Two contradictory faces of the Coalition when it comes to economic issues were on display this morning.
While on a visit to China, WA Premier Colin Barnett called for an end to “discrimination” in Australia’s treatment of investment by Chinese state owned enterprises (SOE).
Simultaneously, the Nationals are pushing for Government to block a $3.4 billion bid for GrainCorp – which handles most grain grown on the eastern seaboard – by US grains giant Archer Daniels Midland. According to the Nationals, the acquisition would not be in the national interest because of the market power ADM would be able to exert. As part of their attack, the Nationals took aim at the Foreign Investment Review Board, accusing it of rubber stamping foreign investment and not protecting “the national interest”.
So, the conservative government in WA says Australia should be more welcoming of foreign investment, while the Nationals at the federal level want tighter controls.
Let’s take these one by one.
First, Colin Barnett’s concern.
The WA Premier is correct that state owned enterprises seeking to invest in Australia face different rules to other investors. Specifically, any proposed acquisition by an SOE of an interest in a mining business – regardless of size or country of origin – must be scrutinised by FIRB. This is different to the rules for other categories of investors, who only face FIRB scrutiny if they seek to acquire a stake greater than 15 per cent in a mining business (a threshold currently around $244 million).
But the reason for differential treatment is obvious: a SOE is not your standard investor. Thanks to their state backing, they are not on the same playing field as purely commercial operators, and can have agendas that are not purely commercial, either. So the idea that they face a different form of scrutiny to other investors appears justifiable.
What about the GrainCorp takeover bid?
Interviewed about it by Fran Kelly on ABC’s Radio National this morning, National Senator Fiona Nash said the Nats didn’t trust the ACCC to protect the interests of farmers if, for example, ADM used its virtual monopoly position to exclude some farmers from its network and/or set rapacious fees. But, if that is the case, aren’t farmers already vulnerable to such abuses from GrainCorp, given its dominance of the eastern seaboard grain handling network? And what is the evidence that the ACCC would be unable to act to ensure a strong market position was not being abused.
Senator Nash, like Nationals leader Warren Truss, has also attacked FIRB, accusing it of practically rubber stamping foreign acquisitions in the agriculture sector. She said FIRB should include someone with agricultural industry expertise.
The presumption is that someone from an agricultural background would be more likely to reject at least some foreign investment proposals, the implication being that they would have a better understanding of what constitutes the ‘national interest’ than those currently serving on the FIRB.
Following Senator Nash’s logic further, it would mean that each foreign investment proposal should be scrutinised by a group that includes a member with expertise in whatever particular industry is involved. So who would these experts be? How would they be selected? What specifically would they add to the appraisal process? It would seem to be a pretty slippery path the Nationals want the country to go down.
The concerning thing is that, from 14 September, they will have much more clout to try and get their way. Senator Nash has already flagged that they would ask Joe Hockey, if he became Treasurer, to block the ADM bid. This would put him in a very tricky position. On the one hand, he would be under pressure to satisfy the wishes of a key political ally. On the other, what sort of signal would it send to foreign investors about how welcoming the new government was to offshore capital?
Which way he jumps will be an important early test of his judgement, and of the economic and political abilities of an Abbott Government.