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ECONOMICS LEGISLATION COMMITTEE
12/04/2011
Foreign Acquisitions Amendment (Agricultural Land) Bill 2010

CHAIR —Welcome.

Senator HEFFERNAN —Madam Chair, on a point of order: this inquiry is into Foreign Acquisitions Amendment (Agricultural Land) Bill 2010? Correct? Why aren’t we having the Foreign Investment Review Board as a witness?

CHAIR —We are.

Senator HEFFERNAN —You are representing not so much Treasury as—

Mr Di Giorgio —In effect, it is one and the same. The Foreign Investment Review Board is supported by the division that I am in, which is the Foreign Investment and Trade Division. We constitute the secretariat to the Foreign Investment Review Board.

Senator HEFFERNAN —So you work for the Foreign Investment Review Board?

Mr Di Giorgio —We provide secretariat services.

Senator HEFFERNAN —You are the backup; you are the paper shufflers. Why have we not got the board?

CHAIR —Senator Heffernan, we did discuss this program at the last meeting.

Senator HEFFERNAN —This makes a farce of the whole thing.

CHAIR —This was the meeting we agreed on. In the past, the secretariat of the FIRB, in the form of Treasury, has provided great assistance to this committee in several inquiries into foreign investment. Should you wish to raise the question of witnesses, we will have a private meeting later.

Senator HEFFERNAN —I have a question now.

CHAIR —Do you want a private meeting? Is that what you are requesting?

Senator HEFFERNAN —It does not have to be a private meeting. I request that we call the Foreign Investment Review Board.

CHAIR —We will have a private meeting later. Mr Di Giorgio, do you have an opening statement you would like to make?

Mr Di Giorgio —We very much welcome the opportunity to appear before the committee. In providing a submission on the Foreign Acquisitions Amendment (Agricultural Land) Bill 2010, our frame of reference was to highlight, as far as possible, any implications of provisions of the bill for policy or for the administration of foreign investment screening arrangements. Our submission has also sought to explain the current screening arrangements for rural land.

CHAIR —Senator Heffernan, I am listening to the opening statement and it might help if you listen too, actually.

Senator HEFFERNAN —I can do two things at once.

CHAIR —Mr Di Giorgio, go ahead.

Mr Di Giorgio —Committee members will have observed that Treasury’s submission raised a number of concerns with some provisions of the bill. Our more substantial concerns fall into two categories: that the material support in the bill does not sufficiently identify the underlying problem or problems that this legislation is intended to address, and that the regulatory impact of the proposed changes does warrant some consideration.

In relation to the first concern, problem identification and measurement, the committee will be aware that the government has made announcements in this area and that parliament has also called for broadly consistent data-gathering and analysis efforts. The government has asked the ABS, the Rural Industries Research and Development Corporation and ABARES to gather information on and conduct analysis of the extent of ownership of Australian rural land and agricultural food production and the factors driving foreign investment in this sector. We understand that these efforts are now well underway, and we can elaborate on that to some extent.

I think it is fair to say that such initiatives do lend weight to the argument that it would have been difficult for the bill’s drafters to accurately define and measure the need for legislative change in this area until further investigatory work was undertaken. The potential regulatory impact of the bill is an issue that we have considered and looked closely at in our submission and on which we have made a few observations.

Firstly, our assessment was that the use of New Zealand’s five hectare threshold is arguably overly restrictive in Australia’s agricultural context. Secondly, we observed that a dual national interest test, which this bill would introduce, with the codification of one of these in respect of agricultural land, could be confusing to investors but also risks elevating the sensitivity of agricultural land applications to a level above that of all other forms of investment, which might be problematic from an investment encouragement perspective. The dual national interest test also potentially reduces flexibility of assessments of proposals. Currently, the national interest test includes the same factors that were canvassed in the bill, and these factors were explained in more detail in the foreign investment policy statement released in June 2010.

Thirdly, we considered a number of privacy concerns surrounding the publishing of applications for rural land approval and the suggestion that there be running public progress releases as investment proposals are being examined. This might have implications for voluntary compliance with notification requirements under the FATA more broadly. Finally, we observed that the regulatory changes proposed could cut across the stand-still provisions that Australia has incorporated in its various free trade agreements. So those are the four broad areas that we looked at from a regulatory point of view. I would be happy to expand on any of those points for the senators. Thank you.

CHAIR —Thank you, Mr Di Giorgio. I would like to canvass the matter of the review which you have raised. Clearly, issues of sovereignty and ownership of land and so on are going to be sensitive in any country. Has there been in the past any review of land acquisitions and the impact that those have had, and any test against the national interest?

Mr Di Giorgio —Not to my knowledge. There have not been reviews, as such—unless my colleagues know otherwise. But I am quite sure that there have not been reviews, as such. I do know that the Foreign Acquisitions and Takeovers Act has evolved over time and that provisions in relation to land have changed over time, but there have been no reviews as such.

CHAIR —In the past Australia has seen a number of overseas interests taking over agricultural land. To your knowledge, has there been any assessment of the changing nature of that? Has that come and gone? Has it gone back into Australian interests, or has it resulted in permanent acquisition of that land or long-term acquisition of that land?

