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Wednesday, 11 August 2004
Page: 26236

Senator RIDGEWAY (10:03 PM) —I now propose to deal with Australian Democrat amendment (11), and I understand this is identical to Australian Green amendment (3) dealing with foreign acquisitions and takeovers. I want to say a couple of things about this amendment. The Australian Democrats oppose schedule 5 in the following terms:

(11) Schedule 5, page 71 (line 2) to page 78 (line 32), to be opposed.

The free trade agreement will remove our ability to regulate who gets to take over Australia. At the moment the Foreign Investment Review Board—I say that deliberately with tongue in cheek, but seriously—gets to review all of the proposed foreign takeovers of Australian companies to make sure they are done with our best interests in mind. If you consider the text of the free trade agreement, in many respects it throws that approach out the window. When this agreement comes into force, we will no longer have any ability to say no if somebody wants to come in and take over Australian companies.

Under the free trade agreement the parties agree to provide investors from the other party either national treatment—that is, the same treatment afforded to domestic investors—or most favoured nation treatment, whichever is the most advantageous to the investor. It also contains a number of provisions that are designed to reduce sovereign and other policy related risks that are associated with investors from each party investing in the economy of the other party. The agreement states:

Specifically, the Parties agree to:

and I think it is important that we put this on the public record—

provide national treatment or most-favoured nation treatment to investors from the other Party (Articles 11.3 and 11.4)

provide the protection of law to investors and investments, in a manner consistent with international law (Article 11.5);

provide investors and investments with protection or restitution in the event that a civil or military emergency requires the requisitioning or destruction of the investment in question (Article 11.6);

refrain from nationalising or expropriating investments from the other party, except in accordance with law, and with appropriate compensation (Article 11.7);

allow the free transfer of funds connected to covered investments from one Party to another (Article 11.8);

not to establish discretionary performance requirements in relation to import or export content, local content, preference for local inputs, transfer of intellectual property, or restrictions on sales (Article 11.9);

refrain from requiring that senior managers or board members be of a particular nationality (Article 11.10); and—


reserve the capacity to implement policies which may be otherwise prohibited under the agreement, but which are necessary for environmental reasons (Article 11.11).

Not all of the investments fall under the free trade agreement. I draw the chamber's attention to annex 1 and annex 2 of the agreement, which contain reservations allowing parties to maintain existing non-conforming measures. Both Australia and the United States have included measures relative to investment in those annexes. Any matter that is not mentioned in annex 1 or annex 2 is a result of default more than anything and subject to the free trade agreement. Such investments are referred to in the agreement as covered investments. The minister might want to respond to that and confirm that that is the case.

In Australia's circumstance there are reservations, including: the preservation of current non-conforming measures that are undertaken by state and territory governments; the retention of assessment by the Foreign Investment Review Board, although with substantially increased financial value thresholds; investment in urban land; additional support for Indigenous involvement in enterprises; measures relating to leases on airports; the preservation of export requirements in the government IT outsourcing program; any measure with respect to primary education; authorisation and levying of foreign fishing vessels; wheat exports; foreign ownership and foreign director limits for Telstra; foreign ownership and control of media companies; and votes of foreign shareholders for board positions on the Commonwealth Serum Laboratories board and foreign interests in Qantas.

The United States, on the other hand, also made a number of reservations, and I think it is important to put them on the record. They include: regulation of atomic energy for industrial purposes, the regulation of leases that relate to mining and energy, preferential treatment for minority groups, access to overseas private investment corporation insurance and loan guarantees, the regulation of commercial aviation, security exchange registration and initial public offers, the ownership of broadcasting licences, the ownership of cable television facilities and the preservation of current non-conforming measures undertaken by states, the District of Columbia and Puerto Rico.

The central concern is clearly about determining what impact the free trade agreement will have on investment in Australia. On the one hand, the agreement may encourage additional investment in Australia by United States investors; on the other hand, it may encourage Australians to invest in the US, where previously they may have invested at home for whatever reason. Inevitably, because these situations will occur, a great deal of energy has been spent during the public debate on the free trade agreement in recent months trying to anticipate what the net effect on investment is likely to be.

