Ausbuy

Foreign Investment In Australia

April 15th, 2008

Recent investments by foreign interests (in some cases government controlled) in companies like BHP and Rio have brought this subject to the fore. I would like to start this article by stating Ausbuy’s position as follows:

Ausbuy does not oppose foreign investment in Australia that meets all or most of the following criteria:

• Brings new technology or expertise that Australia does not have.
• Introduces new capital to Australia - i.e. is not paid for by local loans secured by a foreign guarantee.
• Australia’s tax base is protected by clearly setting out their policy on intellectual property and overseas charges.
• Will encourage export or import substitution.
• Are genuine commercial transactions and not made by companies controlled by foreign governments (sovereign wealth funds).

In the past Australia was protected by the foreign investment review laws, but over the past 20 years they have fallen into disuse. The FIRB can oppose the investment as not being in the national interest and the Treasurer can then veto it. The Free Trade Agreement with the USA watered these laws down for US companies and gave out a signal that they were negotiable. We now have a climate of uncertainty and, when the Treasurer does veto an investment, we are exposed to the danger of trade retaliation which would not be the case if our policies and criteria were made clear in advance.

The recent take over bid by BHP for Rio Tinto to produce the world’s largest miner, and the involvement of Chinese interests and their purchase of potentially blocking share holdings, highlights some of the problems that will be faced. The record of mega mergers producing the synergies and savings promised is appalling and I do not think that combining BHP and Rio Tinto would be any different. The most likely result would be the production of a fat and lazy monster relying on market power to improve profits. This pricing power would worry China, Japan, India, USA and the EU. It can hardly be good for BHP to have the governments of the worlds major economic powers concerned about your attempts to gain excessive pricing power. No doubt they will wrap themselves in the Australia flag and try to involve our government in any disputes with other countries.

Whatever the results of this exercise in corporate engineering, it highlights the need for a clearly understood policy on the purchase or control of Australian companies by overseas interests - particularly the government of another country. While we oppose the merger of BHP and Rio Tinto on the grounds of excessive market power, our main concern is the involvement of overseas interests. We believe that there is a need for a revision of both the merger and foreign investment review laws.

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