Image: Australian Industry Group
Industry says proposed legislation will hamper investment in Australian research
The Australian Industry Group has expressed alarm at a proposal to expand Australia’s foreign investment law to a wide range of activities, including research.
An exposure draft of what the Treasury calls “major reforms” to the Foreign Investment Review Framework has attracted submissions from numerous industry bodies, state governments and the European Union.
The reforms are expected to go to parliament within weeks and would take effect on 1 January 2021. They would give the Australian treasurer the ability to cancel deals such as takeovers or investments involving foreign entities if national security was deemed to be at threat.
In a submission on the draft law, the Australian Industry Group’s chief executive Innes Willox (pictured) wrote that the law could mean “post-approval forced divestiture” for investors in Australian research and education. “That would represent a dramatic expansion of national security powers, administrative burdens and investment uncertainty across the Australian economy,” he said.
The group’s submission said that spending on innovation and research was likely to fall after the Covid-19 crisis, and that “uncertainty regarding Australia’s foreign investment review regime has added additional pressure in the already challenging current environment”. Some investors have already delayed putting money into Australia because of “perceptions of sovereign risk”, Willox wrote.
The Victorian government’s objections to the law included that “the research and university sector already heavily impacted by Covid-19 is likely to be significantly negatively impacted by the proposed changes, as it relies heavily on investment from foreign-owned companies”. The EU raised concerns about the regulatory load and cost of the law, particularly for new technology companies.
Under the law, the treasurer would act on recommendations from the nation’s Foreign Investment Review Board, which supervises investments such as property purchases. Foreign entities wanting to buy significant shares in companies defined as “national security businesses” would need FIRB approval. These businesses would include any classed as critical infrastructure, as well as telecommunications businesses, those that deal with the data of defence staff and those that supply or manage services to defence and intelligence staff.
The treasurer would be able to “call in” transactions and order them to be cancelled, including transactions approved by the FIRB.
The Business Council of Australia’s submission said that a simultaneous federal government review of what was defined as “critical infrastructure” would be likely to see some education, research and innovation work reclassified as critical and therefore subject to the FIRB rules.
An analysis of the proposals by leading law firm Allens concluded that “by giving the treasurer power to re-examine a previously approved transaction, the power goes further than other countries’ foreign investment regimes”. The rules would allow deals to be retrospectively cancelled because of changes in circumstances, which “may lead to investment uncertainty”, the analysis said.
Allens said the level of risk to national security that would allow the treasurer to cancel deals was not sufficiently clarified.
Michael Harvey, head of the translational research laboratory at the Centre of Excellence for Engineered Quantum Systems, expressed concern that the rules could dampen development of the Australian quantum technology industry. Its future relies partly on “foreign companies partnering with locals to bring our research outputs into their organisation”, which could be affected by the proposed legislation.
“My concern with the proposed changes is that adding administrative barriers, regulatory risk and any uncertainty to the process will discourage investors and limit the availability of capital for our fledgling industry,” Harvey wrote in his submission.