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Rural and Regional Affairs and Transport References Committee
09/05/2012
Foreign Investment Review Board national interest test

ADAMS, Ms Jan, First Assistant Secretary, Free Trade Agreement Division, Department of Foreign Affairs and Trade

DURNAN, Ms Margaret, Director, Trade Law Section B, Department of Foreign Affairs and Trade

KEWALRAM, Mr Ravi, Assistant Secretary, Trade Law Branch, Department of Foreign Affairs and Trade

LANGMAN, Mr Christopher John, First Assistant Secretary, Trade and Economic Policy Division, Department of Foreign Affairs and Trade

[18:45]

CHAIR: I welcome representatives from the Department of Foreign Affairs and Trade. I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or of a state shall not be asked to give opinions on matter of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about how and when policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and shall be accompanied by a statement setting out the basis of the claim. Would you care to make an opening statement?

Mr Langman : I would like to make a short opening statement. Thank you very much for the invitation. Foreign investment has played and will continue to play a key role, clearly, in developing our economy. It generates benefits for Australians, including creating and supporting new jobs, increasing trade, boosting household incomes, encouraging innovation and introducing new technologies. As with other parts of the economy, foreign investment in agriculture and agribusiness historically has played a vital role in linking Australia's agricultural sector to world markets. Similarly, foreign investment from emerging economies such as China and others will strengthen our trade links with those markets.

With continued foreign investment, Australia can capitalise on its already good reputation as a reliable source of safe, high-quality food and expand its role as a key food supplier. Rapid economic development in Asia and elsewhere is bolstering demand for food, particularly higher quality, safer and higher protein foods. Rising global demand for agricultural products will provide increased opportunities for Australian agriculture. We will need both domestic and foreign investment if we are to take full advantage of this historic opportunity, including to strengthen infrastructure and our capacity to manage issues such as drought.

I know you have already discussed the recent ABARES and RIRDC report that found that foreign investment in agriculture enhances our food security by increasing efficiency and productive capacity and contributing to incomes, infrastructure and jobs in regional areas, as well as helping Australia respond to the new export opportunities. A useful report was also produced by ABARES in March. It suggests that food demand to 2050 could mean that we are able to increase our agricultural exports by 140 per cent. Foreign investment will need to supplement domestic capital in bolstering our production and productivity if this is to be achieved. We also note that the government has recognised the need for better data to provide a more comprehensive picture of foreign investment in agriculture and has asked the ABS to expand statistical data collection so as to better inform community debate and government policy decisions. DFAT's role in the FIRB process is as one of the federal government agencies that is usually asked to comment on specific foreign investment proposals submitted to the FIRB. In providing advice, DFAT draws, among other things, on information from our network of overseas posts. Of course, a key part of DFAT's wider role is looking for ways to increase opportunities for Australian exporters and investors overseas, including through trade agreements and by building economic collaboration in the region.

CHAIR: So with the collected wisdom of DFAT and the fact that we have a FIRB—and, by the way, the ABS informed ABARES report funded by RIDC was a farce. You understand the questionnaire they sent out. Have you seen it—that is, it said 1.1 per cent of Australia's businesses were foreign owned?

Mr Langman : I have seen the material on the ABS survey, not the questionnaire.

CHAIR: Did anyone in your department drill down to see how they arrived at it? It was quite hilarious—we thought it was funny.

Mr Langman : We have looked at the—

CHAIR: Did you think it was flawed?

Mr Langman : No, Senator.

CHAIR: We will not dob you in. So they sent out a questionnaire to 11,000 people at random. You had to have an ABN rural registration for the purposes of getting the questionnaire and the trigger for the questionnaire was $5,000, which does not actually qualify you for tax deductibility in a rural enterprise. The weighing in the questionnaire for $5,000 for the number of businesses that were Australian owned or foreign owned was given the equal weighting of a $200 million enterprise. Do you think that is a very smart way of coming to a conclusion, just on the numbers rather than on the weight?

Mr Langman : I am not in a position to comment on that.

CHAIR: I was just seeing if he takes the bait. You should get a little star for that because you did not take the bait. It seems to me, as a worn-out wool classer, welder and farmer, that the national interest test is a political vagary. For the purposes of most political processes, that is probably a good thing, to be a bit flexible in what is the national interest. From the DFAT's point of view, and given that there is allegedly a national interest test, could you describe it to us?

