Introduction and context
The Treasurer, Joe Hockey MP, stated on 29 November 2013 in relation to the Archer Daniels Midland Company’s (ADM) proposed acquisition of Graincorp Limited (Graincorp) in vetoing the investment (the Graincorp Decision) that:“But although a number of new players have entered the market and new infrastructure (such as the Newcastle Agri Terminal) is being built, it is still taking some
time for increased competition to emerge. Owning over 280 up-country storage sites
and seven of the ten grain port terminals in New South Wales, Queensland and
Victoria, Graincorp continues to account for a significant share of eastern Australian
storage, distribution and marketing of grains. Approximately 85% of eastern Australia’s
grain exports are handled through Graincorp’s ports network.
Many industry participants, particularly growers in eastern Australia, have expressed
concern that the proposed acquisition could reduce competition and impede growers’
ability to access the grain storage, logistics and distribution networks. Given that the
transition towards more robust competition continues and a more competitive network
is still emerging, I consider that now is not the right time for a 100% foreign acquisition
of this key Australian business.
A further significant consideration was that this proposal has attracted a high level of
concern from stakeholders and the broader community. I therefore judged that
allowing it to proceed could risk undermining public support for the foreign investment
regime and ongoing foreign investment more generally.
This would not be in our national interest.”
Is this really the case when one considers the overwhelming positives from foreign investment
not only in Australia but elsewhere?
The irony is that public interest decision-makers are always so enthusiastic about the merits of
foreign investment whilst making decisions vetoing foreign investment (including to avoid
undermining public support for the foreign investment regime):
Review APRIL 2014
Foreign Investment, Competition Law and the Public Interest:
If it’s good for competition, it’s good for the country, right?
The following is an opinion piece by John Kettle, Partner at McCullough Robertson. 29093989v1 | Foreign Investment, Competition Law and the Public Interest 2
“There is no doubt that foreign investment has underpinned the development of our
nation since European settlement. Equally, there is no doubt that we must continue to
attract the strong inflows of foreign investment that the economy requires. Without it,
Australia’s output, employment and standard of living would all be lower.”
It is this clear desire for foreign direct investment (FDI) whether via greenfield or establishment
or acquisition juxtaposed against a public interest policy on foreign investment that drives this
aspect of the debate for me. With a view to achieving consistency for the overseas and
domestic investors and avoiding asymmetries of approach for those investors, it is worth looking
at the concept of a sole criterion for investment – does a transaction work from a competition
perspective enhancing the overall welfare of Australians as a whole.
I believe this is going to become an increasingly relevant question for Australia to ask of itself in
the FDI arena as we face into a continuing evolving business world grounded in free trade. This
is exhibited by advances being made at the WTO level, the increasing number of reciprocal
bilateral trade treaties Australia is entering into, and, perhaps more importantly, the winds of
change that an agreed Trans-Pacific Partnership (TPP) may bring to free trade in the APAC
region. The latter multilateral engagement in particular may have real ramifications for the
current FIRB laws and may lead consequently to a more general review. Globalisation ultimately
equates to an increasing requirement to uphold the principle of non-discrimination for trade for
Ultimately, this is an area which is not a pure legal discipline or a political one. It is a classic
example of the confluence of law, policy (particular fiscal policy) and politics. Therefore, it has to
be approached with a perspective not necessarily based on precedent or a consistent legal or
economic philosophy. This is why it fascinates and exasperates at the same time.
Merger control and FDI
I am approaching this issue in the context of a foreign investment that may constitute a merger
for the purposes of the Competition and Consumer Act 2010 (2010 Act) or which would trigger
the requirement for a FIRB application in a corporate context pursuant to the Foreign
Acquisitions & Takeovers Act 1975 (FATA) together with the related Foreign Investment Policy
The basic position for all mergers from a competition law perspective is stated in section 50 of
the 2010 Act:
“50. Prohibition of acquisitions that would result in a substantial lessening in
(1) A corporation must not directly or indirectly:
(a) acquire shares in the capital of a body corporate; or
(b) acquire any assets of a person,
if the acquisition would have the effect, or be likely to have the effect, of
substantially lessening competition in any market.”
