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Thursday, 20 August 2009
Page: 8473


Mr SWAN (Treasurer) (9:23 AM) —I move:

That this bill be now read a second time.

Today I introduce legislation to improve the integrity of Australia’s foreign investment screening regime.

The Foreign Acquisitions and Takeovers Amendment Bill 2009 clarifies the operation of the Foreign Acquisitions and Takeovers Act to ensure that the government has the capacity to examine all substantial investment proposals that could potentially raise national interest concerns.

The government welcomes and encourages foreign direct investment because of the benefits that it provides to the Australian economy.

Foreign investment creates new job opportunities for Australians, encourages innovation and skills development, introduces new technologies and promotes competition amongst our industries.

Foreign investment has helped build the competitiveness of our economy and will continue to do so into the future.

The Foreign Acquisitions and Takeovers Act 1975 seeks to get the balance right between encouraging investment into Australia and ensuring that the government can review significant foreign investment proposals and intervene where these could undermine the national interest.

The act requires foreign investors to notify the government of their transactions in certain circumstances and empowers the Treasurer of the day to block, or place conditions upon, those proposals that could be contrary to the national interest.

The act focuses on situations where a foreign investor obtains substantial influence or ‘control’. Overall, the current provisions in the act that deal with control have worked well, and its approach remains sound.

However, since the act was drafted in the 1970s, more complex investment instruments have evolved.

The use of innovative financing arrangements has been a growing feature of investment activity over recent years. These arrangements have highlighted that ownership interest and control can be held in a variety of forms other than through traditional shares and voting power.

While these types of investment arrangements have a solid commercial basis, they have raised questions around the act’s full application.

It was for this reason that the government announced earlier this year that we would amend the act, to safeguard its policy intention.

The bill clarifies that under the act, foreign investors must notify the government where the investment arrangement could deliver influence or control over an Australian company valued above the relevant monetary threshold.

And the act will apply equally to all investments, irrespective of how they are structured.

The amendments specifically include transactions involving instruments that eventually convert into shares.

This will be achieved by first, expanding the definition of ‘voting power’ so that it covers the number of votes that could be cast if it is assumed that a future right is exercised.

And second, by clarifying where the act deals with interests in shares. The act currently provides that a person is deemed to hold an interest in a share if they have a right to acquire a share or to have a share transferred to them.

The bill clarifies that a right can include a right under an instrument, agreement or arrangement, whether the right is exercisable presently or in the future and whether on the fulfilment of a condition or not.

The amendments are designed to capture all significant foreign investments that have the potential to provide substantial influence or control over an Australian company.

These amendments are not the result of any one investment proposal. They ensure the foreign investment framework keeps pace with the changing nature of foreign investment proposals and with trends that were evident some time before this government was elected.

The amendments in this bill apply from 12 February 2009—the date that I announced the changes—to provide certainty around the act’s application.

To ensure that investors are not unfairly affected by the retrospective start date, the bill includes transitional provisions that apply in relation to business proposals and transactions that occurred between 12 February and the date of royal assent.

The transitional provisions provide flexibility for foreign investors to notify of any relevant transactions that became subject to the amended act in the transition period within 30 days after commencement.

Subject to the need for post-commencement notification, these investors will not be subject to the normal criminal penalties in respect of those transactions entered into during the transition period.

I consider that these changes improve the integrity of the act and capture arrangements that may be deliberately structured to avoid foreign investment screening.

These changes are consistent with Australia’s international obligations under our free trade agreements.

The full detail of these amendments is contained in the explanatory memorandum.

This bill does not change the robust national interest framework that underpins our foreign investment policy, nor the screening and examination arrangements of the Foreign Investment Review Board.

These procedures are well established and familiar to foreign investors.

The examination procedures and the decision to block or impose conditions on foreign investment proposals will continue to be based on whether an investment has, or will, alter the control of an Australian business or corporation and whether the investment is contrary to the national interest.

I am confident that this bill strengthens and modernises Australia’s foreign investment framework.

As we build stronger foundations for Australian prosperity beyond the global recession, the government is committed to a regulatory regime that gets the balance right—protecting the national interest, while ensuring that Australia is a more competitive destination for foreign investment.

I commend the bill to the House.

Debate (on motion by Mr Ciobo) adjourned.