Mr Langman : When we are looking at submissions, we seek to provide information against issues you have already been discussing in detail, such as the structure of the company seeking to make the investment, whether it is linked to a government or listed on a stock exchange, is it something Australians could invest in and what information we have about that company's operations. There are a list of issues like that.

CHAIR: And national security.

Mr Langman : National security.

CHAIR: Given that those are the ponderances, how do you pass or fail someone? We have been pondering this question ourselves because it does not seem you can see the hurdle you have to jump over for the national interest test. I have had—and I am grateful—the Treasurer's office in my office to talk about a certain transaction and it seemed the test on the national interest was that they figured out there were probably five or six interested parties and they all got a phone call, 'Do you have any problems if this party takes over that party in a foreign takeover?' and that was the test. It seems to me that there is not a criterion. My view of the national interest test is much more complex than that. You may disagree or you may agree. I think it is fair to say that from the evidence this committee has received we actually do not know what is going on now in terms of the proportion of foreign investment and who is investing. The ABS told us—and I have to say we smiled a fair bit when they were telling us—that they were given not much time to do it and not much money to do it and they did not look at the complexity in the foreign investment questionnaire of the entity of trusts or of diversions through the various tax havens. It was a very, shall I say, unusual conclusion they came to, given that they owned up to this committee that they did not look at trusts et cetera, so I am buggered if I know how you would know the real outcome. Surely, in order to assess the national interest you would need to know what is happening now. And we do not know what is happening now. We have had a rough guess at it.

If you get pulled up by the highway patrol, which happens to me every now and then, you hand your licence over and they go over to the car and do a computer check and tell you your driving record. If you take your Medicare card to the doctor, he can tell you all the PBS pills you have bought. If you take your ABN to the tax office, they can tell you your financial history. I would have thought that technology is smart enough now to press a button. As Senator Nash would know, you press a button to deliver wheat to the silo for week and you can push a button when you go home to see how much wheat you have delivered to the silo. Surely we ought to be able to push a button to see who has bought and sold what.

In the national interest we need to know what is going on now. I contend that we do not. We need to model our behaviour and our regulations. The Foreign Investment Review Board has been in here and the chairman said he thought it was out of date and it needed to be brought up to speed. So, we need to know where what we are doing now is going to take us in 30 or 40 years time. We need to know what the challenge for the planet will be against that background in 30 or 40 years time. Then we have to decide, having modelled where it is going to take us, whether we want to go there—and we will go there if we do not change what we are doing—and whether that is in the national interest. So, what do you imagine the national interest is?

Mr Langman : As I said earlier, we are asked to provide any information that is pertinent that we have in relation to specific proposals, and that is what we do on the kinds of issues that we mentioned earlier.

CHAIR: For which we are eternally grateful. Do you report your view or whatever to the secretariat in FIRB?

Mr Langman : We receive information about a proposed investment. We look at it; we provide any information we have to the Treasury.

Senator NASH: Information surrounding whether or not it is in the national interest; is that what you mean?

Mr Langman : Information about the proposed transaction.

CHAIR: What sort of information?

Mr Langman : Information, as I noted before, about the structure of the company, any information we might have picked up about its operations in the past. Have there been any notable issues raised in the past? Is it structured in a way that means that it is part of a government? Is it a sovereign wealth fund? Is it a state owned enterprise?

CHAIR: As the Department of Foreign Affairs and Trade, how do you inform yourself? Do you have to go to the tax office? Where do you go to find out who the hell they are?

Mr Langman : We do our own research, but of course we have our posts internationally, which are able to monitor developments and may have some knowledge. They may have had some dealing with a company or they may know something.

CHAIR: You have a network that you can tap into?

Mr Langman : Yes.

CHAIR: So, having tapped into it and identified whoever it is, in assessing advice to Treasury to give advice to the Foreign Investment Review Board, do you assess the implications of that against the cumulative impact of a series of those sales in a marketplace in things like the tax system; the tax take; the distortion in the market if they are bypassing supply and demand; or the distortion in the capital market if they are not looking for return on their money? Do you actually assess that? Because, I would have thought, that is in the national interest.

