EXPLANATORY STATEMENT

Select Legislative Instrument 2012 No. 309

Issued by authority of the Assistant Treasurer

Foreign Acquisitions and Takeovers Act 1975

Foreign Acquisitions and Takeovers Amendment Regulation 2012 (No. 1)

Section 39 of the Foreign Acquisitions and Takeovers Act 1975 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The Regulation amends the Foreign Acquisitions and Takeovers Regulations 1989 to give effect to Australia’s commitments under the Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement. 

The Protocol on Investment to the Australia‑New Zealand Closer Economic Relations Trade Agreement, which was signed by the Australian and New Zealand Prime Ministers in February 2011, includes a commitment by Australia to provide New Zealand investors with the higher foreign investment screening thresholds that apply to United States investors. 

The Foreign Acquisitions and Takeovers Act 1975 and the associated Foreign Acquisitions and Takeovers Regulations 1989 stipulate the notification and approval requirements for foreign investors proposing to invest in Australia.  An investment proposal is subject to these notification and approval requirements if its value is greater than the relevant monetary thresholds specified in the Foreign Acquisitions and Takeovers Regulations 1989.

Currently, New Zealand investors seeking to obtain a substantial interest in an Australian business or corporation valued above A$244 million (indexed annually) are required to notify and seek approval from the Treasurer.  Also, New Zealand investors seeking to acquire an interest in developed commercial real estate valued at A$53 million (indexed annually) or more require approval. 

United States investors have benefited from higher monetary thresholds since 1 January 2005, following implementation of the Australia-United States Free Trade Agreement.  As a result of the Australia-United States Free Trade Agreement, privately owned United States investors (businesses) are only subject to the notification and approval requirement if their investment proposal is greater than a higher threshold of A$1,062 million (indexed annually) in relation to developed commercial real estate and most businesses.  The lower A$244 million threshold applies to acquisitions by these investors of businesses in the prescribed sensitive sectors, which are media, telecommunications, transport, military related goods and services, encryption and security technologies and communications systems and uranium or plutonium related activities.

The Regulation provides the higher screening thresholds to New Zealand investors by:

•                 including equivalent definitions for New Zealand enterprises and nationals to those applying to United States enterprises and nationals; and

•                 including New Zealand enterprises and nationals in the definition of prescribed foreign investors and prescribed foreign government investors.

Including New Zealand investors in the definition of prescribed foreign investors also implements Australia’s commitment that proposed New Zealand investment in Australian financial sector companies would no longer be subject to foreign investment screening under the Foreign Acquisitions and Takeovers Act 1975 (although approval is still required under the Financial Sector (Shareholdings) Act 1998).

The Regulation also includes an amendment to remove a minor inconsistency between the percentage interest threshold to be a foreign government investor (contained in the Foreign Acquisitions and Takeovers Regulations 1989) and that to be a foreign person (prescribed under Section 9 of the Foreign Acquisitions and Takeovers Act 1975). The amendment will ensure a consistent definition applies to all foreign persons, including foreign government investors.

Australia has worked closely with New Zealand to ensure implementation is consistent with the agreed Protocol on Investment.  As the changes made by the two regulations replicated existing provisions already contained in the regulations (reflecting that New Zealand investors were to receive treatment equivalent to that already provided to United States investors), the changes were considered simple and minor, with no further public consultation necessary. 

Public consultation on these instruments was also not required because the sole purpose was to implement the Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement.  The Government undertook significant consultation in relation to the Protocol.

In 2006, public submissions were invited via advertisements in major Australian newspapers.  Submissions were received from Australian businesses with investments in New Zealand and from Australian business representatives.  Officers from the Treasury and the Department of Foreign Affairs and Trade held face‑to‑face consultations with stakeholders in Sydney and Melbourne on the objectives and scope of the Protocol on Investment.  These consultations suggested that:

•                 there was strong support from businesses and other stakeholders on both sides of the Tasman for reducing barriers to bilateral investment flows;

•                 the business communities of Australia and New Zealand considered that liberalisation of Australia’s and New Zealand’s respective foreign investment screening regimes was long overdue; and

•                 the objective of the Investment Protocol should be to minimise compliance costs associated with foreign investment screening. 

Consultations with the states and territories regarding the Protocol on Investment commenced in 2006.  At this time the states and territories were advised of aspects of the Investment Protocol that may affect their jurisdictions.  In 2009 and 2010, further consultation with the states and territories occurred regarding the following issues:

•                 the Schedule of non-conforming measures: Consistent with Australia’s preferred practice with free trade agreements, states and territories were asked to agree to Australia’s market access offer, which envisaged all existing non‑conforming measures at the state and territory level being dealt with in a single blanket listing in Annex I of the Protocol on Investment;

•                 most-favoured nation inconsistent measures: states and territories were asked to provide details of any measures in their jurisdiction that discriminated against New Zealand investors in favour of third country investors.

The outcome of these consultations was that the states and territories agreed to Australia’s market access offer and undertook to provide details of most-favoured nation inconsistent measures.  Consultation with the states and territories in relation to developing a list of non-conforming measures, required for the Parties’ first meeting to review the Protocol, is ongoing.

The Protocol on Investment was tabled with the Joint Standing Committee on Treaties and considered at a hearing of the Committee.  The Joint Standing Committee on Treaties recommended that binding treaty action be taken.

The Regulation will commence on a day notified by the Minister in an instrument, following the agreement between Australia and New Zealand of a start date for the Protocol on Investment.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Foreign Acquisitions and Takeovers Amendment Regulation 2012 (No. 1)

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The Regulation makes amendments to the Foreign Acquisitions and Takeovers Amendment Regulations 1989 to give effect to Australia’s commitments under the Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement. 

The amendments include New Zealand enterprises and nationals in the definition of prescribed foreign investors and prescribed foreign government investors so that the higher foreign investment screening thresholds applying to these investors (currently United States investors) apply to New Zealand.  As a result, privately owned New Zealand investors (businesses) are only subject foreign investment screening if their investment proposal is greater than A$1,062 million (indexed annually) in relation to developed commercial real estate and most businesses (the threshold is currently A$244 million).

The Regulation also makes a minor amendment to ensure a consistent percentage interest threshold applies to the definition of all foreign persons, including foreign government investors.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.