There has been a great deal of disagreement about the potential benefit of the investment chapter of the free trade agreement, with economists from all sides unable to agree on the effect that the deal will have on Australia's equity risk premium and the various dynamic impacts the agreement is likely to have. A particularly interesting point made in the majority report is that Treasury is usually very sceptical of using dynamic productivity gains as a basis for policy decisions and does not seek to estimate them in costings, yet when you look at the CIE study, which the government relies upon, it uses the dynamic productivity gains as the major contributor to the projected $6.1 billion benefit Australia supposedly will derive from this agreement. The Democrats believe that the evidence demonstrates further that the gains that have been cited by the CIE report are flawed and certainly overstated, especially given that the figures have been based on the assumption that Treasury itself refuses to use them in normal policy advice. Perhaps Treasury should have undertaken the analysis—we might have got a different result and we might not be in this situation.

In our view, the government rhetoric about the benefits of the deal cannot be taken seriously. Given the magnitude of the costs in areas of key social, cultural and environmental policy it is difficult to find any benefit at all for Australia in this deal. I am still waiting for the minister to fill in the blanks on this national balance sheet, if you like. We have filled in the column to do with net economic gains, but the columns are bare when it comes to looking at environmental, social and cultural policy. Quite frankly, there are no guarantees that there will not be losses in those areas. We have a deal that allows any American company to come over here and take over an Australian one. We will not be able to say no, even if it is not in our national interest. Essentially, we are giving away our rights under this agreement.

Another problem is the investment chapter. The issue of the rules relating to film investment was raised at the time with the negotiators. As we know, Australia has agreed to national treatment rules, which prohibit each party from discriminating in any way against investors of the other country. Most of the support for the development and production of Australian feature films, TV programs and other projects in this country is provided through government assistance by way of investment rather than grants or subsidies. Agencies such as the Film Finance Corporation, for example, make their money by acquiring copyright interests and earn the returns on their investment. The Australian Democrats are particularly concerned—and these concerns were raised during the Senate select committee process during talks on the free trade agreement, even with representatives of the film and television industry—that this may mean that those agencies will not be able to invest exclusively in Australian films.

I wonder whether Minister Ellison might respond to that particular question about the investment rules, as it relates to investment in film and television production in this country. It was an issue that was raised. The industry was given certain assurances and, quite frankly, I think there has been a major oversight or neglect, if you like, in giving an answer to that question. When I asked about the issue in the parliament, the minister himself was unable to give a clear answer. The Democrats made it clear that we understood that direct grants and tax rebates were exempted from the free trade agreement. But I think the minister at the time was unable to prove to the chamber that public investment in domestic film production would be protected from the deal. In many respects it is unfortunate that the government did not take the same approach as they did to the free trade agreement with Singapore, where a very clear decision was made to exclude Australian culture. In this case, we now have our cultural industries open as the prey of Hollywood and the pressures that might be brought to bear there.

So I think that these are important things to keep in mind. I again refer to the talks that have taken place between representatives of industry and DFAT officials on this particular issue. When Mr Richard Harris from the Screen Directors Association raised this issue with negotiators, they said that they had taken it on board and that they were going to find out whether it was an issue and get back to him. The reality is that they never got back to Mr Harris. We are essentially on notice now that they are going to address it. They said that that was not the intention of the agreement.

An answer does need to be given—a clear and unequivocal statement that as far as investment in film and television production goes in this country there are guarantees in relation to the free trade agreement that this can be done, particularly given some of the figures that have been released in recent times about the industry being under all sorts of pressure and not producing the box office hits that we might expect overseas. I think they deserve support, not to be exposed in the way they have been in terms of the free trade agreement.

Certainly the representatives did the right thing and went into talks in good faith. They raised the issues but have not been given the answers. They are still waiting for those answers. From our reading of the free trade agreement, it is clear from the rules in relation to investment that the Film Finance Corporation may well be in breach of the free trade agreement. I wonder whether officials or the minister might be able to respond to that or give some guarantees or answers to the industry representatives. They are still waiting for answers. They have raised this issue on many occasions. Quite frankly, I think now is the time for an answer.