Neighbours

On 8 February 2004, the US trade representative Ambassador Bob Zoellick and the Australian minister for trade Mark Vaile announced the conclusion of negotiations between Australia and the US for a free trade agreement (FTA) between the two countries. The text of the draft FTA was published on 1 March 2004. This article considers the impact of the FTA (based on the draft and media releases currently available) on Australian foreign investment policy, intellectual property (IP) laws and competition laws.

When will the FTA take effect?
Both the US and Australia will now proceed with their respective approval processes, including the enactment of necessary domestic legislation in each country. Once that legislation is enacted, the respective governments will execute the FTA, which will then take effect 60 days later.

The Australian government has indicated that the FTA is unlikely to be in force before 1 January 2005.

Current laws and policy which apply to foreign investment in Australia
The Australian government’s foreign investment policy is embodied in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), the regulations made under FATA and in certain policy guidelines issued by the Australian Department of the Treasury. The Treasurer, assisted by the Foreign Investment Review Board (FIRB), reviews inward investment proposals and administers the government’s policy. Broadly, it is compulsory to notify the FIRB of the following proposals:

  • The acquisition of a substantial shareholding in an Australian corporation that has total assets valued at more than A$50m (£20.4m).
  • The takeover of an Australian company or business by means other than the acquisition of shares, where the total assets of the company or business exceed A$50m.
  • The acquisition of an interest in Australian urban land.

Furthermore, although not the subject of precise regulation under the FATA, the policy requires notification of proposals to acquire more than a portfolio interest (ie greater than 5 per cent) in companies operating in the media sector, proposals to establish a new Australian business where the total amount of investment exceeds A$10m (£4.1m), and direct investments by foreign governments or their agencies (irrespective of size).

In the majority of industry sectors, proposals to acquire Australian businesses for less than A$50m are exempt from notification requirements. Specific rules apply to foreign investment in the following sectors: banking, defence, shipping, telecommunications, civil aviation and airports.

Foreign investment by US investors
The Australian government has said that the FTA will successfully preserve the main features of Australia’s foreign investment policy by retaining the government’s right to examine significant foreign investment proposals in all sectors to ensure they do not raise issues contrary to the national interest. The reality appears to be, however, that foreign investment policy will be significantly relaxed with respect to investment proposals by US investors.

As previously mentioned, the current notification threshold for the takeover of an existing business is, in most cases, A$50m. Under the terms of the FTA, takeovers by US investors (including corporate entities) will generally be subject to a notification threshold of A$800m (£327.1m). A threshold of A$800m will also exist in relation to investment by a US company in a new business in Australia (up from A$10m.) However, the A$50m threshold notification requirement remains applicable to companies in the following sectors:

  • Telecommunications.
  • Transport, including airports, port facilities, rail infrastructure and international and domestic aviation and shipping services provided either within, or to and from, Australia.
  • The manufacture or supply of training, human resources or military goods, equipment or technology to the Australian or other defence forces.
  • The manufacture or supply of goods, equipment or technologies able to be used for a military purpose.
  • The development, manufacture or supply of, or provision of services relating to, encryption and security technologies and communications systems.
  • The extraction of (where rights to extract are held) uranium or plutonium, or the operation of nuclear facilities.

Foreign investment in the financial services sector, the media industry and any investment by foreign governments or their agencies (which is defined broadly), irrespective of size, must still be notified and will continue to be considered on a case-by-case basis, regardless of value. In assessing foreign participation in the financial services sector, the Australian government applies the principle that any large-scale transfer of Australian ownership of the financial system to foreign hands would be contrary to the national interest, but there is no blanket prohibition of foreign ownership of any particular financial institution.

Existing limits relating to investment in urban land, Telstra, CSL, Qantas and other Australian international airlines, federal leased airports and shipping will also remain.

In summary, US investors will face no barrier to investing in Australian businesses in those areas deemed non-sensitive and where the value of the business is less than A$800m.

Intellectual property
In the joint press release dated 8 February 2004, Zoellick stated: “Obviously, for both developed economies, knowledge in industry is very important and this agreement enhances intellectual property rights, protections for copyrights of patents and trademarks, as well as strengthening legal penalties.”

The Australian government has indicated that the inclusion of the IP chapter recognises the importance of a strong IP regime for economic growth through trade and investment. It is envisaged that Australians will benefit through closer harmonisation with the largest IP market in the world. Key points covered by the IP chapter include:

  • Stronger protection for copyright owners.
  • Enhanced IP enforcement laws.
  • Agreed standards for copyright infringement and penalties.
  • Reinforcement of Australia’s existing framework for industrial property protection.

The parties agree to work to reduce any difference in law and practice in the areas of patents, designs and trademarks, and to promote bilateral and regional cooperation with respect to enforcement.

Competition and consumer protection
The FTA provides for cooperation in relation to the enforcement of competition laws and policy, including mutual assistance, notification, consultation and exchange of information.

Existing methods of cooperation will be advanced further, with each country agreeing to examine the scope for strengthening support for, and minimising legal impediments to, the effective enforcement of the other’s competition laws and policies. A joint working group will be established with the goal of seeking to reach a common view as to the appropriate steps to be taken to enhance legal and regulatory regimes in this regard.

The FTA recognises the importance of cooperation and coordination in the areas covered by each country’s consumer protection laws in order to enhance consumer welfare and the enforcement of those laws. There is an agreement to work to strengthen further cooperation in the areas covered by each country’s consumer protection laws. This will include further cooperation between the US Federal Trade Commission and the Australian Competition and Consumer Commission in areas of mutual concern,
in particular fraudulent and deceptive commercial practices affecting consumers.

The proposed benefits include:

  • A stronger base for pursuing companies based in the US.
  • Cooperation in combating breaches of consumer protection laws.
  • Better processes applying to the recovery of money by consumers or investors who have been defrauded or deceived.
  • A stronger US commitment to non-discriminatory enforcement of competition law.

Export of services
The Australian government says the FTA will provide a robust framework that should promote the mutual recognition of qualifications in professional services. Such services may include legal services. It will be interesting to see how this commitment to promote the mutual recognition of qualifications, such as university legal qualifications and membership of the various Australian law societies and bars, will work in practice.

Michael Beaumont and Madeleine Cox are both senior associates in Blake Dawson Waldron’s London office