Govt rejects call to tighten foreign investment conditions

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Joseph Brookes

The federal government has formally rejected a recommendation to tighten the rules around foreign investments, despite a Senate committee hearing evidence voluntary undertakings are being flouted by overseas companies.

Labor, the Greens and Independent Senator Rex Patrick last year recommended undertakings made as part of a foreign investment application be enforceable as conditions on an investment approval, with consideration to be given to making the details public.

The recommendation was one of three from an 18-month inquiry into major foreign investment proposals, which heard evidence the current voluntary undertaking approach had failed to secure the additional benefits promised by foreign companies, including a 2016 Chinese deal approved and endorsed by then-Treasurer Scott Morrison.

Treasurer Josh Frydenberg approves foreign investment application on the advice of the Foreign Investment Review Board

Chinese-owned Moon Lake Investments were cleared to acquire land and assets of the largest dairy farm in Australia for a reported $280 million.

Mr Morrison approved the deal, saying it passed the national interest test because it supported local jobs and he had secured undertakings from the company for additional investment in the farms, which would nearly double jobs and generate $100 million in additional investment.

However, in 2020, following several Moon Lake board resignations and a corporate restructure, it was revealed the company was yet to meet several of the commitments, including investing only a fifth of the additional investment.

Almost all the dairy farms were later found to have significant compliance issues and the company received warnings it was damaging nearby waterways.

Despite this evidence and similar concerns about other foreign investment deals, the federal government is not looking at major reforms.

On Monday, more than seven months after receiving the committee’s findings, the government rejected the top line recommendation and many others made by Rex Patrick to increase transparency on approvals and applications, including foreign companies tax record.

The government response points to existing conditions of foreign investment which were tightened in 2020 but are limited to ensuring a deal is not contrary to the national interest or a threat to national security.

The government said the Treasurer can accept enforceable undertakings and generally publishes these online but noted they may not always do so if it is deemed to damage the national interest.

However, the government did not support the committee’s recommendation to amend regulations so undertakings made as part of a foreign investment application can be enforced as conditions on an investment approval more widely.

The response did support in principle the recommendation to conduct an audit of the expertise of foreign investment regulators, and noted the Productivity Commission’s call to reconsider the best approach to foreign investment regulation, with the government backing the continued role for Treasury.

The government did not fully support any of the eight other recommendations in the report from independent senator Rex Patrick and the Greens.

The government rejected Mr Patrick’s calls for the publication of foreign investment applications and approvals and their voluntary undertakings, and only “noted” the recommendation that applicants should be required to define their corporate structures and these be published by government.

The Greens’ gained partial support for a call to give greater recognition to First Nations people and their sovereignty including a treaty, although the government did not commit to anything new.

All the Green’s other recommendations including approval transparency, retaining and divestment powers for breaches of conditions and better disclosure on deal beneficiaries were not supported.

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