Title Economics Legislation Committee
Database Senate Committees
Date 18-11-2020
Source Senate
Parl No. 46
Committee Name Economics Legislation Committee
Page 11
Questioner CHAIR
O'Neill, Sen Deb
Responder Mr Marris
Mr Pearce
Mr King
System Id committees/commsen/24467b0a-f69c-43f9-8d1a-2690a56e93a0/0003

Economics Legislation Committee - 18/11/2020

MARRIS, Mr Sid Marris, General Manager Strategy, State & Territory Relationships, Minerals Council of Australia

KING, Mr Demus, General Manager Trade, Investment and Investor Relations, Minerals Council of Australia

PEARCE, Mr Warren, Chief Executive Officer, Association of Mining and Exploration Companies

Evidence from Mr Pearce was taken via teleconference—


CHAIR: Welcome. Thank you for appearing before the committee today. Information on procedural rules governing public hearings has been provided to witnesses and is available from the secretariat. Questions on notice are due to be returned by 20 November. Does anyone wish to put their hand up for an opening statement, or do you both wish to make some opening remarks?

Mr Marris : Thank you for the opportunity to talk. I'd like to start by acknowledging the traditional owners of the land on which we meet today, the Ngunnawal people, and pay our respects to their elders, past and present. Foreign investment maximises opportunities for Australian minerals industry to boost national income, generate government revenue and create high-value jobs. This was emphasised earlier this week when the Regional Comprehensive Economic Partnership was signed by 15 countries, including Australia, to create more investment opportunities for our nation's minerals industry. Over many years the considerable economic benefits provided by the Australian minerals industry and the sector's ability to build and maintain economic resilience through the COVID-19 pandemic could not have been achieved without large capital inflows through direct investment.

Australian mining companies have relied on international investment over many decades to help develop and diversify the nation's natural resources. This investment has allowed Australia to translate its natural endowments into higher living standards for all Australians. The value of international investment in minerals is overwhelmingly retained in Australia. For example, some 77 per cent of the revenue earned by the nation's major iron ore producers stays in Australia paid as payments to suppliers or as taxes and royalties to government. Today the industry employs 240,000 people directly and, when mining equipment, technology and services sector is taken into account, it's a total of 1.1 million jobs supported by mining.

If Australia is to retain its strong comparative advantage in mining, access to international investment will be vital. The MCA acknowledges that one of the most important responsibilities of the Australian government and parliament is to protect Australian citizens from threats to national security, including through foreign investment screening processes. It is also critical to Australia's national interest, its economic future, to maintain a competitive non-discriminatory foreign investment framework that is transparent, efficient and provides investment certainty. Major reforms to the foreign investment framework must be designed and implemented to be proportionate and free of unintended consequences that damage the national interest.

The Reserve Bank has estimated that, in order to maintain mining's current production levels, an estimated $7 billion of investment is needed every year. Last year, without the opening of a new mine or any significant brownfields expansion, $25 billion of investment was required. In this context, foreign direct investment cannot simply be replaced with equivalent funding from alternative sources such as government debt or domestic investment.

Unfortunately, the bills and the government's broader reform package will introduce substantial complexity and cost. This will not only create uncertainty for a much wider range of investment; it will drive investment to other jurisdictions, where costs are lower or market access can be assured through well-developed customer relationships. In addition, the reforms will work against other government priorities, especially the development of Australia's rapidly emerging critical minerals sector. This sector depends on access to technology and expertise through international investment to develop capabilities in downstream minerals processing.

The MCA looks forward to a discussion with the committee on a number of specific provisions in the legislation. While the government's backed a business led recovery from the recession caused by COVID-19, these proposals will increase regulation and add costs to business. How? First, the proposed use of call-in powers creates uncertainty in terms of overly generous time frames and future risks. Second, the proposed register will impose additional costs, directly and indirectly, and add a compliance burden on foreign investors. Third, the streamlining of less sensitive investments—while a sensible reform that will free up large pension funds and investment houses to invest in equity more broadly—is unlikely to encourage the type of investment that delivers lasting benefits to the Australian mining industry. These proposals would generate additional regulatory costs for business through increased national security reviews, and further costs for foreign investors from additional legal costs and internal compliance monitoring for making applications.