Mr Di Giorgio —We do not have hard and fast data on that. So I could not say whether, for example, the fact that the Japanese acquired a significant stock of land in the 80s has remained the same. One would expect that in a market situation they would be buying and selling, and that would change over time. But, to my knowledge, there has not been an analysis which says, ‘What is the snapshot at a point in time and what is the snapshot at a later point in time?’ I cannot point to that. What is interesting is that when you look at the data from the ABS it does show in aggregate—and this is the stock of investment—that there has been a downward trend over the past six or seven years.

CHAIR —There was substantial UK investments before Japanese investments and so on. It would seem to me to be useful to have some idea of what is happening in that area. You say that Treasury does not have access to much firm information in that area.

Mr Di Giorgio —Not a definitive analysis or study, if that is what you mean.

CHAIR —The other major concern for me in this bill is that of the national interest test. I am always worried about putting anything firm in legislation because changing circumstances and people getting around the legislation always creates a very changeable environment in these sorts of situations. Do you have any concerns about the flexibility in putting into legislation that sort of test?

Mr Di Giorgio —That is a prime concern that we have. Successive governments have deliberately kept the national interest test at the discretion of the minister of the day. That is underpinned by the notion that it is very difficult to determine what will happen tomorrow, or what will happen in five years time. Situations do change and the Treasurer, the decision maker, needs to have the flexibility to determine at a particular point in time what might be in the national interest. I think the second reading speech when the bill was first introduced in 1975 makes that point. We put a quote to that effect in our submission. It is on page 7. The point is that it is about flexibility. One could mount an argument that if you codify too specifically a national interest test, it could impede foreign investment in the sense that it may deter some investment if they think they might be in violation of a particular test that might not otherwise occur.

CHAIR —How would courts interpret this if there were an appeal against a particular decision or a court testing of it? Suppose the Treasurer made a decision on national interest grounds that was not quite nailed down in the legislation? What is your view of that?

Mr Di Giorgio —As I understand it there is no appeal as such, but I will take advice on that.

Mr J Hill —We could get into some problems with a codified national interest test where the Treasurer may well have been criticised for not having stuck exactly to the letter of that codification. That could be open to either an administrative or decision-based appeal. It would certainly create problems for the way that the process works for decision making. To elaborate on another point: one of the issues with the national interest test in the bill that is also an issue is that there are two national interest tests that apply in this legislation. We have one national interest test that will apply to Australian agricultural land and we have a another national interest test that will apply to everything else, and that includes the largest of the business proposals that we see. There can be situations where there might be an overlap for investors such that it is not clear to them exactly which test applies.

Senator XENOPHON —Thank you for your submission. Even though you do not agree with the bill that I introduced with Senator Milne, at least you have given some reasons. You say that the national interest test is at the discretion of the minister of the day, and you refer to the 1975 Hansard debate in relation to that. In 1975 the question of the criteria for judging whether a foreign takeover proposal would be against the national interest was stated, but sometimes isn’t it the case of looking at a series of takeovers. It might be under a particular threshold, but you may find that the level of control or creeping acquisition-type approach particularly by state-owned enterprises could be a factor in considering this. Is codification necessarily a bad thing? Are there any other jurisdictions that have codification in relation to foreign investment?

Mr Di Giorgio —I understand the concern to which you are referring. My view on that is that the decision maker of the day can take those factors into account in any case without needing the direction of codification. The problem to which you are referring, that of creeping acquisition—

Senator XENOPHON —But doesn’t that in itself lead to uncertainty? If it is just a broad discretion? Some guidelines would create some certainty in relation to the foreign investment culture, if you like, or framework.

Mr Di Giorgio —Whenever the decision maker has made a decision it is relayed to the applicant and typically made public as well. So there is an ongoing process, there is an ongoing open revelation of the decisions made by the decision maker.

Senator XENOPHON —But it is not that open, because of privacy concerns, as you referred to in your submission.

Mr Di Giorgio —We certainly have a regime which respects the privacy of applicants, yes.

Senator XENOPHON —That has a tension with the whole issue of openness, doesn’t it?

Mr Di Giorgio —The history is that in significant cases there have been public releases and public statements by the Treasurer. Obviously, if conditions are applied, he or she discusses those conditions with the applicant and an agreement is typically reached.

Senator XENOPHON —I have a whole range of questions to ask you and there is some concern that my colleagues will have a number of questions. So I want to try to cram in as much as I can in the next few minutes.

Senator HEFFERNAN —Can we just get some definition?

CHAIR —No, Senator Heffernan. You will get your turn later.

Senator HEFFERNAN —I want to talk about the $230-million trigger. I want to talk about the definition of sovereign funds and non-sovereign funds.

CHAIR —Yes, but Senator Xenophon has the call at the moment. As it is his bill, I am sure he has a number of issues he wants to discuss too.

Senator HEFFERNAN —We are just going round in circles at the moment.

Senator XENOPHON —I will try not to go round in circles. The New Zealand legislation has a five-hectare threshold. If Australia implemented a five-hectare threshold, for instance, as foreshadowed in this bill, would that be in breach of any international obligations apart from the USFTA?

Mr Di Giorgio —In the agreements that we have with FTAs—and there is a range of them and they vary slightly—

Senator XENOPHON —We have Chile, New Zealand, Thailand. Who else?

Mr Di Giorgio —They typically have standstill clauses, which mean the situation at the time is the benchmark and there is no going back from the particular arrangements at the time.

Senator XENOPHON —But apart from those countries where we have FTA agreements, would we be in breach if we implemented a five-hectare test?

Mr Di Giorgio —I would have to take advice on that, but to my knowledge I am not sure that we would.