Mr Langman : We provide information on the things that we can. We are one of the agencies that fit into a process; there are others of course. The Treasury combines the advice. I think many of the issues you have raised are not issues that DFAT has the expertise to provide advice on.

CHAIR: I am most grateful for your evidence and for the honesty of it. But we are trying to come to terms with this: what is the button that gets pressed that decides whether it is in the national interest for a certain thing to happen? Obviously there is a lot of political consideration, but surely if a member of the Reserve Bank Board says to this committee that it would not matter if 30 per cent of Australia's agricultural productive capacity, including its land, were sold to another nation doesn't that in some way set off an orange light in the national interest? Who do you think has the collected wisdom? Is it what you tell Treasury and what Treasury tells FIRB? And they have a meeting every so often and probably say: 'Sign here, Chairman.' From the best knowledge of the Department of Foreign Affairs and Trade, who can we go to to get an idea of how you pass or fail the test?

Mr Langman : As I said, we provide the information we have. The Treasurer of course is the decision maker.

CHAIR: Which is a political decision.

Mr Langman : The Treasurer is the decision maker.

CHAIR: You do not take the bait.

Senator NASH: Just on that, you were running through a set of criteria before. I guess when you are going to provide the information you look at whether you should collect that information. Obviously, from what you said, a lot of that goes to the proper operation of a company, the way it has behaved and that type of thing. But, in that information that you provide, out of those things, what would you say are the things that you measure that do go to the national interest? The things you ran through before do not necessarily go to the national interest, as I see it. What part of all of the things in that information that you collect about these companies that you then provide would you say addresses the national interest?

Mr Langman : All the things I mentioned could be pertinent to a rigorous examination of this issue.

Senator NASH: Would you mind running through something for me again; it was a bit quick. In your opening statement you talked about the benefits of foreign investment. I think they were: new jobs, trade—and there were another three. I think one may have been housing income. Would you mind reiterating those for me?

Mr Langman : It was really just saying that increasing productivity—

Senator NASH: No, you said there were five specific things.

Mr Langman : I mentioned that foreign investment can support new jobs, increase trade, boost incomes—household incomes was the way we put it—encourage innovation and introduce new technologies.

Senator NASH: That all sounds good, but what I would like is some practical examples of exactly where that has happened, because to me those are words on a page and anyone can say that. What I would like is the drilled down examples of where it does provide those things. Obviously I do not expect you to do that now; we have not got very much time. But if you could provide that in detail for the committee that would be very useful—and specific examples that you can point to, not general. I know you will give me a general overview, but I want very specific examples of where that has occurred. Can I take you to a couple of instances. Australian businesses or corporations cannot purchase agricultural land in China. Is that correct?

Mr Langman : I believe that is correct.

CHAIR: You are allowed to say yes.

Senator NASH: This is policy stuff. I am just clarifying. And the Australian government cannot purchase agricultural land in China. Is that correct?

Ms Adams : Yes.

Senator NASH: Mr Langman, Hansard will not pick up a nod; you have to say yes.

Mr Langman : Yes.

Senator NASH: Mindful of the things you were saying are benefits—again, correct me if I am wrong, because we do not always believe what is in the media—I think last year there were some discussions with Austrade representatives, Australian corporate advisers and industry people to meet with the Chinese delegation from China's Ministry of Commerce in Sydney. Is that correct? I am just clarifying, because you never believe what you read in the media; that is what it said in the paper.

Mr Langman : Could you repeat that the question, Senator.

Senator NASH: Late last year Austrade and your department had organised Austrade representatives, Australian corporate advisers and industry people to meet with a Chinese delegation from China's Ministry of Commerce in Sydney. I think this was an article earlier this year, referring to last year.

Mr Langman : I am not certain it was organised with Austrade; it may have been. I believe there was a meeting in the latter part of last year.

Senator NASH: Who was at that meeting?

CHAIR: You can take that on notice.

Mr Langman : We could take that on notice, if you like.

Senator NASH: Okay.

Mr Langman : The senator asked me who was at that meeting and I do not have the specific answer to that.

Senator NASH: What detail have you got about the meeting?

Mr Langman : If this is the meeting you are referring to, Senator—and I am not certain that it is—

Senator NASH: I am happy for you to clarify that later. So what would this meeting be?