The MCA has proposed several constructive options to limit the impacts of the reforms on Australia's sovereign risk profile, improving investment attractiveness and monitoring the impact of investment on reforms. First, within 24 months of the implementation, there should be a mandatory statutory review to identify and resolve unintended policy consequences. Second, in relation to the new national security test, the concept of a national security business should be clarified to make it clear that miners will not be captured by the definition simply because the raw materials may be processed and manufactured into components that directly or indirectly feed defence supply chains. Third, the concept of criticality should be more clearly defined. Fourth, there should be a low-cost, efficient method for seeking a determination from FIRB on whether a particular business is considered a national security business, or land is considered national security land. Fifth, clear guidance materials should be produced on what is encompassed by the definition of 'a national security business' and the meaning of concepts such as 'critical'. Sixth, the period of time available to use the call-in powers to be defined in regulation should be reduced from the proposed 10 years to three years. Seventh, there should be a clear and cost-effective process for investors to obtain complete protection from the use of the Treasurer's call-in.

Senator O'NEILL: Sorry, Mr Marris, could you restate that one?

Mr Marris : There should be a clear and cost-effective process for investors to obtain complete protection from the use of the Treasurer's call-in powers. So you've made your case, and there's not then the uncertainty that a Treasurer might change their mind at a later date.

Senator O'NEILL: Okay.

Mr Marris : Finally, in relation to fees, a mechanism should be provided to independently review the fees and fee increases to make sure that they represent genuine cost recovery rather than an impost on business that amounts to a discriminatory tax on foreign investment. Once again, thank you for the opportunity to discuss these matters with you.

CHAIR: Great. Thanks, Mr Marris. Mr Pearce, did you wish to make any remarks?

Mr Pearce : Yes, thanks. AMEC appreciates the opportunity to provide a submission and to address the committee today. The vast majority of our full-member companies, across all commodities, have in some way benefited from overseas investment in their companies and projects. Over the last few years, AMEC has worked to promote the opportunity for Australia to secure our place as a significant provider of critical minerals into the globally emerging renewable energy and battery industries, as well as pursuing opportunities for local processing and manufacturing. Australian industry has also identified significant commercial opportunities in this rapidly emerging industry and supply chains for lithium ion batteries, electric vehicles, renewable energy technologies and energy storage.

Over 100 Australian mining and exploration companies are currently working to find and develop critical mineral projects in Australia. Many of these companies are also pursuing potential value-adding and downstream processing opportunities here in Australia. The reality is that most of these projects will require foreign investment and offtake agreements with overseas customers to be viable. For these projects to incorporate and develop downstream processing will also likely require international partners, bringing technical expertise and intellectual property as well as further investment. Without this support, these local value-adding opportunities could be lost to other countries.

The ability of Australia to capitalise on this opportunity will to a large extent depend on the ability of Australian companies to access and attract foreign investment. For this reason, the proposed FIRB reforms are of critical interest and importance to the mining and mineral exploration industry. Growth in this sector could be further restricted by these reforms, and FIRB has already shown a willingness to reject applications for investment in companies exploring or developing critical mineral projects. Under the proposed provisions and broad definitions, all transactions could be subject to review, regardless of their actual or implied threat to national security.

Australia's current broad and relatively low thresholds for foreign investment screening are already considered one of the most restrictive among advanced economies, and the connection required to Australia's national security interest to approve or reject an application is not being made clear. What is also not clear is what responsibility the Commonwealth will take should FIRB reject an investment application, potentially preventing a mining project from being developed. If another investment source is not available and accessible, then the project will not proceed. It is unclear to AMEC how this outcome would benefit Australia's national interest. Importantly, as Australia tries to secure its place as a leading nation in the critical and battery minerals global supply chain, creating restrictions that may limit our ability to develop strong commercial partnerships built around investment, processing offtake with overseas partners, is not to Australia's short- or long-term benefit.

Our association acknowledges and supports the need to protect Australia's national interest and national security. We also recognise that protection of Australia's national interest protects our industry as well. However, we have serious concerns that these reforms and this approach will lead to the rejection of foreign investment where there is merely a perceived but no actual threat to national security or national interest and the unintended repercussions their application will have on our industry and, more broadly, Australia's economy.

