CHECK AGAINST DELIVERY

S7

REPLY TO THE GOVERNMENT *  S FOREIGN INVESTMENT STATEMENT

BY P.J. KEATING M.P.

LABOR SHADOW MINISTER FOR MINERALS AND ENERGY

27TH APRIL 1976

The foreign investment policies of the Liberal-Country

Party Government announced by Treasurer Lynch are  vindication of the Labor Government's policies which

were so much abused by the Liberal-Country Party when in  Opposition. Imitation is the sincerest form of flattery  and we in the Labor Party can now point to these  guidelines as a major legacy of the Labor Administration.

The guidelines represent a major shift by the Government  from its pre-1972 attitudes where it considered that selling

off the farm was the only way Australia could industrialise  and develop its vast resources.  Following the lead given  by Labor in the past three years,  the Liberal-Country  Parties have now for the first time as part of their policy  stipulated minimum specific percentages of Australian equity  in development projects.

This policy has already caused some rumblings in the board .   rooms of Martin Place and Collins Street and already a  campaign to denigrate the Minister for National Resources is  under way. He is being accused of being the architect of the  new policy. But the fact of the matter is that it was a

Cabinet decision and the Prime Minister and the Treasurer are  just as responsible for its formulation and implementation.  Because of the discontent within industry, the question now  is how long before the pressure on Cabinet forces a return

in substance if not in form to the old laisse-faire days of  pre-1972?

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The major shift in policy as announced hy the Treasurer  is in the area of uranium mining and mineral exploration  and production. Under the Labor Government's guidelines

of 1975 the 50% equity in all new mining projects was  mandatory. This minimum level had to be reached or the  project would not be given the go-ahead.

However, under the Liberal-Country Party guidelines the '

minimum equity requirement is discretionary. The  requirement need be met at the discretion of the Minister  for National Resources.  The practical effect 6f this  discretion is that Australian companies, notorious in the

past for failing to risk money in large development  projects,; will have little trouble convincing the Minister  that the equity target cannot be met. Without the  mandatory requirement as to equity, foreign companies do  not have to go out and "sell" a project to Australian

investors,  but can be content with only a minor testing  of the market.

Obviously locating partners in a massive resource investment  is a complex and wearying task as the Labor Government  experienced with the Redeliff Petrochemical complex and  the Hail Creek coal project. But without the mandatory  Australian equity‘percentage provision who is to judge  what efforts a foreign or Australian company has made to

secure investment capital before they report to the  Minister on their lack of success. Obviously for the

highly attractive investment projects there would be a  persuasion for a foreign company to run dead in its efforts  to bring in Australian partners. If the Minister then  exercises his discretion in favour of the project going

ahead without the requisite amount of local capital, then  the Minister will be hard pressed to object to the next

request for approval.  The spirit, if not the letter of  the policy will be flouted.

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As I have mentioned the Minister for National Resources  has already been under attack in the Press because of the  policy. Â·The "Australian" newspaper devoted a whole front page  story on this matter in its issue of Wednesday, 14th April,

1976, when it said amongst other things:

"Until the Government adopts a more flexible and open  policy towards resources development, Mr Anthony will  continue to attract criticism. So far the criticism of  his leadership and ministerial performance has been kept  within Government cireles".

It is the administration of the policy that is crucial  to its effectiveness.  The Government must understand that  it ehnnot stial the letter of the Labor Party policy for its  own political kudos and then get away with not administering

the policy. The Opposition will expect the Minister for  National Resources to make public the decisions he takes in  respect of these equity requirements and the reasons for  the decisions.

In respect of uranium,  the Government, like the Labor  Government before it, has demanded a higher Australian  equity than for other minerals. Because of its importance  as an energy source in a world fast running out of cheap

energy and because of its strategic and foreign policy  implications the.Labor Government stipulated that there  should be 100$ Australian equity in all new projects.

Without explanation the Liberal-Country Party Government  has reduced the equity requirement to 75$ Australian equity

for all projects not already at the production stage.

All projects other than the joint A .3.0.-Peko-Wal Is end  project will be effected by this policy. But the  Government gives no reason for its change or for lowering  the equity requirement. '

This modification is a ridiculous departure from the  policy of labor. Surely there can be no cogent argument  why Australia should allow foreign companies and in some

cases foreign governments, through such agencies as E.N.I.,  to participate in the exploration and development of this .

strategic material. Australia already has the largest .   tonnage of uncommitted uranium in the western world and it  is of the utmost importance that its development and sale  be under the strictist supervision. This can only be  guaranteed if Australians own it. The labor Party's view  is that as all title to uranium in the Northern Territory

is vested in the Commonwealth under the terms of the  Ã¢ÂÂ Menzies 1952 Atomic Energy Act, then only a Commonwealth  agency such as the A.E.C. should be allowed to explore for it  in the N/T. and any new deposits would then have the

100/0 Australian equity. Australian equity in the discoveries  already made would be the subject of negotiation between the  Australian Government and the company concerned.

If .the Government makes the distinction with uranium and  require 75% local equity, on what basis does it make the  distinction? The labor Party opposes this distinction  strongly and calls on the Government to adopt the 100% equity  principle that has operated for the past three years. '

The major flaw in the liberal-Country Party's policy is that  is provides no mechanism for raising large sums of capital to  meet the Australian equity requirements. The labor Government tried  to remedy this problem by introducing a bill to establish a  national investment fund. It was rejected out of hand by the

liberal and Country Parties. The Petroleum and Minerals  Authority which only had an investment budget of $50 million  and was therefore not in the big league of investors, was also  painted by the liberal Country Party while in Opposition as some

form of nationalisation monster. Nothing could have been  further from the truth as a reading of its objects would  indicate. '

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Before it was declared unconstitutional on a technicality  it had already made some profitable and- worthwhile

investments to protect the national interest.