Senator XENOPHON —You would agree that it is a pretty fundamental question isn’t it? It would not be in breach of any WTO or bilateral agreements would it?

Mr Di Giorgio —It would not be in breach of agreements that do not exist.

Senator XENOPHON —No, but in terms of any other bilateral agreements, investment protection and promotion agreements.

Mr Di Giorgio —Could I take that on notice?

Senator XENOPHON —You understand it is a pretty fundamental question.

Ms Robilliard —In relation to the free trade agreements you are right there is a potential issue. We have them with Singapore, Thailand, United States, Chile and soon with New Zealand there will be a listed threshold. Those commitments bind us to a particular monetary threshold. It is not uncommon for people to actually make provision for investment and how it will be treated in the future. In terms of your question was it: are there any other international agreements out there?

Senator XENOPHON —What other impediments would there be in terms of an international agreement to implement this apart from the FTAs you have referred to?

Ms Robilliard —This is potentially a legal question in that it would fall to whether there were OECD commitments. In terms of the investor protection agreements, as far as I know they do not make commitments on the thresholds.

Senator XENOPHON —I am trying to clarify that.

Senator HEFFERNAN —Could I just get you to clarify that further—

CHAIR —No, Senator Heffernan, you will have your questions later. We do not have much time and I want to move through this quickly. Senator Xenophon has the call.

Senator XENOPHON —If a state-owned enterprise is investing, there is this threshold—is that correct?

Ms Robilliard —That is right.

Senator XENOPHON —I just want to move through this. That is correct though? If a state owned enterprise is investing in agricultural land, there is no threshold for scrutiny by the FIRB?

Mr Di Giorgio —That is correct.

Senator XENOPHON —But if a state owned enterprise undertakes an investment and does not notify the FIRB, what sanctions are there?

Mr Di Giorgio —There are sanctions—

Senator XENOPHON —Are they bilateral diplomatic sanctions?

Mr Di Giorgio —There are sanctions that the Treasurer has available to him because of the fact that they would not have notified under the act.

Senator HEFFERNAN —Have we ever brought—

CHAIR —No, Senator Heffernan. Please let Senator Xenophon continue his questioning.

Senator XENOPHON —Are the sanctions at a diplomatic level or does the Treasurer actually have the power to say we will rescind this transaction and void the transaction? Is that a yes, Ms Robilliard?

Ms Robilliard —Yes, that is right. There are divestiture powers.

Senator XENOPHON —You may want to take this on notice, have there been any breaches where there has been a foreign acquisition by a state owned enterprise without appropriate notification and scrutiny and were the divestiture powers used in those circumstances?

Mr Di Giorgio —I would have to take that on notice.

Mr J Hill —I do not think we are aware of any of those.

Senator XENOPHON —But one of the reasons you are not aware of them is that we simply do not know. Isn’t there—to use a favourite term of Senator Cameron—an information asymmetry here? We do not know, what we do not know at the moment.

Senator CAMERON —That one is not me.

Senator XENOPHON —You do not look anything like Donald Rumsfeld, Senator Cameron!

Mr J Hill —I want to be clear, just to go back a little in your question, there are no legal sanctions that can be brought to bear using our legislation against a state owned enterprise that breaks the rules. That is the legal position.

Senator XENOPHON —But there is nothing to constrain us for there to be any legal sanctions. It is entirely at the discretion of the Treasurer.

Mr J Hill —I am not sure I quite understand.

Senator XENOPHON —If a state owned enterprise buys something without going through the FIRB, the only sanction is at the complete discretion of the Treasurer, there is no legislative sanction as such.

Mr J Hill —That is correct.

Senator HEFFERNAN —So if he never finds out—

CHAIR —No, Senator Heffernan.

Senator XENOPHON —Isn’t there an issue here with an information asymmetry in that we do not really know who owns what? There was the Crayfar Farms scandal in New Zealand a few years ago which provoked a lot of debate. There were some fraudulent transactions that involved a foreign investor which highlighted some problems with their system. I think you are familiar with that. You may not be. The issue is: is not there a complete lack of knowledge about who is investing in what and, if it is done through a trust or some other entity, we would not be any the wiser necessarily?

Mr Di Giorgio —The mechanism under the act is that applicants need to volunteer their information.

Senator HEFFERNAN —They need to do that voluntarily.

Mr J Hill —Foreign government related entities are obliged to notify the Treasurer under the policy regardless of the size of the investment. So there is not information asymmetry. If there is a breach of the policy then there is a breach. Your question gets to the enforcement arrangements that might go to that.

Senator XENOPHON —Sure, I understand that.

Mr J Hill —But this information asymmetry issue with the $231 million is not an issue that is necessarily linked to the activities of foreign government related entities. That is the private threshold.

Senator XENOPHON —But, in terms of non-state-owned enterprises, there is information asymmetry. There still could be information asymmetry with state owned enterprises if they choose not to disclose, but in relation to non-state-owned enterprises there is still information asymmetry and that is why the Assistant Treasurer commissioned that study or that audit—maybe ‘audit’ is too high a term. How close are we to getting a result on that? How is that progressing?

Mr Di Giorgio —I understand that the ABS is now undertaking a survey.

Senator XENOPHON —So we should ask the ABS those questions about the extent of that survey?

Mr Di Giorgio —Yes.

Senator XENOPHON —And they will be reporting back to the Assistant Treasurer and liaising with you?

Mr Di Giorgio —Correct.