Australia is a trading nation. Our country benefits from free and fair trade arrangements. Our primary industries rely on open access to world markets. We are also a nation that has significantly benefited from foreign investment. It is, I think, important to place these proposed reforms in the context of Australia's current and future trading relationships, especially with regard to our major trading partners. Australia's largest trading partner, and the largest consumer of Australia's mineral exports, is China. Despite record exports, this trading relationship is currently under significant strain. A further deterioration of Australia's trading relationship with China has very real risks for our national interest and our national economy. This should not be underestimated.

I would also like to reflect on the long-term benefits that Australia has seen from overseas investment, particularly Japanese investment in Australia. This investment has underpinned much of the development of Australia's iron ore and coalmining industries and helped to foster a strong and long-term trading relationship which has benefited both nations across these and many other industries. This investment was then especially contentious, coming at a time not so far removed from the Second World War. Today most Australians would rightly recognise the value that these investments have ultimately delivered for our country. I believe that, in the decades ahead, Australia will come to see Chinese investment in our country in much the same way and recognise the significant contribution that these investments are now making to our ongoing development and prosperity.

These foreign investment reforms cannot be divorced from our current trading relationships. Whether or not Australia is seen as a destination that welcomes and supports foreign investment from other countries, especially from our major trading partners, will impact upon these trading relationships in one way or another. We should be especially careful that we are striking the right balance. I look forward to taking the committee's questions.

Senator O'NEILL: Chair, could I ask for the opening statements to be provided, if possible, through the secretariat, so I can look at them now, while we have the witnesses here? Thank you. Mr Pearce might have to send his digitally, I think.

Mr Pearce : I'm happy to do that.

CHAIR: That would be great. Thank you very much. Just a quick one from me to start off with. I'll start with you, Mr Pearce, but I would like the MCA's view as well. I just want to get to the specifics. Are you concerned about the actual threshold test itself or are you concerned about implementation?

Would additional guidance from Treasury, for example, as we go through this process make you more comfortable, or do you have a problem with the way the actual national interest test is framed?

Mr Pearce : I'm concerned about both; our association is concerned about both. I would point out that the current approach being taken under the existing rules has enabled FIRB to make decisions that have rejected investment applications in critical minerals primarily, it appears, because they will ultimately be processed and used in defence technologies. That's an issue around the approach that is currently being taken under the existing rules. While we're concerned about an extension or expansion of those rules and restrictions, we're also concerned, without clearer guidance and clearer information, about how FIRB will make these decisions and on what basis or what connection is required to national security to require an application and also a decision to be made. That needs to be made much clearer.

CHAIR: Mr Marris, did you wish to add anything?

Mr King : I think there are two elements here. The first is that the new arrangements pick up much of the old framework and then add to it. That's driving a degree of uncertainty in the way that the new arrangements interact with investors. By that I mean: how does a company know or an investor know whether they are caught by the act or not? That uncertainty immediately drives an investor to, firstly, register and, secondly, be concerned about the potential call-in for up to a decade after the investment has been made. So there's the concern around what is in and what is out and the concern about the call-in power, but there's also from our perspective a concern about how foreign investors view Australia as a destination for investment, given the additional uncertainty that the changes bring in. There are things that can be done to remove some of that uncertainty—and there was reference made to guidance material, and we can learn over time what is included and what isn't—but, in the interim, the risk is that Australia and Australian investment opportunities will start to be viewed by investors around the world as having a degree of sovereign risk, which is then hard to change in retrospect.

CHAIR: Has either organisation got any anecdotal or actual evidence of the impact that the current framework changes that were introduced early on in the pandemic have had on foreign investment flows? I guess it's very hard to disentangle from the general economic problems that have beset the global economy thanks to this pandemic, but do you have any comments with regard to the actual on-ground effect of those changes?

Mr King : In terms of the shorter-term changes in relation to COVID-19, yes, we have seen an uptick in uncertainty around decision-making from FIRB with the lowering of the threshold. I think what's of bigger concern to us, though, is the longer-term trend in terms of capital investment into the mining sector, foreign investment into the mining sector, and a recognition by the mining sector of the importance of foreign direct investment in the import of technology and know-how that can then be adopted and adapted across the mining sector in Australia. It's those two things in terms of a longer-term trend and looking forward to what the mining sector needs in new areas of mining, including new energy technologies, that are significant concerns for the sector.

