Title Economics References Committee
07/08/2020
Inquiry into foreign investment proposals
Database Senate Committees
Date 07-08-2020
Source Senate
Parl No. 46
Committee Name Economics References Committee
Page 11
Questioner ACTING CHAIR
Whish-Wilson, Sen Peter
Rennick, Sen Gerard
Responder Mr Sellers
Mr O'Hare
Ms Spencer
System Id committees/commsen/ce934c9d-b043-41b7-8003-d8980d15f28c/0003


Economics References Committee - 07/08/2020 - Inquiry into foreign investment proposals

O'HARE, Mr John, Executive Director, Industry Development, Department of Jobs, Tourism, Science and Innovation, Western Australia

SELLERS, Mr Richard, Acting Director General, Department of Jobs, Tourism, Science and Innovation, Western Australia

SPENCER, Ms Simone, Acting Deputy Director General, Strategy and International Engagement, Department of Jobs, Tourism, Science and Innovation, Western Australia

Evidence was taken via teleconference—

[10:08]

ACTING CHAIR: I welcome witnesses from the Western Australian Department of Jobs, Tourism, Science and Innovation by videoconference. 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. I also advise witnesses that answers to any questions on notice are to be sent to the secretariat by Wednesday 19 August 2020. I now invite you to make a brief opening statement, should you wish to do so. Please be brief, given the time we've lost.

Mr Sellers : We did have an opening statement prepared. What I might do, given the time, is incorporate that as part of the Hansard, if you would like.

The statement read as follows—

Thank you for the opportunity to attend this morning's hearing and present a Western Australian perspective on some of the issues being considered by the Committee in this Inquiry.

I would like to begin by providing a brief overview of the Department of Jobs, Tourism, Science and Innovation and how its work is relevant to this Inquiry. The department is Western Australia's lead agency for economic development, international trade and investment, and tourism. The department also leads the promotion and development of the resources, defence, manufacturing, international education, science and innovation sectors in Western Australia. As the name of the department implies, our role also involves trying to ensure that investment and economic activity in these sectors leads to job opportunities for Western Australians.

The department, together with the Western Australian Government's network of overseas offices, has a critical role in attracting investment to the State. The work the department does to facilitate major projects, particularly in the resources sector, helps ensure that investment is productive and compliant with the State's legislation. And the work the department does to improve industry capability and participation aims to ensure that investment ultimately provides positive outcomes for local businesses, workers and communities.

The department is also the initial point of contact for consultation on foreign investment proposals relevant to Western Australia. Given these roles, we took an interest in the Inquiry and prepared a submission on behalf of the WA Government, in consultation with partner agencies.

The WA Government's submission acknowledges the important role of foreign investment and the generally positive role it has in economic development. As noted in the Commonwealth Treasury's submission to the Inquiry, 'As a small open economy, Australia has relied on foreign investment as an additional source of capital for much of its history. By supplementing Australia's domestic savings, foreign investment facilitates greater economic investment in Australia than would otherwise be sustainable.'

This is particularly the case for Western Australia. Foreign investment has allowed Western Australia's capital intensive mining and energy sectors to develop into world leading exporters. While the Australian Bureau of Statistics does not publish a jurisdictional breakdown of foreign investment in Australia, it is likely that on per capita terms at least, the stock of foreign investment in Western Australia is one of the highest, if not the highest, of any State or Territory.

It is precisely because of this that it is also in Western Australia's interest to have a foreign investment framework that appropriately protects the national interest and which complements efforts at a State level to ensure investments benefit local communities and public support for foreign investment is maintained.

We recognise that only so much can be achieved through the foreign investment framework. That is to say, the foreign investment framework should not be used as a mechanism to achieve particular economic or social outcomes through the imposition of conditions on investments that are directed towards those outcomes. As noted in the submission, the WA Government agrees with the general presumption of the 'negative test'; that foreign investments are allowed to proceed unless found to be contrary to the national interest.

Having said that, maintaining broad public support for foreign investment will in certain circumstances require governments to communicate to the public the benefits of foreign investment. While many investors already do this work themselves, there is an opportunity through the FIRB process to encourage more detail on how investments in major projects will support the national interest.

The submission noted the example of foreign investments being tied to project supply chain opportunities linked to operations of the investor in their home market, limiting opportunities for domestic companies to be involved in supply chain opportunities. It was suggested in the submission that, through the FIRB process, any tie back supply chain opportunities negotiated should be visible to the Australian and relevant State governments and applicants could be encouraged to outline how they will engage with domestic supply chains. The COVID 19 pandemic has arguably enhanced the merits of such an approach, by highlighting the importance to government of having knowledge on the workings of supply chains that serve domestic industry.