Sections 18 and 19 of the FATA allow the Treasurer to prohibit share acquisitions and asset
acquisitions respectively in the event that they are deemed to be “contrary to the national
Treasurer’s Press Release, 29 November 201329093989v1 | Foreign Investment, Competition Law and the Public Interest 3
The Government sets out prescribed monetary thresholds and the Treasurer and FIRB have
regard to a number of factors or criteria of consideration
but this list is non-exhaustive. The
non-exhaustive criteria are:
Other Australian Government Policies (including Tax)
Impact on the Economy and the Community, and
Character of the Investor.
In addition, there are separate criteria for foreign government investors:
an investor’s operations are independent from the relevant foreign government.
an investor is subject to and adheres to the law and observes common standards of business
an investment may hinder competition or lead to undue concentration or control in the
industry or sectors concerned.
an investment may impact on Australian Government revenue or other policies.
an investment may impact on Australia’s national security, and
an investment may impact on operations and directions of an Australian business, as well as
its contribution to the Australian economy and broader community.
What is notable is that FIRB and the Treasurer have reserved the right to form their own
competition assessment of any investment. The Policy acknowledges there may be a separate
parallel investigation by the Australian Competition and Consumer Commission (ACCC)
pursuant to Australia’s competition law and policy regime. FIRB and the Treasurer can call upon
ACCC to assist it in its deliberations but there is no requirement for the Treasurer to follow their
There are then several prescribed industries or sectors with special rules:
transport (including airports, port facilities, rail infrastructure, international and domestic
aviation and shipping services provided within, to or from, Australia)
defence – the supply of training or human resources, or the manufacture or supply of
military goods or equipment or technology, to the Australian Defence Force or other
dual use goods – the manufacture or supply of good, equipment or technology able to be
used for a military purpose
the development, manufacture or supply of, or the provision of services relating to,
encryption and security technologies and communications systems
See page 44 FIRB Annual Report 2012/3
See Treasury Press Release 17 February 2008 issuing these “Principles Guiding Consideration of Foreign
Government Related29093989v1 | Foreign Investment, Competition Law and the Public Interest 4
the extraction of (or the holding of rights to extract) uranium or plutonium or the operation
of nuclear facilities, and
agriculture according to special thresholds.
Too many options – too many requirements
The consequence of this is that an international investor in the media sector, for example, faces
a multiplicity of consents. On the merger control side, the investor has to decide in a relevant
case whether to seek informal merger review from the ACCC, formal merger review from the
ACCC or merger authorisation from the Australian Competition Tribunal. Then, the investor
must seek FIRB approval where another ACCC view will be obtained along with dealing with
media plurality rules.
Is all of this actually in the public interest when there is the clear recipe for asymmetric outcomes
whether one is looking at from a pure competition law perspective or an Australian industrial
Does the system designed to be in the public interest actually undermine the public interest?
WARRNAMBOOL CHEESE/GRAINCORP DECISION
This most recently became evident in the Warrnambool Cheese (WCB) contested takeover
process involving the Canadian Saputo, the Australian Bega Cheese and the Australian Murray
Goulburn Co-op (Murray).
Saputo ended up buying WCB in a takeover tussle having secured FIRB approval very early in
the piece. There were no competition issues which required a notification to the ACCC as
Saputo had no prior market presence in Australia.
Murray was a local competitor to WCB which had considerable market share in the Victorian
dairy market. However, it was not an international player on the global dairy market, unlike
Saputo. It wanted to be one though to capitalise on the success which the likes of the New
Zealand Fonterra is having in the wider Asian market.
Murray wanted the WCB capacity to expand its international footprint and to be a challenger to
the global players but faced considerable competition law hurdles due to its local market share.
If it had proceeded down the normal informal merger review process route, it would have faced
a pure substantial lessening of competition test in section 50 of the 2010 Act which may have
derailed its bid, or certainly lengthened the timeframe to a clearance.
