1. Introduction
In an era of escalating geopolitical rivalry, the governance of cross-border investment in strategic sectors is undergoing a profound transformation. This shift is particularly pronounced in the global competition for critical minerals (CM) – resources that are indispensable to the green transition, digital innovation, and advanced manufacturing.Footnote 1 Recognizing the strategic value of CM assets, States are actively reconfiguring supply chains and asserting stronger sovereign control over upstream resources. In this context, foreign investment screening (FIS) mechanisms have emerged as powerful regulatory instruments,Footnote 2 increasingly deployed to restrict foreign access to strategic mining sectors. This trend signals a broader reorientation of the international economic order, in which the imperatives of national security and economic resilience are beginning to outweigh traditional commitments to investment liberalization under international investment law.
This research examines the evolving geopolitical realignment of global CM supply chains through the lens of Australia’s FIS regime as applied to Chinese investment in the sector. It explores how this shift intersects with the legal constraints imposed by international investment agreements (IIAs). China’s dominant position in the global supply of key CMs, such as rare earths, dysprosium, and lithium, combined with its expanding investment presence in resource-rich jurisdictions, has heightened strategic concerns among major economies.Footnote 3 Australia, as a leading global supplier of mineral resources, has historically been a key destination for Chinese mining investment.Footnote 4 However, since 2020, a significant regulatory shift has emerged. This shift is marked by the enhanced scrutiny of Chinese investments under Australia’s reformed Foreign Acquisitions and Takeovers Act 1975 (FATA),Footnote 5 accompanied by a notable increase in published decisions restricting Chinese access to CM assets. These developments raise pressing legal questions about the predictability of Australia’s FIS regime and, more critically, its consistency with Australia’s obligations under multiple IIAs concluded with China.
Existing scholarship has analysed FIS regimes in major resource economies such as the US, the EU, and Australia,Footnote 6 with some studies exploring the potential tensions between these regimes and the States’ obligations under IIAs.Footnote 7 Parallel strands of literature have examined Chinese outbound mining investment, focusing on the domestic policy drivers behind such investment and its broader geopolitical implications.Footnote 8 However, to date, no legal scholarship has provided a comprehensive analysis of the structural tensions between the evolving landscape of geopolitical realignment and the liberalization commitments embedded in international investment law. This gap is particularly salient in the present geopolitical context, where State-led control over strategic resources increasingly clashes with the liberal investment norms embedded in international legal frameworks.
This paper conceptualizes the shifting ambit of national security underpinning FIS regime as a legal manifestation of the geoeconomic turn in global investment governance. Using Australia’s response to Chinese CM investment as a case study, it argues that CM supply security has been incorporated within this ambit, reinforcing the use of FIS as a strategic instrument of economic alignment under the rationale of ‘friend-shoring’. While advancing national security objectives, this shift gives rise to structural tensions between geopolitical realignment and the liberal commitments embedded in international investment law, particularly with respect to fair and equitable treatment (FET) and protection against unlawful expropriation under IIAs. The analysis situates Australia’s approach within a broader global trend, demonstrating how State efforts to secure strategic supply chains increasingly challenge the legal coherence of the international investment regime.
The paper is structured as follows. Section 2 outlines Australia’s FIS regime, with emphasis on its growing focus on mineral security. Section 3 analyses its application to Chinese mining investment, presenting evidence-based analysis of how Australia’s CM strategy has driven the differential treatment of investments from allied States, using Japan as an example, and from China. Section 4 critically assesses the legality of Australia’s FIS practices under its existing IIAs with China. Section 5 provides recommendations to mitigate ISDS risks. Section 6 concludes.
2. Australia’s Foreign Investment Framework and Mineral Security Factor
Australia maintains a case-by-case screening regime for foreign investment primarily under FATA. This is supplemented by the Foreign Acquisitions and Takeovers Regulation 2015 (FATR),Footnote 9 as well as the Foreign Investment Policy regularly updated by the Treasury (Policy) and the detailed guidance notes on the screening regime (Guidance),issued by the Foreign Investment Review Board (FIRB) before 2024 and now by the Treasury.Footnote 10 The regime is administered by the Treasurer, who serves as the sole decision-maker, with support from FIRB, Treasury, and the Australian Taxation Office.Footnote 11
The framework of Australia’s policy is that foreign investment is permitted (and indeed encouraged) unless the Treasurer determines it to be contrary to Australia’s national interests or security. In past decades, Australia has actively modified and tightened the framework in response to perceived risks and the changing national demands. Notably, on 1 January 2021, a comprehensive set of legislative reforms to the regime came into effect, comprehensively tightening the framework in response to national security concerns.Footnote 12 Following successive amendments in the interim, the Treasury announced further substantial enhancements on 1 May 2024, focusing on strengthening monitoring and enforcement while streamlining the review process.Footnote 13
2.1 An Overview of Australia’s FIS
Australia’s framework provides both ex-ante screening and ex-post monitoring of foreign investment.Footnote 14 In addition to the existing national interest test, the 2021 reform enhanced the framework through introducing a new national security test to capture investments associated with national security risks that would not otherwise trigger review, and by enhancing the retrospective review powers to ensure ongoing risk-management after investments have been establish.
