the position in 2012. In addition to the part-time
members, FIRB also includes a full-time Executive Member, Mr Robert Donelly,
who currently heads the Foreign Investment and Trade Policy Division within the
Treasury. The division provides secretariat support to FIRB, a responsibility
that includes the day-to-day administration of the Government's Foreign
Australia's foreign investment review framework is based on a system of
differentiated categories for foreign investment.
These categories are based on monetary thresholds, which range from $0, the
most restrictive, to $1,094 billion, the least restrictive. The nature of the
proposed investment and the investor's country of origin determine which
category is applicable to the investment proposal.
It is important to note that all investment proposals by foreign
government investors, as opposed to foreign private sector investors, are
subject to Australian Government review, regardless of the value and nature of
the proposed investment. In practice, this means that all foreign government
investors are generally subject to the most restrictive monetary threshold of $0.
According to the Treasury, a foreign government investor is defined as:
A foreign government or separate government entity
A corporation or trustee of a trust, or a general partner of a
limited partnership, in which:
a foreign government or separate government entity holds a
substantial interest of at least 20 per cent; or
foreign governments or separate government entities of more than
one foreign country (or parts of more than one foreign country) which hold an
aggregate substantial interest of at least 40 per cent.
Foreign government investors are generally required to submit investment
proposals to FIRB if they intend to acquire a direct interest in an Australian
business, regardless of the value of the investment itself. According to the
Treasury, a direct interest is generally defined as an investment of at least
10 per cent.
This means that, in practice, a threshold of $0 applies if a foreign government
investor proposes to make an investment in an Australian business.
Some exemptions that apply to foreign non-government investors are not
applicable to foreign government investors. If a foreign private investor
wishes to acquire an interest directly from a State or Territory Government,
then that transaction is unlikely to require foreign investment approval.
In the case of a foreign government investor, however, this exemption
does not apply, and the proposed investment can be formally examined by FIRB.
The additional requirements that must be met by foreign government investors apply
equally to all countries. According to the Treasury, Australia has not, on the
basis of its Free Trade Agreements (FTAs), granted preferential treatment to
any foreign government investors.
Foreign government investors also require Australian Government
approval, through the Treasurer, if they propose to start a new business;
acquire an interest in land; acquire a legal or equitable interest in a
tenement; or an interest of at least 10 per cent in securities in a mining,
production or exploration entity.
Although FATA gives the Treasurer the authority to make determinations
in relation to all foreign investment proposals that are subject to Government
review, the Treasurer does not formally 'approve' investment proposals. Rather,
when the Treasurer is informed – through the review process overseen by FIRB – that
a foreign person proposes to undertake an action that is covered by the review
framework, then the Treasurer is authorised to take one of the following
decide not to object;
allow the action to proceed, provided the person complies with
one or more conditions; or
decide that taking the action would be contrary to the national
interest and make an order prohibiting the proposal.
In cases where the Treasurer determines that the investment is contrary
to Australia's national interest after the investment transaction has occurred,
the Treasurer has the authority to make an order requiring the investor to
divest themselves of the investment.
Australia's foreign investment review framework does not contain a
precise definition of the national interest. Australia's framework contrasts in
this regard to a number of comparable countries. New Zealand's Overseas
Investment Act 2005 (OIA) provides a legislated definition of the national
By contrast, under FATA, the Treasurer is given the authority to determine, on
a case-by-case basis, whether a proposed investment subject to Government
review is contrary to the national interest.
Australia's national interest test is essentially negative in character. On the
basis of advice provided by FIRB, the Treasurer determines whether a foreign
investment proposal would adversely affect Australia's national interest. As a
negative test, Australia's foreign investment review framework is based on the
presumption that foreign investment proposals will be 'allowed to proceed
unless found to be contrary to the national interest'.
In its submission, the Treasury pointed out that Australia's foreign
investment review framework was designed to provide a high degree of
flexibility in reviewing proposals for foreign investment.
The Treasury also observed that, by privileging flexibility over a legislated
definition of the national interest, the Government is in a position to respond
quickly to factors that are likely to affect the national interest.
It further noted that:
A codified national interest test with a rigid set of
criteria incorporated into the legislative framework risks being inflexible,
prescriptive and may require ongoing amendments (such amendments may be
difficult to implement because Australia's free trade agreement commitments
would limit the Government's ability to make subsequent changes). Further,
enshrining specific national interest factors in legislation may expose the
Government to an increased risk of litigation, as well as provide additional
avenues for opponents of an investment to challenge it.