Instead, it chose to proceed under the very novel merger authorisation option for the purposes
of section 95AT of the 2010 Act. This involves an application to the Australian Competition
Tribunal under section 95AU to determine that a merger should be cleared on the basis that the
benefits to the public in terms of the merger leading to a significant increase in the real value of
exports (amongst other things) trumps any local anti-competitive effects which the merger may
have in domestic markets. The problem here is that this involved a detailed notification
procedure with lengthy timelines which Saputo did not face with its FIRB application and in
circumstances where it had no competition issues.
The frustration felt here is that both the merger control processes and FIRB worked to the
disadvantage of a local player as against the foreign investor which had the consequence of
inhibiting the growth of the local player to compete more aggressively on the international 29093989v1 | Foreign Investment, Competition Law and the Public Interest 5
markets with already mature players. Similarly, it may appear the law has conspired to
strengthen the global strength of a global player who just did not happen to play already in the
Naturally, coming on the back of the Graincorp decision this has inserted some confusion into
the minds of those local businesses which are trying to expand globally but feel that they need
to become stronger in the local market first before they can do that. They find that they are
likely to fail the substantial lessening of competition test in local markets and so feel that they
are forever locked out from the ability to compete competitively overseas. The feeling then is
that they see overseas players who may not face any such restrictions in their local markets and
have been able to grow at a pace overseas coming in and swooping on assets here in Australia
which strengthens their position in the international marketplace.
One can understand a feeling that this is not in the local public interest and that perhaps special
legislation like that establishing Fonterra in New Zealand should be introduced here in those
sectors where it might be felt national champions are desirable. Certainly, this was also a debate
that the European Community (as it was then called) had when Member States like the UK were
privatizing assets and lifting ownership restrictions only to see State-owned enterprises from the
likes of France and Italy coming in to buy up core utility assets. There was more than a sense of
irony considering the special status of those enterprises in their home countries. However, that
was deemed to be the trade off in a community based around free trade. Arguably, those
European Member States which liberalised more fully are in a better condition today as the
benefits of open ownership and a more pure competition-based approach and what that entails
have made them more nimble. I look at this further below.
Is there any way to overcome this tension - what is the
national interest or public interest that we should be
Globalisation has taken off like a rocket since the 1960s in particular and shows no sign of letting
up. In short, there is no reverse gear in globalisation. Whilst not all aspects of it are necessarily
beneficial, it is inescapable that it has increased the standards of living of the developed world
and is now doing so in the developing world. The free market, and free movement, has
improved lives and economies where it has been given full vent. Competition policies reflecting
this and the paramount concern of consumer welfare have helped shape that result, as the
European Union is a testament to insofar as competition reform is concerned. Businesses and
economies which do or want to trade around the world do better in those places where
competition policies are “colour-blind” and create level playing fields.
Globalisation naturally pre-supposes cross border activity. If it so positive, then why do
governments erect barriers and do they miss their objective?29093989v1 | Foreign Investment, Competition Law and the Public Interest 6
The OECD has identified this. In its 2007 edition of ‘International Investment Prospectus:
Freedom of Investment in the Changing World’, it dedicates an entire chapter to the economic
and other impacts of foreign corporate takeovers in OECD countries. Some of the principal
points it identified were:
Mergers and acquisitions are often the preferred form of investment to gain entry into
foreign markets particularly those which have high barriers to entry, e.g., markets with high
concentrations or regulatory foreclosure.
A preponderance of studies it reviewed showed that “FDI triggers technology spillovers,
assists human capital formation, contributes to international trade integration, helps create a
more competitive business environment and enhances enterprise development” in the host
It is a catalyst for increased competitiveness which ultimately contributes to greater
economic activity and prosperity.
Allowing greater free trade and activity in relation to a country’s strategic industries on a
cross-border basis actually enhanced economic and political stabilisation with trading
This is relevant in the context in which Australia seems to have identified certain industries as
strategic such as the Graincorp business.
The European Union in its early days of the European Steel and Coal Community had to face
up to the sensitive issues of opening its then strategic heavy industries to competition and
ultimately ownership. That actually enhanced cooperation rather than confrontation.
