2011 Investment Climate Statement - Australia
Note on Exchange Rate and Table of Contents
Throughout the 2011 Investment Climate Statement for Australia, we have used the exchange rate of A$1 = US$1.00, reflecting the most current rate as of January 2011. It should be noted, however, that the exchange rate fluctuated widely over the year.
Openness to and restrictions upon Foreign Investment
Australia welcomes foreign investment. The United States is the largest direct investor in Australia, while Australia is the ninth largest source of foreign direct investment (FDI) for the United States. In 2009, U.S. investment in Australia was A$514 billion while Australian investment in the United States was A$404 billion. U.S. FDI in Australia accounts for 23% of total foreign investment in the country and is concentrated largely in resources and energy, manufacturing, and the nonbank financial services sector.
Inward foreign direct investment is regulated by the Foreign Acquisitions and Takeovers Act 1975 and associated regulations. The Act sets out a number of minimum thresholds under which smaller scale investment proposals do not need approval. Under the Australia-U.S. Free Trade Agreement (AUSFTA), higher (i.e., more favorable) screening thresholds apply to U.S. citizens and corporations than to other foreign entities.
The Foreign Investment Review Board (FIRB), a subdivision of the Australian Treasury Department, reviews investment proposals. Based on advice from the FIRB, the Treasurer can block or impose conditions on proposals that are contrary to the national interest. The national interest test seeks to ensure that ‘investment and sales decisions are driven by market forces rather than external strategic or non-commercial considerations.’ All foreign governments and their related entities are required to notify the Australian government and get prior approval before making a direct investment in Australia, regardless of the value of the investment.
Conversion and Transfer Policies
The Australian dollar is a fully convertible currency. The government does not maintain currency controls or limit remittance, loan or lease payments. Such payments are processed through standard commercial channels, without governmental interference or delay.
Expropriation and Compensation
The Australian legal system is firmly grounded on the principles of equal treatment before the law, procedural fairness, judicial precedent, and the independence of the judiciary. Strong safeguards exist to ensure that people are not treated arbitrarily or unfairly by governments or officials. Private property can be expropriated for public purposes in accordance with established principles of international law. Due process rights are well-established and respected, and prompt, adequate and effective compensation is the norm.
Australia has an established legal and court system for the conduct or supervision of litigation and arbitration, as well as alternate dispute processes. The traditional approach to commercial dispute resolution involves litigation, arbitration and more modern methods of alternative dispute resolution. Australia is a world leader in the development and provision of non-court dispute resolution mechanisms. It is a signatory to all the major international dispute resolution conventions and has organizations that provide international dispute resolution processes.
Property and contractual rights are enforced through the Australian court system, which is based on English Common Law. There are few investment disputes involving foreign companies. Australia is a member of the International Center for the Settlement of Investment Disputes.
AUSFTA establishes a dispute settlement mechanism for disputes arising under the Agreement. In the first instance disputes are to be settled through consultation between the parties. Where these consultations are not effective in resolving the dispute, the Agreement provides for an arbitral panel to consider the matter.
The dispute settlement mechanism provides for compensation for breaches of the agreement, which may include requiring the breach to be corrected, trade compensation to be provided, or monetary compensation in lieu of trade compensation. The FTA does not allow private investors to directly challenge government decisions, but individual investors are able to raise concerns about their treatment by the Australian Government with the U.S. Government (or vice versa).
Performance Requirements and Incentives
As a general rule, foreign firms establishing themselves in Australia are not subject to performance requirements and incentives.
Right to Private Ownership and Establishment
The common law system which forms the basis of Australian jurisprudence guarantees the right to private ownership and the establishment of private business enterprises.
Protection of Property Rights
A strong rule of law protects property rights in Australia and operates against corruption. Both foreign and domestically-owned businesses enjoy considerable flexibility in their licensing, regulation, and employment practices.
Transparency of the Regulatory System
Australia subscribes to the 1976 declaration of the Organization for Economic Cooperation and Development (OECD) concerning International Investment and Multinational Enterprises. The instruments cover national treatment and investment incentives and disincentives, and spell-out voluntary guidelines for the conduct of multinational enterprises in member countries. Australia also subscribes to two OECD codes of liberalization, one covering capital movements and the other invisible transactions.
Australia ranked third in 2010 (behind Hong Kong and Singapore) on the Heritage Foundation’s rankings for ‘economic freedom.’ According to this measure, the survey found that Australia ranks highly in the ten economic freedoms and that: “Overall, the Australian economy is well equipped in terms of its structural strength. Monetary stability and openness to global commerce continue to facilitate a competitive financial and investment environment based on market principles. A strong rule of law protects property rights, and corruption is perceived as minimal. Both foreign and domestically owned businesses enjoy considerable flexibility under licensing and regulatory schemes and in their employment practices. Measures to enhance public finance and maintain long-term fiscal sustainability are focused on achieving better efficiency and effectiveness.”
In 2010, Australia was ranked as the second easiest place in the world to start a business, according to the World Bank. It ranked tenth in terms of 'ease of doing business' ranking, sitting in 10th place and was the sixth easiest place to obtain business credit. The Australian economy recorded 19 years of uninterrupted growth to 2010, despite two global downturns. The 2010 Institute for Management Development (IMD) World Competitiveness Yearbook rated the Australian economy the second most resilient in the world. For countries with populations greater than 20 million, Australia ranked first in 2009 and 2010, and has topped this category in eight of the previous nine years.