Under FATA, foreign investors seeking to acquire a ‘direct interest’Footnote 15 in an existing business are subject to mandatory pre-notification requirements and review under the national interest test only when their deal value exceeds specified monetary thresholds (classified as a ‘notifiable action’).Footnote 16 Lower monetary thresholds generally apply to investments in ‘sensitive businesses’,Footnote 17 agribusinesses, mining and production tenements, and lands.Footnote 18 A zero-dollar threshold applies to investments by foreign government investors (FGIs), generally defined in FATR as entities with substantial foreign government ownership or control.Footnote 19 In addition, all foreign investment in a ‘national security business/land’ (‘notifiable national security action’Footnote 20) is subject to pre-notification and national security tests, regardless of deal value.Footnote 21
Foreign investment that would result in substantial foreign influence over Australian businesses and their assets (‘significant action’)Footnote 22 does not require mandatory pre-notification unless it is a notifiable action, but if not notified, FATA authorizes the Treasurer to ‘call in’ the transaction for a retrospective review under the national security test within 10 years after the action has been completed if national security risks emerge.Footnote 23 Foreign investment which is not captured by the rules mentioned above but which may nonetheless raise national security concerns (‘reviewable national security action’)Footnote 24 is also subject to the Treasurer’s ‘call-in’ power.Footnote 25 In addition, FATA provides a ‘last-resort’ power, enabling the Treasurer, in exceptional circumstances, to unilaterally review investments that were lawfully admitted on the grounds that national security risks arise.Footnote 26
The Treasurer has sole discretion to determine whether an investment poses a risk to Australia’s national interest or security. If a risk is identified, the Treasurer may prohibit the investment or approve it with tailored conditions.Footnote 27 For retrospective review, the Treasurer can impose new conditions or require divestment.Footnote 28 These decisions are final, except that the exercise of the last-resort power is subject to review by the Administrative Review Tribunal.Footnote 29 The Treasurer is under no legal obligation to make these decisions public.Footnote 30
However, neither FATA nor FATR defines ‘national interest’ or ‘national security’.Footnote 31 Despite the lack of definitions, the Policy provides an indicative list of general factors to be considered in the national interest review, which serves as a guide to the fundamental concepts.Footnote 32 The factors include national security implications, competition implications, impacts on other government policies (including tax), consequences on the Australian economy and community, and the character of the investor and the target business, reflecting the broad meaning of ‘national interest’ under the foreign investment framework. In addition to the general factors, the Policy also outlines special factors for investment in certain businesses (including agriculture, media, and land) or investments made by FGIs.Footnote 33
2.2 The Role of Mineral Security under Australia’s FIS
Although FATA and FATR do not explicitly address the mining sector (except for mining and production tenements, which are subject to a zero-dollar thresholdFootnote 34), Australia’s FIS regime has framed mineral security as a major concern in the reviews.
The 2024 Policy stresses the heightened scrutiny of foreign mining investment, stressing that investments in ‘critical minerals’ (along with investments in critical infrastructure, critical technology, and those in proximity to sensitive Australian government facilities or involving sensitive data) will face greater scrutiny to protect the national interest.Footnote 35
The concept of ‘critical minerals’ was officially introduced by Geoscience Australia in 2019,Footnote 36 referring to minerals essential to Australia’s economy and national security but susceptible to supply chain disruptions. Australia has expanded its list of CM to include 31 minerals as of October 2025.Footnote 37 Due to the strategic importance of the minerals for Australia’s sustainable development, securing control over the mining and supply of them has become a matter of national security. FIRB’s Guidance 8 on national security test indicates foreign mining investment may raise national security risks due to the fact that some minerals are vulnerable to supply chain manipulation and disruption that could jeopardize Australia’s national security.Footnote 38
The tightening of Australia’s FIS regime has created a highly structured screening system for foreign investment in the CM sector. Specifically, Australia’s CM resources are primarily metallic minerals (e.g. lithium, nickel, and rare earths) that can be used not only for civilian purposes but also for military applications. Under Regulation 22(2) of FATR, a business is classified as a ‘sensitive business’ if it is engaged in ‘the manufacture or supply of goods, equipment, or technology able to be used for a military purpose’.Footnote 39 Accordingly, foreign acquisitions of Australian CM producers should trigger a lower monetary threshold for the Treasurer’s review under the national interest test.Footnote 40 In addition, if an investment involves mining and production tenements or is proposed by a FGI, such as a State-owned enterprise (SOE), mandatory pre-entry notification is required, regardless of the deal value. Even when an investment does not trigger mandatory review, voluntary notification may be advisable to pre-empt the Treasurer’s ‘call-in’ power.
These sophisticated screening rules arguably capture most major mining investments, particularly those from China, where the mining sector is dominated by large-scale, SOE-led investments.Footnote 41 Consequently, foreign investors, especially those from China, can expect heightened scrutiny under Australia’s FIS framework when seeking to acquire or expand holdings in the country’s mining sector.
3. Australia’s FIS and Chinese CM Investment: Strategic Selectivity in Practice
According to a joint report by KPMG and the University of Sydney (USYD), Australia’s mining sector has historically been a major destination for Chinese direct investment, accounting for approximately 40% of total Chinese investment in Australia between 2006 and 2023.Footnote 42 The period of 2009–2010 saw a sharp surge in Chinese investment in non-critical minerals, such as iron ore and coal, largely driven by China’s rapid industrial expansion and growing demand for raw materials.Footnote 43 Since 2010, however, Chinese investors have increasingly targeted CM, recognizing their strategic value.
Like Australia, the Chinese government has formally acknowledged the importance of securing access to CM. The 2017 National Mineral Resources Plan outlines China’s strategy for ensuring stable supplies of designated CM resources and explicitly encourages Chinese enterprises to invest in overseas CM assets.Footnote 44 The plan promotes the use of acquisitions, joint ventures (JV), and long-term supply agreements to secure access to CM deposits in resource-rich countries such as Australia.
Despite continued support from the Chinese government for outbound mining investment,Footnote 45 Chinese investment in Australia’s metals sector has been in decline since 2014,Footnote 46 with a 98.1% fall in the mining sector recorded between 2022 and 2023.Footnote 47 While this precipitous drop may be linked to several factors, including the deterioration of Australia–China relationsFootnote 48 and Australia’s shift in climate policy, such as the denial of permits for new coal projects following the 2022 federal election,Footnote 49 a factor that cannot be overlooked is the Australian government’s increasingly frequent use of the FIS regime to restrict Chinese CM investment. This practice has attracted mounting criticism from Beijing. In January 2021, the spokesperson for China’s Ministry of Foreign Affairs publicly accused Australia for the first time of politicizing the FIS regime and discriminating against Chinese investors.Footnote 50 In July 2023, following a meeting with the Australian Foreign Minister, Penny Wong, the Director of China’s Office of the Central Commission for Foreign Affairs reiterated these concerns, condemning Australia’s repeated reliance on national security grounds to block Chinese investment and urging Canberra to maintain a non-discriminatory business environment.Footnote 51 These developments warrant scrutiny of Australia’s FIS treatment of Chinese CM investment in recent years.
