The Australian Treasurer, Wayne Swan, has released the long awaited updating of Australia's Foreign Investment Policy (click here to view policy page on the FIRB website). After confirming the long held bipartisan view that Australia welcomes foreign investment, the statement clarifies the position in relation to:

• direct investment by foreign governments and their controlled entities, and
• the considerations now regarded as relevant to an assessment of Australia's 'national interest' in relation to investment proposals.

Australia's foreign investment screening regime operates on two levels – one legislatively based and the other policy based. The Foreign Acquisitions and Takeovers Act 1975 (Act) allows the Treasurer to block certain foreign investments considered to be contrary to Australia's 'national interest'. No change to the legislation is proposed.

The Foreign Investment Policy sets out the Government's requirements in relation to, for instance, direct investment by foreign governments. It also provides guidance on the considerations the Government will apply in determining whether particular investments are in the national interest.

Whereas the old, longstanding policy language simply stated that prior approval was required for 'direct investments by foreign governments and their agencies irrespective of size', the new policy clarifies the uncertainties that have confronted sovereign wealth funds and foreign-owned corporations considering takeover offers or strategic resource investments in Australia.

The new policy clarifies the position by:

• defining what entities are considered to fall within the meaning of 'Foreign Government and their Related Entities' in the sense of the new policy (these include 'companies or other entities in which foreign governments, their agencies or related entities have more than a 15 percent interest', with the use of the term 'related entities' in this definition apparently signalling the Government's intention to trace sovereign interests through corporate structures)
• providing that 'All foreign governments and their related entities should notify the Government and get prior approval before making a direct investment in Australia, regardless of the value of the investment' and that 'Foreign governments and their related entities also need to notify the Government and get prior approval to start a new business or to acquire an interest in Australian urban land (except when buying land for diplomatic or consular requirements)'
• defining what is considered to be a 'direct investment' (and in particular confirms that investments below 10% may be considered 'direct investment' if they are structured so as to give certain elements of influence or control, or if they are preparatory to a takeover bid), and
• confirming that notifications under the policy are not to be made through statutory forms, and that the Government considers it is not constrained by any set timeframes for consideration of notifications under the policy (although the policy says that the Government 'aims to consider these proposals within 30 days').

As to the considerations relevant to an assessment of national interest, the new policy replaces the six 'guidelines for foreign government investment proposals' issued in February 2008 (click here for more detail), and applies the new 'National Interest Considerations' to all investments, not just governmental ones.

The factors highlighted, however, are essentially the same as under the old government investment guidelines and contemplate consideration of:

• national security
• competition
• other Australian Government policies (including tax)
• impact on the economy and the community, and
• the character of the investor.

In addition, the policy signals that special consideration will be given to the degree to which a foreign government may use an investment by one of its related entities to pursue non-commercial objectives.

In relation to real estate investments, the new policy reflects policy changes announced by the Government earlier this year (for our comment click here).