FactCheck: do many other countries restrict foreign investment in agricultural land?

“We often get criticised for trying to be protective. I actually look around the world and I see many, many countries being equally protective of their own core assets.” – Prime Minister Kevin Rudd, third leaders' debate, 21 August.

In their final election debate at the Rooty Hill RSL Club, both leaders were asked about foreign investment of agricultural land in Australia.

Opposition Leader Tony Abbott confirmed the Coalition’s plan to lower the threshold for Foreign Investment Review Board examination of foreign purchases of agricultural land from A$248 million down to A$15 million.

Prime Minister Kevin Rudd said he was “not quite as free market" as Abbott and that he preferred joint ventures between foreign-owned companies and Australian companies when it came to owning agricultural land. Rudd also made the above statement, which suggested that other nations were also concerned about foreign ownership of agricultural land.

So is the Prime Minister right?

Australia’s regulation of foreign investment is not strict by international standards. On a continuum from prohibition through to promotion (through subsidies or favourable tax arrangements, for instance), Australia tends toward minimal restriction in practice of foreign investment.

All proposed foreign government investment and private investment proposals worth more than A$248 million must be notified to the Foreign Investment Review Board within Treasury. Investment from the United States and New Zealand is much more leniently treated, with a higher $1078 million threshold.

Investment proposals are reviewed on a case-by-case basis, applying a national interest test that is open as to what can be considered. Stated criteria specific to agricultural land include access to land and water, productivity and security of agricultural production, biodiversity and employment. This test is apparently weak, as almost all applications are approved, including about A$55 billion in agriculture and mining in 2011-2012.

Foreign investments below the thresholds are not scrutinised, and companies may strategically keep proposals below the threshold.

So the formal review process appears unlikely to restrict foreign investment. But this needs to be seen in context. About 99 percent of the companies that own agricultural land are entirely Australian-owned (and these own 89 percent of agricultural land in Australia). Nevertheless, foreign ownership is rising.

Comparing rules between countries is difficult because nations vary in the way they regulate. Many countries, including the US and Canada, also have restrictions at the regional or provincial level that are greater than at the national level.

Rules may look strict on paper in some countries, but there is little monitoring or enforcement of them. Many countries discriminate between countries when it comes to foreign investment. For instance, European Union countries are meant to allow investment by other EU countries on the same basis as domestic investment, while foreign investment from non-EU countries may be more restricted.

To complicate matters further, the level of policy and regulatory attention can depend on the existing level of foreign ownership, the proportion of agricultural land and the economic dependence on agricultural and mining production and export. Developing countries often have weak or absent institutions for regulation, which affects their ability to address the market failures in this area.

Given those caveats, we can say that foreign investment is more restricted than domestic investment for all 34 members of the developed nations in the OECD (and 10 non-OECD members) which are signatories to the OECD’s principle of “national treatment”. This means that foreign enterprises should be treated no less favourably than domestic.

At least 15 of these 44 countries have additional regulation specific to foreign investment in rural land. This is summarised in the table above

The table includes countries referred to in a recent Senate inquiry report on Foreign Investment and the National Interest, which compared the regulatory contexts of “countries with agricultural land that has experienced increasing levels of foreign investment [and] have made regulatory changes to meet this challenge”, denoted by **.

This is indicative of some movement away from the “national treatment” initiative, which had been intended to free up international capital movements since the Global Financial Crisis.

Verdict

Overall, many countries are at least equally or more protective of their “core assets” as Australia, so Kevin Rudd is broadly right. This is particularly the case for countries at comparable economic levels and with a significant land resource and rural sector. Some other countries are moving more towards such protections.

Review

This is a good piece, well supported by detailed analysis that demonstrates Kevin Rudd is broadly right. As the author notes, there has been recent tightening in a number of nations, including in previously unrestricted Argentina. Also in South America, Colombia is experiencing widespread civil unrest due to the effects of its US Free Trade Agreement, so tightening or some other significant public response can be soon expected there.

The author notes the favoured treatment that Australia affords US and NZ investors. This is due to the agreed bilateral trade agreements – and it seems that China wants similar treatment if it is to sign a free trade agreement with Australia. It is worth noting that these bilateral “free trade” agreements are actually bilateral “preferential trade and foreign investment” agreements (but cannot be termed “preferential” as such things are illegal under the WTO). – Mark McGovern

The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.

This article was originally published at The Conversation. Read the original article.