4. Chinese CM Investments under Australian FIS
Although the Treasurer is not obliged to publish FIS decisions, certain strategically significant cases are released on the Treasury website, occasionally accompanied by general explanations and conditions of approval. According to FIRB Annual Reports (pre-2022) and the Treasury’s Quarterly Report on Foreign Investment,Footnote 52 the Treasurer makes decisions on over 10,000 investment proposals annually. However, only a small fraction of these decisions is made public – primarily conditional approvals or outright rejections. As such, published decisions can be interpreted as indicative of the Australian government’s regulatory posture toward particular types of investment.
Annex A compiles all published Treasury decisions concerning Chinese and Chinese-linked mining investments over the past two decades. It includes key transaction details such as investor identity, Australian target, mineral type, and the explanations or conditions attached to each decision. In practice, some decisions were disclosed through media releases or announcements by transaction parties. These decisions were less indicative of the government’s formal position. Nonetheless, they are referenced in the discussion below as significant factual evidence.
As of March 2025, the Treasury has published 19 decisions concerning Chinese-linked mining investments. Prior to 2020, most of these involved non-critical minerals and were generally approved subject to conditions designed to limit Chinese ownership. These included minority equity caps and phased divestment requirements aimed at preserving Australian control over strategic resources.Footnote 53 Since 2020, the regulatory environment has become markedly more restrictive. The Treasury has issued an unusually high number of adverse decisions relating to Chinese investment in the CM sector.Footnote 54 The post-2020 landscape features four outright rejections (two in 2020 and two in 2023), as well as a divestment order in 2024. These decisions contrast with Canberra’s previously more permissive approach to Chinese involvement in Australia’s CM sector.
Earlier, the Australian Government had permitted minority Chinese stakes in CM projects.Footnote 55 Since 2020, however, even minority acquisitions have been blocked under Section 67(1) of FATA. As detailed in Annex A, in August 2020, the Treasurer rejected Baogang Group’s proposal to acquire an 11.1% stake in Northern Minerals, a producer of heavy rare earths including dysprosium, and Yibin Tianyi’s bid for an 11.77% stake in AVZ Minerals, the majority owner of the Manono Lithium and Tin Project in the Democratic Republic of the Congo. This restrictive approach persisted into 2023. In February, the Treasurer prohibited Yuxiao Fund – a Singapore-registered vehicle linked to a Chinese investor – from increasing its 9.92% stake in Northern Minerals to 19.9%.Footnote 56 In July, a similar decision blocked Austroid Corporation, another Chinese-linked entity, from acquiring the remaining 90.1% of Alita Resources, an Australian lithium producer.Footnote 57
Economic tensions between Australia and China, exemplified by China’s trade measures following Australia’s 2020 call for a COVID-19 origins inquiry,Footnote 58 provide an important contextual backdrop for the Australian Government’s heightened scrutiny of Chinese investment.Footnote 59 This scrutiny has been particularly pronounced in the CM sector. Notably, these four rejections were the only such decisions made by the Treasurer under the FIS regime between 2020 and 2023.Footnote 60 Most recently, in June 2024, after the de-escalation of the Australia–China trade war,Footnote 61 the Treasurer ordered Yuxiao Fund and four other Chinese-linked entities to divest their stakes in Northern Minerals for breaching a 2023 prohibition order, as discussed further below.
Despite this tightening regulatory posture, Annex A highlights one significant exception: the approval of Shanghai Decent Investment Group’s acquisition of a 20% stake in Nickel Industries, an Australian nickel miner.Footnote 62 Unlike other rejected bids, this investment aligned with Australia’s strategic interest in expanding downstream CM capabilities. The deal enabled Nickel Industries (originally focused on stainless steel) to pivot toward battery-grade nickel production through two Indonesian projects in partnership with Shanghai Decent, a subsidiary of Tsingshan Group, one of the world’s largest nickel producers.Footnote 63 By integrating Nickel Industries into the global electric vehicle supply chain, the transaction potentially enhances Australia’s position in the battery minerals market.
4.1 Selectivity in FIS Operations: Policy and Geopolitical Drivers
Australia’s increasingly restrictive stance toward Chinese investment in the CM sector is closely tied to its broader strategic objective of strengthening supply chain resilience and security, as articulated in the Critical Minerals Strategy 2023–2030 released in June 2023.Footnote 64 At the core of this framework is a friend-shoring approach, which entails relocating production operations along global supply chains to politically aligned jurisdictions to reduce exposure to supply disruptions.Footnote 65 This approach has emerged as a manifestation of the wider decoupling trend, notably among advanced economies,Footnote 66 as they seek to mitigate vulnerabilities stemming from reliance on geopolitical rivals, particularly China, amid heightened geopolitical tensions.Footnote 67
This friend-shoring strategy, in substance, marks a departure from the liberal economic consensus that prioritized free markets and openness to foreign investment,Footnote 68 toward a form of economic nationalism,Footnote 69 in which economic policy and national security (of expanding ambit) are increasingly aligned to preserve critical supply security and industrial capacity.Footnote 70 Within this paradigm, Australia’s selective use of the FIS regime in the CM sector plays a key role. It operates as a strategic instrument, enabling the country to regulate foreign CM investment in line with friend-shoring objectives.
4.2 Friend-Shoring and Strategic Alignment in the CM Sector
Australia’s friend-shoring approach is articulated in its CM Strategy, which sets out the objective to ‘create diverse, resilient and sustainable supply chains through strong and secure international partnerships’.Footnote 71 Since 2021, Australia has advanced this commitment through both bilateral and multilateral collaborations with allied nations. At the bilateral level, it has forged strategic partnerships with the US, the EU, South Korea, Japan, and India to promote investment, technological cooperation, and trade in the CM sector.Footnote 72 At the multilateral level, Australia participates in initiatives such as the Minerals Security Partnership, the Quad Critical Minerals Initiative, and the Indo-Pacific Economic Framework Supply Chain Agreement.Footnote 73
Australia pursues friend-shoring of CM supply chains through a combination of incentives and restrictions, a classic ‘carrot and stick’ approach. In the domain of foreign investment governance, the carrot takes the form of subsidies under the International Partnerships in Critical Minerals Program, which funds projects within Australia aimed at building end-to-end CM supply chains with partners from countries that have bilateral agreements with Australia.Footnote 74 The stick, however, manifests as the selectivity in FIS implementation toward CM investment.
