EDITORIAL: by Peter WestmoreNews Weekly
Foreign investment or foreign takeovers?
, November 23, 2013
The $3.4 billion takeover bid for Australia’s largest grain-handler, GrainCorp, by American agribusiness giant Archer Daniels Midland (ADM) has brought into stark focus the issue of foreign ownership of Australian businesses.
The federal Treasurer, Joe Hockey, will decide by mid-December whether to allow the takeover to take place, caught as he is between growing concerns about the implications for Australian agriculture of this takeover (see pages 5–7), and free-market advocates’ views that there should be no restrictions on foreign ownership of Australian companies.
The controversy over foreign ownership has descended into name-calling, with one media commentator describing opposition to the takeover as the hysterical rants of agrarian socialists, and the CEO of GrainCorp describing misgivings about the takeover of the Australian grain-handling giant as “pure fantasy”.
The fact is that every developed country has laws which restrict foreign ownership of key assets: the only question is where to draw the line.
The United States, for example, is widely regarded as a country which imposes few restrictions on foreign investment, and is a country with which Australia has a free trade agreement.
However, a 2013 report, prepared by the US Congressional Research Service, listed blanket restrictions on investment in particular industries, including the maritime industry, the aircraft industry, banking, resources and power, and businesses which are parties to government contracts (Source: Foreign Investment in the United States: Major Federal Statutory Restrictions, July 2013).
Investment in other parts of the U.S. economy, such as the media, are subject to national interest tests.
Looked at in this light, the restrictions on foreign ownership in Australia are relatively few.
According to the Treasury’s official statement, Foreign Investment Policy, Australia welcomes foreign investment because it “has helped build Australia’s economy and will continue to enhance the well-being of Australians by supporting economic growth and prosperity”.
However, Australia has restrictions on foreign ownership in selected sectors, including the major banks (the “four pillars” policy), Qantas (49 per cent), Telstra (35 per cent), and major international airports (49 per cent).
Foreign government investors must notify the government and get prior approval before making any direct investment in Australia, regardless of the value of the investment.
Takeovers of Australian companies valued at $248 million or more — such as GrainCorp — are subject to government approval, except for takeover bids originating from New Zealand and American companies, for which the limit is $1,078 million.
Where approvals are discretionary, the government applies a broad national interest test.
This test has been applied to the Chinese telecommunications company, Huawei, which wanted to participate in the National Broadband Network rollout. The former Labor government, on the advice of Australia’s security agencies, declined to give its approval.
One aspect of the national interest test is whether an investment will affect Australia’s ability to protect its strategic and security interests, which includes food security.
Another is the effect on competition. Since the deregulation of the Australian wheat market, a number of potential buyers of Australian farmers’ wheat have emerged. However, having acquired Vicgrain (Victoria) in 2000, Grainco (Queensland) in 2003 and Hunter Grain in 2007, GrainCorp is the largest single player in the market, and is the owner of port and grain-handling facilities around the country.
Its acquisition by an American agribusiness would mean that decisions on pricing and access to its grain-handling facilities would be made overseas. The grains group of the Victorian Farmers Federation has spent months seeking written assurances from ADM as to how it proposes to operate GrainCorp, as it has potential to significantly impact its rivals’ access to port and handling facilities.
The VFF said it is particularly concerned that ADM attempted to introduce a “closed-loop” system in Australia which is a feature of American grain-exporting, where exporters predominantly buy into their own bulk-handling system and export from them, excluding other exporters. So far, the VFF has received no satisfactory response.
Other issues that the federal government will take into account include the impact on future tax revenues, its impact on the economy, the level of future Australian participation in the business, and the interests of employees.
A final consideration is the character of the investor, as in the government’s following stipulation: “The Government considers the extent to which the investor operates on a transparent commercial basis and is subject to adequate and transparent regulation and supervision.”
As a whole, Australia’s foreign investment rules are far less restrictive than most other countries, and, like other countries, Australia imposes a national interest test on foreign takeovers.
The GrainCorp takeover bid will show how serious the government is in protecting the national interest.
Peter Westmore is national president of the National Civic Council.