CHAIR: Mr Pearce, do you wish to add anything?

Mr Pearce : I agree with those comments. I would say that it's hard to make an informed decision about very short-term indications as a consequence of the recent line of the threshold other than to say it's perceived to be a negative towards our sovereign risk profile and our environment attraction. In terms of our industry, particularly in the critical minerals space, investment attraction is really important because we particularly rely on foreign investment to receive capital for these projects. What takes place with a critical minerals project is: in an effort to undertake exploration and make a discovery, your project has to be commercially viable. You've also got to arrange a customer to purchase your product. You also have to arrange the investment to actually underwrite the project.

When it comes to markets that are newly emerging, there is less certainty around exactly what is going to take place with regard to price and longer-term trends. Particularly in the critical minerals element, putting that piece together for Australian companies is quite difficult. What we have seen is that there is a quite different investment horizon or risk appetite for early investment in these projects from particular countries and particular companies. That has meant we have become more reliant on those countries that are willing to invest early, with longer-term horizons around their potential returns in that industry. That seed capital has been critically important for us to build debt financing and other financing aspects around the project for its development. We would be particularly concerned if that had an impact on that seed capital.

At this stage, although Australia, the Commonwealth and state governments, and industry have worked hard to develop other avenues for investment in this space, particularly through the European Union and North America, that investment has not yet come forward in the same way that it has come from Asia. We would be concerned to see further restrictions around early investment opportunities being restricted into these projects where there are not likely to be immediate opportunities for other investment sources. So, from our point of view, it's very much a concern around: if the Foreign Investment Review Board is to reject an investment application, what, then, is the obligation on the Commonwealth to ensure there are other investment opportunities so that projects can proceed?

Senator O'NEILL: Can I ask straight away, Mr Pearce: are you suggesting that the government might need to fill that gap?

Mr Pearce : I'm suggesting the government should be quite aware of what the realities about investment opportunities actually are, particularly in critical minerals. The reality is: although we've worked hard to build a wider range of investment opportunities with strategic partners across the world, that investment has not come forward in the early stages. Our companies, explorers and project developers have been very reliant on investment from China in particular, in getting that early seed capital that we are able to build a project around and in finding those customers that actually want to take the product. In that environment we have seen a couple of examples recently where it has not been quite as simple as some might think to find other investment opportunities once an investment application has been rejected. We'd suggest that, under current arrangements, particularly with projects that aren't necessarily multibillion-dollar projects, there is a role for the Commonwealth to look at what it can do to support that seed capital funding piece to help these projects get off the ground.

Senator O'NEILL: You indicated there in your response that there have been recent applications that have been rejected. Is it your view that they were rejected for no good reason?

Mr Pearce : It's hard to assess. The two proposals I am speaking of are the Northern Minerals' Browns Range Project, which was an application for Chinese investment, and the AVZ Minerals lithium project in the DRC. Clearly, our critical minerals, both lithium and rare earths, are critical minerals that have a connection to the defence chain. However, they require substantive, extensive processing to be used in defence technologies. It has never been made especially clear in the decisions or reasoning provided exactly why those applications were rejected. Indeed, in both cases they had significant impacts for those companies and for those projects being able to proceed.

Senator O'NEILL: When did those two events occur?

Mr Pearce : They both happened earlier in 2020.

Mr Marris : Just to point out: UN data shows that foreign direct investment to Australia declined by 40 per cent in the first half of 2020.

Senator O'NEILL: It might be 70 per cent in other jurisdictions.

Mr Marris : It could be. You wouldn't be putting that together with that, but it just shows you that there is a lot of change on and it reinforces the point that we're in a competitive environment for investment. Quite often these things are discussed—the comparisons with the US or the UK—but we're competing with South America, Russia and Africa because that's where the resources investment is going to go. It's not a given that this money will come to Australia. We're in competition with these other countries for that investment.

Mr King : If I could just add to that, we are in competition with other mining countries. I think the important thing also is that that competition is also for the foreign direct investment that carries knowledge and technology, and without that, it becomes increasingly difficult to develop downstream industries using the mine output to increase manufacturing in Australia.