Arguably, ADM acquiring Graincorp would have resulted in an opportunity for such
enhanced cooperation for the benefit of that industry as a whole particularly with the
promised investment by ADM. Rather, what we may now face in Australia in that sector is a
confrontation which may arise now out of a greater potential for domestically- or
internationally-led fragmentation of that business. Overseas private equity can break it up
into its constituent parts with transactions potentially below any thresholds requiring FIRB
approval and with no real ACCC issues. There is the clear potential for no Commonwealth
oversight in those circumstances when the Commonwealth could have imposed conditions
on ADM’s investment and regulated the business into the future to deal with its issues.
Foreign takeovers do cause a greater concern for host governments than greenfield FDI but
it is hard to pinpoint exactly why.
If a lack of reciprocity, the OECD concluded that none of the benefits associated with FDI
depended on reciprocal access as the benefits were most widely felt in the host country
receiving the investment in the form of that technology spillover, innovation, increased
wages and similar.
If anti-competitive behaviour is the mischief, that is already capably dealt with by the ACCC.
If a question of reduced host company exports and increased imports as identified by the
OECD, the flip-side is that the local business invested can just as equally cannibalise the preexisting overseas businesses of the buyer. It cuts both ways. The modern multinational will
See section 2.1 at page 68 in Chapter 4 of ‘International Investment Perspectives: Freedom of Investment in a
Changing World’ (2007) OECD, referencing ‘Foreign Direct Investment for Development: Maximising Benefits,
Minimising Costs’ (2002) OECD.29093989v1 | Foreign Investment, Competition Law and the Public Interest 7
put its plants across the world in competition with each other for fresh investment for new
projects which drives more innovative behaviour.
I tend to agree with the assessment of the OECD that whatever the net effect on exports and
imports, the policy should be on the composition of trade rather than on the trade balance
“Even more important than a static analysis of exports before and after acquisition is
the question of how the acquisition affects the competitiveness of the local firm – or
indeed of the host economy more broadly – in export markets in the long run”.
This is fundamentally an issue of competition policy.
The analysis points to the rationale for vetoing mergers should be not one based on borders
but rather one based on competitiveness.
The OECD also noted that the empirical evidence relating to foreign takeovers of domestic
companies clearly suggests that there are more positive effects than merely competition – they
often have higher labour productivity, investment, skill, and R&D intensity, pay higher wages and
are more profitable.
One cannot underestimate the positive force of foreign investments in this context:
“Foreign takeovers also often lead to subsequent outlays by the same foreign investor
to inject further cash into the local firm beyond the purchase price. In infrastructure,
for example, the sale of a state owned entity to a private investor often leads to
substantial subsequent investments to improve quality and expand coverage. In Korea,
Yun (2000) finds that foreign takeovers lead to greater subsequent investment outlays
than greenfield investment, though only a short period of time was considered. A
study of Poland cited in UNCTAD (2000) finds that during privatisation in the early
1990s, foreign-owned privatised entities invested more substantially more than firms
sold to domestic investors.”
There are clear similarities evolving here to the Australian situation in the Graincorp Decision.
Privatisations in old Europe initially related to vertically integrated industries. Graincorp is a
vertically integrated industry. These industries are usually crying out for investment in
infrastructure. Therefore, the ADM commitment on extra investment was totally consistent with
the experience in privatisations in Europe and elsewhere. A decision based on competition
grounds only would have reached a different conclusion and outcome.
A CONCLUSION WE CAN ALL AGREE WITH?
The OECD concluded that:
“According to a large body of empirical evidence the effects on the enterprises that are
themselves the target of cross-border M&A are largely beneficial. Although empirical
studies are not unanimous in their conclusions – reflecting in part the difficulty in
ascertaining what might have happened to the targeted enterprise in an alternative
scenario – they suggest that the acquired firm mostly benefits in terms of productivity.
Following a cross-border takeover most target companies are found to enjoy a
significant increase in operational efficiency and, as a corollary, in international
See section 3.6 at page 74.
See section 4.2 at page 77.29093989v1 | Foreign Investment, Competition Law and the Public Interest 8
competitiveness. Probably in consequence of the higher productivity cross-border
takeovers also tend to have a positive impact on wages in the acquired companies,
particularly for skilled workers.”