Australia’s rankings in various international governance surveys are given below:
Transparency International corruption rank: 8th in 2010
Heritage Economic Freedom rank: 3rd in 2010
World Bank Doing Business rank: 10th in 2011
World Bank Business Start Up rank: 3rd in 2010
Efficient Capital Markets and Portfolio Investment
Australia has a well-developed, deep and sophisticated financial market, regulated in accordance with international norms. In terms of global turnover, Australia's foreign exchange market is the seventh largest in the world, and the Australian dollar/U.S. dollar is the fourth most traded currency pair globally (BIS, Triennial Central Bank Survey, December 2010). Australia’s financial system was one of the most resilient throughout the Global Financial Crisis and its four leading banks are currently ranked in the top 12 in the world in terms of financial security and AA rankings. Total assets of Australia’s largest banks were US$2.5 trillion in March 2010 or about twice GDP, according to the Reserve Bank of Australia. Australian banks have one of the lowest non-performing loan ratios of all 97 economies surveyed by the IMF in December 2009. Only 1.1% of Australian bank loans are ‘nonperforming.’
Australia has an open and transparent approach to mergers and acquisitions. There are no “cross-shareholding and “stable shareholder” arrangements used by private firms to restrict foreign investment through mergers and acquisitions. Measures used by private firms to defend against hostile takeovers are not focused on foreign investors. In the six months to June 2010, there were 810 M&As in Australia, worth $44 billion. Overall, Australia’s M&A deals ranked the sixth largest in the world with a global market share of 4.1%, after the United States, the United Kingdom, China, Mexico, and Brazil, according to Thomson Reuters.
In 2009, the Australian Stock Exchange (ASX) was the 13th largest in the world and the market capitalization of shares of domestic companies on the ASX was about US$1.3 trillion, the fourth largest in the Asia-Pacific region. With 2,050 listed companies, the Australian stock market is currently the second largest liquid stock market in the Asia-Pacific (behind only Japan) at US$936 billion. Australia’s financial services sector had assets of more than A$4.3 trillion (US$4.3 trillion) in mid-2008, almost four times GDP. Australia has one of the largest pools of contestable funds under management globally, valued at about A$1.3 trillion (US$1.3 trillion) in mid-2008.
The Australian Board of Taxation has released a discussion paper canvassing options for the treatment of collective investment vehicles, as part of a move to encourage non-resident investment and funds management in Australia. The Board of Taxation is seeking to ensure that ‘tax arrangements do not create unnecessary or unintended barriers to investment in Australian managed funds’ and wants to introduce ‘a specific tax regime that would reduce complexity, increase certainty, and minimize compliance costs.’
Competition from State-Owned Enterprises
Private enterprises are generally allowed to compete with public enterprises under the same terms and conditions with respect to markets, credit, and other business operations, such as licenses and supplies. Public enterprises are not generally accorded material advantages in Australia. Almost all state-owned enterprises (SOEs) have been privatized. Remaining SOEs do not exercise power in a manner which discriminates against or unfairly burdens foreign investors or foreign-owned enterprises.
Australian Commonwealth and state governments have followed policies of privatizing their remaining state-owned assets in areas such as electricity generation, transmission, distribution, and retailing. In December 2010, the New South Wales state government announced the sale of three government-owned electricity retailing businesses and the sale of contracts to trade the production of state-owned power stations, to both domestic and foreign investors. Similarly, the Queensland state government is proceeding with the sale of railway assets used to transport natural resource exports (particularly coal) to its ports. In December 2010, the Parliament passed legislation to separate Telstra's retail and wholesale arms, with the latter coming under the NBN, which will be a government-owned enterprise until it is later privatized .
Sovereign Wealth Fund
Australia has one sovereign wealth fund, the Future Fund, which was established by the Future Fund Act 2006 to help future governments meet the cost of public sector superannuation (i.e., retirement pension) liabilities by delivering investment returns on contributions to the Fund. Investment of the Future Fund is the responsibility of the Future Fund Board of Guardians with the support of the Future Fund Management Agency.
The Board and Agency also invest the assets of the Building Australia Fund, the Education Investment Fund and the Health and Hospitals Fund which were established by the Nation-building Funds Act 2008. As of end-September 2010, the Future Fund had assets of A$69.3 billion (includes telecom giant Telstra shares valued at A$3.4 billion). There is no regulation prescribing the proportion of the Future Fund’s assets which must be invested in Australia or offshore. The Future Fund intends to gradually increase its foreign exposure, but most funds are currently invested in Australia.
Corporate Social Responsibility (CSR)
In Australia, there is a general awareness of corporate social responsibility among both producers and consumers. Both foreign and local enterprises tend to follow generally accepted CSR principles such as the OECD Guidelines for Multinational Enterprises. Firms that pursue CSR are often rated highly in surveys of corporate behavior.
As in all liberal democracies, political protests (e.g., rallies, demonstrations, marches, public conflicts between competing interests) form an integral, though generally minor, part of Australian cultural life. Such protests rarely degenerate into violence.
Australia maintains a thorough system of laws and regulations designed to counter corruption. In addition, the government procurement system generally is transparent and well regulated, thereby minimizing opportunities for corrupt dealings. Accordingly, corruption has not been a factor cited by U.S. businesses as a disincentive to investing in Australia, or to exporting goods and services here. Non-governmental organizations interested in monitoring the global development or anti-corruption measures, including Transparency International, operate freely in Australia. Australia is perceived internationally as having low corruption levels. Transparency International’s Corruption Perception Index 2010 ranked Australia eighth, ahead of the United Korea, Japan and the United States in terms of nations perceived as having low levels of corruption.
Australia is an active participant in international efforts to end the bribery of foreign officials. Legislation to give effect to the anti-bribery convention stemming from the OECD 1996 Ministerial Commitment to Criminalize Transnational Bribery was passed in 1999. Legislation explicitly disallowing tax deductions for bribes of foreign officials was enacted in May 2000. At the Commonwealth level, enforcement of anti-corruption laws and regulations is the responsibility of the Attorney General's Department.
Bilateral Investment Agreements
The Australian Government supports the negotiation of comprehensive Free Trade Agreements (FTAs) that are consistent with the World Trade Organization rules and guidelines and which complement and reinforce the multilateral trading system. Australia has FTAs with the United States, Thailand, Singapore, Chile, and a multilateral FTA with New Zealand and the countries of the Association of Southeast Asian States (ASEAN), all of which contain chapters on investment.