Senator XENOPHON —You asserted in your submission that having something similar to the New Zealand legislation in Australia could impede foreign investment in agricultural land. What evidence is there that it has had a negative effect on foreign investment in the New Zealand context?

Mr Di Giorgio —We make no judgment about the effectiveness or otherwise of New Zealand—

Senator XENOPHON —No, but you have—and I do not say this disrespectfully—in effect made a judgment because you have said that, if we do something along the lines of New Zealand, it could impede foreign investment. Is there evidence that the New Zealand model has impeded foreign investment?

Mr Di Giorgio —We have not looked at the efficacy of the foreign investment arrangements of New Zealand in New Zealand.

Senator XENOPHON —But you have made a judgment about the potential impact of that on Australia though.

Mr Di Giorgio —We have made some observations about the efficacy or otherwise of importing from one jurisdiction to another jurisdiction their arrangements, in particular the five-hectare threshold—in other words, having a spatial arrangement as opposed to a monetary threshold. We have made some observations about that. In terms of the spatial arrangements we have made some observations based on the fact that our agricultural sector is obviously vastly different to the New Zealand sector, so grafting onto the Australian sector arrangements for New Zealand I guess could be quite problematic.

Senator XENOPHON —But spatial and monetary could be linked though. Presumably five hectares in New Zealand will not be worth $231 million unless it is a goldmine. Let us look at the whole issue of thresholds. A number of other countries have thresholds before they have any screening. This bill is about a screening threshold. You would agree with that fundamental principle. What is your understanding of China’s screening threshold for foreign investment?

Mr Di Giorgio —What in particular—

Senator XENOPHON —If someone wants to invest in agricultural land in China, is there a threshold for screening? What is your understanding?

Mr Di Giorgio —I cannot answer that off the top of my head. I know that there are regional arrangements as well as national arrangements and those have recently changed.

Senator XENOPHON —I received some advice recently that their threshold for screening was $1.

Senator HEFFERNAN —And you cannot buy the freehold.

Senator XENOPHON —Can you take that on notice in case my information is incorrect.

Senator EGGLESTON —I think this is a very interesting subject. I am very interested in the impact on free trade agreements. I understand there is some possibility that these kinds of restrictions will have some impact on free trade agreements. Would the witnesses care to comment on that? I know there has been some comment on it. Specifically, the economic cooperative agreement with New Zealand was mentioned as an example of an agreement that might be impacted by this proposed legislation.

Mr Di Giorgio —As I said earlier, in general, it is quite common for free trade agreements in the OECD and WTO context to have standstill causes. The bill proposes a regulatory change that is not standstill, so there may well be implications from that perspective. The arrangements in—just one moment.

Senator EGGLESTON —I am sorry; the phone is breaking up from my end. I do not know whether I am still on line.

Mr Di Giorgio —Could you be just a little bit more specific about the nature of the question again, sorry?

Senator EGGLESTON —I am interested, firstly, in free trade agreements, which you have covered to some extent. I am also interested in the fact that the Foreign Investment Review Board—to go on to a new topic in the time I have available—does monitor foreign investment in residential property already, I know, but I am not sure whether it monitors investment in agricultural property. Could you advise whether or not that is the case.

Mr Di Giorgio —We do not monitor investment in agricultural properties per se, other than that we collect data on applications that fall under the FATA and under the policy. Our latest annual report does have data, for example, on investments in agriculture, forestry and fishing, so it reports that there are a number of cases and it provides a little bit of detail about that.

Senator EGGLESTON —Thank you. Are there any other means? I see that the Australian Bureau of Statistics in their submission say that they are going to collect data on foreign investment in agricultural property, which seems to imply that your limited statistics are really the only means of assessing what level of foreign investment there is in agricultural property at the moment.

Mr Di Giorgio —Apart from the FIRB data, which gives us an insight into the applications for investment, the ABS also collects data in this area, which gives us an idea of the stock, the amount, of investment that is in Australia. It breaks it down into a range of categories including agriculture, forestry and fishing. So, for example, the latest data from the ABS shows that in 2008 there was $700 million worth of direct foreign investment into Australia, and that is down from $708 million the previous year, and so forth.

Senator EGGLESTON —Thank you, I will leave it at that.

Senator WILLIAMS —Mr Di Giorgio, in your opening statement you said ‘the underlying problem’ and that this legislation does not address this issue. How do you define ‘the underlying problem’?

Mr Di Giorgio —I guess I was making statements about what the problem may be, because any legislation is about trying to define a particular issue. As far as I can tell, there are a range of problems that the bill is trying to address—and this is our interpretation of it. One interpretation is that the dollar threshold is too high.

Senator WILLIAMS —You are referring to the $230 million?

Mr Di Giorgio —The $231 million. I think there have been references in the press that that might be too high. So there are a range of problems—

Senator WILLIAMS —Do you think it is too high?

Mr Di Giorgio —I do not have an opinion. That is the government policy at the time, and I am not going to comment on that. I was making reference to the public pronunciations about what the problems might be in this area without speculating too deeply on them.

Senator WILLIAMS —In my experience, I have yet to see a farm or a station make $230 million. Do you know if there are any properties worth more than $230 million in Australia? Perhaps there are.

Mr Di Giorgio —I do not have any data to that effect.

Senator WILLIAMS —We might be able to ask the ABS that.

Senator HEFFERNAN —Cubbie could be.