Further cooperation needed?
WHAT THEN ARE THE APPROPRIATE ANALYTICS FOR MERGER CONTROL FOR
The January 2012 ABARES Report published by the Treasury noted in chapter 4 of that Report:
“Foreign investment in Australian agribusiness, as with foreign investment and other
sectors, has increased the supply of capital in the economy. Higher investment has led
to greater production, employment and income. The foreign companies engaged in
agribusiness activities have difficulty financing expansion and productive capacity
restructuring in an industry to approve efficiency and viability.”
Further, Frank Di Giorgio, General Manager Foreign Investment and Trade Policy Division,
Australian Treasury and Executive Member, Foreign Investment Review Board, in a speech to the
3rd China Overseas Investment Fair on 9 November 2011 noted:
“Foreign investment has provided additional capital for economic growth, support for
existing jobs and created new employment opportunities. It has introduced new
technologies, improved consumer choice and promoted healthy competition amongst
Australia’s industries. Foreign investment has helped deliver competitiveness and
productivity to our economy and will continue to do so in the future.”
There is a neat juxtaposition in the context of the brief reasons given in the Graincorp Decision
and the facts as they appeared to outside observers.
How does that sit then in the context of merger control and its analytics more generally whereby
the competition authorities such as the ACCC may give a green flag to an overseas-led merger
but the Treasurer may veto the same for reasons of competitiveness?
Why should we have competing interests of competition (as identified by economic and legal
principles) and the public interest? Should they not in principle equate to the same thing,
national security issues aside.
This is an area in which John Fingleton, the former chairman of the Irish Competition Authority
and CEO of the UK Office of Fair Trading in the UK, has spoken about in the past.
He has identified the mischief of applying different values to the same issue.
He has stated:
“The potential for different judgments is even greater when the law and underlying
policy objectives differ. For example, some countries misguidedly use competition law
See section 5 at page 87.29093989v1 | Foreign Investment, Competition Law and the Public Interest 9
to protect ‘national champions’, small businesses or employment. Worse some
countries see it as a device to expropriate revenue for foreign firms.”
Fingleton actually proposes a very single and pure policy that a competition based test for
cross-border mergers, i.e. treating those mergers the same as local ones is the best for the
economy on a number of levels.
Whilst I may not be as aggressive as he is on this in the way he expresses it, his comments are
worth paying some heed to.
“There is an alternative to simply importing that letter of competition law and allowing
it to be interpreted in a way that might be little to do with competition. Some
countries are realising that a competition policy can be used to protect domestic
consumers and to promote productivity and international competitiveness.
Enlightened politicians realise the competition drives innovation, efficiency and a strong
Properly implemented, competition policy driven by competitiveness should be better
integrated into domestic policies such as regulatory reform, productivity and
promotion of consumer welfare. This form of competition policy involves some or all
of the following elements: ...
a conviction that consumer harm is more important than damage to
competitors or the ill-defined “public interest”...
removal of politicians from decision-making…”.
In effect, he is arguing for an effects based competition policy for merger control of all mergers,
much in the same way that the current debate on the root and branch review of competition
law in Australia is looking at an effects-based approach to market power. The same arguments
apply here. If it is bad for the consumer, it is bad for the country. If it is good for the consumer,
it should be good for the country, and so good for all business, and all Australians.
Fingleton commented more specifically:
“Some oppose an effects-based approach on the grounds that it increases legal
uncertainty. For many, “flexible” is synonymous with uncertainty. The more established
the competition policy regime, the more change, even if sensible, is resisted in the
interests of legal certainty. But this simplistic argument would most likely result in more
law and compliance costs.
In a world of multilateral enforcement, an effects-based approach increases legal
certainty because it makes it more likely similar outcomes will prevail, even across
differing legal systems.”