Given the restrictions and requirements outlined above, a foreign
investment proposal will generally require review if the following conditions
The proposed investment has a value of $252 million or more,
unless the investor is from a country with which Australia has signed a Free
Trade Agreement (FTA), in which case a higher threshold of $1.094 billion would
The proposed investment is in a business or in land that has been
designated as 'sensitive'; and
The proposed investment is in an agribusiness or in agricultural
With the exception of agribusiness, which forms a separate category to
which a cumulative threshold of $55 million applies, the Foreign Investment
Policy defines 'sensitive' businesses as the following:
media and telecommunications;
defence and military related industries and activities;
encryption and securities technologies and communication systems;
the extraction of uranium or plutonium; and
the acquisition of nuclear facilities.
Apart from 'sensitive' businesses, some types of land have also been
designated as 'sensitive'.
This is in addition to the category of agricultural land, to which a lower and
cumulative threshold of $15 million applies, with the exception of private
investors from Chile, New Zealand or the United States. For investors from
these countries, the threshold is $1.094 billion. This derives from Australia's
According to the Treasury, developed commercial land can be designated
as 'sensitive' if one or more of the following criteria apply to it at the time
that an investor seeks to acquire an interest in the land:
the land will be leased to the Commonwealth, a State, a Territory
or a Commonwealth, State or Territory body;
the land will be fitted out specifically for a business of the
the storage of bulk data;
the supply of training or human resources to the Australian
Defence Force or other defence forces;
the manufacture or supply of military goods, equipment or
technology to the Australian Defence Force or other defence forces;
the manufacture or supply of goods, equipment or technology able
to be used for a military purpose;
the development, manufacture or supply of, or the provision of
services to, encryption and security technologies and communications systems;
the extraction of, or the holding of rights to extract, uranium
or plutonium or the operation of nuclear facilities.
land that will be fitted out to store, handle or dispose of
biological agents on the List of Security-sensitive Biological Agents (within
the meaning of the National Health Security Act 2007);
where an authorisation under law of the Commonwealth, a State or
a Territory will allow materials that are regulated under that law to be
produced or stored on the land;
the land will be under prescribed airspace (within the meaning of
section 81 of the Airports Act 1996);
a mine, oil, gas well, quarry or similar operation will operate
on the land;
a stored communication (within the meaning of the Telecommunications
(Interception and Access) Act 1979) will be stored on the land;
the failure of part of a telecommunications network unit (within
the meaning of the Telecommunications Act 1997) on the land would result
in telephone or internet services not being provided on other land;
servers critical to an Authorised Deposit-taking Institution
(within the meaning of the Banking Act 1959) or a stock exchange in Australia
will be stored on the land; or
land used for public infrastructure (defined as an airport or
airport site; a port; infrastructure for public transport (whether or not the
infrastructure is operated or owned by a Commonwealth, State or Territory body)
or a system or facility that is used to provide various services to the public,
including the generation, transmission distribution or supply of electricity;
the supply of gas; the storage, treatment or distribution of water; or the treatment
The threshold for investments in sensitive developed commercial land is
either $252 million, if the investor is from a country with which Australia
does not have a FTA, or $1.094 million, if the investor is from an FTA country
that has access to the higher threshold.
A lower threshold of $55 million applies, however, if the proposed investment
is in sensitive land that is being used for the purposes of critical
infrastructure, such as an airport or a port.
Changes to the FIRB regulatory framework
On 18 March 2016, the Treasurer, the Hon. Scott Morrison MP, announced
that the Australian Government had secured the agreement of the states and territories
to bring all foreign investment proposals in critical infrastructure assets
held by the states and territories under FIRB's jurisdiction.
The Treasurer announced that this would be achieved through changes to the
Foreign Acquisitions and Takeovers Regulation 2015.
Beginning on 31 March 2016, FIRB will review all proposals for the sale of
critical infrastructures assets by State and Territory Governments to foreign
The state and territory critical infrastructure assets that will become
subject to formal FIRB review will include: public infrastructure (an airport
or airport site; a port; infrastructure for public transport; electricity, gas,
water and sewerage systems); existing and proposed roads, railways, inter-modal
transfer facilities that are part of the National Land Transport Network or are
designated by a State or Territory government as significant or controlled by
the Government; telecommunications infrastructure; and nuclear facilities.
Additionally, the Treasurer maintained that these changes will serve to further
strengthen the rigour and transparency of the foreign investment review
The Turnbull Government is committed to strengthening our
foreign investment framework. While we welcome foreign investment in Australia
it is imperative that critical infrastructure sales are scrutinised to ensure
any potential national security risks can be addressed. These new measures
reflect the Turnbull Government’s policy to be open, transparent and sovereign
in foreign investment decisions.
