Ideas@TheCentre
Australian FDI Policy: Too Restrictive for Chinese Central Planners?
The Treasurer’s conditional approval of Minmetals acquisition of OZ Minerals’ assets under the Foreign Acquisitions and Takeovers Act (FATA) marks what may well be a new era in foreign direct investment (FDI) protectionism. Indeed, the Treasurer’s press release states explicitly that the conditions and undertakings required of Minmetals ‘are designed to protect around 2000 Australian jobs.’ Some of these conditions, such as the requirement to ‘comply with Australian industrial relations law and honour employee entitlements’ are legal obligations of any company operating in Australia, regardless of ownership. The reporting requirements imposed on the company are also already required under the Corporations Act. These conditions are thus completely redundant and illustrate how scrutiny of FDI under the FATA adds nothing to the regulation of business investment in Australia. The FATA’s only real purpose is to serve as a vehicle for political intervention in the market for foreign ownership and control of Australian equity capital.
In OZ Minerals case, political intervention has resulted in some extraordinarily prescriptive conditions in relation to both corporate governance and operational matters ‘subject to project feasibility and economic fundamentals permitting.’ Since there is no legal or other basis for determining ‘economic fundamentals’, these conditions are meaningless, except that the Treasurer has powers under the FATA to order divestment by foreign persons. The conditions could conceivably be used to rationalise a future divestment order, but there is no need to demonstrate a breach of these undertakings for the Treasurer to exercise his powers under the Act.
The government is sending increasingly strong signals to prospective foreign investors that they will have to conduct their business operations in Australia in accordance with politically-determined requirements and objectives rather than according to the rule of law. With a seemingly bipartisan consensus in favour of FDI protectionism in Australia, foreign investors could be forgiven for looking elsewhere. Indeed, China’s National Development and Reform Commission withheld approval for Hunan Valin Steel’s bid for 17% of Fortescue Metals Group, on the grounds that Canberra’s conditions were too onerous and set a bad precedent. Australia’s regulation of FDI offends even Chinese central planners.
Dr Stephen Kirchner is an economic Research Fellow at the CIS.
