Defining Australian National Interests in Regulating Foreign Investments

Abstract

Definition of what constitutes the national interest test has been deliberately kept vague. The foreign investment test acts as a filtering mechanism where the burden of proof regarding incoming foreign investments being against national interests rests with the Government, not with the investor. Whilst rejection of foreign investment proposals is uncommon in Australia, there have been some high profile refusals such as the ASX-SGX deal and the proposed bid by Royal Dutch Shell for Woodside petroleum. The primary reason cited for refusals on national interest grounds is when prospective parties are perceived to have reduced interests in developing Australian assets ahead of other global interests. Recently, Argentina (another country endowed with natural resources) used a similar rationale to nationalise YPF (an oil and gas giant in which Spanish concern Repsol held a majority stake). The reasons cited for this action was that Repsol was channelling profits out of the country through dividend payments and underinvestment in the company to develop the oil reserves in the country. Even though Australia has not nationalised foreign investment in recent times which Argentina has done, the underlying rationale is the same – application of an opaque and abstract standard that can be applied in a non-transparent and politically expedient manner with no recourse to accountability. This paper discusses the possible changes in the Australian approach to national interest in foreign investment and argues for the Australian national interest test to be precisely defined while streamlining the role of the Treasurer in the decision making process.