Chapter 5
Committee view and recommendations
5.1
The Port of Darwin lease process brought to light serious concerns
regarding the foreign investment review framework and the process that underpins
it. These concerns resurfaced in relation to the Transgrid and S. Kidman and
Co. matters.
5.2
The committee recognises the validity in retaining the broad and
unlegislated character in respect of the national interest test. Yet such
flexibility must be balanced by a clear, consistent and rigorous procedure for
assessment that is publicly accountable. In short, flexibility should not come
at the expense of both consistency and transparency. While the committee
appreciates FIRB's concerns that a fully codified review framework could be
counterproductive and overly restrictive, there is considerable scope for
greater clarity regarding the process and its outcomes.
5.3
During the course of the inquiry, the committee heard from a wide range
of stakeholders who engage with the foreign investment review process. Their
concerns, which are shared by the committee, focus on the lack of transparency
in relation to the process and its outcomes. The concerns regarding the foreign
investment review process in relation to various investment decisions,
including the Port of Darwin, Transgrid and S. Kidman and Co. matters, went to:
-
the lack of consistency, procedural rigour and a clear assessment
review process;[1]
-
an overall lack of transparency and clarity regarding the steps
in the process as well as the overall outcome, which creates an impression that
decision making is subjective, lacking adequate focus on security or other key
considerations, and is open to interpretation;[2]
-
the limited publicly available information regarding the
reasoning for decisions given to investors and the Australian public, beyond
what the Treasurer chooses to publicise;[3]
and
-
thresholds in relation to agricultural land and agribusinesses, which
lack consistency due to varying FTA obligations[4]
and a conscious decision of the Abbott-Turnbull Government to impose
differential thresholds.
5.4
The overall outcome of these elements is a process that may serve as a disincentive
to foreign investors and continue to undermine public confidence in foreign
investment in Australia.
Consistency and transparency
5.5
The committee welcomes the Treasurer's recent announcement regarding an
agreement with the states and territories to subject critical infrastructure
assets to FIRB review. The need for such reform was overdue. The committee
recognises that these proposed changes were largely triggered by ongoing public
concerns regarding the review process, particularly in relation to the Port of
Darwin lease, as well as declining public confidence in foreign investment
decisions.
5.6
Indeed, the Port of Darwin lease remains a matter of contention and
public debate. Questions remain unanswered regarding the review process and the
terms of the lease. As a case in point, it is not clear to the committee why
$506 million was received for the lease while $390 million was referred to in
the lease documentation. While the committee has put this question to the
Northern Territory Government, it is yet to receive a response. Furthermore,
it is not clear to the committee how the Australian Defence Force will retain
access to the port beyond the maximum 25 year period specified in the Deed of
License.[5]
Since the Port of Darwin was leased to Landbridge for a period of 99 years,
this is a significant disparity.
5.7
Although the committee recognises the importance of confidentiality in
the foreign investment review process, especially in relation to information
that is 'commercial-in-confidence' or security classified, the evidence provided
during the inquiry suggests that the assessment process is seen by many
stakeholders as predominantly ad hoc, with little indication of how important
criteria, such as the national interest test, are interpreted by the Treasurer,
FIRB and other government agencies. In particular, a number of witnesses, such
as ASPI, AMC and Mr Troy Setter, observed that one of the chief weaknesses of
the current assessment process – from both national security and economic
development perspectives – is the fact that stakeholders have little information
about either the criteria that will be applied or the weighting that is given
to them.[6]
At the heart of such criticism is the lack of consistency and transparency in
the processes that underpin the foreign investment review framework.
5.8
To this end, the committee recommends that Treasury, in consultation
with other departments and in cooperation with FIRB, identify and make public some
of the elements or key features of the assessment process, in order to
introduce greater transparency and openness into Australia's foreign investment
review framework.
5.9
The committee takes the view that providing more public information
about the assessment process will go some way to explaining to potential
investors and the Australian people the government's rationale for a
differentiated system of investment thresholds, including differences that are
a direct result of Australia's FTA obligations.
Recommendation 1
5.10
The committee recommends that Treasury publish guidance about the
foreign investment review assessment process including information on the steps
and features of the process.
Public information and public
confidence
5.11
A primary aim of the foreign investment review framework is to assure
the Australian public that foreign investment is not only subject to ongoing
and effective monitoring but that it will also produce significant national
benefits. To this end, the Australian public needs to be assured that
Australia's national interests are protected.