Other suggestions in the WA Government's submission largely relate to ensuring the process for reviewing proposals is as transparent as possible. While we understand there are good reasons why certain information cannot be made public or provided to consultation partners, more transparency on the decision making process would make the process more predictable for potential investors.

We look forward to answering the Committee's questions.

ACTING CHAIR: That is very helpful. Were there any headline issues that you want to alert us to?

Mr Sellers : I suspect the matter that we will mostly be discussing will be Western Australia—the proportion of foreign investment in our economy compared to other parts of Australia; the nature of that over time; and, with the temporary changes to the foreign investment framework, how we can help with triaging urgent applications for investment in that protracted opportunity to go from 30 days to six months to give a hierarchy for investment. But there are a range of other issues in there as well.

ACTING CHAIR: Thank you, very much. We appreciate you managing that for us. Have you had any consultations with the federal government at this point regarding the exposure draft that has been put out by the government with the proposed changes to the foreign investment structures?

Mr Sellers : No, none that I'm aware of.

ACTING CHAIR: Is that of concern to you?

Mr Sellers : I am hoping that we will take the initiative on talking to the federal government around that. It has been, for yourselves and for us, a very busy time with COVID. In a more normal process, if we hadn't heard, we would be approaching them and would do that.

ACTING CHAIR: So were you approached at all for any consultation before the announcement by the Treasurer?

Mr Sellers : There may well have been some approaches that I'm not aware of, but certainly not since I've been here. Just for context for senators, I normally run the Department of Transport—public transport, main roads and other things—and there was some movement in government as part of COVID that brought me back to DJTSI. This is my second time acting in the role here at DJTSI, so in the last couple of months, not that I'm aware of.

ACTING CHAIR: I'm sure you are aware of the processes we operate, given your role. You would have prepared as fully as possible for today. To your knowledge, the government did not consult you before arbitrarily making a series of announcements. At this point of time, there is no discussion between the state of Western Australia and the federal government about changes to the foreign investment laws?

Mr Sellers : No, not through the Department of Jobs, Tourism, Science and Innovation. There may well be with Premier and Cabinet.

ACTING CHAIR: You stated that you have concerns about the exclusion of companies from bidding for certain supply chain opportunities that you say are opportunities that tend to be lucrative and high value adding. One of the things Australians are very aware about now is our sovereignty being under threat and supply chains and jobs creation in Australia are going to be really important. Could you speak to what you meant when you raised this issue about supply chains and foreign investment in Australia?

Mr O'Hare : Obviously the issue revolves around when capital or equity go into a project. What we have seen in some projects, and again a lot of it can be anecdotal evidence, is that this equity is tied back into procurement decisions. In other words, what seems to be occurring is the capital injection or the investment will go into a project and some of those supply contracts to that project seem to be tied to that capital injection. What we were saying in the submission was we have no visibility as a state to that, we don't believe that the Commonwealth has any visibility and it's an issue that we believe perhaps the Foreign Investment Review Board may pay particular attention to and start to, if you like, ask some questions such as: is the equity tied if a foreign proposal comes in? Is that equity tied back to the procurement of, in a lot of cases, high value-added fabrication, particularly around the manufacturing side of it; the high value-add components of a mine or of equipment to move the product to the port? Usually they would come out to tender which Australian companies could have the opportunity to bid for. If we're not seeing those bids, they are, if you like, locked out from that particular procurement decision. We would suggest to the Foreign Investment Review Board that they may wish to inquire as to what the prevalence of this activity is. Is it occurring? Is it something we would like to see as a nation? If not, do we have visibility on it?

ACTING CHAIR: In layman's terms, if I were a foreign investor and I come into Australia, I get the tip-off and things go ahead, potentially, I could put my capital into an entity, perhaps a mine. At the moment, there's no visibility about what I do with all of the things that go into the mine, which ultimately could really be very stimulatory for the Australian economy, create jobs and grow industries here. At the moment, there's no way you can know if there are terms and conditions set to make sure that that foreign investor uses Australian companies to create jobs for Australians. The Foreign Investment Review Board at the moment doesn't do that, is that what you're saying?

Mr O'Hare : That's what we are saying. We would like to have more visibility on this practice; how widespread is it? We would like to ensure that Australian companies do have the opportunity to bid for some of these high-value packages.

ACTING CHAIR: I have many more questions but we will run short on time. I will go to Senator Whish-Wilson now.

Senator WHISH-WILSON: I don't have any pressing questions that I can't put on notice. I just would be interested in asking perhaps one broad question. My office has received correspondence from mining interests in Western Australia, talking about what they believe to be the manipulation of the prices of some of the products they're selling, especially into the Chinese market. Obviously China is a key buyer of many precious minerals through to bulk commodities. Chinese government interests are purchasing Western Australian mining companies at very low prices because of that manipulation. Have you received any correspondence from interests in Western Australia regarding this? One of the terms of reference for the inquiry today is to look at potential market manipulation. I know it is being examined by the US Congress and US Senate at the moment. We're in a unique situation, where one of our key customers is a government and they're also a competitor, in many cases, for Australian exporters that are selling into that market.