Mr Langman : In fact, the only information I have is that a Chinese delegation visited Australia in December last year.

Senator NASH: Who did they meet with?

Mr Langman : I do not have that information.

Senator NASH: So you have one line there that says a Chinese delegation met last year but no other information whatsoever and no recollection of something that happened as recently as December?

Mr Langman : No, but I was not directly involved in that meeting.

Senator NASH: So, in coming to a foreign investment hearing where we are likely to ask questions around what the department has actually done in terms of their relationships and meetings with other countries and in terms of potential acquisitions, you do not think that might have been information to perhaps think about bringing with you, given that it had been in the media?

Mr Langman : I have some information on this, but I am happy to provide other information. I think I have been asked to take on notice the question, 'Who did that delegation from China meet when they visited Australia in December last year?'

Senator NASH: So you have no knowledge of what those talks were about, whether they were about acquiring agricultural land, as reported in the media?

Mr Langman : I am aware as to the purpose of the visit.

Senator NASH: So we do have a bit more information than just that they turned up. So what was the purpose of the visit?

Mr Langman : The purpose of the visit was to discuss the joint study that Australia is undertaking with China into how we can build on our collaboration on agriculture and technology.

Senator NASH: Who is doing the study?

Mr Langman : It is being done by Australia and China.

Senator NASH: But who specifically of our people? Is it your department—who is it?

Mr Langman : DFAT is playing a role, of course, in working with the other relevant agencies.

Senator NASH: Could you just say again what the joint study is into, please.

Mr Langman : It is looking at how we can collaborate on agriculture, investment and technology. It is going to focus on, amongst other things, supply chain issues, the potential for investment opportunities in agricultural services and the application of technology on a commercial basis to raise productivity in both countries. It will explore the potential for new productive capacity.

Senator NASH: What types of things need to be addressed with those supply chain issues?

Mr Langman : I do not have much more detail, Senator.

CHAIR: Can I just assist the committee. Was this invitation issued following the visit of Minister Craig Emerson to China?

Mr Langman : I believe that is the case.

Senator NASH: Was that the meeting at which the minister said we were actually at productive capacity when it came to agriculture? I could be wrong, but was that the one? I know there was some concern in the industry about that.

Mr Langman : I have no knowledge of that, Senator.

Senator NASH: If you would not mind taking that on notice and checking it, that would be useful. Thank you. All of those issues, it all seems to be pretty one-way: the supply chain issues, and what was the next one? The potential for—

Mr Langman : Investment.

Senator NASH: Obviously their investment here. So how much did it cost to actually host these talks?

Mr Langman : I do not have that information.

Senator NASH: Could you provide that for the committee? That would be very useful. Do you have any other information there that was not there before that is there now?

Mr Langman : No, Senator.

Senator NASH: All right. Could you take on notice for me, then, the joint study—you have given me the general outline of what the joint study is going into. Could you provide for the committee some detail around each of those issues, exactly what you are trying to determine in looking at those issues, what the collaboration will actually be. This all seems to be collaborating to, in effect, streamline the investment from China into Australia. Perhaps with the answers to the questions on notice you could also provide what benefits are going to be gained from this collaboration and what the intended outcome is in terms of benefit for Australia as a result of the collaboration.

Mr Langman : Of course we can do that. I did note, if I may, that in a number of these areas this is not simply one-way. I noted, for example, that one of the issues being looked at is the application of technology that can raise productivity in both countries, and not one-way.

CHAIR: Could I go to the free trade agreement. We are negotiating a free trade agreement. I wish you well. In a free trade agreement with the sovereignty of China, can you describe to me, in considering the national interest in a free trade agreement, the figures you put on the disproportion in the labour. In other words, what is the labour advantage of the mid shot in the market between us and China? I will help you if you want to know the answer. Do you know the answer?

Ms Adams : That could be the easiest way to do it, couldn't it. Of course, what we negotiate in the government to government negotiations is about trade barriers that each government imposes.

CHAIR: When the UK was dislodged as industrial leader 100 years ago, the US had a 1 to 1.5 labour advantage over Great Britain. At a mid shot, and I am not including the bottom end of the market, there is 20-odd times labour advantage in parts of China to Australia's mid shot in its labour force. As you would be aware, China is now going into Bangladesh, where 80 per cent of the population is on a dollar a day. In coming to terms with the free trade arrangement where it is an equal outcome advantage to both sides, how you do that with a country that has a non-market currency?