Senator WILLIAMS —Yes, that could be right. How do you distinguish between foreign investment and foreign ownership? Can you distinguish between the two, or do you see them as the same?

Mr Di Giorgio —I will just confer for a moment. Essentially, we look at the proposal in dollar terms, but, in terms of ownership, once a business has invested in a certain entity or proposition, obviously it can make further investments into that over time. But I do not know that we—could you help with that, John?

Mr J Hill —One of the interesting issues that FIRB have with the collection of data is that we see applications to acquire or to take over under our Foreign Acquisitions and Takeovers Act. The amounts of money that are delivered to FIRB will be recorded in our system as the acquiring investment, and in the course of our discussions with applicants we will endeavour to understand what other investments they are planning in this area. So you have the acquisition investment, and that might well be a subset of a stream of investment that that business is looking to make to turn around the business that it is acquiring and to take it in another direction or to build it or do something else. So, yes, I think we do make a distinction. We look at the longer term investment that an investor is looking to bury into an acquisition as well as the initial acquisition. But the FIRB numbers are generally driven on the initial acquisition, and that is why our statistics are about applications and proposals and the ABS is about the full understanding of the total investment.

Senator WILLIAMS —No doubt agriculture has made a major contribution to the wealth of this nation over 150 or 180 years. Do you agree with that?

Mr J Hill —Yes.

Senator WILLIAMS —When these people invest in agriculture, they obviously invest to get a return. When they make that profit, wouldn’t they take that profit out of our country? For example, if the Chinese government buy a large block of land in the Liverpool Plains—as they have: the Shenhua company, 68 per cent owned by the Chinese government—when they make the profit out of the coalmine or the land around through agriculture, that profit then could be taken out of Australia; correct?

Mr J Hill —Correct.

Senator WILLIAMS —So wouldn’t we have a case that, the more land we sell off in Australia to foreign investors, the more the profit that that land makes will be going overseas to foreign ownerships to build their wealth and take it out of Australia?

Mr J Hill —I would respond to that with the argument that when a business takes a profit from its operations it will do a range of things with that profit, one of which might be to on-invest it into building that business locally—

Senator WILLIAMS —Or buying more.

Mr J Hill —employing people locally or buying more. You would expect it as normal that a company will repatriate profits if it is an overseas company.

Senator WILLIAMS —Fine. I am going to give you a scenario. Let us say that, at a guess, 90 per cent of the properties in Australia, including farming and grazing country and pastoral country, are less than $230 million in value. We could see a situation now where foreign investors around the world could buy up 90 per cent of our agricultural land then control where the food goes that is produced on that land and control where the profits go from those properties. Isn’t that the situation as it currently stands?

Mr Di Giorgio —The situation as it currently stands is that the facts are that the current legislation has a threshold of $231 million.

Senator WILLIAMS —And we are assuming—we should not assume—that 90 per cent of Australian agricultural properties are worth less than $230 million. We could see a situation where foreign investors could buy up, if my guess is right, 90 per cent—it could be more—of our properties without any scrutineering. Correct?

Mr Di Giorgio —I think it is fair to say that the data on this is sparse, and that is why the minister has put in train a process to get more data and more facts so that we can be better informed about the debate.

Senator HEFFERNAN —Can I go back to the start, to the logic upon which you advise the minister—and, Madam Chair, I put the committee on notice that I think the Foreign Investment Review Board ought to appear. Do you look ahead to where Australia is going to be in 50 years and the rest of the world is going to be in 50 years in terms of sovereignty, destiny and the global food task? Do you do that thinking before you give the advice?

Mr Di Giorgio —Our thinking goes to looking at informing the Treasurer, including through the Foreign Investment Review Board, as to what the national interest might be.

Senator HEFFERNAN —Okay. I want to keep the answers short; we do not have much time. That is fair enough.

Mr Di Giorgio —So we look at whatever might be applicable to the case at the time.

Senator HEFFERNAN —Tell me the scenario upon which you would base the advice, given where we are going to be in 50 years time and where we are going to be in 80 years time. What is the advice?

Mr Di Giorgio —Our advice would be based—like all Treasury advice—on what the best policy is at the time. The presumption is that, if you undertake advice which is the best policy at the time, that itself is going to set the best situation for the future.

Senator HEFFERNAN —Could you provide those notes to this committee?

Mr Di Giorgio —I beg your pardon?

Senator HEFFERNAN —The notes that you just talked about, setting the best advice—can you provide that advice to this committee, the advice you provided to the Treasurer?

Mr Di Giorgio —Which particular advice?

Senator HEFFERNAN —I want to know if you know where the world is going to be with nine billion people by 2050, with 12 billion people by 2070 and with the fact that, by 2070, China will have 1.8 to two billion people, 50 per cent of whom will be unable to be fed from their resources. Against that background now, they are ahead of the game. They are going into the continent of Africa, buying the best of the agricultural land in Madagascar and places like that, to acquire the food task for themselves in 50 years time. If we are going to have a sensible Treasury advice to the Treasurer—and that is you—you need to understand where the world is going to be in 50 years time, not at the next election, and you are basing it on the present. That is a flawed policy. Do you know where the world is going to be, given the science, in 50 years time?