Foreign investment review frameworks of New Zealand and United States
Given the case-by-case approach that defines Australia's foreign
investment review framework, it is useful to compare the process by which
foreign investment proposals are screened in this country with comparable
nations. New Zealand and the United States (US) provide good points of
New Zealand's framework: a positive
national interest test
The New Zealand foreign investment review framework is administered by
the Overseas Investment Office (OIO). The OIO is a regulatory unit within Land
Information New Zealand, the Government department with responsibility for
handling land titles and managing Crown land and property.
The OIO is accountable to the New Zealand Minister of Finance and is tasked
with the administration of three pieces of legislation and one set of
The Overseas Investment Act 2005 (OIA).
Overseas Investment Regulations 2005 (the regulations).
Sections 56 to 57J of the Fisheries Act 1996 (FA).
Collectively, these provide the legislative and regulatory basis of New
Zealand's foreign investment framework. The OIO deals with proposals for foreign
investment in sensitive New Zealand assets. This definition encompasses
sensitive land, high value businesses (worth more than $100 million) and
Unlike FIRB, which is only empowered to advise the Treasurer on foreign
investment applications, the OIO has wider delegated powers. In respect of
proposals for foreign investment in sensitive land, some decisions authorising
investment have been directly delegated to the OIO by the Minister for Finance.
Further, decisions authorising foreign investment in significant business
assets have been directly delegated to the OIO. However, this delegation does
not extend to decisions rejecting a proposed investment. The full scope of
these delegations is outlined in a Designation and Delegation Letter,
the latest version of which was issued by the Minister for Finance in April
In direct contrast to FIRB, which does not publish the reasons behind
decisions to authorise or refuse foreign investment proposals, the OIO
publishes summaries of its decisions on its website. These summaries include
information about the individual or company proposing the investment and the
value of the investment itself.
Since the OIO publishes all of its decisions, New Zealand's foreign
investment review framework possesses a more 'positively focussed' character
than its Australian counterpart. Decisions are outlined and justified with
reference to the ways in which proposed foreign investments will benefit New
Zealand's national interest.
In the Australian foreign investment review framework, the concept of
the national interest is only publically invoked to provide a background to the
reasoning behind the rejection of a proposal for foreign investment, such as
the Treasurer's decision to block the sale of S.Kidman and Co Ltd. Australia's
foreign investment review framework, therefore, is based on a 'negative' test.
The OIO has the following broad functions and responsibilities, in
addition to those specifically delegated by the Minister for Finance:
receiving and processing applications;
consulting with government departments and other agencies, as
providing information about overseas investment to applicants and
the public generally;
monitoring approved applications for compliance with any required
conditions of consent; and
enforcing breaches of the Act and the relevant provisions of the
As a case in point, in a decision made in
December 2015 to authorise the sale of sensitive agricultural land, the OIO
justified its decision with reference to the criteria outlined in the Overseas
Investment Act 2005 and the Overseas Investment Regulations 2005. The case
involved a proposal by EGI-NZ Dairy LLC (100 per cent US-owned) to acquire 55
per cent of Dairy Farms NZ Limited, in order to fund the acquisition of
approximately 1,206 hectares of land at Otapiri. The decision was based on the
Overseas Investment Act 2005
17(2)(a)(iii) – Increased export receipts.
17(2)(a)(iv) – Greater efficiency or
17(2)(a)(v) – Additional investment for
17(2)(a)(vi) – Increased processing of primary
Overseas Investment Regulations 2005
28(d) – Owner to undertake other significant
28(e) – Previous investments.
28(g) – Enhance the viability of other
28(j) – Oversight and participation by New
Unlike Australia's foreign investment review framework, New Zealand's
OIA and its associated regulations provide specific criteria to guide
the assessment of proposals for foreign investment. If a foreign investor
applies to make an investment in sensitive land, then the following criteria,
made explicit in the Act, are applicable to a decision about whether the
proposal will be of benefit to New Zealand:
- If section 16(1)(e)(ii) applies, the relevant Ministers—
- must consider all the factors in subsection
(2) to determine which factor or factors (or parts of them) are relevant to the
overseas investment; and
- must determine whether the criteria in section
16(1)(e)(ii) and (iii) are met
after having regard to those relevant factors; and
- may, in doing so, determine the relative
importance to be given to each relevant factor (or part).