Ms Adams : The subject of the negotiations is about the market access barriers that each government imposes, so of course we do not get into the labour costs.

CHAIR: I am aware of all the political blubber and the bureaucratic stuff that goes around it, but how do you allow yourself to have—this is quite serious in the national interest test stuff. When did we sign the free trade agreement with the United States?

Ms Adams : We signed it in 2004.

CHAIR: We negotiated it in the winter of 2005 and we signed up and actually enacted it in the autumn of 2006. Do you know what the currency value of the US was when we agreed to it, before we signed up?

Ms Adams : I am sure you do, but it was about 60c.

CHAIR: It was 67c and when we enacted it was 70c. We did away with some tariffs at five per cent. We did away with some tariffs at 15 per cent and then we imposed on ourselves, in the arrangements between us and the US, a 45 per cent currency tariff, because of the fact that they are technically insolvent. China have a non-market currency and a huge capital investments in the United States. They do not want to lose their capital investment. They do not want to lose their terms of trade for their huge export of everything from ties to coats to whatever. They are maintaining the rigour even though there is some pressure on them to change their non-currency arrangements. How in God's name, if you are interested in the free trade arrangements with China, can we have an equal arrangement if they are allowed to have a non-market currency?

Ms Adams : Once again, all I can say is that we are not negotiating commercial prices for actual—

CHAIR: But if we are going to have free trade arrangements in agriculture et cetera, we are going to get eaten alive if our currency is determined by things outside our barrier. The US are technically insolvent. I have been to the Harvard think tank and had an argument with them and I am only a wool classer and a welder. I was told at Harvard that the only way they are going to solve the problem is by technology and the weight of their economy which will get them through it. They have $3 trillion of toxic debt warehoused and they have $14 trillion of public debt in the system. A place like Japan has 200 per cent GDP to public debt in their forward estimates and zero per cent interest rates et cetera. If the US are trying to protect themselves, that is beyond our control. The only way they are going to get rid of their debt at the present time is through inflation, which means our terms of trade are going to be pretty tough for a while. We are trying to do a free trade arrangement and they are using their non-market capital, which needs to be rebalanced, against us. How can you do that and think that we are going to come out on top?

Ms Adams : Terms of trade are determined by many things. As you know, they are much higher now than at the time we concluded the US free trade agreement.

CHAIR: We are 40-odd per cent disadvantaged against the US.

Ms Adams : Not in terms of trade.

CHAIR: In terms of the currency differential. If you allow a huge piece of the market to have a non-market currency, how can you have an equal footing in a free trade arrangement? Did the Department of Foreign Affairs and Trade think about this?

Ms Adams : I am sure we think about all sorts of things, but what we negotiate—

CHAIR: Perhaps in a closed forum we might have a discussion; that might be better. I do not want make it too hard, but there are a whole lot of those arrangements that we need to come to terms with. When the committee is dealing with the national interests we are looking at the difficulty of how to get a sovereign investment involved in the tax system. We had the glowing example of Myer avoiding $700 million in tax with a smart accountant going through various things in Luxembourg and the States. The committee really needs to establish what is the definition of the national interest is the long term. This is all beyond our control. We cannot control what the non-market currency of China does. The US are killing us in some markets because of their currency. They had a $200-a-head subsidy on each beast that came out of their feedlot system. They do not want to change that, and yet we have to compete in the same market if we are stupid enough to think about importing beef from a BSE-infected area.

Senator FAWCETT: Under the terms of our WTO arrangements or the free trade agreements that we have, is there anything that would prevent a government making changes to ownership or investment from sovereign entities that would be deemed to be in breach of agreements that we have? You are probably aware of the various solutions, from no sovereign ownership to lease options et cetera. Would any of those breach our agreements?

Mr Langman : Sorry, Senator—could you repeat the question? I am not sure I understood.

Senator FAWCETT: The previous witness said that in his opinion sovereign wealth funds, for example, should not be permitted to purchase or own property in Australia. If a government of either persuasion said, 'That's a good idea; let's enact that', would that be in breach of any of our WTO obligations or free trade agreements?