This almost pure competition approach was echoed too by Laura Carstensen, Deputy Chairman
of the UK Competition Commission where she commented in relation to merger control in a
round table debate with the forum ‘The Firm – Corporate Law in India’ that intervention on
behalf of politicians or the like in respect of the work of competition agencies may result in
outcomes that “may look short term politically attractive but long-term it is economically bad
Fingleton, Global Agenda 2005 at page 16429093989v1 | Foreign Investment, Competition Law and the Public Interest 10
Some of the real issues therefore for overseas investors in Australia in the mid-market to top
end deals are:
the risk of different outcomes from the same factual matrix investigated by different agencies.
absence of clear precedent for FIRB decisions and the weighting attributable to any
particular reasons or criteria in coming to decisions, and
a counterfactual can be more readily developed in a merger control context framed by
competition law and policy grounded in economics as against the moving goalposts faced in
trying to construct a counterfactual in the wider public interest against the criteria used by
FIRB (and which are non-exhaustive).
In this context, I reviewed all of the FIRB decisions released on the Treasurer’s website by parties
and industry, date of approval or rejection, whether competition law or policy was referenced,
and the relevant date of any related ACCC approval.
Parties and Industry Date Approved /
Rejected (in bold) x
State Grid Corp of China
acquisition of 19.9% SP
AustNet and 60% of
Jemena -utility assets
Not referenced N/A
Yanzhou Coal/Yancoal –
Not referenced N/A
(submitted May 2013)
chain cited as a
reason to veto (top
paragraph of page
cheese and butter –
12.11.13 Not referenced N/A
Shandong RuYi and
(Cubbie Station) –
Not referenced N/A
Yanzhou Coal/Yancoal –
Not referenced N/A
23.12.11 Noted that a
raised by the
Not referenced 28.09.11
SGX/ASX – financial 08.04.11 x Not referenced. 15.12.10 29093989v1 | Foreign Investment, Competition Law and the Public Interest 11
Parties and Industry Date Approved /
Rejected (in bold) x
services (submitted 25.10.10) Financial and
reason for veto.
Resources – mining
Not referenced. N/A
Not referenced but
implicitly deals with
TPA relating to
owned by STL
which is a
BG Group/QGC – oil and
31.10.10 Not referenced 20.03.08
Taifeng/Outback Iron –
Resources - mining
Minerals – mining
Hunan Valin/FMG –
Chinalco/Rio Tinto –
(without conditions – 49.9%
Red Earth/PBL Media –
Canwest/Ten Network –
AP/Qantas – aviation 06.03.07
(with conditions. Liberal
government should have
dealt with in Qantas Sale Act
Not referenced 01.03.07
Not referenced N/A
BHP/WMC – uranium
04.04.05 Not referenced 19.04.0529093989v1 | Foreign Investment, Competition Law and the Public Interest 12
Parties and Industry Date Approved /
Rejected (in bold) x
Xstrata/WMC – uranium
Not referenced 20.12.04
Xstrata/MIM Holdings –
28.05.03 Not referenced N/A
Mitsui/Moura – mining 12.04.02 Not referenced N/A
Singtel/Optus – telecoms 22.08.01
acquisition had non
Brambles/GKN – services 26.07.01
Not referenced N/A
BHP/Billiton – mining 04.06.01
Not referenced N/A
Shell/Woodside – oil and
23.04.01 x Not referenced N/A
Air NZ/Ansett – aviation 13.06.00
Not referenced N/A
07.12.99 Cited increased
creating jobs and
boosting tourism as
Tyndall/Fairfax – media 04.08.98
Not referenced N/A
Not referenced N/A
There have been 35 press releases relating to FIRB decisions by the Treasurer.
Of the 35, 32 were passed and only four without conditions.
Of the 35, only 12 have related ACCC informal merger review notifications.
Of those 12, only one raised any real competition issue which was the Foxtel/Austar merger.