Senator O'NEILL: First of all, we had evidence from Mr Love—I think you were in the room for most of that; I don't know if you heard, Mr Pearce—but there are many, many Australians employed in the financial sector who will be impacted by the government's decisions around this particular legislation. I think you indicated that 1.1 million jobs are supported by mining. I think it is fewer in terms of direct jobs—

Mr Marris : 240 direct.

Senator O'NEILL: 240,000 direct and 1.1 million supported.

Mr Marris : Yes.

Senator O'NEILL: It's going to have material impact on the lives of a lot of Australians. It sounds to me, gentlemen—and I do wish there were more women in mining, because I know there are great jobs there and I'd love to see that, but that is probably another inquiry.

Mr Marris : Our CEO sends her apologies!

Senator O'NEILL: I sense that you have made efforts to put an argument to the government that mining should be carved out. Is that essentially what you're asking for today? Mr King?

Mr King : Not in the first instance. I think there are some unintended consequences in the way the policy is framed that need to be worked through. The first stage is that a review should be undertaken that looks at where those unintended consequences exist and how they should be managed. Whether that review is done before the reforms are implemented or after is a separate question. The second—

Senator O'NEILL: A review mechanism prior to implementation—my interpretation of what you just said is 'delay the start date from 1 January 2020'.

Mr King : We recognise this as a tension between national security and national interest. If the national security decision of government is that this needs to be implemented as quickly as possible, then that would suggest that the review should be done in the first two years of operation. That would also give us some evidence on the ground. Unfortunately, it will also have an impact on the industry and the industry's ability to employ and develop new and existing mines.

Senator O'NEILL: In your evidence to me this morning you've created the impression that there is a great risk to jobs in Australia being generated by the hasty action of the government with this legislation. My sense is that you have not been heard by the government with the multitude of concerns that you've raised here today.

Mr Marris : I think we're at a disadvantage because, as my colleague says, there's a second half of the equation that we're not privy to. We're not privy to the national security considerations that they are referring. We can only talk about the economic impacts and, yes, the economic impacts would appear to us to be potentially significant, but we're not in a position to say whether the government—how the government has weighed up those two.

Senator O'NEILL: The legislation as it stands has raised a significant number of concerns that you've articulated quite clearly in your opening remarks. It is not a jobs-and-growth narrative; it is a lose-jobs-and-limit-growth piece of legislation from your point of view. Is that correct?

Mr King : An investment decision will also ride on a range of other factors. Those factors might be: what is the risk-adjusted rate of return? The board of a company, when considering whether to go ahead with an investment or not, will consider a wide range of things. They'll look at the outlook of a commodity. They might look at how that commodity relies on other things—stainless steel and nickel, for example—and look at the commercial and economic outlook for those. It will look at the risks of the project. It will look at competitive projects in a stack of projects that it might have around the world. One company that I spoke to indicated that, for those competitive projects around the world, over the last seven years only $1 in $9 has come to Australia. So we, as Australia, can no longer rely on our mineral deposits to take us to the front of the investment queue. That's also the case with new mines of new, different minerals and metals emerging in Australia—nascent industries that we're trying to see developed from a mining perspective. How this investment change impacts on capital flows into that mining—that's the concern that we have. How will it impact?

Senator O'NEILL: Mr Pearce, you indicated that growth is restricted. In your comments about the FIRB already rejecting—and I have got your opening statement here—you made a comment about a perceived threat versus no actual threat. Why did you say that? Is the government making this a bigger issue than you think it should be? Could you also speak to the idea of national security land, which seems to be something that's impacting you as well?

Mr Pearce : In regard to the comment I've made in terms of a perceived threat versus actual threats, as Mr Marris said, we've not been privy to the other half of this conversation, which takes place in government, around exactly what the national security interests are or what national security interests might be at risk.

Senator O'NEILL: Do you believe the government?

Mr Pearce : I'd ask the government to explain exactly how the provision of raw materials and critical minerals has such a substantial national security interest, when you are, essentially, required to undertake very significant processing beyond that point before they can be used in things that might be considered defence technologies.

Senator O'NEILL: Has the government been listening to you?