Mr Kewalram : Australia's FTAs do not limit the ability to scrutinise direct investments by foreign governments or their agencies.

Senator FAWCETT: What do you mean by 'scrutinise'?

Mr Kewalram : Such investments remain subject to scrutiny by the FIRB.

Senator FAWCETT: In other words, we are free to impose additional restrictions or barriers on those investments.

Mr Kewalram : The FTAs do not prevent us from looking at investments by foreign governments or their agencies. The key rules that are relevant here are FTA rules. The thresholds and so on that we talk about and that in FIRB's policies reflect or relate to private investment, but we have not bound or committed to investment by foreign governments or their agencies.

Senator FAWCETT: So in essence a government has freedom of manoeuvre in that space. There is nothing from a WTO or FTA perspective that would limit the government's response to a potential foreign sovereign investment.

Mr Kewalram : I am trying to answer your question very specifically, because what I am referring to are FTA obligations and what they do or do not limit. What I cannot answer is whether there is, either in Australian law or as part of some sort of general obligation, something that might touch on the answer. So I am limiting it very precisely to FTAs.

Senator FAWCETT: That is fine. I am asking from the perspective of our international obligations as opposed to our domestic law.

Mr Kewalram : Sure, and with respect to FTAs we specifically exclude investment by government entities or governments.

Mr Langman : However, Senator, I think your question goes beyond DFAT's area of responsibility. It relates perhaps to Treasury and to other international understandings around investment and how governments will deal with investment.

CHAIR: Perhaps we could put a question—through you, Senator—to DFAT to assist this committee in bringing the various agencies to the table in one go, instead of having to hear, 'That's Treasury's responsibility.' We get fobbed off by the various independent silos of information. It is a neat way to get out of trouble, to flick it to someone else. I guess they teach you to do that before you come up here!

Senator EDWARDS: I just want to go back into the framework of the national interest test. Austrade has a mandate to 'attract productive foreign direct investment to Australia'. It also has a mandate to 'deliver market development initiatives in priority and emerging markets and coordinate responses to opportunities in those markets'. In that context, you have to push and pull. You are pushing people into other countries and you are pulling other countries towards us. Perhaps you could define 'productive' in terms of foreign direct investment—in terms of attracting productive FDI to Australia. What is 'productive' in that context?

Mr Langman : It is a broad term which can encompass a number of different elements. Senator Nash asked earlier what I meant by 'adding to productivity'. There are lots of examples one can cite. For example—

Senator EDWARDS: Limited to those things; you do not have to go back over it because I can remember your response.

Mr Langman : Many investments—for example, in manufacturing over many years—have brought new technologies to Australia. Those clearly have enhanced the productivity of the particular enterprise involved.

Senator EDWARDS: Do you have any headline examples of that? I would like to know about your experience with other national interest tests, perhaps in India, and whether you get involved in them. Do you have any examples of where technology has led to a major win, and you have done high-fives with Austrade?

Mr Langman : I cannot talk for Austrade. They are probably in a much better position than I am to answer that. I appreciate what Senator Heffernan has just said, but this is a genuine effort to indicate to you the people who might be able to give you the best answer.

Senator EDWARDS: In policy terms, do you have any filters which reflect on what is good business for you to be doing in the national interest and what is bad business for you to be doing in the national interest? I do not want to get into a further currency debate, but do you have any reflection from any of your dealings with other countries, either trying to pull them here or push them into taking our trade, where you look at the national interest? Are you up against India's national interest test when you take somebody to India, or do you subject anybody to a national interest test here?

Mr Langman : Our general approach is to believe that markets that operate effectively and efficiently produce better outcomes. Generally we are working to create new opportunities—for example, for Australian business. We do not see imports as bad things per se. In an increasingly integrated global economy, we are going to have exports and imports. The key is to create the conditions in which markets work well.

Senator EDWARDS: So you rely on the market to be the filter and believe that markets will prevail. Let us take an example of a country, perhaps one called Nirvana, with an interest in milk. So it buys a significant proportion of this country's milk production and then decides not to engage in the business in Australia and instead export all its milk products without claiming any business here—it only wants food security for its country which has no production capacity. That market distortion, because your department is trying to attract investment to this country, could put at risk the security of milk product availability in this country and distort the pricing of milk here. The ATO told us as long as they do not claim expenses, we do not tax exports, so there is no barrier on Nirvana taking all the product out. The country of Nirvana can significantly distort the market by its mere footprint. Do you agree with that?