Australia-United States FTA (AUSFTA)
The Australia-United States FTA (AUSFTA) entered into force on January 1, 2005. AUSFTA is a comprehensive agreement that covers goods, services, investment, financial services, government procurement, standards and technical regulations, telecommunications, competition-related matters, electronic commerce, intellectual property rights, labor and the environment. The agreement has guaranteed U.S. access to the Australian market and the gradual expansion of this access. Under the FTA, trade in goods and services as well as foreign direct investment has continued to expand. More than 99% of U.S. exports of manufactured goods are now duty-free. The FTA will also eliminate tariffs within 10 years of entry into force on textiles.
Other Bilateral Free Trade Agreements
Australia signed a free trade agreement with the Association of Southeast Asian Nations and New Zealand, which became effective in January 2010. . ASEAN and New Zealand together account for 15% of Australia's total trade in goods and services, which were worth A$504 billion in 2009. The Singapore-Australia Free Trade Agreement (SAFTA), which became operational on 28 July 2003, eliminated most tariffs and increased market access for services. It also harmonized competition policy, government procurement, intellectual property, e-commerce, customs procedures, and business travel. The Thailand-Australia FTA cut tariffs to zero on virtually all goods from January 2010. The Australia-Chile FTA will result in the immediate reduction of tariffs on 97% of goods currently traded. Tariffs on all existing merchandise trade between Australia and Chile will be eliminated by 2015.
Australia is currently negotiating agreements with South Korea, the Gulf Cooperation Council (GCC), Malaysia, ASEAN, China, and Japan, all of which are expected to include investment liberalization. Australia is participating in negotiations for a Trans-Pacific Partnership Agreement (TPP). The TPP will expand on the current Trans-Pacific Strategic Economic Partnership Agreement between Brunei Darussalam, Chile, New Zealand and Singapore, which entered into force in 2006. The United States, Vietnam, Malaysia and Peru have joined the TPP negotiations.
In addition, Australia has completed FTA Feasibility Studies with both Indonesia and India. In August 2009, Australia began negotiations with the other members of the Pacific Forum towards a Pacific Agreement on Closer Economic Relations (PACER) Plus. In November 2010, Australia and Indonesia began to negotiate an Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).
OPIC and Other Investment Insurance Programs
The Australian Government provides assistance to business for the development or expansion of export markets, and business advice on exporting and financial grants through the Export Market
Development Grants scheme and the activities of Austrade, Australia’s export promotion agency. The Export Finance and Investment Corporation provides export financing assistance to Australian businesses and, in some cases, overseas buyers. The U.S. Overseas Private Investment Corporation (OPIC) does not extend coverage to Australia, which is not a high-risk or developing country.
Australia’s unemployment rate was 5.0% in December 2010, seasonally adjusted, down from 5.6% a year earlier. In the year to August 2010, annual average weekly earnings in Australia grew 4.1%, seasonally adjusted. The core inflation rate was 2.4% for the year to September 2010. Real wages have grown strongly over the last decade and the mining boom has led to skills shortages in that sector, particularly in Western Australia.
The Fair Work Act provides a safety net of enforceable minimum employment terms and conditions through the National Employment Standards (NES). The NES sets out 10 minimum workplace entitlements which apply to all employers and employees in the national workplace relations system, though only certain entitlements apply to casual employees. In 2010, a new body, Fair Work Australia, took over the functions of the former Industrial Relations Commission as an arbitrator of industrial disputes and sets minimum wages for low paid workers.
The number of industrial disputes is low by historical standards. In the year ended September 2010, 144 working days per thousand employees were lost due to strikes; compared to 119 during the previous year. During the year ended September 2010, 221 industrial disputes were recorded; compared to 202 during the previous year.
Other Commonwealth laws set specific employment conditions. The Superannuation Guarantee (Administration) Act 1992 requires employers to contribute a minimum of 9% of each employee's base salary into that employee's superannuation (i.e., retirement pension) account. Employees may make additional contributions and are entitled to choose their superannuation fund.
In 2001, the Government established the General Employees Entitlements Redundancy Scheme (GEERS), a taxpayer-funded insurance scheme, in response to growing community concerns about the loss of employee entitlements after several companies collapsed. GEER is a basic payment scheme established to assist employees who have lost their employment due to the liquidation or bankruptcy of their employer and who are owed certain employee entitlements. The scheme covers capped unpaid wages, annual and long-service leave, capped payment in lieu of notice, and capped redundancy pay. Employees currently stand ahead of unsecured creditors, but behind lenders with fixed security in the creditors' queue following a company collapse. The Australian Government is a party to all International Labor Organization (ILO) conventions.
The 457 Long Stay Business visa
If an overseas business decides to establish a presence in Australia and relocate for its business operations, it may apply for the status of a Business Sponsor and sponsor personnel for a 457 visa through the Department of Immigration & Citizenship (DIAC). In 2009, the government made changes to the uncapped visa program covering employer-sponsored temporary foreign workers (457 visa program). These included introducing a market-based minimum salary for all new and existing 457 visa holders; developing minimum skills requirements that meet Australian standards; and increasing the minimum English language requirement.
General Skilled Migration Program
On July 1, 2011, Australia will introduce a new points-based system for the General Skilled Migration (GSM) category, which includes several of the country's permanent residence programs that do not require employer sponsorship. GSM applicants who file applications on or after July 1 will be judged against the new points-based test, which generally focuses on selecting highly-skilled individuals to meet labor market demand. The Australian Department of Immigration and Citizenship announced the new system on November 11, 2010.
Under the new system, greater weight will be placed on higher-level education qualifications from overseas-approved and recognized universities. Under the current system, only Australian education qualifications can earn points. Applicants who have completed tertiary studies in Australia will be eligible to claim additional points. Further points may be earned if the applicant's studies were completed at regional campuses. The Australian government is expected to promulgate legislation to support and implement the new points-based test by July 1, 2011.