This selective stance has been underscored by Treasurer Jim Chalmers at a November 2022 conference. After acknowledging China’s entrenched dominance in global supply chains for rare earths, lithium, cobalt, and graphite, and warning that this concentration heightens the risk of disruption, he stated that ‘Australia would be more selective about who it lets invest in its growing CM industry.’Footnote 75 In practice, this stance has translated into Australia’s increasingly hardline application of the FIS regime in the CM sector, directed predominantly at investors from, or linked to, China, as discussed above. More importantly, it has resulted in differential FIS treatment, with Chinese CM investors subjected to heightened scrutiny compared to those from allied countries. This contrast will be examined in the following section.
Notably, Australia’s selective approach to FIS implementation reflects a broader global trend. In the context of intensifying global CM rivalry, major economies have similarly reformed their FIS regimes to embed friend-shoring selectivity into their design and (prospective) implementation. For example, Japan and the EU revised their FIS rules in 2021 and 2025, respectively, to require mandatory pre-entry screening of foreign CM investment.Footnote 76 In 2022, the Biden administration issued an executive order directing the Committee on Foreign Investment in the United States (CFIUS), in its review of investment, to view any transaction that shifts ownership or control of CM resources as a national security threat.Footnote 77 More overtly, in 2022, Canada issued a FIS guidance specifying that CM investment by foreign government-influenced investors from ‘non-like-minded’ countries constitutes prima facie grounds for determining the investment as a national security threat in FIS review.Footnote 78 As these countries (all CM partners of Australia) also place friend-shoring at the centre of their CM strategies to restore supply chain resilience,Footnote 79 these developments points to a CM ally-preference that will guide their FIS implementation.
This orientation is already evident in practice. Alongside Australia’s four rejections of Chinese CM investment since 2020, Canada in 2022 ordered the divestment of three Chinese companies from Canadian lithium producers, as discussed below. In the US, CFIUS divestiture orders have thus far targeted Chinese investment in the technology sector,Footnote 80 but Washington’s broader commitment to decoupling from China’s CM supplies,Footnote 81 reinforced by Beijing’s ban on certain CM exports to the US since 2024,Footnote 82 suggests divestiture is poised to extend to the CM sector.
Collectively, these developments demonstrate that friend-shoring selectivity has moved beyond rhetoric and is emerging as a strategic criterion shaping the operation of FIS regimes across major economies.
4.3 The Japan–China Contrast: Selectivity in Practice
A compelling illustration of this selectivity is the contrast between Japan and China in securing investments in Australia’s CM sector. Japan has been Australia’s key strategic partner in strengthening CM supply chains, having also participated in all the multilateral initiatives mentioned above. In October 2022, the two countries formalized their partnership by signing a bilateral agreement to enhance the security of CM supply chains.Footnote 83 The countries committed to cooperating to ensure a stable CM supply for Japan’s advanced manufacturing industry and developing Australia’s domestic CM sector (Para 1). This cooperation includes exploring co-financing for CM projects to catalyse private-sector investment (Para 2) and ‘streamlining permitting processes’ (Para 3), which arguably pertains, at least in part, to the FIS process for investment approval.
Although Australia does not explicitly grant preferential treatment to Japan or any other CM partners under FIS, its strategic partnership with Japan has evidently facilitated Japanese access to Australia’s CM sector. According to Herbert Smith Freehills’ annual Japan–Australia Investment Reports, Japanese companies made eight major acquisitions Australian CM producers between 2021 and 2023 (see Annex B for a compiled list of the Japanese investments).Footnote 84 In stark contrast, Chinese investors made only two major investments in Australia’s metals sector during the same period, according to the China Global Investment Tracker, a dataset that monitors Chinese outbound investments exceeding USD 100 million since 2005.Footnote 85 Notably, both of the recorded investments were in non-critical minerals, namely CITIC’s investment in the Sino Iron magnetite mining project in 2021 and the Baowu-Rio Tinto JV for the Western Range iron ore project in 2023, which has been discussed above.
The second notable contrast is that Japanese investors were allowed to acquire substantial stakes in Australia’s CM assets between 2020 and 2023, an opportunity not extended to Chinese investors, as demonstrated above. Typical examples include, as listed in Annex B, the 30% acquisition of the Aurukun Bauxite Project in 2021 by Mitsubishi, a leading Japanese automobile manufacturer, and a series of acquisitions by Idemitsu Kosan, a major Japanese petroleum company, including a 32.22% stake in vanadium producer Critical Minerals Group in 2022, a 14.7% stake in the Debella Critical Minerals Project (a vanadium mine in Queensland), and a 15% stake in lithium explorer Red Dirt Metals in 2023, up from the 2.3% acquired earlier that year.Footnote 86 Given that the shares acquired in these transactions exceeded the ‘direct interest’ threshold under FATR and that the CM involved are dual-use, thereby qualifying as ‘sensitive businesses’ under FATA and triggering a lower review threshold, it is reasonable to conclude that these acquisitions were subject to review as ‘notifiable actions’ and successfully passed the Treasurer’s national interest test under Section 51 of FATA.
The third notable contrast lies in Australia’s differing approach toward Japanese and Chinese investments aimed at vertical integration with downstream customers in their respective home countries. For instance, Japan Australia Rare Earths (JARE), a JV between Sojitz and the Japan Organization for Metals and Energy Security (JOGMEC), a government-owned entity providing financial assistance and technical support to Japan’s energy and metals industries, made two separate investments in Lynas Rare Earths in September 2022 and March 2023.Footnote 87 Notably, Sojitz has been the sole distributor of Lynas’ rare earth products in Japan since 2011. These investments were accompanied by JARE’s agreement with Lynas to supply up to 65% of the heavy rare earths extracted from Lynas’ Mt. Weld exploration project to the Japanese market. Sojitz and JOFMEC explicitly stated that the investment aimed to enhance Australia’s role in Japan’s CM supply chain while mitigating reliance on China’s dominant market position.Footnote 88
In contrast, the prospect of vertical integration appears to have become a categorical disqualifier in Australia’s screening of Chinese CM investment in recent years. The Treasurer’s 2023 rejections of the Yuxiao Fund–Northern Minerals and Austroid–Alita Resources acquisitions were reportedly based on concerns over substantial ties to major Chinese downstream customers. Specifically, Yuxiao Fund was found to have links to China Northern Rare Earth Group and Shenghe Resources,Footnote 89 while Austroid’s director was identified as the son of a major shareholder in Sichuan Western Resource, a Chinese lithium battery manufacturer.Footnote 90
Australia’s contrasting treatment of Japanese and Chinese CM investments highlights the highly selective application of its FIS regime. This selectivity reflects the influence of friend-shoring as a key component of Australia’s CM strategy. Reinforced by the broad discretion granted under FATA, this policy direction enables targeted restrictions on Chinese mining investments in line with Australia’s strategic objective of securing CM supply chains through trusted partners.
