26 July 2018

Publication alert | Deal-breakers? Regulating foreign direct investment for national security in Australia and the United States

Both the United States and Australia rely on foreign direct investment (FDI) as a major source of capital to fund domestic investment and economic growth. But while most foreign acquisitions do not raise national security concerns, security considerations have become more salient in recent years due to a change in the sources of FDI.

A new report released today by the United States Studies Centre at the University of Sydney looks at the national security risks arising from such investments and recommends action on a number of fronts, including increased cooperation between Australia and the United States.

"The United States and Australia have struggled to re-define their approach in response to the national security issues raised by China’s increased role in foreign investment and the relationship of that investment to its mercantilist industrial policies and increasingly assertive military posture," report author and director of the Centre's Trade and Investment Program Dr Stephen Kirchner says.

"The challenge for policymakers is how to maximise the benefits of foreign investment, while addressing legitimate national security concerns. This requires a deeper understanding of how foreign ownership might affect national security, defence capabilities and critical infrastructure in both theory and practice."

Key points

Australia’s Foreign Investment Review Board should be overhauled to better integrate consideration of national security and critical infrastructure issues. It should report to the National Security Committee of federal cabinet rather than the treasurer on national security issues.
Critical infrastructure and other assets deemed too sensitive to allow foreign ownership should be identified either through statutory restrictions on foreign ownership or a negative list to increase certainty for foreign investors.
An MOU should be signed between the Australian and US governments for the exchange of information and setting out procedures for consultation and the joint consideration of cross-border acquisitions that raise common national security issues.

View report