Mr Sellers : The most recent acquisitions in Australia have been around gold. In fact, they've actually been Australian based companies that are buying the large assets. The Super Pit is now Australian wholly owned. In recent times, even before I came back into DJTSI, there haven't been large transactions that I'm aware of of mining entities—stranded or otherwise—that have raised that sort of issue with us, no.

Senator WHISH-WILSON: [Inaudible] or equity stakes in companies as well? So, rather than potentially large transactions, foreign state-owned enterprises buying large parcels of shares or creeping acquisitions?

Mr Sellers : Yes, it's a very interesting question. No, I haven't been aware of it. We do talk to a lot of projects, both up and running and emerging, and we have the major groups that are the front, the operators, coming and talking to us and quite often that's a partnership with foreign companies. Sometimes it's the foreign company that will be having that discussion with us. I'm not aware of large transactions or shares or otherwise in those companies that fit the description that you're making.

Senator WHISH-WILSON: Perhaps if you don't mind, I might send you some information on what I have been receiving and if you have got any views on that, I'd appreciate it. Just maybe as an added point to that, it's certainly one reason, we suspect, when COVID first hit and the stock market crashed, the Treasurer put this quite stringent and certainly unprecedented new screen in place at FIRB so every potential acquisition, when those asset prices were depressed, had to be looked at by the government. There are probably three or four different industries and companies that have contacted me about what they see as manipulation by foreign interests, whether it's directly in their own shares, companies, or through the minerals they're trading. Obviously when you have key buyers, they can influence the value of the company through those minerals and sales. I will send that through to you.

Mr Sellers : I have a quickfire comment on that. Given we had a very short briefing with some colleagues from FIRB the other day and very much appreciate the intent of making sure that stranded assets are not sold cheaply, to date we haven't seen any of that obviously happening but it is really good and we want to work with FIRB to make sure that that doesn't happen

Senator RENNICK: In your submission, you said that economic development has been underpinned by its outward-looking focus, including an openness to foreign investment which has allowed capital-intensive mining sectors to develop into world-leading exporters. I would actually disagree with that statement because, to me, BHP and Rio Tinto were already the two biggest mining companies in the world, long before they listed on the London stock exchange. I actually think it's time that we brought the head offices of BHP and Rio Tinto, along with their marketing hubs in Singapore, back home. Basically, those companies grew on the back of their iron ore, mainly. They also had a coal hub here in Queensland, but I don't see why they needed to list on the London stock exchange, given they were already the world's biggest mining companies. There's really no iron ore at all in the UK, so I just see that as a form of tax minimisation.

I'm just curious of your view as to should they move their head offices back home? For example, if an Australian mining company blew up Stonehenge, I am pretty sure the British would be upset yet we have allowed a foreign-controlled company in Rio Tinto, which it is, given its head office is in London, to blow up some of our historical archaeological sites as well. What is your view on bringing BHP and Rio Tinto head offices back to Perth, the state which produces most of their wealth?

Mr Sellers : Thanks for the statement. The various politicians in Western Australia, no matter whether it's a mining company or any other form of business, have stated on the record that they would prefer to have the headquarters of those companies, whether they're gas, oil, manufacturing, here in Western Australia as part of our economy. Beyond that, it's a political overlay that I can't give you but I know I have heard those commentaries from this government and previous governments.

Senator RENNICK: It is a view that I hold and I will certainly be putting that forward in my party room.

ACTING CHAIR: Thank you, Senator Rennick. It should be noted that one of the terms and conditions for the restructure of the business of BHP was actually under the Treasury of Mr Costello and conditions about staying in Australia were set at that point in time. I think it's a very important historical matter to record. I'll go back to the supply chain considerations that you were discussing before. You indicate that there's an emerging strategy of investments being tied to project supply chain opportunities that are linked to the operations of the investor in their home market. In addition to not having the Treasurer through his department making sure that there's procurement for Australian companies and Australian jobs, what's emerging is a practice in recent times—I'm assuming, under this government—where companies bring their money in, they get it ticked off and they have it all lined up so that they are taking the supply chain back to their own country to support their business without really doing anything for Australia. Is that what you were referring to, and can you explain it to me if I've misunderstood?

