CHAPTER 5 FOREIGN INVESTMENT IN AUSTRALIAN NATURAL RESOURCES IN THE 1970s

• Jurisdiction: United States

International Minerals Acquisition and Operations
(Oct-Nov 1974)
CHAPTER 5
FOREIGN INVESTMENT IN AUSTRALIAN NATURAL RESOURCES IN THE 1970s
J. M. Spender
Sydney, Australia

INDEX

SYNOPSIS
PART I

Introduction (1)

Australian Political Entity (4)

Economic Stability (6)

Prevailing Attitudes to Foreign Investment (7)

Federal Labor Government's Actions and Powers (17)

Export Controls;

Control over Movement of Funds;

Foreign Takeovers;

Foreign Investment Proposals;

Uranium;

Legislation.

Federal Opposition Policies towards Foreign Investment. (19)

State Policies towards Foreign Investment (20)

The Future (21)

PART II

Methods of Carrying on Mining Activities in Australia (27)

Taxation (30)

Exploration Rights and Acquisition of Mining, Oil and Gas interests. (32)

Law Dealing with Minerals. (33)

Laws Dealing with Oil and Gas within the States and Territories. (44)

State and Federal Off-Shore Legislation. (45)

Federal Laws of General Application (49)

Constitutional Problems (50)

Conclusion (51)(List of References)

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PART I

Introduction

(1) During the 1970s profound changes have taken place in the Australian Government's attitudes towards foreign investment, particularly foreign investment in Australian natural resources and real estate. To a large extent these changes reflect the political and economic thinking of the present Government, but to a considerable extent they also reflect a general re-thinking of attitudes towards foreign investment which has taken place throughout the entire spectrum of Australian political life. As in the case of most other resource rich countries, foreign investment has become at all political levels an emotive issue and one which no politician can afford to ignore, an issue which has been given added prominence by the "energy crisis" and by the appeal in certain sectors of the community of the concept of an Australian resources diplomacy.

(2) The present Federal Government's approach to foreign investment has been markedly different from that of its predecessor, and statements made on behalf of the Federal Government and steps taken by it concerning foreign investment appear to have generated a considerable degree of doubt in the minds of Australia's major overseas trading partners, particularly Japan, as well as overseas investors, as to the future intentions of the Government. Whatever may in fact be the merits or demerits of prevailing political attitudes towards foreign investment, the changes which have taken place in Government and general political thinking are of a kind which no foreign corporate investor can afford to ignore — be it a potential investor or one which has an existing Australian investment.

(3) The main purpose of the first part of this paper therefore will be to examine current Government and Opposition thinking and activity in the field of foreign investment and their impact on the natural resources overseas

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investor, and to attempt to make some sort of an assessment as to likely future trends in Government attitudes towards foreign investment. Primarily the emphasis will be on Federal attitudes, but some consideration will also be given to State attitudes to foreign investment. This kind of examination involves a consideration of the nature of the changes in Government and Opposition thinking and the problems posed by them to the overseas natural resources investor. What are the existing restrictions? How are they likely to alter? What are the risks which may result from Government activity? For example, is nationalisation a real threat to the foreign investor? These and similar questions have to be considered by overseas investors considering direct investment in Australia's natural resources.

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The Australian Political Entity

(4) In political compositions Australia is a Federal system made up of six States¹ and two Territories,² the Territories being under the direct control of the Federal Government. The Federal Government (which is made up of a House of Representatives and a Senate)³ exercises national powers not unlike those exercised by the Federal Government in Washington, but residual and highly important legislative powers are exercised by the States. Thus, all activities involved in the exploration and exploitation of minerals, oil and natural gas within State boundaries are regulated by State laws and not by Federal laws.

