Australia’s new rules on foreign takeovers that inflame relations with China

Prime Minister Scott Morrison has outlined new rules regarding foreign takeovers, saying investment in Australia “must be on our terms”.

Prime Minister Scott Morrison has outlined a tough new national security test for foreign takeovers that is set to inflame relations with China.

The decision follows a dramatic increase in the number of foreign investment bids probed by Australia’s spy agency ASIO, over fears that China was spying on sensitive health data.

After weeks of increasingly shrill threats from China to slap new tariffs on Australian exports, the Morrison government has outlined new powers to force foreign companies to sell their assets if they pose a national security threat.

But the new laws will not be retrospective, and as a result will not empower the Morrison Government or future governments to take action over China’s controversial control of key Australian infrastructure, including the Darwin Ports.

Speaking on Friday morning, Mr Morrison said: “Investment in Australia must be on our terms, on our rules and in our interests.

“That has always been the strong position of our Government.

CHANGES WON’T INFLAME CHINA TENSIONS

The Prime Minister said he saw no reason why the new rules should inflame tensions with China.

“No, I don’t believe they should. Countries make decisions on their own interests for their own rules and we respect the rules,’’ he said.

“Australia will always design its foreign investment rules on that basis as other countries do. I don’t think there is anything extraordinary about that.”

The Prime Minister confirmed that the Northern Territory’s original sale of the Darwin Ports was conducted without the approval of the Commonwealth and suggested it would not happen under current rules.

“There is a lot of misunderstanding about the Darwin port case,’’ he said.

The Darwin port was not sold with the approval authority of the Commonwealth government. It was not.

“The wisdom of that decision or otherwise can only be explained by the Northern Territory government at that time which was different to the government we have today.”

Labor’s treasury spokesman Jim Chalmers said the opposition had not been briefed on the proposed foreign investment changes and would now work through the details.

“But on the face of it, these seem to be reasonable steps,’’ he said.

REFORMS ‘ABSOLUTELY CRITICAL’

Treasurer Josh Frydenberg said the reforms was “absolutely critical to Australia’s economic prosperity”.

“One in 10 Australian jobs are created by foreign investment. Foreign investment brings skills and expertise to our country,” he said.

“And foreign investment has benefited every sector of the Australian economy from mining to agribusiness, financial services to tourism.

“Of the nearly $4 trillion of foreign investment in our country, more than 20 per cent comes from the United States. More than 10 per cent from each of the United Kingdom and Japan.

“And a little over 5 per cent China. Our foreign investment regulatory framework has always sought to strike a balance between, on the one hand, welcoming and inviting foreign investment to this country but on the other ensuring that those foreign investment proposals that succeed are in our national interest.”

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The crackdown follows an indefinite restriction slapped on foreign investment bids in March, after several Chinese-owned companies in Australia were linked with exporting tonnes of medical supplies and shipping them back to China.

These temporary measures to the foreign investment thresholds will remain in place for the duration of the coronavirus crisis and until the new proposals are legislated.

But the Morrison government insisted the new reforms, which will include extraordinary new powers for the Treasurer to force foreign companies to divest their assets, do not relate to the coronavirus pandemic.

Treasurer Josh Frydenberg. Picture: AAP/Mick Tsikas

“Through the introduction of a new national security test, stronger enforcement powers and enhanced compliance obligations, we will ensure that Australia can continue to benefit from foreign investment while safeguarding our national interest,” Mr Frydenberg told news.com.au.

“It is vital that the government have the ability to call in an investment before, during or after acquisition for review if it raises national security concerns.”

The reforms follow a power struggle within the public service between the “two tribes” of the public service mandarins in Treasury and the Department of Foreign Affairs, who are regarded as pro-foreign investment, versus the national security agencies that have grown increasingly concerned over Chinese foreign influence and investments in Australia.

It follows the ongoing furore over China’s 99-year lease deal to control the Darwin Ports and concerns Chinese companies purchasing health data companies could end up controlling sensitive medical records of Australian soldiers.

Nationals MP George Christensen has urged the Prime Minister to threaten to force China to divest the asset, a suggestion Mr Morrison has brushed off.

Mr Frydenberg insisted Australian remained welcoming of foreign investment to create jobs.

“Australia has an enviable track record when it comes to welcoming foreign investment from around the world,” he said.

“These reforms will not change that. Our principles will remain the same and we will continue to adopt a non-discriminatory approach that sees proposed investments assessed on a case by case basis.”

Prime Minister Scott Morrison speaks during Question Time in the House of Representatives at Parliament House. Picture: Tracey Nearmy/Getty Images

But in an overhaul the Morrison government describes as the most significant reforms to foreign investment laws since 1975, the Treasurer will be invested with significant new powers including:

• A time-bound power that will enable the Treasurer to ‘call in’ an investment before, during or after an acquisition for review if it raises national security risks and was not captured by the sensitive national security businesses’ definition.

• A national security last resort review power, enabling the Treasurer to apply, or vary conditions, or order disposal of approved foreign investments where national security risks emerge post-approval.

• The last resort power will not be retrospective and will only be applicable to any future foreign investment that is reviewed under the Foreign Acquisitions and Takeovers Act 1975.

• Stronger penalties, compliance and enforcement powers

The reforms mirror action taken in Canada, the EU, Japan, New Zealand, the UK and the US to update their foreign investment rules.

The changes have been developed in consultation with the Chairman of the Foreign Investment Review Board, Mr David Irvine AO.

Mr Irvine has previously led the nation’s top spy agencies as a former Director‑General of the Australian Security Intelligence Organisation and the Australian Secret Intelligence Service.

“The package appropriately addresses increasing risks to the national interest whilst ensuring Australia remains welcoming and open to foreign investment,” he said.

Mr Irvine has previously flagged concerns over foreign takeovers of companies engaged in new technology and data collection companies.

“The protection of sensitive data is becoming the issue du jour — and not just sensitive national security data,” Mr Irvine said in a speech to the Australia China Business Council in Sydney last year.

“In recent years, FIRB has seen an increased number of foreign investment proposals seeking access to data centres and other facilities which house or have access to sensitive private data about Australians.”