ScoMo muscles up on foreign deals, sets up legal bunfight with states

Constitutional fight, incoming. Scott Morrison has excited the hairs on the backs of the necks of constitutional scholars with his proposed new law giving the Commonwealth government unprecedented new powers to decide who gets to make deals in Australia and the circumstances under which they make them.

All we know so far is that the Australian foreign minister will be empowered to cancel agreements that states, territories, local governments and universities enter into with an overseas government, if they contradict Australia’s national interest. Even existing agreements, such as Victoria’s deal with Beijing under the Chinese Belt and Road Initiative, can be cancelled.

This is muscular centralism of a whole new brand. It also comes at a strange moment, standing in stark contrast to Morrison’s constant denial of responsibility for COVID-related scandals and disasters because our federal system gives most of the power to the states. 

Suddenly, however, Canberra wants to assert the right to ride over state sovereignty at its whim. One could be excused for having cynical thoughts about the timing.

Anyway, will it work? The federal parliament’s power to make laws is limited to what the constitution allows, mostly contained in a long shopping list in section 51. For this proposed law, the only potential source of power is section 51(xxix), which says that the parliament can “make laws for the peace, order and good government of the Commonwealth with respect to external affairs”.

The scope of “external affairs” has been much litigated over the years, and what’s come out of the High Court cases is that it gives the federal parliament power to make laws in three areas: on matters geographically external to Australia (such as prosecuting war crimes committed overseas); implementing treaties to which Australia is a party (famously used to validate the federal government’s overruling of Tasmania in the Franklin Dam case); and relations with other countries. Also, possibly, a fourth: “matters of international concern”, whatever that means.

None of that limits how the High Court might read those two key words “external affairs” in the context of the government’s new proposed law, for which there is no precedent. The words could mean all sorts of things. 

Most of the cases have related to treaties, which is not the situation here. The closest analogy is a 1949 case, in which the High Court considered whether a trade unionist, who had said that Australian workers would welcome Soviet forces should they enter Australia, was guilty under a federal law outlawing sedition.

The case didn’t turn on the external affairs power, but Chief Justice Latham did express the view that the offence of “exciting disaffection against the Government or Constitution of any of the King’s Dominions” was validly made under the power because “the relations of the Commonwealth with all countries outside Australia… are matters which fall directly within the subject of external affairs”.

That’s about all we have to go on in terms of judicial support. Extending the thought to snapping point, the argument might go along these lines: the federal government has the role of managing Australia’s complex web of international relationships, appreciating that each movement of one chess piece on the board of diplomacy and trade has multiple consequential effects. 

In that context, there’s an arguably close relationship between that management obligation and the protection of Australia’s national interests through monitoring and overseeing how foreign countries extend their reach into domestic affairs. That’s an easy enough leap to make with respect to direct foreign interference (such as infiltrating political parties); much more of a stretch when it comes to commercial agreements.

Mind you, there is already substantial federal reach into the world of deal-making, via the Foreign Acquisitions and Takeovers Act. Under that law, the Foreign Investment Review Board, a federal body, reserves the right to approve or refuse foreign acquisitions of shares, businesses and land, above certain financial thresholds. It relies on a mix of constitutional powers, including external affairs. That’s never been tested.

The material difference here is that the federal government now wants the right to overrule other governments, a pretty direct challenge to the basis of our federal system. 

The theoretical argument has legs, but we can expect the states to object and the High Court will have to consider a critical question that’s been lying in wait for 120 years: to what extent does the Commonwealth’s constitutional power to decide what’s best for the country in the context of its place in the world (the “national interest”) override the fundamental proposition that each state is sovereign on its own turf.

Popcorn, ready. Excellent fun for the law nerds.