Since the advent of European settlement, Australia has been a net recipient of foreign investment. The Australian Bureau of Statistics estimates foreign-owned capital in Australia is currently around $3.9 trillion—comprised of debt, derivatives, and equity investment. By comparison, Australians invest about $3 trillion abroad.
Successive Australian governments have welcomed foreign investment on the grounds: it builds the economy and enhances the wellbeing of Australians by supporting economic growth, and introducing technologies, skills and innovation. It provides access to markets and promotes competition among industries. Without foreign investment, governments are of the view production, employment and incomes would be lower.
The only significant limit on foreign investment in Australia is the judgment of the Treasurer as to whether investments might be contrary to the national interest, and more recently, national security. Figures provided by the Foreign Investment Review Board show this rarely occurs: the vast majority of foreign investment that triggers a review by the Treasurer is found not to be contrary to the national interest.
While the committee recognises the importance of foreign investment to the Australian economy, the inquiry raised several areas of concern that lead it to question whether the community can have confidence all investments that are approved, whether with or without conditions, are not contrary to the national interest. These concerns arise from: the sophistication of the assessment of foreign investment proposals against the national interest; the ability to ensure entities meet the promises they make when proposing an investment; the effectiveness of the Treasury as a regulator; and the secrecy that surrounds the foreign investment process.
Foreign investment is crucial to grow the Australian economy but it does not necessarily follow that all foreign investment is equally productive. The current national interest test, which operates in the negative—an investment will be approved unless found contrary to the national interest—sets a low bar for the benefit expected from foreign investment. It is not the case that foreign investment always unleashes competitive forces, encourages reciprocal innovation, results in the direct transfer of advanced technology, or provides access to international supply chains. It may do these things, but there is no requirement in the assessment process that such benefits be promised or even delivered.
While some countries have negotiated more ambitious national interest tests and hold their investors to account for delivering the promised benefits, the terms under which Australia has negotiated a myriad of trade agreements would appear to prevent greater Australian ambition.
Nevertheless, there is much the regulator, the Treasury, can do to improve its oversight and enforcement of foreign investment conditions. Treasury appears to have latterly come to the table on the importance of monitoring, compliance and enforcement of conditions placed on foreign investment approvals. There remains doubt as to whether the Treasury has the knowledge, experience, and information management systems to appropriately regulate foreign investment in Australia.
At the very least, it would seem appropriate that if companies make undertakings they should be expected to follow through on these. So-called ‘voluntary undertakings’ made at the time an investor is seeking approval for an investment, but which later fail to materialise, make a mockery of Australia’s assessment process against the national interest and undermine community confidence in the foreign investment framework.
The committee urges the government to accept the findings and recommendations of this report in the spirit in which they are offered—to improve Australia’s foreign investment regime to ensure investments are not contrary to the national interest.