5.12
While much of the focus in relation to the review process has centred on
the tension between economic interests and security concerns and the respective
views in support of liberalisation, on the one hand, or greater controls, on
the other, it is government which must weigh up the various considerations and
make a determination in accordance with public preference. Yet in order to make
such a determination, government must keep the public informed about both the
process and the rationale for its decisions.
5.13
The point was made in evidence that, as 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 more
difficult to ensure that the review process is communicated to the Australian
public in a transparent and open manner.
5.14
The committee takes the view that much of the public concern regarding
foreign investment in Australia would be alleviated if there was some
transparency in relation to the decision making process. However, little has
been done to instil public confidence in the process. This has made the task of
ascertaining public preference, which should be central to determining whether
Australia's national interest are being met, difficult if not impossible. For
these reasons, the committee recognises the need to build public confidence in the
foreign investment process and recommends that the Treasurer provide public
information on foreign investment decisions regardless of whether they are
positive or negative.
5.15
The committee recognises that FIRB's New Zealand counterpart, the
Overseas Investment Office, publishes both positive decisions and negative
decisions regarding foreign investment. While allowing for the review of
proposed foreign investment, the New Zealand system sets out legislated
criteria for determinations and, by providing its reasoning for approvals or
rejections, helps to instil public confidence in the process. The committee
recommends that a similar process be introduced in Australia.
5.16
To this end, the committee recommends that the Treasury publish information
regarding both positive and negative decisions regarding foreign investment
review decisions. Drawing on the New Zealand example, the Treasury should
publish a clear and comprehensive explanation of the national interest
rationale behind the Treasurer's decision not to object to a foreign investment
proposal; to block a proposed investment; or to allow an investment to go ahead
provided that certain specified conditions are met. If conditions are attached
to a proposal, then the published decision should outline the nature of these
conditions and how the will benefit the national interest.
5.17
The committee takes the view that consistent and comprehensive
communication is the key to ensuring that the Australian people are fully
informed of the national benefits of foreign investment. This will go some way
to allaying public concerns and misconceptions about foreign investment, and
will thereby provide the government with a mechanism to gauge public
perceptions of foreign investment in Australia.
Recommendation 2
5.18
The committee recommends that the Treasury publish the Treasurer's
rationale behind both positive and negative decisions regarding foreign
investment, in order to inform the public and to instil public and investor confidence
in the review process.
Agricultural Land Register
5.19
The committee notes recent media reporting which suggests that the
Agricultural Land Register, which was introduced to provide data on all
purchases, sales and transfers of Australian agricultural land by foreign
persons, might not be made publically available.[7]
The committee understands that the ATO has declared that it cannot publish
detailed breakdowns of foreign interests in agricultural land if doing so would
identify a tax payer or make their details public.[8]
5.20
However, the committee notes that the Government committed itself to the
creation of the Agricultural Land Register in order to introduce a greater
degree of transparency and scrutiny into Australia's foreign investment review
framework in relation to agricultural land.[9]
While the committee recognises that there are privacy limitations on the type
of information that the ATO can publish, greater scrutiny and transparency in
relation to the foreign investment review framework can only be achieved if the
Agricultural Land Register is made public. Furthermore, the usefulness of the
Agricultural Land Register to increasing public confidence in the foreign
investment review process is dependent on as much information as possible being
made available to the Australian public and to foreign investors.
Recommendation 3
5.21
The committee recommends that the Australian Government establish
a publicly available Agricultural Land Register for all foreign-owned
agricultural land to increase public confidence in Australia's foreign
investment review framework and its effectiveness in safeguarding Australia’s
long term economic and security interests.
Proposed lease of Ausgrid
5.22
Given recent developments in the Ausgrid lease process, especially in
relation to the regulation of the tariffs that energy distribution networks are
entitled to charge, a number of significant additional issues have arisen in
relation to the NSW Government's proposed lease of Ausgrid.[10]
In particular, the committee understands that uncertainty over the regulatory
environment might lead to potential bidders lowering their offers for the 99-year
lease of 50.4 per cent of Ausgrid.[11]
5.23
In order to undertake an examination of the foreign investment review
framework in relation to the proposed lease of Ausgrid, the committee
recommends that the Senate extend the inquiry reporting date.
Recommendation 4
5.24
The committee recommends that the Senate extend the inquiry
reporting date to 28 April 2016.
Senator Chris Ketter
Chair
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