- The factors are the following:
- whether the overseas investment will, or is
likely to, result in—
- the creation of new job opportunities in
New Zealand or the retention of existing jobs in New Zealand that would or
might otherwise be lost; or
- the introduction into New Zealand of new
technology or business skills; or
- increased export receipts for New Zealand
- added market competition, greater
efficiency or productivity, or enhanced domestic services, in New Zealand; or
- the introduction into New Zealand of
additional investment for development purposes; or
- increased processing in New Zealand of New
Zealand's primary products:
- whether there are or will be adequate
mechanisms in place for protecting or enhancing existing areas of significant
indigenous vegetation and significant habitats of indigenous fauna, for
example, any 1 or more of the following:
- conditions as to pest control, fencing,
fire control, erosion control, or riparian planting:
- covenants over the land:
- whether there are or will be adequate
mechanisms in place for—
- protecting or enhancing existing areas of
significant habitats of trout, salmon, wildlife protected under section 3
of the Wildlife Act 1953, and game as defined in sections
2(1) of that Act (for
example, any 1 or more of the mechanisms referred to in paragraph (b)(i) and
- providing, protecting, or improving walking
access to those habitats by the public or any section of the public:
- whether there are or will be adequate
mechanisms in place for protecting or enhancing historic heritage within the
relevant land, for example, any 1 or more of the following:
- conditions for conservation (including
maintenance and restoration) and access:
- agreement to support the entry on the New
Zealand Heritage List/Rārangi Kōrero of any historic place, historic
area, wahi tapu, or wahi tapu area under the Heritage
New Zealand Pouhere Taonga Act 2014:
- agreement to execute a heritage covenant:
- compliance with existing covenants:
- whether there are or will be adequate
mechanisms in place for providing, protecting, or improving walking access over
the relevant land or a relevant part of that land by the public or any section
of the public:
- if the relevant land is or includes
foreshore, seabed, or a bed of a river or lake, whether that foreshore, seabed,
riverbed, or lakebed has been offered to the Crown in accordance with
- any other factors set out in regulations.
The Overseas Investment Regulations 2005 deepen
the criteria applicable to determining whether a foreign investment proposal is
of benefit to New Zealand. Regulation 28, provides additional criteria for
assessing the benefit of foreign investment in sensitive land.
Transparency and public confidence
The 'positively' focussed character of New Zealand's foreign investment
review framework, in which the criteria for decision making are legislated and
all decisions are published, means that the process is more open and
transparent than its Australian counterpart. In New Zealand's review framework,
both the general public and foreign investors are provided with more
information on the government's decisions in relation to foreign investment
proposals. The assessed national benefit of foreign investment in New Zealand
is made explicit.
In its submission, the Australia-China Relations Institute (ACRI)
maintained that one of the most important criteria for determining whether
Australia's national interest is being protected is the degree to which the
public's preferences are taken into account in the design of the review process.
According to ACRI, this is especially significant when FIRB considers proposals
for investment in assets that are of strategic importance or national
ACRI observed that one of the principal reasons for the inclusion of a
national interest test in the review framework was to reassure the public that
Australia's interests are being furthered through foreign investment, not
weakened or undermined. One of the central aims of the foreign investment
review framework is to assure the Australian people that foreign investment is
being effectively monitored and that it will produce significant national
ACRI explained that:
...when considering whether Australia's national interests are
being protected, the preferences of the public must be at the heart of this
assessment. This is particularly the case when assets of strategic or national
significance are being considered. All too often the debate around the foreign
investment review framework turns into one between economists and business
leaders on the one hand, who generally favour more liberalisation of the
regime, and security analysts on the other, who general favour more controls.
ACRI further observed that the available surveys of public opinion, such
as the Lowy Institute's 2012 poll
of public attitudes to foreign investment, have shown that Australians are
generally wary of foreign investment. The greatest concerns are reserved for
foreign investments in ports and agriculture.
ACRI concluded that any changes to Australia's foreign investment review
framework have to be clearly articulated by the Government, in order to
maintain the confidence of the Australian people.
Since Australia's foreign investment review framework is based on a
negative test, as opposed to New Zealand's approach of outlining the national
benefits of foreign investment, it is generally more difficult to ensure that
the review process is communicated to the Australian public in a transparent
and open manner. ACRI further observed that, in order to ensure that public
support for foreign investment is not eroded, the preferences of the Australian
people need to be incorporated into the review framework. The views of special
interest groups, including economist and national security specialists, should
not be accorded undue weight.