Foreign Trade Zones/Free Trade Zones
Australia does not have free trade zones.
Foreign Direct Investment Statistics
Levels of Foreign Investment
The level of foreign investment in Australia increased by A$136 billion (US$136 billion) in 2009 to reach A$1,898 billion (US$1.9 trillion). Portfolio investment accounted for A$1,098 billion (US$1,098 billion or 58%), direct investment for A$436 billion (US$436 billion or 23%), other investment liabilities for A$285 billion (US$285 billion or 15%), and financial derivatives for A$79 billion (US$79 billion or 4%). Of the portfolio investment liabilities, debt securities accounted for A$729 billion (US$729 billion or 66%) and equity securities for A$369 billion (US$369 billion or 34%).
The leading investor countries in 2009 by level of investment were the United States, with A$514 billion (US$514 billion or 27%), the United Kingdom with A$499 billion (US$499 billion or 26%), Japan with A$102 billion (US$102 billion or 5%), Hong Kong Special Administrative Region with A$43 billion (US$43 billion or 2%), the Netherlands with A$43 billion (US$43 billion or 2%), and Germany with A$38 billion (US$38 billion or 2%).
Note: Australian foreign investment statistics are based on current market values. Foreign direct investment (FDI) into Australia in 2009 was valued at A$136 billion on a flow basis; and the level of FDI in 2009 was A$1,898 billion. Australian GDP in 2009 was A$1,292 billion, so that the ratio of FDI inflows to GDP in 2008 was 10.5%. The ratio of the stock of FDI to GDP in 2009 was 146.9%.
There is no official listing of major foreign investments by U.S. companies or other nations’ companies. The Australian Bureau of Statistics collects this information, but does not release it on a disaggregated basis due to confidentiality provisions in the legislation governing its activities. A list of major new resources and energy projects, which often involve significant foreign investment, is compiled by the Australian Bureau of Agricultural and Resource Economics.
Australian Investment Abroad
The level of Australian investment abroad reached A$1,130 billion (US$1,130 billion) in 2009, an increase of A$74 billion (US$74 billion) on the previous year. Direct investment abroad accounted for A$345 billion (US$345 billion or 31%), portfolio investment for A$430 billion (US$430 billion or 33%), other investment for A$220 billion (US$220 billion or 19%), reserve assets for A$45 billion (US$45 billion or 4%), and financial derivatives for A$90 billion (US$90 billion or 8%). Equity has been the main form of Australian investment abroad during the past decade. At A$584 billion (US$584 billion), equity represented 52% of the total level of investment in 2009.
The leading destination country in 2009 was the United States, which accounted for A$404 billion (US$404 billion) or 36% of the stock of Australian investment abroad. Other major countries of investment were the United Kingdom with A$179 billion (US$179 billion, 16%), New Zealand with A$80 billion (US$80 billion, 7%), Canada with A$37 billion (US$37 billion, or 3%), Japan with A$32 billion (US$32 billion, or 3%), France and Hong Kong with A$28 billion each (US$28 billion, 2%), and the Netherlands with A$26 billion (US$26 billion or 2%).
Foreign investment in Australia recorded a net inflow of A$159.5 billion (US$159.5 billion) for 2009, an increase of A$12 billion (US$12 billion) over the previous year. The leading investor countries were the United States with A$93.8 billion (US$93.8 billion) or 58.8%, the United Kingdom with A$34.0 billion (US$34.0 billion) or 21.3%, the Netherlands with A$12.9 billion (US$12.9 billion) or 8.1%, Japan with A$11.4 billion (US$11.4 billion) or 7.1% and Switzerland with A$9.1 billion (US$9.1 billion) or 5.7%.
Australian investment abroad recorded a net outflow of A$104.2 billion (US$104.2 billion) for 2009, an increase of A$11.5 billion (US$11.5 billion). The leading destination countries were the United States with A$74.5 billion (US$74.5 billion) or 70.8%, Germany with A$13.3 billion (US$13.3 billion) or 12.6%, France with A$8.8 billion (US$8.8 billion) or 8.4%, and New Zealand with A$5.5 billion (US$5.5 billion) or 5.2%.
Policies on legal corporate status
As a general rule, foreign firms establishing themselves in Australia are accorded national treatment. They do not have to seek government permission to establish and own businesses unless their proposed activity meets tests established in law and regulation that trigger notification or review by the FIRB. FIRB requirements are a matter of public record and are available upon application to FIRB.
Taxation policy generally allows the efficient mobilization and allocation of investment, although there are a number of differences between the United States and Australian tax systems that have potential implications for business. Businesses are advised to seek counsel from accounting and law firms which are familiar with the tax policies of both countries. Companies are subject to tax at a rate of 30% of their taxable income (assessable income less allowable deductions). Repatriation of profits can generally be undertaken at any time as there are no foreign exchange controls on such repatriation. Dividends paid to foreign shareholders are subject to withholding tax at a rate of 10%. The government passed legislation which will progressively reduce the withholding tax rate on specified distributions from managed funds from 30% to 7.5% by 2010-2011.
The Australian Taxation Office and the Internal Revenue Service have a simultaneous audits agreement to investigate suspected non-compliance with tax laws of both countries. The U.S.-Australia Double Taxation Treaty affects business investment between the two countries. The Treaty, effective since 1983, applies to U.S. federal income tax, excluding accumulated earnings tax, personal holding company tax, and Australian income tax. Separate agreements apply to gift and estate taxes.
Australia and the United States revised the Treaty in September 2001 to provide a competitive tax treaty for companies located in Australia by reducing the rate of dividend withholding tax on U.S. subsidiaries and branches of Australian companies. The treaty revision also prevents double taxation of capital gains derived by U.S. residents from interests in Australian entities while retaining Australian taxation rights. The Controlled Foreign Corporation and Controlled Foreign Trusts legislation provides for taxing income that accrues to corporations or trusts, arranged after residency is established.
