Australian law to target states' deals with foreign governments

[CANBERRA] A new Australian law is set to allow Prime Minister Scott Morrison's federal government to force states and territories to cancel new or existing agreements with foreign governments, in a move that will be seen as ramping up tensions with China.

The legislation from Mr Morrison's conservative government will be introduced to parliament next week with the aim of being passed this year. It will cover a broad range of sectors, including infrastructure, trade cooperation, tourism, cultural collaboration, education including university research partnerships, science and health.

It comes after the Victorian state government signed a framework agreement last year to join Beijing's Belt and Road Initiative, against the federal government's wishes.

"Australians rightly expect the federal government they elect to set foreign policy," Mr Morrison said in a statement Wednesday. "These changes and new laws will ensure that every arrangement done by any Australian government at any level now lines up with how we are working to protect and promote Australia's national interest." Mr Morrison's government has presided over an era of deepening tumult with China, his nation's largest trading partner. Those relations deteriorated after Australia banned Huawei Technologies from participating in its 5G network and passed a law to stem foreign interference that was seen as a response to China's growing influence.

The new law will give the foreign minister the power to stop new and previously signed agreements between the eight states and territories and their entities, such as local governments and public universities, and foreign governments.

It excludes commercial corporations and state-owned enterprises. Some Australian defence experts objected when the strategic port in Darwin, used by the military of key ally the US, was leased to a Chinese company from the Northern Territory government in 2015.

In April, ties with China nosedived further after Mr Morrison's government raised Beijing's ire by calling for an independent probe into the origins of the coronavirus. On Tuesday, a top Chinese diplomat told reporters in Canberra that China felt unfairly "singled out" by Australia's push for the inquiry. In the briefing, deputy head of mission to Australia, Wang Xining, provided no clear answers to questions on whether Beijing's subsequent trade sanctions on beef and barley exports were reprisals.

The law will also enforce a public register to provide transparency to the decisions made by the foreign minister, with states and territories given six months to deliver a stock-take of their existing arrangements with foreign governments.

It's the latest move by Mr Morrison's government to toughen foreign investment screening measures, citing the need to protect the national interest.

In June, the government announced it would seek to implement permanent tougher screening measures on foreign investors seeking to buy sensitive assets from Jan 1. Yet to be legislated, the changes would see telecommunications, energy, technology and defence-manufacturing companies be included in the zero-dollar threshold for screening.

On Tuesday, China Mengniu Dairy Co scrapped its plans to buy Kirin Holdings's Australian beverage unit after being told the deal would likely be blocked. Australia's Treasurer Josh Frydenberg said in a statement he'd informed the Chinese dairy giant he'd reached a preliminary view that the proposed purchase "would be contrary to the national interest." While China's appetite for Australian resources such as iron ore and coal remains undimmed, it is only Australia's ninth-largest foreign investor, comprising 2 per cent of the US$2.74 trillion total at the end of 2019.

BLOOMBERG