Australia Reins In Its States Over Foreign Investment Deals Without Canberra’s Consent

Australian Prime Minister Scott Morrison is seeking new powers to veto or scrap agreements that state governments reach with foreign powers, in a move primarily aimed at shaking off China’s ability to gain influence in the country through its Belt and Road initiative (BRI).

The legislation will be introduced next week by Morrison’s conservative government, which is in the middle of a deepening diplomatic spat with China. The legislation covers a broad range of sectors, including infrastructure, trade cooperation, tourism, cultural collaboration, science, health and education, as well as university research partnerships.

It comes after the Victoria state government signed an agreement last year to join President Xi Jinping’s signature infrastructure-building plan. The federal government may seek to use the new law, which is expected to pass this year, to override the plan, Deputy Prime Minister Michael McCormack said Thursday.

“There’s been discussions between the prime minister and Victoria” regarding the law’s impact on the Belt and Road deal, McCormack said. “We want to make sure that if there are arrangements being put in place that they are done in the national interest.”

While China remains Australia’s largest trading partner, relations have markedly deteriorated since Canberra banned Huawei Technologies from participating in Australia’s 5G network and passed a law to stem “foreign interference”.

Morrison said in a statement the new law would ensure that all levels of government would act consistently to safeguard Australia’s national interest.

“Australians rightly expect the federal government they elect to set foreign policy,” Morrison said. “These changes and new laws will ensure that every arrangement done by any Australian government at any level now lines up with how we are working to protect and promote Australia’s national interest.”

Morrison declined to say whether he would seek to overturn Victoria’s BRI agreement, but told reporters “It’s never been our government’s policy, under myself or the previous prime minister, that we signed up to or endorsed the BRI.”

The law is retroactive and will give the foreign minister the power to veto new and previously signed agreements between overseas governments and Australia’s eight states and territories, and bodies such as local authorities and universities.

There is mounting concern in intelligence circles about China’s influence in universities, and a program under which academics sign over intellectual property rights to their work in return for research grants.

Beyond the BRI deal signed by Victoria, which aims to increase Chinese participation in new infrastructure projects, the law may allow the federal government to review and overturn memorandums of understanding between Beijing and the governments of Western Australia, South Australia and Tasmania in sectors ranging from investment, science cooperation and access to the Antarctic.

Australia’ s states and territories have at least 130 agreements across 30 countries  that could be affected by the new law. However, Canberra will not be able to veto  deals between state governments and commercial companies or state-owned enterprises.

The law will establish a public register to provide transparency to the foreign minister’s decisions and states and territories will be given six months to deliver a stock-take of their existing agreements. The main opposition Labor party has indicated it will support the law, meaning it should pass Parliament.

It’s the latest move by Morrison’s government to safeguard national interests. He also plans to toughen foreign investment screening, regardless of the size of the deal, for sectors such as telecommunications, energy, technology and defense-manufacturing.

“The interesting issue here is whether or not other countries with a partially devolved investment and decision-making process will seek to follow Canberra’s lead” says Chris Devonshire-Ellis of Dezan Shira & Associates. The risk is that much needed regional infrastructure and foreign investment could be delayed or stopped by political faction differences between regional states and the national government. This is exactly the situation that occurred in Crimea with Kiev treating it as a backwater because the majority of the citizens were pro-Moscow instead of pro-Kiev. Despite the outcry over Crimea’s annexation, Russia has subsequently invested billions into the region that was denied under Kiev’s rule. It is an extreme example, however differences between national and regional politics in Australia are likely to manifest themselves with increasing disputes as a result of local autonomy being taken away.”

Related Reading

• Morrison’s Unfortunate Australia-China Spat
• Australian Businesses Optimistic about China, Invested for the Long Term