Foreign Investment Regulations
There is no restriction on greenfield investment in Australia and acquisitions by U.S. investors up to A$1,004 million are excluded from review by the FIRB apart from prescribed sensitive sectors, where a A$231 million threshold applies. To calculate the value of a business or corporation, investors need to consider the value of the total issued shares of a corporation or its total gross assets, whichever is higher.
Thresholds in sensitive areas
-- U.S. investors in developed commercial real estate that is valued at A$1,004 million or more need to notify the FIRB (compared to A$50 million for non-U.S. investors);
-- Total foreign investment in Australian international airlines (including Qantas) is limited to 49%;
-- The Airports Act 1996 limits foreign ownership of airports offered for sale by the Commonwealth to 49%, with a 5% airline ownership limit and cross ownership limits between Sydney airport (together with Sydney West) and Melbourne, Brisbane and Perth airports;
-- The Shipping Registration Act 1981 requires a ship to be majority Australian-owned if it is to be registered in Australia;
-- Aggregate foreign ownership of Telstra is limited to 35% of the privatized equity and individual foreign investors are only allowed to own up to 5%; and
-- All investments of 5% or more in the media sector, regardless of the value of the investment, require FIRB approval.
Foreign Investment Policies
Under Australia’s Foreign Investment Law, the Foreign Investment Review Board (FIRB) screens potential foreign investments in Australia above a threshold value of A$231million ($231million). The FIRB may deny approval of particular investments above that threshold on national interest grounds, although it rarely has done so. The AUSFTA, however, exempts all new U.S. "greenfield" investments from FIRB screening. The AUSFTA also increased the threshold at which U.S. proposals to invest in non-sensitive sectors are screened, from $A50 million to $A800 million indexed annually ($A1,004 million in 2010). Investment proposals made by foreign governments, including by the U.S. government, must be reported to the FIRB.
Takeovers of domestic firms by foreign investors are rarely interfered with and are treated under the same guidelines as any other investment. Occasionally there are strong public reactions to foreign investment proposals, particularly from Chinese state companies, but these rarely involve U.S. companies. There are no prohibitions on overseas investment or capital repatriation.
As addressed earlier in the “Openness to Foreign Investment” section, the FIRB uses a ‘national interest’ test to examine foreign investment proposals. Proposals are evaluated according to their consistency with existing government policy and law, where these are taken to define important aspects of national interest (for example, competition policy and environmental laws). National security interests and economic development priorities are also considered. The Commonwealth Treasurer ultimately decides whether or not an investment is contrary to the national interest.
The FIRB publishes statistics of proposals to invest in Australia. In 2008-09, 5,352 proposals received foreign investment approval. This compared with 7,841 in 2007-08, representing a decrease of 32%. In 2008-09, three proposals were rejected (all related to real estate purchases) compared with 14 proposals rejected in 2007-08. In the 2008-09 FIRB annual report (the latest available), 5,352 foreign investment proposals received approval, compared with 7,841 in 2007-08, representing a decrease of 32%. The real estate sector recorded 4,827 approvals, representing a decline of 34% on the 7,357 approvals in 2007-08. There was an overall increase in approvals in other sectors in 2008-09 compared with 2007-08, from 484 approvals to 525 approvals, representing an increase of 8%.
Approvals in 2008-09 involved proposed investment of A$181.4 billion, a 5% decrease on the previous year’s approvals of A$191.9 billion. Approved investment in real estate was A$23.4 billion in 2008-09 (compared with A$45.5 billion in 2007-08), while approved investment in other sectors was A$158 billion, compared with A$146.4 billion in 2007-08, representing an increase of 8%.
The mineral exploration and development sector was the largest destination by value, with approved investment in 2008-09 of A$90.6 billion (A$64.3 billion in 2007-08). The other major destinations were: services, with approved investment of A$31.7 billion (A$35.7 billion in 2007-08); real estate, with approved investment of A$23.4 billion ($45.5 billion in 2007-08); and manufacturing, with approved investment of A$19.1 billion (A$31.3 billion in 2007-08).
The United States was the largest source country for foreign investment in 2008-09, involving approved investment of A$39.6 billion. China (A$26.6 billion), Japan (A$22.1 billion), the United Kingdom (A$20.3 billion), and France (A$7.5 billion) were the other major source countries of approved investment in 2008-09.
Foreign ownership of Australian media assets is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australia’s Foreign Investment Policy. All foreign persons, including U.S. investors, must notify the Australian government and get prior approval to make investments of 5% or more in the media sector, regardless of the value of the investment. The media sector includes daily newspapers, television and radio, as well as including internet sites that broadcast or represent these forms of media.
The Australian Government released its National Aviation Policy Statement, or White Paper, on December 16, 2009. The White Paper retained the basic limit of 49% foreign ownership stake in Australia’s international airlines, originally set under the Air Navigation Act of 1920 and the Qantas Sale Act of 1992, intended to ensure Australia’s airlines remain majority Australian owned and controlled. However, the White Paper proposed the removal of additional restrictions on foreign ownership (i.e. 25% for foreign individual shareholdings and 35% for total foreign airlines shareholdings).
The Government will consider more flexible arrangements for ownership of its airlines, other than Qantas, with governments with which Australia has negotiated Open Aviation Market agreements, [including the United States, which concluded an Open Skies Agreement with Australia in 2008]. In relation to the domestic carrier market, foreign investors can generally expect approval to acquire up to 100% of a domestic carrier (other than Qantas), or establish a new domestic aviation operation, unless this is contrary to the national interest.
Airports: In relation to the airports offered for sale by the Australian Government, the Airports Act of 1996 stipulates a 49% foreign ownership limit, a 5% airline ownership limit, and cross-ownership limits between Sydney airport (including Sydney West) and Melbourne, Brisbane and Perth airports.