CHAIR —Senator Heffernan, can you allow Mr—

Mr Di Giorgio —I can only answer that from the perspective of a policy adviser, which is that I and other Treasury colleagues take the view that, in advising the Treasurer, we base our advice on the best analysis we can at the time and on the best policies, as we see it, at the time. If we have evidence, if we have information, that will allow us to look into the future—and I remind the senator that we have put out three Intergenerational reports—we will take that into account. We will take the best information we can into account. After all, that is Treasury’s mission. I guess the presumption is that, if you give the best advice you can at a point in time with the best available information, that itself will provide the best platform for the future—

Senator HEFFERNAN —You do not take into account the science of the growing population. You just do it on the present.

Mr Di Giorgio —As I said, we take the best available—

Senator HEFFERNAN —This is bureaucratic nontalk, nonspeak.

CHAIR —We have not even had his answer yet, Senator Heffernan—

Senator HEFFERNAN —But it is just repetitive bureaucratic nonspeak.

CHAIR —so Mr Di Giorgio might want to finish that answer. Mr Di Giorgio?

Mr Di Giorgio —As a Treasury adviser, we are guided by the mission of the department of providing the best advice we can to the minister based on information.

Senator HEFFERNAN —Let me put it to you. By 2050, with the known advancement in science for agriculture and the fact that we need to double agricultural research from $40 billion globally now to $80 billion immediately to meet the food task, given that we have spent $1.7 trillion on defence, and given that with nine billion people it is estimated, on the science that is known and the advancement of that science with the technology that is applied to it, that by 2050 there will be 50 per cent of the world’s population poor for water, a billion people unable to be fed from their own resources, 30 per cent of the productive land of Asia having gone out of production, two-thirds of the world’s population living in that area, the food task doubling and 1.6 billion people on the planet displaced, possibly—and I can go through the areas where they are, if you like—wouldn’t you think it would be good to give advice to the government on what that means if we arrive there, based on the agricultural policies of today about the land sales?

CHAIR —Senator Heffernan, we are short on time, so please keep your questions brief.

Senator HEFFERNAN —By 2070 there will be 12 billion people. Half of China’s population will be unable to be fed from their resources. Wouldn’t it be a good idea for Treasury to be thinking through the implications of that and then to provide advice for a policy now which prevents us from becoming a bunch of serfs or tenant farmers and enables us to actually sell our production rather than, as Senator Williams said, to have the production taken off us? Isn’t the great risk to Australia that the sovereign wealth funds, such as China’s,with a non-market currency can acquire other nations’ sovereign assets and then deny those nations access to the production of those assets?

CHAIR —I do not think Mr Di Giorgio is responsible for a lot of that. We have budget estimates coming up, and the section of the Treasury responsible for that area will be there, but I invite Mr Di Giorgio to respond to the bits he is responsible for.

Senator HEFFERNAN —Isn’t the great risk—

CHAIR —What is your answer, Mr Di Giorgio?

Mr Di Giorgio —I think the question goes to the nature of sovereign wealth funds, if I understand the senator. Sovereign wealth funds are subject to the policy around the SOEs. We look at things on a case-by-case basis, and—as I said earlier—we take into account all the factors that we can. More broadly, Treasury is aware of the issues around sustainability and indeed—

Senator HEFFERNAN —Fair enough. We do not have much time. That is a bureaucratic answer. I apologise for my grumpiness. Could you provide to this committee a list of the agricultural land that you have reviewed that is sovereign acquired? Foreign sovereign wealth funds acquiring agricultural land in Australia—could you provide us with a list of who has owned up and how much land it was?

Mr Di Giorgio —If I may, I will take that on notice.

Senator HEFFERNAN —Okay. The great difficulty I have, Madam Chair, is that I am aware of a company based in the Cayman Islands that is sovereign guaranteed by sovereign funds but does not come into Australia as anything to do with a sovereign fund, and they are not going to own up to you.

CHAIR —That is not a question, Senator Heffernan.

Senator HEFFERNAN —That is the difficulty—it is a flaw in the system.

CHAIR —Senator—

Senator HEFFERNAN —No, I have not finished. If it is sovereign guaranteed, do you define that as different to ‘sovereign owned’ in the definition of owning up? For instance, JBF Swift in Brazil have just acquired the Rockdale feedlot. They now have 100,000 cattle on feed—they have too much of the young market cattle. They are sovereign guaranteed by the Brazilian government, but they are not owned by the Brazilian government. If that was a scenario in China, for instance, a lot of people who have companies in China or wherever it is—Japan—

CHAIR —Mr Di Giorgio, can you answer.

Mr Di Giorgio —So the question is, do we make it—

Senator HEFFERNAN —Is a sovereign guarantee a different thing to a sovereign fund for ownership purposes? If I am a company that has a sovereign guarantee from the government, in a definition of acquisition of agricultural land in Australia is that different to the government acquiring the land?

Mr Di Giorgio —I think Mr Hill is going to answer that.

Mr Hill —It might go to whether that sovereign guarantee has an impact on the control of that company. If it unequivocally does, then you are dealing with the—

Senator HEFFERNAN —Have you ever had anyone in that situation?

Mr Hill —No, I have not; I am not aware of—

Senator HEFFERNAN —So—

CHAIR —Senator Cameron, I believe you have a question.

Senator CAMERON —Thank you, Mr Di Giorgio. Is there any reason that there has been no attempt made over the last decade to understand the form of ownership in agriculture?

Mr Di Giorgio —Not to my knowledge.

Senator CAMERON —Given that agriculture is such a big contributor to the economy, why would you not do that for Treasury?