Mr Pearce : We haven't had a response on these issues, and I'm not sure the government can provide a clear response around what its considerations are around national security. However, we would expect them to provide clear information around how they think raw materials fit into that picture. The argument that I'd make is: if indeed Australia were to make the decision to reject foreign investment from another country around our critical mineral project, what exactly is the alternative that is in our national interest? Are we going the develop the mine ourselves? Are we then going to invest in the extensive processing required in the various changes to move that to a product that might actually be used in national security? I'm unclear about exactly how close the connection has to be. You could make an argument that pretty much every raw mineral ends up in a defence technology in some way, whether that be iron ore, coal or nickel, moving into steel and various things. Once you get down to these questions, they mostly come down to smaller projects and smaller levels of production that are key elements in particular technologies; however, they are still a long way removed from the types of things that you would usually consider to be affecting a national security interest.

Our concern about the restriction of growth already looks at a future industry that Australia is trying desperately to become a much bigger part of, and that's the critical minerals value chain. As we look into these technologies—which are largely commercial technologies, not defence technologies—there is renewable energy technology, home storage, electric vehicles, lithium-ion batteries and mobile technologies. All have substantial processing elements that Australia could play a larger part in. We have the raw materials. We are already a known destination for providing those materials. But, in order for us to get to the processing stage, we rely not just on foreign investment but on foreign partners who bring technical and technological expertise to assist us to move quickly into processing opportunities. For that to take place you're essentially having to agree to, or wanting to agree to an investment partnership with a foreign company that brings technology and investment while we bring the raw materials and we involve ourselves together in a down streaming opportunity. If we're going to realistically—

Senator O'NEILL: You're talking about manufacturing jobs there. What you're saying is that if the government gets this wrong, there will be a cost in terms of manufacturing jobs which Australians are really keen to get and to embed, in another way, as part of our national security. It's so we can actually make our own, employ our own and use our own resources that you mine for us.

Mr King : That's absolutely the case around what is in the national interest; what is in the national security interest being a more discreet set—

Senator O'NEILL: Are you concerned about the lack of definitions?

Mr King : If I could just pick up—on the critical minerals side, it's not mining where the pinch point is. The pinch point that is often referred to as the 'seat of the national security point' is much further down in the supply chain before you get to the manufacturing. At the mining level, output can't be used in any products; it needs to be separated. What you mine needs to be separated and those separated components need to be smelted; then you're in a position where you have early manufacturing. But you need the technology and the know-how to do the smelting and the early manufacture material. That technology and know-how, unless you buy something that's old technology and off-the-shelf, requires foreign direct investment to access and partnerships to deliver that access through foreign direct investment.

Senator O'NEILL: I will come to some definitional things but if I could first go to a point Senator Brockman raised about a favoured nations potential filtration process where there might be very low-risk jurisdictions or collaborative financing partners who want to invest in Australia. I go to your point, Mr Pearce, about the Japan-China consideration. I suppose that was then, this is now. One of the things is that the democratic traditions in Japan changed and that changed how we were able to interact with them over the course of the last 75 or so years. The reality in interacting with China is that as powerful as intellectual exchange and partnership in the development of new technologies is, there remain real concerns in the broad Australian community about undue influence from a country that has a very different model of government that doesn't operate with a rule of law in the same way that Australia does. You are aware of that. So while you are giving evidence as leaders of an industry, you are in a very privileged position to speak for the Australian people who are facing out and into that reality, national security, that the government says needs urgent attention. Given that sort of a frame, I am asking for your view about whether there is a case for a low risk, high risk differentiation of where foreign investment might come from? Have you considered that with the government and are you concerned about the key definitions of 'national security: business' and 'national security: land'? I might go to you first, Mr Pearce and then come to you, Mr Marris.

Mr Pearce : In that sense, we certainly recognise and understand the difficult position the federal government and the Commonwealth of Australia find themselves in having to balance issues of the national security interest and strategic partnerships with a potential economic interest and, indeed, the commercial interests that sit somewhat parallel. I think there's a risk that these things are becoming confused. In this instance, as I understand it, the issues that are being raised at the forefront of these discussions largely appear to involve investment into technology spaces that are quite aside from the mining industry. In this instance, where the mining industry has been such a significant provider of prosperity to Australians, we should be careful to include it into these spaces unless we are certain or confident that it has a direct connection to national security, national interest. The overarching proposals by the government and the logic behind them make sense in many ways, but there are many unintended consequences and we ought to be careful about what those implications are.