In February 2007, the Australian Government transferred its remaining 17% stake in Telstra into an independent Future Fund, reducing concerns about its conflicting roles as regulator and owner of the dominant operator. The United States remains concerned about foreign equity limits on Telstra, which are still capped at 35% total and up to 5% for individual foreign investors.
In June 2010, Telstra signed a non-binding Financial Heads of Agreement with NBN Company (NBN Co) to participate in the rollout of the Commonwealth Government’s National Broadband Network (NBN) initiative. The agreement provides for the decommissioning of Telstra’s copper network and cable broadband service and use of Telstra’s infrastructure. The transaction would see Telstra progressively migrate its voice and broadband traffic from its copper and cable networks to NBN Co’s network, which is to be a neutral provider of broadband services. Other telecommunications companies, such as Optus, will also join the NBN. In December 2010, the Parliament passed legislation to separate Telstra's retail and wholesale arms, with the latter coming under the NBN. The United States will monitor the NBN to ensure that competitors are able to obtain reasonable access to services and customers.
Audiovisual Trade Barriers
Though preexisting Australian-content requirements remained in effect under the AUSFTA, the agreement limited or prohibited their extension to other media or means of transmission. Australia maintains strict domestic content requirements on all free-to-air television programming broadcast between 6:00 a.m. and midnight. Australia’s Broadcasting Services Amendment Act requires subscription television channels with significant drama programming to spend 10% (with the FTA allowing flexibility, under certain circumstances, to increase this up to 20%) of their programming budgets on new Australian drama programs.
The Australian Content Standard of 2005 (still in effect) requires commercial television broadcasters to produce and screen Australian content, including 55% of transmission between 6am and midnight. In addition, there are specific minimum annual sub-quotas for Australian (adult) drama, documentary, and children’s programs. In July 2010, the Australian government provided license fee rebates of 25% in FY 2010 and 41.5% in FY 2011 to commercial television broadcasters in order to help them maintain Australian content production.
The Australian commercial radio industry code of practice sets quotas for the broadcast of Australian music on commercial radio. The code requires that up to 25% of all music broadcast between 6:00 a.m. and midnight be music performed by Australians. In July 2010, the Australian Communications and Media Authority (ACMA) announced registration of a new code that provides temporary exemption for digital-only commercial radio stations (stations not also simulcast in analog) from the Australian music quotas. The exemption will be reviewed in 2013. Since January 2008 all licensees of regional commercial radio broadcasting licences have been required to broadcast minimum levels of local content.
Incentives for Investment
Hundreds of major foreign firms in most industry sectors invest in Australia. The Australian Commonwealth and State Governments offer incentives to multinationals to establish operations in Australia and benefit from Australia's safe and stable business environmentand skilled workforce.
Incentives that are available to investors include:
-- The Commonwealth Government introduced changes to the tax treatment of research and development (R&D) from July 1, 2010. The system provides a refundable tax credit equal to 45% of expenditure on R&D to companies with an annual turnover of less than A$20 million. For companies which exceed this threshold, a tax credit equal to 40% of expenditure on R&D will be provided, but is not be refundable. The new policy involves a tightening in the definition of eligible R&D. The aim of the new system is to broaden access to the concession.
-- Venture capital tax concessions: Capital gains tax exemptions are available for non-resident investment in Australian venture capital. The exemptions apply to investors from the U.S., the United Kingdom, Japan, Germany, France, and Canada.
-- The Invest Australia Supported Skills (IASS) program is designed to encourage international firms to choose Australia as a location for direct investment by providing streamlined immigration arrangements for eligible employees of a company that is considering making a significant or strategic investment in Australia.
-- The Green Car Innovation Fund (GCIF) is part of the Government's ‘A New Car Plan for a Greener Future’ program and provides assistance over ten years, beginning 2009-10, to design, develop, and manufacture low-emission, fuel-efficient cars and components in Australia. The A$1.3 billion (US$1.2 billion) fund provides assistance to Australian companies for projects that enhance the research, development, and commercialization of Australian technologies that significantly reduce fuel consumption and/or greenhouse gas emissions of passenger motor vehicles. Grants are provided at a ratio of A$1 of government funding for every A$3 of eligible expenditure contributed by the grantee.
-- The Tradex Scheme allows an importer to gain an up-front exemption from customs duty and GST on imported goods that are intended for export or to be used as inputs to exports. The goods may be exported in the same condition as imported, subjected to a process or treatment after importation, then exported or incorporated in other goods which are exported. Export may be carried out by the importer or a third party. The goods must be exported within 12 months of importation, although approval can be sought to extend this period.
Preferences for Local Industry Development
AUSFTA introduced new procedural rules and requirements that aim to safeguard non-discrimination and transparency. Generally, these new obligations have been implemented at the Australian government level through the incorporation of Mandatory Procurement Procedures (MPPs) within the Commonwealth Procurement Guidelines. Consistent with the AUSFTA, the MPPs now contain provisions that open tenders will be used for most types of procurement valued above specified thresholds. Currently, these thresholds are $9 million for construction services and $80,000 for general goods and services in the case of agencies covered by the Financial Management and Accountability Act 1997 (FMA). Relevant bodies covered by the Commonwealth Authorities and Companies Act 1997 have a higher threshold for general goods and services of $400,000.
The Mandatory Procurement Procedures specify minimum time limits for suppliers to submit tenders (with a general minimum standard of 25 days, reducible to 10 days in specific circumstances); limit use of procurement as a policy tool for achieving non-procurement objectives through limiting rules for requirements that may be placed on suppliers for participation and a general ban on use of offsets; require technical specifications to be expressed in performance or functional terms and based on international standards where appropriate; require additional reporting for contract award notices; and require a common deadline for all suppliers (no late tenders).
Australia has not signed the GATT/WTO Agreement on Government Procurement, which means that it is not bound by conditions prohibiting specification of locally made product in tenders. However, the Australian government procurement policy framework is non-discriminatory, e.g., potential suppliers will not be discriminated against on the basis of their degree of foreign affiliation.