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(5) Generally, on both State and Federal levels, Governments operate on the basis of a strongly entrenched two party system with the governing parties for the time being characteristically holding power for substantial periods and hence — and this is of particular significance in the case of the Federal Government — the Government (State or Federal) is able to implement policies which can have enduring political and economic consequences⁴ . The parties are, on one side, a coalition of two parties, the Liberal Party and the Country Party (which I will refer to as "the Liberal-Country Party") a coalition which has worked in reasonable harmony, particularly on the Federal level, and on the other side, the Australian Labor Party. The Liberal-Country Party is essentially free enterprise and anti-socialist in orientation and, as a coalition party, it held power as the Federal Government from 1949 until December 1972. It presently holds power in 4 of the 6 States⁵ .

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The Labor Party became the Federal Government in December 1972⁶ . It has a majority in the House of Representatives but not in the Senate⁷ , a factor that considerably diminishes its capacity to implement its policies into legislation. It is essentially socialist and welfare stateism in orientation, and on the Federal level its elected representatives have political views which cover the spectrum from moderate welfare stateism to extreme socialism, i.e. State ownership of industry, production, distribution and exchange⁸ .

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Economic Stability

(6) Since the Second World War Australia's industrial base has expanded greatly, and there has been, overall, a high level of prosperity and employment. Like most other non-Communist countries, and despite the fact that it is a resources rich country which supplies the bulk of its petroleum requirements from its own reserves, Australia's rate of inflation has increased significantly in the last 12 months. Estimates vary, but at present Australia's rate of inflation is in excess of 18% and probably closer to 20%. Since the Labor Government gained power in 1972 there have been three upward revaluations of the Australian dollar against the United States dollar. At the time of the upward revaluations, Australia was running a high balance of payments surplus; this is no longer the case and on September 25, 1974 the Australian dollar was devalued by 12% against the United States dollar. At the same time Australia's currency tie with the United States dollar was cut. Henceforth the Reserve Bank is to determine a daily rate for the Australian dollar in relation to the United States dollar which will be adjusted with changes in the currencies of Australia's major trading partners weighted according to their trading significance.

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Prevailing Attitudes to Foreign Investment

(7) A clear understanding of prevailing attitudes of both major parties towards foreign investment and the probable future trends in Australia in this field, at both Federal and State levels, is of critical importance to any corporation considering entering into exploration and ultimate development in mineral and fossil fuels in Australia, or, in the case of a corporation which is already established in Australia, continuing or increasing its investment. In order to understand the nature of the problems presented to the foreign investor in Australia, some reference must first be made to the history of foreign investment in Australia since the Second World War.

(8) At the end of the Second World War Australia had a predominantly agricultural economy. It had a population of around 7 1/2 million and it was lacking in many areas of industrial development. There were no known reserves of commercially exploitable hydrocarbons, its known resources of some minerals were grossly underestimated⁹ and the spectacular development in mining and exportation of minerals which came to fruition in the early 1960s was entirely unforseen. This development has probably

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been the largest single factor in the expansion of the Australian economy since the War¹⁰ .

(9) After the War the incumbent Federal Labor Government introduced an assisted European migration program¹¹ , a program which was enthusiastically continued by the Liberal-Country Party Coalition when it became the Federal Government in 1949¹² . The flow of migration

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hastened the pace of Australian industrial development, but another and perhaps the most significant factor in Australian post-War development, was the open door policy of the Liberal-Country Party Government towards almost all forms of foreign investment, a policy which it continued to hold with almost unqualified enthusiasm until the late 1960s, and which resulted in a major build-up of overseas investment in Australia¹³ .

(10) In January 1969 doubts as to the future benefits to be obtained from an open door policy towards foreign investment were expressed by the then Australian Prime Minister¹⁴ , and between that time and the defeat of the Liberal-Country Party Government in December 1972,

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a general re-thinking of the Federal Government's policy on foreign investment took place. This re-thinking was accompanied by Federal Government activity which indicated a hardening of attitude towards foreign investment¹⁵ and by an expressed intention to increase Australian participation in "overseas initiated ventures in Australia, especially those in the extractive industries".¹⁶

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