It appears that Australia’s friend-shoring selectivity in FIS operations, together with broader trends across major economies noted above, has significantly influenced the geographical direction of Chinese outbound mining investment. According to the Chinese government, over the past five years China’s mining investment has continued to grow, yet its distribution has shifted away from Western jurisdictions, most prominently Australia, the EU, and the US, toward the Association of Southeast Asian Nations and Africa.Footnote 91 While this reorientation may be welcomed by Australia and its CM partners, it nonetheless heightens the imperative to examine the legality of selective FIS implementation under international investment law.
5. The Legality of Australia’s FIS Treatment of Chinese CM Investments under International Investment Agreements
Over the past few decades, Australia and China have developed a robust bilateral investment relationship, leading to the conclusion of multiple IIAs, including the China–Australia Bilateral Investment Treaty (CABIT),Footnote 92 the China–Australia Free Trade Agreement (ChAFTA),Footnote 93 and the Regional Comprehensive Economic Partnership (RCEP).Footnote 94 Additionally, in 1993, Australia and Hong Kong signed a bilateral investment agreement,Footnote 95 which was replaced by the Australia–Hong Kong Investment Agreement (AHKIA) as part of the Australia–Hong Kong Free Trade Agreement concluded in 2019.Footnote 96 The four IIAs are concurrently in force,Footnote 97 constituting an IIA framework governing Australia and China’s cross-border investment activities.
Spanning more than three decades, these IIAs offer a range of substantive protections to covered investments. These include among others, FET, most-favoured-nation treatment (MFN, which refers to the Parties’ commitment to treatment no less favourable than that accorded to investments of nationals of any third country), national treatment (NT, which refers to the Parties’ commitment to treatment no less favourable than that accorded to investments of their investors), and protection against unlawful expropriation.
Notably, all four IIAs, with the exception of the RCEP, grant investors the ability to institute ISDS arbitration to compel the host State to fulfil (some of) its commitments under the treaties. Accordingly, these agreements may provide legal avenues for Chinese CM mining investors to pursue ISDS claims against Australia in response to adverse FIS outcomes.
5.1 Preliminary Legal Conditions for Treaty-Based Challenges to Australia’s FIS Measures
The network of Australia–China IIAs creates a complex legal framework that Chinese investors must navigate to determine whether and how they may challenge Australia’s FIS measures. Broadly, a Chinese investor’s ability to contest FIS decisions under IIAs hinges on three preliminary conditions that must be satisfied before the substantive merits of a claim can be addressed.
The first condition is whether the claimant qualifies as a covered investor. Australia’s IIA framework extends treaty protections to all mainland Chinese investors, while AHKIA provides additional coverage for investments channelled through Hong Kong. Historically, many Chinese firms have strategically used Hong Kong-registered subsidiaries to facilitate outbound investment.Footnote 98 This form of ‘onward-journeying’ investment is driven by factors such as Hong Kong’s advanced legal and financial services and easier access to international capital markets.Footnote 99 Unlike shell companies in tax havens, Hong Kong subsidiaries typically have substantive operations, making it more difficult for Australia to invoke the denial of the benefits clause under AHKIA or to allege abuse of rights during ISDS proceedings.Footnote 100 Moreover, Chinese investors who structure their Australian investments through Hong Kong or other offshore entities may still access treaty protections under CABIT and ChAFTA, both of which explicitly extend to ‘indirect investments’.Footnote 101
The second condition concerns whether the investment qualifies as a covered investment. The IIAs in force between Australia and China uniformly define covered investments as those ‘established in or lawfully admitted by’ the host State,Footnote 102 thereby limiting protection to the post-establishment phase. In practice, this means that treaty protections apply only after the investment has been formally admitted. As discussed earlier, in the context of intensifying geopolitical CM competition and Australia’s friend-shoring strategy, it is increasingly plausible that Canberra may follow its allies in retrospectively reviewing or revoking previously approved Chinese investments in the sector on national interest or security grounds. Because the treaties extend protections to post-establishment investments, such retrospective action may expose Australia to treaty-based claims. Notably, ChAFTA is the only treaty among the four that provides limited pre-establishment protections: its NT and MFN provisions explicitly extend to the establishment and acquisition stages.Footnote 103 Accordingly, ChAFTA could offer a legal basis for challenging Australia’s admission-related FIS decisions.
The third condition is whether the dispute falls within the scope of the applicable treaty’s ISDS clause. CABIT, ChAFTA, and AHKIA all include ISDS provisions, but the scope of arbitrable disputes varies considerably. CABIT, consistent with earlier-generation Chinese IIAs,Footnote 104 restricts ISDS to disputes concerning the amount of compensation for expropriation.Footnote 105 ChAFTA permits ISDS for certain breaches, including NT violations, but excludes non-discriminatory measures adopted for public welfare objectives.Footnote 106 AHKIA contains a broad ISDS clause covering disputes related to any treaty obligation, while expressly excluding Australia’s FIS decisions on ‘whether or not to approve a foreign investment proposal’.Footnote 107 This exclusion is arguably confined to admission-related decisions, leaving retrospective restrictions imposed under the call-in or last-resort powers arbitrable under ISDS. RCEP, by contrast, does not include an operative ISDS clause. While it outlines a work programme for future negotiations on ISDS,Footnote 108 Australia, along with other key RCEP parties, including New Zealand, Indonesia, and Malaysia, has formally indicated it will not consent to ISDS in future IIAs,Footnote 109 rendering the introduction of ISDS mechanism unlikely given the consensus requirement.