Mr Sellers : Thanks for feeding back what you're hearing from us. I think the nuance is slightly different in that, everywhere that I've looked around Australia, there are various levels of buy local and job creation policies with state governments and certainly with the federal government as well. It's more around making sure that we don't create an opportunity for a company to operate outside that opportunity. Where there are companies that are partnering with offshore money but have a base here in Western Australia and are working through the processes here, they are currently a little bit more likely to be tied up with the other state policies. If we can help it, we don't want an opportunity to exist where investment occurs where, as you said, there is a vertical integration somewhere in that company of those procurements happening overseas. That's the intent.

ACTING CHAIR: Why did you raise it now? You seem to indicate that this is an emerging phenomenon. How long have you been aware that this has been developing as a business model?

Mr Sellers : I think the statement was raised because, in terms of an issue, it is something that may have happened in the past. We certainly don't want it to be a focus for future. If there is no transparency in an investment, whether it's made through a state or through a FIRB approval where we can't interrogate that supply chain, then that creates the issue. That's the bit we're raising.

ACTING CHAIR: I'll also go to your statements about transparency with the government. It concerns me that you didn't hear anything prior to the Treasurer's announcement and that you haven't had any engagement to date with the draft legislation. You indicate that your government is regularly called upon to review proposals, but you indicate that you don't receive feedback about the outcome of those proposals and that you don't have as much insight into the foreign investment and approval process as you think you need to make it useful, properly informed and beneficial. Is that the case, and what do you suggest?

Mr Sellers : I can give you a suggestion that is probably relevant to the temporary changes in the 30-day to 60-month review time frame that now exists. The triaging of what's a priority issue that will be dealt with, in terms of an application and what brings it closer to the 30 days, might benefit from some engagement with the state to see what that project's priority is in terms of the overall economics of the state early in the piece instead of just necessarily being a FIRB determined priority listing. So having the opportunity for WA to comment on that on the way through would be an example of how we could be a bit closer.

ACTING CHAIR: You also seek some clarification to allow consultation partners to make meaningful contributions. On the difference between a foreign person investor and a foreign government investor and the weight the Treasurer might apportion between government sanctions and private business investments and that reduction that you've just been talking about there, what do you have to say about the current definition or nature of a foreign investor and a foreign government and—I don't know if you heard the evidence from the first witness this morning—about the way in which the CCP and its integration with private companies is a very, very different model from what we understand normally in the democratic countries that we deal with? Could you expand on your submission with regard to those matters?

Mr Sellers : Thank you. To put on the record, we didn't hear the earlier evidence. I might pass over to Simone to expand on the input we gave around that.

Ms Spencer : I guess it's very much about the changing nature of the advice that's required by states. So, previously, there was a lot less information around the context of national interest, for example. So us being able to provide fulsome advice and then getting feedback in from government would help us with a little bit more of a detailed response. So thinking about getting a little bit more insight into that would be useful for us.

ACTING CHAIR: So, at this point in time, is national interest a concept that is well defined, well articulated and well understood across the nation?

Mr Sellers : The elements of what is considered by FIRB in doing its determination about national interest are well explained by FIRB. They come and tell us that and work it through. There is a subjective component to that depending on geopolitical issues and other matters of the day that we understand that FIRB have to take into account, and there isn't necessarily a very firm definition that exists today that will be equally relevant in six months time if we understand that nuance. But the elements of what makes national interest have certainly been well explained back from FIRB to the states.

ACTING CHAIR: When did that occur?

Mr Sellers : I had an update on it only a couple of days ago from one of my FIRB colleagues. It does happen semiregularly.

ACTING CHAIR: Could you provide, on notice, any matters regarding the foreign investment structures—like emails, correspondence and meetings—to give us a sense of the level of communication, particularly with regard to national interest? I have just one final question. Treasury's IT system is critical. We talk about FIRB, but FIRB is actually a board that just gives advice to the Treasurer. All of this is facilitated by Treasury within the Treasurer's own portfolio. Does it concern you that these limits of the Treasury's IT system have become apparent to us? They cannot provide a breakdown of foreign investment proposals on the basis of greenfields investment verses an acquisition of an existing business. They cannot identify a proportion of approvals to which broad categories or conditions are attached. They're unable to identify in how many instances companies failed to comply with foreign investment conditions and were not penalised. They cannot say, without significant manual work, how many annual compliance reports are received. They cannot say how many reviews over the last four years they've conducted through their own internal program of reporting independent audits and Treasury audits. The Treasurer of Australia and his department cannot answer these questions. Does that give you as senior public servants cause for concern?

Mr Sellers : It's outside our scope.

ACTING CHAIR: Can I ask if you're a little surprised? I certainly am.

Mr Sellers : The sequence that you read through then would certainly be something that I would go and talk to IT about and want to get a better process for if it were mine, yes.

ACTING CHAIR: Because we need information to make the decision. Thank you very much for your evidence today. There probably will be some questions on notice. I remind you that we've set Wednesday 19 August for the return of those.

Proceedings suspended from 10:35 to 10:46