On 27 July 2021, and as envisaged by the Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020, the Treasury released a consultation paper for evaluating the foreign investment reforms which commenced on 1 January earlier this year. The consultation period closed on 31 August 2021.
The consultation focused on the following areas:
- Implementation – extent of utility of the Transitional Guidance Note, updated FIRB website, Guidance Notes and the Treasury’s engagement efforts generally to assist investors’ understand the new foreign investment framework and their obligations under the framework;
- National security screening – whether the concepts are sufficiently defined and the factors investors consider when deciding whether to voluntarily notify (including effectiveness of related guidance);
- Compliance – the impact of new powers and increased enforcement penalties on investors’ attitudes towards compliance and clarity of new compliance obligations; and
- Fees – the impact of the new fees framework on foreign investment in Australia, when and how investors apply for foreign investment approval and what, if any, guidance may be helpful to make such decisions.
The FIRB reforms intended to update the framework in three broad ways: (i) addressing national security risks;(ii) strengthening the existing foreign investment system; and (iii) streamlining investment in non-sensitive business areas. Stakeholders are provided the opportunity to comment on whether the right balance has been struck between welcoming foreign investment and protecting Australia’s national interests.
FIRB’s 2019-20 Annual Report appears to capture some of the initial consequences of the January 2021 FIRB reforms. In 2019-20, over 8,200 foreign investment applications were approved, representing potential investment of $195.5 billion. China was the sixth largest source country for approved investment by value (down from fifth in 2018-19). The number of approved investments from China fell by approximately 600 in 2019-20. However, the approved investments were of a higher value than in recent years – despite the lower number of approvals, the total value of Chinese approvals remained relatively steady in 2019-20 ($12.75 billion in 2019–20 compared to $13.14 billion in 2018–19). The specific sectors which experienced a decrease in approved investments from China were mineral exploration and development and services. The agriculture, finance and insurance, and manufacturing sectors, on the other hand, experienced an increase in approved investments from China in 2019-20. The US was the largest source country by value, followed by Japan, Singapore, Canada and the UK. The full impact of the FIRB reforms remains to be seen over the coming financial year, and we expect the Treasury’s consultation will no doubt illuminate some of those implications.
This article was written by Oliver Carrick, Partner and Marisa Orr, Special Counsel.