Australia has unveiled a stricter national security test for foreign investments, in the biggest shake-up of the country’s rules in four decades.
The proposed rules give the government broader authority to reject deals based on national security grounds, with Josh Frydenberg, the Australian treasurer, warning that some governments were pursuing deals with “strategic objectives, not purely commercial ones”.
The new regime includes a “last resort” power, which would give the Australian finance minister the ability to impose conditions or force a divestment after a deal had been approved by the Foreign Investment Review Board.
“These reforms will ensure that our foreign investment framework keeps pace with emerging risks and global developments,” Mr Frydenberg said on Friday.
The launch of the new regime follows the introduction of emergency measures in March, driven by worries that the coronavirus pandemic would make some essential industries vulnerable to takeover bids. Analysts and some MPs have warned that sensitive sectors could be vulnerable to takeover by authoritarian regimes, including China, Australia’s biggest trading partner. Mr Frydenberg denied this at the time.
Under the current regime, deals worth more than A$275m ($190m) have to be screened. The threshold for countries that have a free trade agreement with Australia, such as China, is $1.1bn.
The broader national security powers underpinning the new rules would relate to “sensitive national security business”. The government has yet to outline how it will define the term.
The rules will be applied in addition to measures imposed on industries already defined as “sensitive business”. This includes sectors such as media and telecommunications, and companies that serve Australia’s defence industries.
China and Australia have been engaged in a war of words in recent weeks. Canberra has called for an inquiry into the origins of coronavirus and Chinese diplomats have threatened a boycott of Australian products.
“It’s naive to think China isn’t a significant focus of the government’s attention when it comes to reviewing transactions, however these changes are long overdue,” said Deborah Johns, a partner at Gilbert + Tobin, a law firm in Sydney.
Ms Johns said having a more pointed term to address national security would provide clarity for foreign investors but posed a challenge for the government to come up with a suitable definition.
“There have been steps taken by a lot of different countries to modernise their regimes to deal with technology changes and to meet an expanding concept of national security,” said Ms Johns. “What is happening with the rules in Australia is very consistent with what has happened in other parts of the world.”
The proposed rules will be submitted in draft legislation next month.
Source: Economy - ft.com