They were resolved by a section 87B undertaking. What was notable in that case is that then
Treasurer, Wayne Swann MP, approved the merger for the purposes of FIRB noting that a
satisfactory resolution of the competition issues raised by the ACCC was first required. I will
come back to this later.29093989v1 | Foreign Investment, Competition Law and the Public Interest 13
Of the 35, competition policy issues were only referenced in five of the decisions and not in all
those cases directly, but sometimes impliedly:
in only one case was competition effectively cited as a reason to veto – the Graincorp
Foxtel/Austar was conditional upon satisfactory arrangements being reached with the ACCC
in SGX/ASX no competition reason was given for the veto and was made on the basis of
financial and prudential stability for the Australian market
in Wilmar/Sucrogen, competition was not expressly referenced but was implicitly dealt with
as conditions were inserted relating to third party access to infrastructure owned by STL
in Singtel/Optus, competition policy was referenced insofar as it was acknowledged that the
acquisition would lead to more competitive effects in the relevant market
in Shell/Woodside, the merger was vetoed for fear that Shell would effectively game the
assets against their global portfolio resulting in less than optimal exploitation. It is very hard
to discern what the long term positives or negatives associated with this decision have been,
in Virgin Australia’s establishment application, again competition was cited as a reason to
approve the application as the new airline would lead to increased competition so reducing
prices, creating jobs and boosting tourism.
On the basis of the above, it is noteworthy that competition was seen as a positive in most of
the cases it was referenced in. In the only other contentious case of Foxtel/Austar with
competition issues prior to Graincorp, the Treasurer deferred to the ACCC to resolve any
competition issues. This makes the Graincorp decision all the more surprising as the ACCC had
already given a clean bill of health to the proposed acquisition.
If therefore, a FIRB policy is going to be maintained with competitiveness or competition as a
criterion to have regard to, and the views of the ACCC are not necessarily going to be adhered
to, what does that mean for the foreign investor in a contentious situation in Australia?
As noted, the overseas investor is faced already with a multiplicity of avenues pursuant to which
to seek merger control approval. Nobody in Australia uses the formal merger notification
procedures. Rather they proceed pursuant to an informal merger review process which is
difficult enough to explain to overseas investors.
Then, they must also make a FIRB application if the relevant thresholds are triggered and, in that
application, there is another competition test to deal with against which there is very little
It may well be that there is no competition issue with a foreign-led merger, that it would be
positive for the country as a whole on a competition assessment. However, it may result in
some post-merger rationalisation such as a loss of jobs in a scarcely populated region of the
country. But the merger may result in more jobs being created in other parts of the country
with technology overspill, increased investment and more opportunities provided for new
domestic suppliers, with enhanced competitiveness on overseas markets. A public interest
interpretation which favours the regions, for example, may avoid the latter to uphold the former,
even in circumstances where the business may likely fail in the medium term without the
overseas investment. 29093989v1 | Foreign Investment, Competition Law and the Public Interest 14
If it was a straight competition test, these issues would not necessarily arise. Whilst there may be
apparent losses to one region of the economy, that may be outweighed overall by the benefits
accruing to the remaining parts of the economy.
This then throws up the questions as to whether:
competition policy framed around improving the welfare of all Australians and the national
interest are undoubtedly common economic goals, and/or
if there are other worthy public interest objectives worth pursuing, they ought be pursued
under existing standalone legislation, and/or
if a public interest approach is going to be maintained, one goes down the route of South
Africa for example, and warehouse all the decision-making in one authority such as the
ACCC to deal with the issues identified above by Fingleton and elsewhere effectively
depoliticising the process.
6. Other models?
In approaching this issue, I was struck by comments of the then chair of the South African
Competition Tribunal, David Lewis to the International Competition Network Merger Working
Group in Naples in September 2002 (Naples Paper). He conceded that public interest
considerations weighed more heavily in developing countries than they do in developed
countries. He noted specifically:
“While credibility will certainly not be achieved by bending to the whim of every interest
group, nor will it be secured by a competition authority that refuses to take direct
account of major national economic problems and aspirations. … It occurs to me that
in a country like the US the unusual standing enjoyed by anti-trust derives not only
from the integrity and technical competence of the agencies and officials but also from
the strongly held perception that anti-trust protects the weak from the powerful. This
view may not find much resonance in current, orthodox anti-trust thinking but the fact
is that it secures anti-trust’s place in the mind of the nation and the legislators and it
enables the authorities to take unpopular decisions. Developing country agencies have
a long way to go in achieving this credibility and it will not be achieved by standing
aloof from those issues that most engage popular sentiment.”
