The Age today published new Wikileak revelations about the Foreign Investment Review Board (FIRB) and it’s policy vis-a-vis China:
Canberra’s foreign investment regulator has privately admitted that it is seeking to limit investment from China in response to political concern about the control of Australia’s strategic resources.
Contrary to the federal government’s claims that it supports a non-discriminatory foreign investment policy, the secretive Foreign Investment Review Board has told US diplomats that new guidelines approved by Treasurer Wayne Swan signalled ”a stricter policy aimed squarely at China’s growing influence in Australia’s resources sector”.
The anti-China rationale was set out by Patrick Colmer, Treasury’s foreign investment division head and an executive member of FIRB, in confidential discussions with US embassy officers in late September 2009.
The embassy report of Mr Colmer’s remarks, titled ”New Foreign Investment guidelines target China”, is among embassy cables leaked to WikiLeaks and provided to The Age.
Based on Mr Colmer’s briefing, US diplomats reported that the Australian government privately wished to ”pose new disincentives for larger-scale Chinese investments”.
On August 4, 2009, Mr Swan announced changes to Australia’s foreign investment laws to increase the threshold for mandatory review of proposals – so that private overseas businesses buying a stake greater than 15 per cent in companies valued below $219 million could proceed without review. (With annual indexation, the threshold was raised to $231 million on January 1 this year.)
The new threshold was more than double the old $100 million mark that would trigger FIRB scrutiny and Mr Swan said these measures would ensure the government would not become unnecessarily involved in uncontroversial business transactions.
At the time the Treasurer denied that exclusion of foreign state-owned companies from the new threshold discriminated against future Chinese investment. ”There’s never been a threshold for foreign government or state-owned enterprise investments, so nothing changes there for anybody,” he said.
”It’s not related to any particular country – the rules are the same for everybody – this is a change in the rules for lower-value applications for private business investment.”
Trade Minister Simon Crean also rejected any suggestion that the government was inclined to discriminate against Chinese investment in Australia’s resource sector. ”We run a non-discriminatory policy,” Mr Crean said in a radio interview in October 2009. ”Large investments from whichever source have to meet a national interest test and there has been huge approval of Chinese investment into Australia.”
In private talks with US embassy economic officers, however, the FIRB confirmed the government’s preference for minority foreign shares in new resources projects, with the foreign share of greenfield developments limited to below 50 per cent, and around 15 per cent for major mining companies.
”FIRB general manager Patrick Colmer confirmed … the new guidelines are mainly due to growing concerns about Chinese investments in the strategic resources sector,” the US embassy subsequently reported to Washington.
This blogger has written before that it agrees with regulation that prevents market failure. For instance, it believes that the Federal government was perfectly within its rights to have actively canned the 2009 Chinalco takeover of Rio because it unbalanced the dynamic between supplier and customer in bulk commodity negotiations. On the same rationale, it should also have canned the proposed BHP takeover of Rio the year before. Policy crafted in this manner would have prevented:
The whole freakin’ debacle, the lobbying, the secret deals, the blurring of national and corporate interests, the damage to BHP’s and Rio’s reputations, could have been avoided if the Australian government had knocked the original merger back on the basis that it was anti-competitive, as it should have done.
Today, we would be in exactly the same position, with an effective two-pillar policy for the iron ore market-makers, but without all of the waste and damage.
And that’s the point this blogger wishes to expand upon today. This Labor government seems obsessed with doing things behind closed doors to the detriment of business and democracy.
Witness, during the 2008 GFC, the entire banking bailout was negotiated with business interests behind closed doors. We still don’t knows many details, a phenomenon this blogger describes as “Invisopower!” which, it argues, leaves the banks operating in an uninformed market.
Then throughout 2009, the Rudd Government negotiated its original Carbon Pollution Reduction Scheme (CPRS) behind closed doors. The policy was announced up front, and an endless procession of special exemptions were struck with business interests as they traipsed to Canberra. The carbon tax looks set to be implemented in the same way.
The same approach was adopted with the Resource Super Profits Tax (RSPT). Only the negotiations didn’t proceed fast enough and the business interests publicly attacked the government. The special exemptions were then negotiated with a gun shy new Prime Minister.
Now we have these revelations about FIRB and Labor’s secret need to keep Chinese interests at bay.
All of these episodes have the consequence of encouraging rent-seeking in business. In an economy dominated by concentrated monopolies, duopolies and oligopolies this is a red rag to a bull. Why compete when you can simply lobby or pressure the government to prevent competition. Even as both you and the government trumpet your “free market credentials”.
Then there is the small consequence of our fraying democracy.
One wonders where this political culture comes from. It is tempting to see it as the triumph of state political practice over federal. After all, state politics is basically the business of negotiating with interests and Labor has been doing it in the major jurisdictions without much interruption for a long time. Kevin Rudd came from state politics, as did the new wave of number crunchers. Any reader analysis in this regard would be welcome.
Give us all a break, Labor, start doing business in public.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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