I strongly support the Australian government's efforts to help industry develop new investment avenues across the world, whether that be seen as strategic or allied partners, or indeed countries that may be perceived to have a lower risk to national security. However, what we've seen in the critical minerals space is that those countries have not demonstrated a willingness or a want to invest early in these projects, whereas we've had that interest and engagement from China and South East Asia. I think we should be careful about the choices here which are, in many cases, to accept and develop good terms around that investment but realise that there may not be other investment coming forward at this time.

Senator O'NEILL: So the government need to be ready to prop up what you think they're going to break by pushing this legislation so quickly.

Mr Pearce : I don't expect the Commonwealth government to guarantee investment, but I do think it's important they've got strategies in place to ensure we can develop these projects if we're not prepared to accept foreign investment from particular destinations. We want to be part of this industry. It is absolutely a benefit to Australia's economic and national interest for Australia to become a key supplier and a larger part of this renewable energies value chain. It is going to be one of the biggest industries in the world and it is growing extremely quickly. We are excellently placed as a provider of the raw materials to grow our share of that industry. If we're able to do that, we will lock in a lot of economic prosperity for a long time to come.

Senator O'NEILL: It might be time for that Australian spirit to back ourselves in, Mr Pearce, instead of being so hesitant about using our wealth to back our own companies and our own country.

CHAIR: On that note—

Senator O'NEILL: Mr King had a response, Senator Brockman—sorry, it was Mr Marris.

Mr Marris : Given the concerns that we've outlined, I can understand you might say that we'd like Senator Brockman's suggestion about tiered. However, I'd agree with Mr Pearce that it should be about addressing the issue that is of concern. Creating a dual arrangement I don't think actually addresses the need we have for finance from a broad sector of providers and the technological partnership element. As an industry we still have a view that increasing trade links, ultimately, provides better relationships—that's been our experience as a mining industry and that of our members who have travelled to many locations in many countries and dealt with customers. Notwithstanding the difficulties which, as I say, we are not privy to in terms of national security, in the longer run increasing those partnerships will be better for trading relationships. We think that track record speaks for itself and we should continue down that path.

Senator O'NEILL: Should this legislation go ahead or not?

Mr King : Before I come to that question, if I could just follow on from Mr Marris briefly. You asked if the national security test should be adjusted or changed before its implementation. I think the national security test needs clarity.

Senator O'NEILL: There's no definition at the moment.

Mr King : There's no definition about what business is in and what business isn't; what investor is in and what investor isn't. If I go back to the earlier comments about the amount of foreign investment the mining sector needs simply to keep operating—

Senator O'NEILL: Seven billion–was that—

Mr King : We've seen over the previous decade foreign investment increase tenfold in mining from about $35 billion to $380-something billion—I haven't got the exact number in front of me. That sort of magnitude has delivered Australia a significant boom—$365 billion; I found the number. That's actually driven the $289 billion worth of trade income that the mining industry brought into Australia last year. If we're looking at sustaining that, we need $20 billion to $25 billion a year simply to sustain production. If we're looking to grow that, it needs to be an order of magnitude greater than that. That's a significant impost on either government debt or domestic savings where we don't have the ability to rely on foreign investment coming in. That's setting aside the technology benefits that you get from foreign direct investment and partnerships.

Our partnerships with our current trading partners—I'm talking about companies in China, I'm talking about companies in Taiwan, I'm talking about the range of companies in the countries that we trade with—quite often go back 50 or 70 years. Those relationships are now at a point where companies are working together to develop the next round of technology, to improve the efficiency of existing technology and to improve the way resources are used. Without those relationships, or where those relationships break down for whatever reason, that cooperation is lost. That is an area where I think Australia would benefit significantly, particularly given the longstanding relationships and the cooperation that has occurred between companies to date and also where the new minerals and new ways of making steel, for example, are still in their latent-state.

Senator O'NEILL: In its current state should this legislation go ahead or not?

Mr Marris : We would say that it needs those changes that we have recommended. Firstly, the definitions have to be much more clearly put and then there are those issues about the uncertainty created by call-in powers and the like. We would be looking for amendments.

CHAIR: We will have to leave it there. Mr Pearce, do you have any final remarks?

Mr Pearce : No. Thank you.

CHAIR: Thank you all very much for appearing today. We appreciate it.

Proceedings suspended from 11:07 to 11:20