CHAIR: We do not want to get you sacked.

Mr Langman : We have, I think, a very effective set of domestic governance arrangements that are designed to deal with issues of competition, for example. To be frank, I have not seen any example along the lines of Nirvana.

Senator EDWARDS: So you would rely on the ACCC to intervene before that market was dominated by that country?

Mr Langman : I was only referring to competition as an example.

Senator EDWARDS: But that is the regulatory body you may have alluded to that you would expect to step in before there was a distortion in the market.

Mr Langman : I was not seeking to suggest that if such a hypothetical scenario emerged that they would be the relevant authority; I was talking about having good governance arrangements.

CHAIR: Sorry to do this to you; I am I bugger for figures—you are the department of foreign affairs, and we are grateful that you are here. All science has vagary, but the science is saying that by 2050, barring a human catastrophe on the planet, 50 per cent of the planet will be poor for water. To put water into context: 97 per cent of the world's water is sea water, three per cent is fresh water and two-thirds of that is permanently tied up in snow and ice, so there is one per cent that is available in the rivers and lakes—and there is more in the clouds than there is in the rivers and the lakes—so 50 per cent of the world's population will be poor for water.

Thirty per cent of the productive land of Asia by 2050, barring some sort of catastrophic event will have gone out of production due to, and all science has vagary, everything from urbanisation, climate to whatever—and the failure of the great northern plain in China because of the water mining. Two-thirds of the world's population will live in that region approximately. The food task will have doubled and the global protein task will not be met with meat. We have got a lot of work to do in fish farming, and 14 times is the volume of the sea compared to the mass of land above sea level, so we have got to get into that. There could be 1.6 billion people on the planet displaced—that is pretty interesting.

How do we and how do you deep down in the bowels of all the people that are the thinkers in the Department of Foreign Affairs and Trade come to terms with putting that into the context of: where are we going to be in 50 years; and what is going to be our national interest target? We are very casual about all this. No-one is thinking about it, because it is not going to win anyone the next election but it might determine whether we control our own destiny in 50 years time. I absolutely agree with you that modern communications, modern transport, global marketing and free trade agreements have absolutely altered—you have not said this; I am about to editorialise a little—the description of what we have known traditionally as sovereignty. The concept of sovereignty is altering due to all of those things.

At the present time, Bob Hawke is trying to encourage a Chinese entity—and he is in it for a quid and he is good at it because he is a good spruiker; he has encouraged the Northern Territory government to agree to and it is all getting closer, but I think he might be bragging a little about how close—to buy Ord Stage 3, which is about 14,000-hectares and drains out through the Keep River. Clare Martin said some years ago to the Northern Development Taskforce that she was not interested in developing it, which is this laissez-faire—it is all too hard; let's go home and have a drink. So Bob has come up with a mob in China who want to do it. They have said, 'We're interested in that but if we're interested in that we also want Ord Stage 2.' Ord Stage 2 is another 14,000 hectares that abuts Carlton Hill Station and 345 gigs of water.

Seventy-odd per cent of Australia's water is not compliant with the National Water Initiative. About 78,000 gigs flows out—I know it is a long preamble but this is what I want foreign affairs to think about—into the Timor Sea; 98,000 flows into the gulf and 85,000 flows into the eastern catchment all the way down the coast and has the impediment in a farming sense of the Great Barrier Reef. Down here, water is a tradeable instrument, separated from the land—and there are all sorts of issues surrounding that, which this committee is dealing with in another forum. The water complies with the National Water Initiative, so if you can use the water more efficiently you can trade away what you do not need, for profit. What Hawkie is onto up there in the Ord is not compliant with the National Water Initiative, and neither is most of that northern water. The water is generously free. It is like Cubbie Station. One of the great frauds that they are attempting to be perpetrate on the Australian taxpayers is that they issued Cubbie Station with their 500-odd-gig licence, knowing when they issued it, only a few months ago, that they want the Commonwealth to buy it back. Cubbie Station get it for nothing and we buy it back for about $180 million—350 a gig. Up in the north, you get about 17 megalitres a hectare with the land, so they get the water attached to the land for nothing. I do not know the entity of this company, and no-one that I know does know, except that they are industrialists and they have got all sorts of plans, and there is a whole lot of competition in the marketplace from individuals that want a piece of the action and do not want to have to buy the lot. How does DFAT give consideration to that? Would your general officers be acquainted with what I have just talked about? I am not using any notes or anything; it is just locked in the head.