The ACCC is clearly pursuing the US style role of being the trusted anti-trust advocate on behalf
of all Australians so that its credibility is not undermined when it has to take perhaps unpopular
decisions. This is where it may be in a position to help the Executive to whom some public
interest decisions in merger control are still reserved. It can assist the Executive in dealing with
these issues and to acknowledge that the rationale for all merger control is to propel the
country forward in the interests of all Australians – this includes future Australians as decisions
made today on merger control can change markets for decades to come.
It would also deal with a further related issue which is the current capacity for regulatory
contradiction regardless of one’s opinion on public interest intervention.
Post the Graincorp Decision, ADM’s proposed investment in the infrastructure of the business in
Australia will not happen. There is notionally very little to protect it from domestic corporate
raiders who may wish to pick apart the company’s assets over time, leaving aside the fact that
such decisions also lead to wealth destruction in the overall asset value due to the regulatory
overhang. The issue of competitiveness and securing reasonable development in terms of 29093989v1 | Foreign Investment, Competition Law and the Public Interest 15
enhancing growers’ ability to access grain storage, logistics and distribution networks could very
well be undermined by the decision made originally thought to have been in their interest. We
ultimately end up back looking at the asymmetric regulatory structure which Murray Goulburn
faced and others may do again in the future.
What this therefore drives, it seems to me, is the need for a simplified merger control system
based on a substantial lessening of competition for all mergers whether domestic or foreign. To
the extent that there are any particular industries within Australian needing supervision (rather
than protectionism), then deal with that specifically through legislation.
This can be done for national security through defence related legislation, it can be done for
employment through employment-related legislation, it can be done for media through the
repeated emphasis on the rules on media polarity (and w have seen just that to date last week).
Indeed, the Qantas Act 1992 is specifically framed to deal with such issues. Having such
particular bespoke approach enables those engaged in those industries from overseas who wish
to get involved in them here to see a very clear regime which they have to deal with. That is not
necessarily currently the case.
Mr Lewis summed it up well in his Naples Paper:
“As to the identity of the decision maker, most regimes appear to prefer a separation
between the identity of the competition decision maker and the public interest decision
maker. I am not certain how I feel about this. In our regime the decision is unified with
the competition authority taking both the competition decision and the public interest
decision and then balancing them and taking the final decision over which there is no
ministerial override. There are advantages. Firstly, it means that the decision making
body is acutely sensitive to the competition implications of the transaction whereas a
minister or other public official may be tempted, particular in a society with an
underdeveloped competition culture, to give undue weight to the strength of the social
forces supporting the public interest in question. Secondly, argument before the
Competition Tribunal is held in open session and accessible to the public and its
decisions have to be reasoned and public thus significantly reducing the likelihood of
lobbying that will inevitably accompany a regime of political decision-making.”
Indeed and as an aside, I have often wondered how in virtually every OECD jurisdiction, a party
political minister is given the right of veto over media mergers when one would consider that
perhaps is the last area in which politicians should be deciding who owns what!
A conclusion but not a resolution?
In this debate, it does cause one to wonder why is domestic money deemed better than foreign
money when what one is concerned with in this debate is a question of motive and/or effects
rather than the origin of the money. It is the former which ought to dictate compliance with fair
principles, and not the latter.
Free trade work best as an “easy in, easy out” approach which does not fear globalisation. It
encourages more vigorous competition. A merger control approach which facilitates certainty
around that boosts FDI. We compete with the rest of the world for FDI. Ease of movement
along with sensible fiscal policies is the key to success in that respect.
As this region moves progressively to a wider network of bilateral trade treaties and closer
multilateral relations with the development of the TPP, this will accelerate a principle of non 29093989v1 | Foreign Investment, Competition Law and the Public Interest 16
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discrimination on the basis of nationality. It will not go as far as the European Union perhaps
but the TPP as currently drafted does contain these principles. To be clear, I come to this with a
European experience that sees the virtue in a Google and Facebook being able to come quickly
into a country like Ireland creating thousands of jobs on the back of pro-competition and fiscally
attractive policies. But that is what the free market does. If one was brave, it would be better to
anticipate that which is coming in the future and to lead on the front foot.