AUSFTA prohibits the use of local preference arrangements and offsets, except in certain circumstances. Notable exceptions to the rule include preferences applying to local small-and-medium sized enterprises (SMEs). At the Commonwealth level, there is a minimum target of 10% SME participation in all government procurements. Non-discriminatory treatment applies to most central government departments and 33 central government enterprises. A number of items, mainly relating to military equipment procurement by the Australian Department of Defense, have been exempted from the Agreement.
The non-discrimination principle applies above certain thresholds. For Commonwealth government procurement, the thresholds are A$85,000 (US$85,000) for goods and services and A$9.51 million (US$9.51 million) for construction services. For State government entities, the thresholds are A$675,000 (US$675,000) for goods and services and A$9.51 million (US$9.51 million) for construction services.
In July 2009, the Government released the ‘Boosting Australian Industry Participation’ policy that requires tenderers for government work to outline their use of Australian suppliers in every bid. The policy directs all tenderers to declare their suppliers, whether local or overseas. We have no reports of this policy adversely affecting U.S. firms.
State governments operate their own government procurement schemes. Changes to the Victorian Industry Participation Policy (VIPP) were introduced from July 1, 2009 to encourage greater local content in procurement in that state. Major projects can be deemed of strategic significance to the Victorian economy when their estimated project capital cost exceeds $100 million or whole-of-life costs exceed $250 million. We have no reports of this policy adversely affecting U.S. firms.
In June 2009, the state government of New South Wales introduced measures giving local industry preference in major projects. The Local Jobs First plan requires government agencies and state-owned corporations to give preferential treatment to Australian-made goods. The price preference means locally-made content is discounted by 20% compared to overseas-sourced material in tender evaluations. Previously, a price preference applied only to businesses with up to 200 workers. It has now been extended to businesses with up to 500 workers. Every tender over A$4 million also requires a local industry participation plan. The Plan is limited to SMEs, and the AUSFTA provides for a SME exemption. Nonetheless, Australia has assured the United States that this policy would be applied consistent with Australia’s obligations under the AUSFTA. We have no reports of this policy adversely affecting U.S. firms.
Government IT Procurement
The Information and Communications Technology (ICT) Management Consultants multi-use list (ICT MUL) was established to enable Australian Government agencies to improve the quality of their ICT business case development and benchmarking, corporate governance, and ICT project management and delivery. A Multi-Use List (MUL) is a list of pre-qualified potential suppliers of nominated goods and/or services, who have satisfied the conditions for inclusion.
A MUL is a procurement tool available under the Australian Procurement Guidelines and is intended for use in more than one procurement process. Government departments and agencies can require inclusion on an MUL as a condition for participation in an open tender or as the basis for selecting participants in a select tender process for nominated goods or services. Inclusion on an MUL does not guarantee any potential supplier that an agency will include them in a select tender process.
For ICT contracts of A$20 million (US$18.4 million) and above, Australian Government agencies subject to the Financial Management and Accountability Act 1997 (FMA Act) must include a minimum target level for SME participation ranging between 10-20% of the contract value, depending on the proportion of hardware and software/services (10% for hardware, 20% for software/services).
This policy supplements the Commonwealth Procurement Guidelines target of a minimum 10% SME spend generally. Any SME participation stemming from ICT contracts of A$20 million and above will count towards the achievement of the agency-wide 10% target. All publicly available business opportunities relating to the central government are notified on the AusTender website. Businesses can register their interest profile on the site and will receive automatic notification of the latest opportunities.
Protection of Intellectual Property
Australia generally provides strong IPR protection and enforcement and was an active participant in negotiating the Anti-Counterfeiting Trade Agreement (ACTA), which was finalized in late 2010 and aims to strengthen international IPR enforcement. Australia is a member of the World Intellectual Property Organization (WIPO) and is a member of a number of intellectual property treaties. These include the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, the Universal Copyright Convention, the Geneva Phonogram Convention, the Rome Convention for the Protection of Performers, Producers of Phonograms, and Broadcasting Organizations, the Patent Cooperation Treaty, the Madrid Protocol, the Patent Law Treaty, the Singapore Treaty on the Law of Trademarks, the WIPO Copyright Treaty 1996 (WCT), and the WIPO Performances and Phonograms Treaty 1996 (WPPT). The treaties protect copyright in the online environment. IP Australia is the Australian government agency responsible for registration of patents, trademarks and designs and plant breeder’s rights.
Patents, Trade Secrets, Designs
The Patents Act of 1990 offers coverage for 20 years, subject to renewal. Australian patents are administered by the Patent Office of IP Australia, a Commonwealth government organization. There are two types of patents in Australia: 1) a standard patent that gives long-term protection and control over an invention for up to 20 years; and 2) an innovation patent which is a relatively fast, inexpensive protection option, lasting a maximum of 8 years. An application for patent in Australia provides international priority rights if applications follow in overseas jurisdictions within 12 months.
In 2006, legislation aimed at preventing unauthorized access to material protected by copyright was passed by the Australian Parliament. The legislation implemented the technological protection measures (TPMs) scheme in the AUSFTA. TPMs are technical locks, such as passwords or encryption, used by copyright owners to prevent unauthorized access to and use of their material. These laws complement other copyright reforms including measures to target piracy.
Design features, such as shape or pattern, can be protected from imitation by registration under the Designs Act of 1906 for up to 16 years. An important aspect of a design is that it must be applied industrially. Registration cannot be granted for a design that is purely artistic. Only the owner of the design can make an application for registration.
Recent IPR Developments
In April 2008, IP Australia and the U.S. Patent and Trademark Office (USPTO) entered into a pilot cooperation initiative called the Patent Prosecution Highway (PPH). The program aims for faster patent examination times for patent applicants with interests and applications in the United States and Australia. Under the PPH, an applicant receiving a report from either the USPTO or IP Australia with at least one patentable claim in an application may request that the other office accelerate the examination of the corresponding application. The applicant benefits from the patent office of one country using the work previously conducted by the other office, by obtaining corresponding patents faster and more efficiently.