Senator EDWARDS: Which is frightening, really!

Mr Langman : Yes. I was going to say it might be hard for any one individual to match you on these sorts of things, but I might make two points, because I think you were going in this direction. First, on food security and the kinds of challenges that will be faced out to 2050, say, there is a lot of effort and work across the government in the relevant agencies, including DFAT, not least because we are involved in international discussions in many fora—G20, the UN system, APEC—on food security issues in different ways. This is an enormous issue, we all know, an enormous challenge. But I think it would be fair to say—and I tried to say this earlier—that it is also, I think, a huge opportunity for Australia.

CHAIR: Without a doubt.

Mr Langman : That was the first point. On the second point, you were asking me about a specific proposal. Of course I have heard about this idea. I do not know details about it. But, if it becomes a proposal that goes to the government, then it would be considered against national interest. We, like other departments, would, I presume, if we have something to add, be asked for any information that we have that is pertinent, and the government would consider it in the national interest. An investment in the national interest in the agriculture sector and in other sectors is good.

CHAIR: Can you see that against the bigger picture? This committee are worried about the science prediction. It becomes a political debate: 'It's all garbage,' or 'You're a Hansonite,' or 'You're a lunatic,' or whatever. But, if the doctor says that that mole there is a melanoma, you would be a mug if you did not get a second opinion or get it off. The science is saying certain things, especially about event based weather. The Murray-Darling Basin is 6.2 per cent of Australia's run-off, 23,400 gigs—38 per cent of the run-off comes from two per cent of the landscape—and it is under stress because we have freed up the licences and woken up the sleepers and allowed them to trade supplementary.

We have done a whole lot of things that were political decisions by people that did know what they were doing, of all political persuasions for all time. Here we have opportunities in the north. This is giving oxygen to the Department of Foreign Affairs and Trade and everyone else. If we are to consider the proposal in the Ord, the easy way out would be to do what they did with the Great Southern plantations, where they just sold them in one lump to a Canadian super fund or whatever, instead of doing what Elders and the Victorian farmers wanted to do, which was break them up so all the farmers got a crack at it. Would there be any thinking in DFAT along the lines that given the challenges of the drying out of the south—and there are some significant challenges—and if the science on that is 40 per cent right, there will be zero allocation in the southern river system and the Murray-Darling Basin in most years? Science can have a lot to do with that. You can learn a lot from Carnarvon. It's water use is 40 times more efficient than the water use of the Ord, and that is mainly because the Ord does not have to pay for its water, and Argyle holds 10,000 gigs.

Would it be in the national interest and would DFAT and other thinkers in the government give consideration to the idea that maybe, rather than hand it over to one entity—the Chinese or whoever—with someone going home with a big check, it would be in the national interest in the longer term to develop that? Instead of spending money on pink batts or whatever, would it be in the national interest to put away a couple of billion or whatever is needed to develop some of these opportunities in the North for the next generation of our farmers? We have blokes down here thinking about slitting their wrists. So in the national interest, rather than taking the easy escape route of just giving it to someone else, is it a reasonable proposition to put that to the national interest test? I mean, where are we going to be in 40 years time? After World War II we encouraged a whole lot of farmers onto farms through the soldier settlement schemes. Mostly it worked, but sometimes it didn't, because they were not viable areas in some regions. Is there anyone in DFAT who thinks like that?

Mr Langman : Sorry—what was the question?

CHAIR: I have just given you something to ponder.

Mr Langman : In DFAT we certainly think about long-term challenges for the country.

CHAIR: So hopefully this committee has given you something to think about, and hopefully we can have some interchange. This will not be the last meeting we will have, because we are passionately dedicated to getting the politics out of all of this and getting it right in the national interest. Sadly, I have just been told that our time has run out. Perhaps we can come back and visit this some other time. Thank you very much indeed. I declare this meeting over.

Committee adjourned at 19 : 42