The US' framework: national
security and critical infrastructure
Unlike Australia’s foreign investment review framework, in which
applications for foreign investment are assessed on the basis of an
unlegislated national interest test, the foreign investment review framework of
the US is explicitly focussed on assessing the national security implications
of investment proposals. The legislated concept of national security extends to
critical infrastructure, such as ports and airports. On the basis of the Foreign
Investment and National Security Act 2007 (FINSA), the US equivalent of
Australia's FATA, critical infrastructure is defined as follows:
The term ‘critical infrastructure’ means, subject to rules
issued under this section, systems and assets, whether physical or virtual, so
vital to the United States that the incapacity or destruction of such systems
or assets would have a debilitating impact on national security.
The US counterpart of FIRB, the Committee on Foreign Investment in the
United States (CFIUS), assesses proposals for foreign investment with explicit reference
to national security.
CFIUS is charged with coordinating US policy in relation to foreign investment
and has responsibility, unlike FIRB, for identifying threats and risks to
national security that might flow from foreign investment in the US. On the
legislative basis provided by FINSA, CFIUS is authorised to assess any
transaction that comes under the definition of a 'covered transaction'. The
legislation defines 'covered transactions' as follows:
The term ‘covered transaction’ means any merger, acquisition,
or takeover that is proposed or pending after August 23, 1988, by or with any
foreign person which could result in foreign control of any person engaged in
interstate commerce in the United States.
CFIUS is an inter-agency committee within the Office of the President, and
generally comprises the heads of sixteen federal agencies, including the
Departments of Treasury, Justice, Homeland Security, Defence, State, Energy and
Commerce. Additionally, the Office of the U.S. Trade Representative and the
Office of Science and Technology Policy are also full representatives on the
committee. The Director of National Intelligence and the Secretary of Labor are
both ex officio members of CFIUS, with their respective roles and
responsibilities defined by statute and regulation.
Like FIRB, which operates without a statutory footing, CFIUS does not
possess the authority to independently block proposals for foreign investment.
Rather, CFIUS is charged with assessing the potential implications for national
security of foreign investment proposals, before recommending a course of
action to the President. In general, CFIUS has thirty days to conduct an
assessment of a proposed investment, and it is empowered to request additional
information from applicants, if this is determined to be necessary to fulfil
its legislated obligations.
If national security concerns are identified in the course of the
assessment, then CFIUS is authorised to extend its investigation by a further
fifteen days. It also has the delegated authority to negotiate a range of
mitigation measures to address any identified concerns:
If CFIUS finds that the covered transaction does not present
any national security risks or that other provisions of law provide adequate
and appropriate authority to address the risks, then CFIUS will advise the
parties in writing that CFIUS has concluded all action under section 721 with
respect to such transaction. If CFIUS finds that a covered transaction presents
national security risks and that other provisions of law do not provide adequate
authority to address the risks, then CFIUS may enter into an agreement with, or
impose conditions on, parties to mitigate such risks or may refer the case to
the President for action.
Unlike Australia's foreign investment review framework, potential
foreign investors are not required to notify CFIUS of their intentions.
However, if notification of a 'covered transaction' is not filed with CFIUS, then
the power of the President to intervene has no time limitation. By contrast, the
general timeframe for a presidential decision is fifteen days.
The President’s powers in cases where a notification is not filed are retrospective.
If a transaction is found to have national security implications after
the fact, then the President is empowered to order an individual or entity to
divest themselves of the asset.
In 2011, for instance, CFIUS recommended to President Obama that the proposed
acquisition of 3Leaf, a US technology firm, by the Chinese telecommunications
corporation Huawei should be blocked on national security grounds. In that
instance, Huawei, after being informed of CFIUS' decision, chose to voluntarily
withdraw its application before President Obama issued a divestment order.
Unlike Australia's foreign investment review framework, in which
national security considerations form part of a broader and negative national
interest test, FINSA makes explicit that CFIUS must launch a national security
investigation if a proposed investment could see US critical infrastructure
assets pass into the control of a foreign person. According to the requirements
laid out in FINSA, CFIUS must undertake an investigation if:
the transaction would result in control of any critical
infrastructure of or within the United States by or on behalf of any foreign person,
if the Committee determines that the transaction could impair national
security, and that such impairment to national security has not been mitigated
by assurances provided or renewed with the approval of the Committee, as described
in subsection (l)...
In the case of Australia's foreign investment review process, critical
infrastructure assets – including, for example, electricity transmission
networks like Transgrid – are not automatically treated differently than other
assets, such as general businesses or developed commercial land.
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