The foreign takeover of GrainCorp – can Joe Hockey demand conditions?

These examples show how companies were able to flout any agreements they made with the government in order to gain foreign investment approval. Arguably governments eventually understood this. In 2001 Shell was involved in a landmark decision by Peter Costello the Treasurer under the Howard government. Shell attempted a hostile takeover bid against Woodside Petroleum Ltd that raised a good deal of debate in Australia. Shell was and still is a major gas producer with projects all over the world. That was an issue since the commercial imperative for Shell did not necessarily coincide with Australia's interests. Press reports at the time suggested the government was considering conditional approval subject to fairly strict conditions including reducing Shell's eventual holdings to 56 per cent and establishing a new company to undertake the marketing of North West Shelf gas reserves.

Ultimately the Treasurer rejected the Shell bid on national interest grounds and said it was not possible to put 'enduring conditions' in place that would be enforceable. This was historic being the first recorded instance of a Treasurer admitting to the problems of imposing conditions on an approval and the inability to monitor and enforce any such conditions. Peter Costello effectively conceded Don Chipp's accusations decades earlier.

Foreign investors have a strong incentive to ignore conditions and the government either has no enforcement mechanisms or does not wish to use them. Market behaviour suggests that foreign companies know they are immune when they agree to conditions they know they will break and can break with immunity.

This poses a big dilemma for the Abbott government. If it allows the bid for GrainCorp without conditions then the government risks the anger of its junior coalition partner. However given the FIRB's record we know that if the government agrees to allow the bid subject to conditions then it knows that in all probability the conditions will be ignored. In practice conditional approval means the same ultimate outcome as unconditional approval.