In July 2008, IP Australia and USPTO announced an arrangement under which IP Australia is an international search and examination authority for international applications filed with the USPTO under the Patent Cooperation Treaty (PCT).
Trademarks may be protected for ten years and renewed indefinitely, upon request by registration under the Trademarks Act of 1995. Once used, trademarks may also, without registration, be protected by common law; however, registration with Intellectual Property Australia does make enforcement easier. It is wise for any U.S. exporter intending to market a product in Australia to check with the Trademarks Office at IP Australia to ensure that its mark or name is not already in use. A new national business registration system for trademarks is proposed for April 2011.
Australia’s Department of Innovation, Industry, Science and Research is in the final consultation stages for the new registration system, pending the passage of legislation in all state and territory jurisdictions. As part of the Council of Australian Governments (COAG)'s regulatory reform agenda, the states have agreed to refer their business names registration powers to the Commonwealth government.
Australia generally provides for strong IPR protection and enforcement. It has legislation criminalizing copyright piracy and trademark counterfeiting. Penalties (including imprisonment) can be combined with confiscation of criminal proceeds as well as confiscation of the infringing goods and the equipment used to make those goods. The Australian Notice of Objection Scheme provides Customs with the power to seize imported goods which infringe notified trademarks and copyright. IPR owners can also prevent the importation and exportation of infringing products through court injunctions.
Australia amended its Copyright Act in 2007, to include implementation of provisions concerning circumvention of technological protection measures used in connection with the exercise of copyright. This includes a key criminal offence obligation. Under the AUSFTA, criminal procedures and penalties apply in cases of willful copyright piracy on a commercial scale.
Copyrights are protected under the Copyright Act of 1968, which has been amended by the U.S. Free Trade Implementation Act 2004 and the Copyright Amendment Act 2004 and Copyright Amendment Act 2006, to meet the obligations of the U.S-Australia Free Trade Agreement. Works do not require registration, and copyrights automatically subsist in original literary, artistic, musical and dramatic works, film and sound recordings. Copyright protection is for the life of the author plus 70 years. For sound recordings and films, protection is 70 years after publication.
The Australian Copyright Act provides protection and against video piracy and unauthorized third-country imports. Amendments to the original Copyright Act of 1968 contained in the Copyright Amendment Act 2006 are related to: time-shifting, format-shifting and space-shifting; certain non-commercial activities of libraries, educational institutions and cultural institutions; use of copyright by people with a disability; parody and satire; the Copyright Tribunal; technological protection measures; and unauthorized reception of encoded broadcasts and criminal penalties. In general, Australia has a low rate of piracy of audiovisual materials.
Regulatory Framework and Transparency
There are three central financial regulatory agencies with responsibility for maintaining the safety and soundness of Australian financial institutions, for protecting consumers, for ensuring market integrity, and for promoting systemic stability:
-- The Reserve Bank of Australia (RBA) has responsibility for the stability of the financial system as a whole, for monetary policy, and for the payments system.
-- The Australian Prudential Regulation Authority (APRA) is responsible for prudential supervision of authorized deposit-taking institutions (ADIs), insurance companies, and superannuation funds. APRA’s major focus is on capital adequacy and on companies’ internal risk monitoring and control mechanisms, with the objective of reducing the likelihood of institutional insolvency and consequential losses to depositors, policyholders, and members. APRA currently supervises institutions holding approximately A$3.4 trillion in assets, including Australia’s banks.
-- The Australian Securities and Investments Commission (ASIC) is responsible for overseeing corporations and market integrity, including disclosure standards and consumer protection. ASIC regulates Australian companies, financial markets, financial services organizations, and professionals who deal and advise on investments, superannuation (i.e., retirement pension), insurance, deposit taking, and consumer credit. ASIC is also responsible for registering and supervising the operation of managed investment schemes.
-- The Australian Competition and Consumer Commission (ACCC) promotes competition and fair trade in the market place to benefit consumers, businesses, and the community. It also regulates national infrastructure services. Its primary responsibility is to ensure that individuals and businesses comply with Australian competition, fair trading, and consumer protection laws.
Under AUSFTA, the Australian government agreed to provide measures to prevent the marketing of a generic version of a pharmaceutical before the patent on that product expired. Australian regulations provide five years of protection of test data submitted to regulatory authorities for marketing approval of new pharmaceutical products and ten years of protection to undisclosed data submitted with an application for marketing approval for a new agricultural product, when that approval is given in combination with the marketing approval of certain additional uses of the same product.
The FTA addressed transparency and certain regulatory concerns by establishing a Medicines Working Group (MWG) to promote discussion and mutual understanding of issues relating to the Pharmaceuticals Annex of the AUSFTA. The MWG last met in 2007 .
Under the FTA, the Australian Therapeutic Goods Administration (TGA) must notify a pharmaceutical patent holder of intended market entry by a generic competitor. Australian pharmaceutical industry representatives (who also represent U.S. companies in the Australian market) have complained that unnecessary delays in this notification process restrict their options for action against generic competitors. TGA is also required to regulate generic versions of a patented medicine before a patent covering that product has expired. In 2009, the GOA agreed to prevent the export of generic pharmaceuticals manufactured in Australia if the patent had not expired in Australia.
Blood Plasma Products and Fractionation
Australian decision-making with regard to the country’s blood supply is a joint responsibility shared by the Commonwealth, State, and Territory Governments under the National Blood Agreement. The National Blood Authority, on behalf of Commonwealth and state governments, purchases plasma fractionation services through a contract with sole Australian supplier CSL. While foreign blood products may be approved for sale in Australia, the monopoly contract granted by the Australian government to an Australian company makes it virtually impossible for foreign firms to sell their products in Australia, except to fill shortages or provide products otherwise unavailable in Australia.