So the Liberal-Country Party Government has the pious  intent of increasing Australian equity in resource projects,  but not the mechanism to do it. The Treasurer talks about  the A.I.D.C.. He says, and I quote him: "The Government believes that the A.I.iJ.C. has an important role to play

in helping to utilize the funds required by Australian  companies and in helping to bring together efficient  Australian enterprises in order to foster Australian equity  in local ventures of national importance".

The A.I.DiC., since it was established has hardly been  a great mobiliser of capital. How it is to perform this  task the Treasurer has not indicated. '

Australia obviously needs a competent entrepreneurial  body ill the resources field. Other countries have such

instrumentalities to supervise and encourage national  private investment in major development projects. Australia  is singularly lacking. The Liberal and Country Parties  as usual go against the tide.

There is a great vacuum in this respect in Australia.

The private enterprise answer-the Resources Bank, has  proved itself a lemon and unable to marshall the  large slabs of capital needed to establish Australian

control of large hew resource projects.

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The other associated aspect of capital formation where

the policy is not only vague hut negligent is the question  of domestic borrowing by foreign companies in Australia.

The Treasurer says: "We expect foreign controlled companies to give full consideration to the possibilities of  raising additional capital requirements through equity  issues in Australia as an alternative to borrowing in  Australia" but he goes on to say however: "We do not see

any heed to lay down different rules for domestic borrowings  by foreign controlled and Australian controlled companies".

How naive is this view. If a foreign interest wants its  investment in the paid up capital of an Australian company  to reflect a certain percentage - that same percentage of

foreign investment and I mean by that offshore capital  should be reflected as near as possible in the total capital  requirements of the project.

Otherwise all that Australia is getting from some types  of foreign investment is management,  not capital and rarely  any new technology that has not previously been used in _ Australia.

If one looks at past history in Australia one finds that major  foreign investors with the preponderance of control on a company  have raised large sums on the Australian capital and share  market while the parent company's original capital

contribution to the Australian subsidiary has been a huge  percentage of a comparatively small level of original share  capital compared with the capital funds required for the

running and expansion of the project.

The Fitzgerald Report of 1974, a conscientious and serious  report that was shamefully attacked and discounted by the

coalition parties,  demonstrates that in respect to the example  of Hamersley Holdings in W .A. ,  and I shall quote 'directly:

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"Of the remarkable increase of $552 million in  Hamersley1s capital expenditures in the seven years

ended December 1973, three-quarters was financed

by the retained cash flow plus the premium  share issues to the Australian public.  The remaining  one-quarter was funded by additional borrowings.

By far the greater part of the necessary finance was  generated in Australia. .While the Rio Tinto and Kaiser  groups have not added to their original capital  subscription of $45 million, the value of the gross

assets in their control has quintupled in seven years  while the ratio of term liabilities owing to  creditors to the value of gross assets has been  halved, falling from 66 per cent to 33 per cent".

As technology in the extractive industries in  Australia by and large has been developed by Aqstralian  companies and Australian ingenuity, and in some

respects leads the world, in many instances the only  consequence of foreign investment has been a pile of  headaches for the Government in dealing with such  problems as inter-company pricing agreements, restricted

franchises and double taxation agreements.

Foreign investment must be made to mean the investment  of adequate levels of overseas capital for the  operation and expansion of projects coupled with  appreciable advantages in respect of foreign market  access and the improvement in Australian technology.

Without the full benefit of these aspects, foreigners  are doing us no favours in bringing a small amount of  money to Australia for share capital, then borrowing  the major balance of development money in Australia

and using Australian techniques long established to  bring such projects to the production stage. This kind

of help we can do without.

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In the extractive .industries where the returns are  great and extend over a long period the contribution

of foreign investors must be a genuine one.

Another important aspect of foreign investment where  the Government's new policy is silent, is upon the  question of permitting our customers to invest in  resource projects which either supply or are associated

with their own industries.

i&r ihstance - Japanese investment in the coal industry  permits the Japanese Ministry of International Trade

and Industry effective access to the costing assessments  and pricing policies of that industry.

Could anyone believe for instance that the Government of  Japan would allow say Theiss Holdings to buy a major share  of Nippon Steel - apart from the fact that Theiss could  not afford it or indeed would want it. But the example

stands. .

Japan would not tolerate an Australian coal producer  having access to the market,  cost and pricing information  of a Japanese steel manufacturer.

Yet pfSvious Liberal-Country Party Governments have allowed companies like Mitsui into consortiums in Australia in industries that supply Japan. The present policy announced by the Treasurer does not deal with this problem = in my view perhaps the most crucial aspect of

all in relation to foreign investment and participation in Australia. If the Government does privately plan some administration of this aspect, I would be grateful if the Treasurer or the Minister for National Resources would let the Parliament know.

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My view on this aspect is not directed against Japan

or any other country for any motive other than I have  mentioned. I believe in the proprietary of certain

investment prerogatives - investments that suit the  Australian interest taking into account the nature of

the trade between Australia and the country of origin  of the investment.

For instance considering the imbalance of trade with  Japan in our favour it would not worry me if the motor  car companies of Japan completely dominated the vehicle  market in Australia, at the expense of General Motors

and Ford. If this meant that Australians held  employment in an industry with rationalised efficiency,  then acceptable franchise agreements would help  Australian exports as efficiency made these products more

export competitive.  If multi-nationals are to dominate .   certain industries let us be selective about whose multiÂ­ nationals they are and where our economic interest lies.

Foreign investment can mitigate in favour of reductions  in trade imbalances - but our selectivity is crucial.

Let us not show our commercial hand to the world while  the world plays its hand close to the chest.  It's time  we grew up on this issue and I hope the Government will

take some cognisance of this view.