Taken together, these three threshold conditions suggest that Chinese investors may have plausible legal grounds to challenge Australia’s FIS measures under existing IIAs, provided the measures can be shown to breach specific treaty obligations.
5.2 Pre-entry Screening: Unlikely to Result in Treaty Violation
As noted earlier, the only pre-establishment protections under the current Australia–China IIA framework are the NT and MFN provisions in ChAFTA, with ISDS permitted exclusively for disputes concerning NT violations.Footnote 110 Notably, the NT provision in ChAFTA is non-reciprocal, with Australia’s commitment extending to the pre-establishment stage while China’s commitment is limited to the post-establishment stage.Footnote 111
With Australia adopting an increasingly hardline stance toward Chinese CM investments, affected investors may seek recourse under ChAFTA. They may argue that Australia’s FIS regime discriminates between foreign investors and domestic mining companies, breaching the NT obligation under Article 9.3. The likelihood of such a claim succeeding, however, is dependent on a three-step test typically applied by ISDS tribunals.Footnote 112 As summarized by the Methanex v. USA tribunal, the test involves: firstly, whether the claimant is in ‘like circumstances’ with domestic investors; secondly, whether the claimant received less favourable treatment; and thirdly, whether the differential treatment can be objectively justified by legitimate policy objectives.Footnote 113 In the case of ChAFTA, an additional consideration is whether the non-conforming measure (NCM) exemption applies to the national treatment obligation.
Although Australia’s CM industry is large as a whole, many specific mineral sectors are very small, often comprising only a handful of domestic producers. For example, the rare earths sector has only two major producers, Lynas Rare Earths and Iluka Resources.Footnote 114 This makes it practically difficult for a Chinese company to identify an Australian comparator ‘in like circumstances’, namely one has a direct competitive relationship with it.Footnote 115 In addition, the task of identifying a comparator in ‘like circumstances’ may be even more complex for Chinese SOE investors. They play a significant role in China’s mining investments in Australia, such as Sinosteel Corporation, Minmetals Resources, and Baowu Group, as listed in Annex A. Some tribunals applied a strict interpretation of the ‘like circumstances’ test, additionally requiring comparability between the claimant and the domestic comparator in aspects such as operational status and business activities.Footnote 116 Since Australia’s mining sector is predominantly privately (foreign)-held,Footnote 117 this requirement may pose a practical challenge for an SOE claimant to identify a comparable Australian mining SOE.
With respect to the differential treatment inquiry, there is broad consensus in ISDS jurisprudence that the national treatment obligation prohibits both de jure and de facto discrimination.Footnote 118 Australia’s FIS regime constitutes de jure discrimination, as FATA, by its terms (Section 29), applies exclusively to foreign investors. While a claimant may also attempt to establish de facto discrimination against Chinese investors in the FIS decision-making process, such a claim would be difficult to substantiate – unless, as in the S.D. Myers v. Canada case, the claimant provided ample evidence of discriminatory intent on the part of the host State government for protectionist purposes.Footnote 119 The evidentiary burden, however, may be insurmountable for claimants in most cases, as the relevant information may only be available to the government, as acknowledged by the Feldman v. Mexico tribunal.Footnote 120
Although differential treatment between a Chinese investor and its domestic comparator may give rise to a presumption of an NT violation, such a claim may be set aside under Article 9.5 of ChAFTA, which exempts NCMs listed in Annex III from NT and MFN commitments. Australia’s NCM schedule explicitly includes measures adopted under FATA and FATR.Footnote 121 Notably, however, Article 9.5 applies only to existing NCMs and to amendments or modifications that do not ‘decrease the conformity of the measure, as it existed immediately before the amendment’.Footnote 122 As noted above, Australia has tightened the FIS regime, particularly through the 2021 reforms. These reforms arguably reduce its compliance with the NT obligation under ChAFTA, as the regime now imposes additional prior notification and review requirements (as well as retrospective reviews) on foreign investors.Footnote 123 As a result, the ratchet qualification may potentially limit the availability of the NCM exemption in shielding Australia’s FIS regime from an NT breach.
Despite the uncertain invocation of the NCM exemption, a Chinese investor’s NT claim could still be dismissed by a tribunal at the third step of the ‘like circumstances’ test. Although ChAFTA does not provide for public interest justifications for discriminatory treatment, tribunals have broadly accepted that such treatment may be implicitly justified where it has ‘a reasonable nexus to rational government policies’ aimed at protecting the public interest.Footnote 124 Following this ISDS jurisprudence, FATA’s objective of protecting national interest and security (as set out in Section 3) could plausibly justify the Australian government’s implementation of pre-entry scrutiny exclusively for foreign investors under FATA.
Accordingly, Australia’s FIS operations in relation to Chinese CM investments are unlikely to constitute an NT violation under ChAFTA. As such a claim would likely fail to satisfy the three-step test applied by ISDS tribunals, particularly at the policy justification stage, if it is not set aside by Australia’s NCM exemptions scheduled in Annex III, as a result of the ratchet clause.
5.3 Retrospective Restrictions: Likely FET and Expropriation Breaches
Chinese mining companies already hold substantial stakes in Australia’s strategic mineral assets. In the lithium sector, for example, the Mount Marion and Greenbushes mines rank among the world’s largest producers and together account for more than half of Australia’s output. Chinese firms Tianqi Lithium and Ganfeng Lithium hold controlling stakes of 51 and 50%, respectively.Footnote 125 Given the government’s increasingly restrictive approach to Chinese CM investment at the admission stage, it is plausible that the Treasurer may invoke retrospective review powers to target existing holdings on national security grounds. As noted, the Australia–China IIAs primarily extend protections to post-establishment investments. A close examination of the call-in and last-resort mechanisms under FATA suggests that applying these powers to established Chinese investments would likely breach provisions under CABIT and AHKIA, thereby exposing Australia to potential ISDS claims.
