Australia has announced legal amendments to its foreign investment review framework, in the most significant reform to the Foreign Acquisitions and Takeovers act since its introduction in 1975.

The new laws announced on June 5 will require foreign investors to seek the government’s approval before investing in a “sensitive national security business”. The government will also be given new powers to reject investment agreements and to forcibly divest previously approved deals if they are deemed a national security threat.

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“The comprehensive changes deal with national security risks, strengthening compliance measures, streamlining approval processes and administrative enhancements,” said Treasurer Josh Frydenberg in a statement.

“These reforms will ensure that our foreign investment framework keeps pace with emerging risks and global developments,” he said.

The new legal regime follows temporary changes to investment rules introduced in March, designed to protect weakened corporates deemed at risk from foreign takeovers amid the economic fallout of the coronavirus pandemic. The new reforms will come into effect, after legislation in July, once the temporary measures cease on January 1 next year.

Implications for China ties

“The national security reforms are an expected reaction to the more complicated technological, geopolitical and security environment that we are all living in. They do not single out any country,” said Intan Eow, a partner at law firm King & Wood Mallesons in Sydney.

Tougher foreign investment screening could have implications for Australia’s relationship with China, its largest trading partner, which has deteriorated this year following Prime Minister Scott Morrison’s calls for an independent investigation into the origins of the coronavirus in Wuhan.

“Although it is not explicitly aiming at Chinese investments, the new regime could further cast a shadow on Chinese investors given Australian officials’ recent verbal attacks against China on a wide range of issues,” said the Global Times, a state-backed newspaper in China.