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Wednesday, 12 September 1984
Page: 945

Senator WATSON(7.07) —At a time when the Federal Government is contemplating allowing the entry of foreign banks into Australia, with the uncertainty as to whether they all have to comply with certain local equity guidelines, I wish to spend a few minutes demonstrating how ineffective the Foreign Investment Review Board can be and how detrimental its decisions or lack of decisions can be in relation to local employment in existing firms which are in a competitive position.

The case that I wish to present concerns foreign investment in the Australian wool processing industry. Let me spend a few minutes going back into history so that we are all in a position to put this matter in its proper perspective. Amidst local opposition, yet with Government endorsement and assistance, a French firm, Prouvost Hefebvre, established the Riverina Wool Combing Pty Ltd in Wagga Wagga in 1980. Under the Commonwealth Regional Development Program, Riverina Wool Combing was offered a loan of up to $1.9m for seven years. The New South Wales Government made grants and other subsidies, with other inducements being offered by the Wagga City Council. In contributions towards the total expenditure on land, buildings and housing, $4m was estimated to be shared on the following basis-New South Wales Government, 60 per cent; Wagga City Council, 30 per cent; and Prouvost 10 per cent.

There was local opposition because the wool textile industry already had excess capacity in the scouring and combing areas and at the same time the industry was 'struggling towards rationalisation'. In this scenario the local market was therefore fairly static. There was already active competition in Australia for the domestic market. Local combers were therefore somewhat dependent on exports for output levels to be maintained. Yet Australia's position in the export market was predominantly in residual areas due to the combination of competition from cheap South African and South American wools and duties which were applied to Australian exports.

However, Government expectations produced a different picture. Firstly, and importantly, the Government expected and made it a condition-and this is the crunch line-that 50 per cent Australian equity would eventuate. That was the condition. Secondly, Riverina Wool Combing Pty Ltd was anticipated as an export earner for Australia, given that the total output was intended primarily for export and therefore would not interfere with the domestic market. The establishment of Riverina was also expected to generate economic and population growth in the Wagga Wagga region. One hundred new long term employment opportunities were predicted. Also the new plant would use existing local services, such as freight, engineering and repair.

Unfortunately there was a dichotomy between expectation and actuality. Although established in 1980, Riverina Wool Combing is still 100 per cent foreign owned. Efforts are also being made by the company to become a significant competitor in the local market. Thus, the two fundamental aspects, indeed prerequisites, of the agreement have been wavered-firstly, equity and, secondly, market orientation. The consequences of this for the indigenous processing industry unfortunately are unfavourable. Local processors are at an economic and trading disadvantage. Closure of indigenous wool processers is predicted as imminent, and this would be of concern to Senator Messner. Job losses are thus likely. Indigenous wool processers have continued to agitate, yet hitherto the Government has not responded in any positive way.

Prouvost was supposed to approach local companies with partnership proposals and keep the Government informed on the progress of these approaches. Yet nothing at all has arisen. The company has made the paradoxical contention that given its need to protect its technology and markets, an Australian competitor now would be incompatible. The Government has unquestioningly accepted this hollow argument and stated that it is government practice not to interfere in a foreign company's search for Australian equity given these commercial considerations. The Foreign Investment Review Board is a toothless tiger in such situations. I just wonder how it is acting in similar situations and, how it will act in relation to the entry of foreign banks into this country. One wonders where, or how, Prouvost will find a compatible company in the industrial sense that is not a competitor and which is interested in this sort of investment.

The Government's submissiveness to this foreign company, despite the fact that two preconditions for its establishment have been breached, is worrying given the negative repercussions it has for the indigenous industry. I think this incident highlights a need for action both to rectify the equity problem now and to ensure a situation where this does not occur again.

I regret that the Minister for Resources and Energy (Senator Walsh), who represents the Treasurer in this place, was not interested enough in this important subject to be present tonight although I gave him notice that I would be speaking. I hope that the Attorney-General (Senator Gareth Evans) will see fit to take this matter up because I regard it as one of great concern, as no doubt do many of his constituents.