5.3.1 Increasing Prospect of Retrospective Review in the CM Sector
As demonstrated in Section 2, Australia’s 2021 FIS reforms significantly expanded the Treasurer’s authority to conduct retrospective review of established investments. The Treasurer is authorized to exercise the call-in power to initiate a review within ten years of a transaction’s completion, where the investment is considered to pose national security risks.Footnote 126 In addition, the Treasurer may invoke the last-resort power in exceptional circumstances, including where: (1) the business structure, or organization of the investor has materially changed; (2) the investor’s activities have materially changed; (3) the investor’s circumstances or the market have materially changed; or (4) the Treasurer becomes aware of a materially false or misleading statement or mistake in the investor’s original notification.Footnote 127
Australia’s exercise of retrospective review powers to impose additional conditions on, or mandate the divestment of, existing Chinese holdings in CM assets may be justified on the statutory ground that Australia’s CM landscape has materially changed, with soaring global demand and growing supply chain vulnerabilities linked to reliance on China intensifying national security concerns and rendering continued Chinese ownership an unacceptable risk.
This prediction is reinforced by three key observations. First, Australia’s concerns over CM security are likely a key driver of its enhancement of the FIS retrospective review mechanism. The 2021 FATA amendment, as explained in the Explanatory Memorandum, was in response to emerging national security risks.Footnote 128 Guidance 8 specifically identifies investment in CM extraction and processing as potentially posing such risks, which may trigger retrospective review under the national security test.Footnote 129 Importantly, more recently, Australia’s Critical Minerals Office warned that foreign CM investments that have not been reported to the FIRB for review could constitute foreign interference in the CM sector and urged Australian companies to report such risks to government.Footnote 130 Taken together, these developments heighten the likelihood that Australia will subject existing CM investments to retrospective review.
Secondly, Australia’s partners in CM supply alliances have already ordered the divestment of Chinese investments in the sector under their FIS regimes. A notable example is Canada, where the Investment Canada Act also grants the Industry Minister the authority to order foreign investors to divest if their investments are deemed potentially ‘injurious to national security’.Footnote 131 In November 2022, Canada’s Minister exercised this power to order three Chinese firms, including two Hong Kong-based entities, to divest from three Canadian lithium producers following a retrospective national security review by the National Security and Intelligence Community. The decision explicitly referenced threats to CM supply chains.Footnote 132 Notably, Chengze Lithium was prohibited from selling its stake to any entity under the influence of the Chinese government,Footnote 133 reinforcing Canada’s broader strategy of limiting China’s control over domestic CM resources.
The third observation is that Australia’s Treasurer has already exercised last-resort powers in relation to Chinese investments in critical infrastructure. In 2021 and 2022, the Australian government launched two separate reviews to reassess national security risks associated with Chinese private company Landbridge’s 99-year lease of the Port of Darwin.Footnote 134 Although both reviews concluded that there was no national security justification to unwind the deal,Footnote 135 they illustrate Australia’s predisposition to reassess established Chinese investments in strategic sectors for potential national security risks.
5.3.2 Divestment Order as a Likely Unlawful Expropriation under CABIT and AHKIA
Both CABIT and AHKIA prohibit unlawful expropriation, with disputes arising from this obligation falling within the scope of ISDS. The expropriation clauses in the treaties explicitly extend to measures having an effect equivalent to expropriation, namely indirect expropriation.Footnote 136
Investment tribunals have generally interpreted indirect expropriation as measures that do not involve overt takings but nonetheless result in a ‘substantial deprivation’ of the investor’s investment and effectively neutralizing the commercial value of the investment.Footnote 137 As noted in Section 2, a retrospective review may result in the imposition of conditions or even mandatory divestment of the investment if irreducible national security risks are identified. Applying the consequentialist approach commonly adopted by tribunals in determining the existence of indirect expropriation,Footnote 138 while the imposition of conditions may, in most cases, merely introduce new compliance burdens for Chinese mining investors, a divestment order could reasonably be found to meet the threshold for indirect expropriation, as it results in the fundamental destruction of the investor’s ability to continue business operations. This is supported by Canada’s divestment order against Chengze Lithium, in which the Chinese investor was given only 90 days to divest its stake in Lithium Chile Inc., a measure which plausibly amounted to a total deprivation of the investment.Footnote 139
CABIT and AHKIA set out four cumulative conditions for the legality of expropriation, whether direct or indirect: the measure must be for a public purpose, non-discriminatory, accompanied by reasonable compensation, and carried out in accordance with the law (CABIT) or due process of law (AHKIA).Footnote 140 However, the application of retrospective review powers under FATA to restrict Chinese investments in the CM sector is unlikely to satisfy these conditions, primarily due to the Australian government’s overtly selective approach to foreign investment in this strategically sensitive area.
The public purpose requirement is unlikely to be contentious. The FIS regime’s stated objective of protecting national interest and security, along with the underlying rationale for reducing Chinese holdings in Australia’s CM sector to secure domestic supply, would likely be recognized by a tribunal as for a legitimate public purpose, given its importance to a country’s political independence and economic development.Footnote 141
The non-discrimination requirement is likely the most vulnerable point in assessing the legality of Australia’s retrospective divestment order as a form of indirect expropriation. As demonstrated in, the Australian Treasurer has acknowledged a selective approach to foreign CM investment under the friend-shoring strategy, which has evidently led to contrasting treatment of investments from allies such as Japan and from China. In this context, an affected Chinese mining investor may be in a strong position to challenge the legality of the expropriation before a tribunal.may epresent a particularly vulnerable point of the legality of Australia’s retrospective divestment order as a form of indirect expropriation. As demonstrated in Section 3, the Australian Treasurer has acknowledged a selective approach to foreign CM investment under the friend-shoring strategy, which has evidently led to contrasting treatment of investments from allies such as Japan and from China. In this context, an affected Chinese mining investor may be in a strong position to challenge the legality of the expropriation before a tribunal.