Mr Di Giorgio —It is fair to say that the Treasury looks at issues of importance over time, and the government is taking measures now to increase its awareness—

Senator CAMERON —You have already said that, but I am interested in why in the last decade Treasury has not given any advice to government to say, ‘This could be an issue; this is an information asymmetry, and we need to deal with it.’

Mr Di Giorgio —I could not say definitively that Treasury has not. It may be the case that Treasury has provided advice on that in the past 10 years, but I could not say definitively whether it has or has not.

Senator CAMERON —Can you take on notice whether you have provided any advice over the last decade in relation to foreign acquisitions of agricultural land?

Mr Di Giorgio —Okay.

Senator CAMERON —Also, there is the issue of what could be described as creeping acquisitions which Senator Williams has raised. Has there been any discussion, to your knowledge, about the problems that creeping acquisitions could create within Treasury?

Mr Di Giorgio —We discuss policy issues on an ongoing basis within Treasury. It is an issue on which there has been internal discussion, but that is as far as it has gone.

Senator HEFFERNAN —Can we come down there and have a go?

Senator CAMERON —So there has been no advice to government on that issue—creeping acquisitions—but you have looked at it internally?

Mr Di Giorgio —My colleague has just reminded me that creeping acquisitions more generally, as opposed to the foreign investment area, is an issue that the competition area has been looking at. So, as a general policy issue, creeping acquisitions and competition is an issue that we have been looking at.

Senator HEFFERNAN —Who was looking at it? The ACCC?

Mr Di Giorgio —It would be the competition area of Treasury, as I understand it.

Senator CAMERON —Has there been any advice over the last decade? Is this a new analysis or is it an analysis that has taken place over, say, the last decade?

Mr Di Giorgio —Again I am not in a position to answer that.

Senator CAMERON —Could you take that on notice? I would like to know how long you have been looking at this. Can you take on notice—I do not want you to answer this question now—whether you can provide an analysis of the implications that this bill would have for our obligations under each individual so-called ‘free trade’ agreement that we have? I am still not clear about what the implications are.

You also indicated that you give the best analysis and the best policies at the time. That is what you said—you provide government with advice; the best analysis and the best policies for the time—so I suppose you gave some analysis and some advice to sign up to all these trade agreements. Given that you give a policy for the time and given that Dominique Strauss-Kahn has said there is a ‘dark side’ to this globalisation in a speech last week, what are we supposed to do as legislators if we have a situation where—assuming that theoretically this bill is in the national interest, though I am not making a judgement on that, or any bill is in the national interest—a bill breaches our trade obligations? How do we deal with that?

CHAIR —I do not know that that is a question for Mr Di Giorgio.

Senator CAMERON —Mr Di Giorgio is giving advice. The Treasury gives advice on these trade agreements as we sign up to them.

Mr Di Giorgio —I guess that is pretty much a legal question. I would like to take advice on it, if that is okay.

Senator CAMERON —You will take it on notice then?

Mr Di Giorgio —Yes, thank you.

Senator CAMERON —Have you seen the address by Dominique Strauss-Kahn from 4 April 2011 called Global challenges, global solutions. You may not yet have seen it.

Mr Di Giorgio —I have not read it.

Senator CAMERON —I suppose you would be interested in reading it.

Mr Di Giorgio —I would.

Senator CAMERON —The IMF is now saying that the old Washington consensus is gone; that we have to move past the Washington consensus. Given that these free trade agreements were a fundamental part of the Washington consensus, will Treasury be looking a providing government with some advice on the implications and analysis of the Managing Director of the International Monetary Fund, Dominique Strauss-Kahn, saying ‘we’ve got to move past the Washington consensus’?

Mr Di Giorgio —I have no doubt that Treasury would be looking at those issues.

Senator O’BRIEN —I want to follow up on the questions about free trade agreements. Your submission talks about the provisions of the US-Australia free trade agreement, where United States investment in non-sensitive sectors is subject to a higher threshold of just over $1 billion. What are the non-sensitive sectors?

Ms Robilliard —There are a range of sensitive sectors. I cannot name all of them, but they are things like telecommunications, defence and those sorts of things.

Senator O’BRIEN —They are specifically set out in one of the side letters, are they?

Ms Robilliard —Yes. Also, these factors are referred to in our foreign investment policy statement; in one from June 2010 they provide some guidance on that as well.

Senator O’BRIEN —Please take on notice and supply the committee with the details of the sensitive sectors and the source of that information. In relation to the current position of assessment of foreign acquisition of agriculture, can you take on notice and advise how long that policy position has been in place and over how many governments? I am pretty sure it has been over the current government, the previous government and, probably, the one before that. Please advise us whether there has been any change in that position historically—whether Australia has taken a lesser position in terms of protecting Australian agricultural assets. Perhaps you can tell us what you know now on that.

Mr Di Giorgio —My colleague and I can give you a little bit of an insight into what has happened there. When the first foreign takeovers act was introduced, in 1975, there was a rural land threshold of $1 million, and the general business threshold was $2 million. That remained the case until 1985, when the general business threshold was increased to $5 million while, as I understand it, the rural land threshold remained at $1 million. That changed again in April 1986, when the rural threshold was increased to $3 million—so it went to $3 million and the business threshold stayed at $5 million. As I understand it, that essentially remained the case, though I will probably have to check this, until September 1999, when the two thresholds were harmonised at $50 million. In 2005 there were higher thresholds for the US enterprises. In December 2006, both thresholds were increased to $100 million.

Senator O’BRIEN —So agriculture moved from being $3 million in 1986 to—

Mr Di Giorgio —In 1986 it was $3 million. Then you fast forward to 1999, and they are both the same.

Senator O’BRIEN —It went to $50 million.

Mr Di Giorgio —That is right.

Senator O’BRIEN —So in 1999 it went to $50 million, and then in 2005 there was a higher threshold figure for the United States, which was part of the US FTA provision. Then, after that, when did it go to $100 million?

Mr Di Giorgio —It went to $100 million in December 2006. In September 2009 it went up to $219 million, and from then on it has been indexed, hence the changed figure.

Senator O’BRIEN —I suppose it is fair to say that there has been a progression in value. Do you know what the basis of that threshold is? What formula or what basket of property et cetera has been used to establish that threshold?

Mr Di Giorgio —I will have to get back to the committee on that, if that is okay. I know that there is a particular formula that is used.

Senator O’BRIEN —Has that been done by regulation or by legislation?

Mr Di Giorgio —It is regulation, as I understand it.

Mr J Hill —The thresholds that Mr Di Giorgio mentioned were, in the early years, administrative thresholds only, I understand. They were not brought into law until the late 1980s. Those thresholds were incorporated in our Foreign Acquisitions and Takeovers Act in 1987. They became the law then.

Senator O’BRIEN —Subsequently they have been moved by amending the act or by regulation?

Mr J Hill —By regulation. So that sits behind the act.

Senator O’BRIEN —Were those regulations disallowable instruments?

Mr J Hill —Yes.

CHAIR —Senator Xenophon, do you have a couple of questions?

Senator HEFFERNAN —Can I just—

CHAIR —No, Senator Xenophon has the call.

Senator XENOPHON —I am happy for Senator Heffernan to take these questions. They are similar questions to the ones I was going to ask.

Senator HEFFERNAN —Can I just get you to confirm, on notice, that you are going to give us a list of all sovereign fund land acquisition notifications?

Mr Di Giorgio —Correct.

Senator HEFFERNAN —Could you also give us a list of all applications that have gone over the threshold of $231 million and the previous threshold?

Senator XENOPHON —That is, non sovereign.

Senator HEFFERNAN —Non sovereign, yes.

Mr J Hill —That is private, Senator.

Mr Di Giorgio —If it is private, we might have some privacy concerns about details of individual—

Senator HEFFERNAN —Can we do that in camera?

Mr J Hill —We are dealing with FIRB applications here, and I think it will be sensitive material. We do not publish that information.

Senator HEFFERNAN —Could you tell us how many?

CHAIR —Can you take that on notice?

Mr J Hill —I think Mr Di Giorgio did take on notice that we will check—

Senator HEFFERNAN —Today in the Australian, Craig Emerson is apparently going to announce more freed-up trade arrangements. In fact, the interpretation of the paper is that the government is saying that Australia has misused quarantine provisions for protectionism. I want to deal with that today. You blokes would have provided advice on the free trade agreement with the United States.

Mr Di Giorgio —We did.

Senator HEFFERNAN —In giving advice, do you think through where the concept of sovereignty lies against the background of free trade agreements, modern communications, transport, multinationals, sovereign wealth funds, non-market currencies such as China’s and parity provisions in currency? When we started that off, we were at about 86c and we are now at 105c or 106c. As you know, the US is technically insolvent, so my question is: like a tariff arrangement, haven’t the free trade arrangements that we made with America failed to take into consideration the serious insolvency of the United States—the fact that they are going to have to use inflation to devalue their debt? They have $2.9 trillion of toxic debt. They are at 65 per cent, which is warehoused. They have 65 per cent of public debt—

CHAIR —I think we know, so can you get to the query?

Senator HEFFERNAN —I want to know: doesn’t that mean that the free trade arrangements we have with America are now out of date? It is going to be such a serious disadvantage to Australia given that we have gone from 86c to $1.05. Do you take that into consideration?

Senator XENOPHON —To put it another way: to what extent do you consider, when free trade agreements are entered into, the value of the Australian dollar and the impact that a shifting Australian dollar could have on those free trade agreements?

Senator HEFFERNAN —That is a much more succinct way of putting it. I am mad!

Senator XENOPHON —No, you are not; you are beautiful!

Mr Di Giorgio —I have a couple of observations. I am not at liberty to divulge or go into the policy. I am not going to speculate on what our policy advice to government was at the time, and I would be surprised if—

Senator HEFFERNAN —But I bet you did not think it through.

Mr Di Giorgio —I would be surprised if—0

0Senator Cameron interjecting

Senator HEFFERNAN —I do not give a rat’s arse who it was; they have all propped it up.

CHAIR —Senators, we are really short on time and Mr Di Giorgio is trying to answer.

Mr Di Giorgio —The final point I was going to make is that I would not have thought Treasury would be speculating on where the dollar would be going over time. But I am not at liberty—

Senator HEFFERNAN —My real point is that the US is technically insolvent, and we have a free trade agreement with them which is going to seriously disadvantage us because of where they have to go.

CHAIR —Senator Heffernan, we are not here to discuss free trade agreements.

Senator HEFFERNAN —These fellas didn’t think it through—too much coffee in the office.

CHAIR —I think we might move on to the ABS.

Senator HEFFERNAN —Which is why we need the board in here.

CHAIR —I thank the Treasury officials for coming this morning.

Mr Di Giorgio —Thank you.

[10.36 am]