To demonstrate that the expropriation was discriminatory, the investor must first identify a comparator in similar situations before establishing differential treatment.Footnote 142 An ideal comparator would be a company operating in the same mineral sector from one of Australia’s CM partner countries, such as Japan. Australia might nevertheless argue that a Japanese investor is not in a comparable situation to a Chinese investor, because it originates from a partner country. However, that defence is unlikely to succeed. The non-discrimination requirement for lawful expropriation, which is also recognized under customary international law, is intended to prevent differential treatment of investors based on nationality.Footnote 143 This indicates that the requirement inherently encompasses the geopolitical relationship between the host and home States. Denying comparability on this basis would therefore deprive the requirement of substantive effect. In addition, it is arguable that Australia could seek to deny the existence of discrimination on the ground that it also prohibits investment from other countries in the same sector.Footnote 144 However, as of October 2025, the Treasurer has not rejected any CM investment originating from States other than China.
Notably, the mere fact that a Chinese investor’s project was expropriated while a comparable Japanese investment remained unaffected would not, in itself, establish discrimination.Footnote 145 However, such differential treatment may be found discriminatory if the Chinese investor can demonstrate that it was based on nationality.Footnote 146 Australia’s broader CM strategy, and its selective implementation, could provide strong evidence to this effect.
A key piece of evidence is the public statements by the Treasurer and other Commonwealth officials that frame the friend-shoring strategy as part of Australia’s CM policy and emphasize a more ‘selective approach’ to foreign investment, with references to concerns over China’s dominance in the sector.Footnote 147 These statements may serve in arbitration as direct evidence that the retrospective divestment order was issued because of the investor’s Chinese nationality. This approach is corroborated by the tribunal’s reasoning in Eureko v. Poland,Footnote 148 where the refusal to carry out an IPO guaranteed to the investor was found to constitute discriminatory expropriation. The tribunal based its decision on similar official statements, noting that ‘these measures have been proclaimed by successive Ministers of the State Treasury as being pursued in order to keep PZU (the target) under majority Polish control and to exclude foreign control’.Footnote 149
In addition, factual evidence may also support a claim of discriminatory expropriation. For instance, if the Treasurer were to order a Chinese investor to divest from an Australian CM company on national security grounds, and the same asset was subsequently approved for acquisition by a foreign investor from a strategic partner country, such a sequence could serve as compelling evidence of nationality-based discrimination. A similar evidentiary approach was adopted in LETCO v. Liberia, where the tribunal found discriminatory expropriation based on evidence that areas of the concession taken away from LETCO were granted to other foreign investors.Footnote 150 Given the Australian Government’s assertive CM policy of favouring investment from friend-shoring partners while constraining Chinese participation, such a discriminatory outcome is reasonably foreseeable in practice.
The remaining conditions for lawful expropriation under CABIT and AHKIA further weaken the legal defensibility of Australia’s FIS-based retrospective restrictions on Chinese mining investments. With respect to compensation, neither FATA nor FATR explicitly provides any compensation mechanism for investors subject to retrospective review under the call-in or last-resort powers. Under CABIT’s ‘in accordance with the law’ condition, a tribunal may only assess whether the contested restrictions are issued in compliance with FATA.Footnote 151 In contrast, AHKIA’s due process standard may require an examination of whether the investor was afforded fundamental procedural protections. As summarized by the tribunal in ADC v. Hungary:
Some basic legal mechanisms, such as reasonable advance notice, a fair hearing, and an unbiased and impartial adjudicator to assess the actions in dispute, are expected to be readily available and accessible to the investor to make such legal procedure meaningful. In general, the legal procedure must be of a nature to grant an affected investor a reasonable chance within a reasonable time to claim its legitimate rights and have its claims heard.Footnote 152
The retrospective review mechanism under Australia’s FIS framework arguably falls short of the due process standard. As noted above, the Treasurer’s decisions under FATA are final. These decisions are statutorily exempt from administrative review,Footnote 153 and Australian case law indicates that courts tend to uphold the Treasurer’s broad discretion in determining the admission of foreign investment under FATA.Footnote 154 Importantly, the FIS regime affords investors only limited procedural rights to be heard – an issue that not only raises questions regarding compliance with AHKIA’s due process requirement for expropriation, but may also implicate potential breaches of the FET obligation, as analysed in the following section.
5.3.3 Retrospective Review as a Likely FET Breach under AHKIA
CABIT, RCEP, and AHKIA all provide FET protection, but only AHKIA permits claims arising from alleged FET breaches to be brought through ISDS. The FET is a broad standard, the precise contours of which remain subject to ongoing debate.Footnote 155 AHKIA Article 8.2 clarifies that the FET includes ‘the obligation not to deny justice in criminal, civil or administrative adjudicatory proceedings in accordance with the principle of due process’.Footnote 156 In addition to procedural duties, investment tribunals, and academic commentary have widely recognized that the FET standard also encompasses substantive obligations on the part of host States. These include the duty to protect investors’ legitimate expectations,Footnote 157 maintain a stable and predictable legal framework,Footnote 158 and refrain from arbitrarily discriminatory treatment of foreign investors in the exercise of regulatory sovereignty.Footnote 159
Based on the analysis of Australia’s FIS regime above, the Treasurer’s future exercise of retrospective review powers under FATA does not appear to constitute an obvious infringement of the substantive duties under the FET standard. Specifically, Australia’s consistent tightening of the FIS regime in recent years makes it unlikely that Chinese investors could reasonably form a legitimate expectation that their investments would be exempt from retrospective scrutiny or restrictions under FATA – unless the Australian government had made an explicit representation to that effect,Footnote 160 which is unlikely in practice. Despite Australia’s frequent reforms to its FIS regime, which do not, in themselves, amount to a breach of the FET obligation,Footnote 161 the government has implemented measures to enhance transparency and predictability of the regime, primarily through the regular publication of the Foreign Investment Policy, Guidance, and Quarterly Reports by the Treasury. These measures arguably satisfy the standard articulated by the Tecmed v. Mexico tribunal, which held that the host State must ensure that investors ‘know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices and directives’,Footnote 162 thereby providing a stable and predictable framework for investors’ business planning and decision-making.Footnote 163 In addition, although the broad discretion that FATA grants to the Treasurer to intervene in established investments on national security grounds creates the possibility of factual discrimination in implementation, tribunals have generally found a FET violation only where the differential treatment amounts to ‘bad faith’, ‘arbitrariness’, or ‘gross unfairness or injustice’.Footnote 164 This extremely high threshold imposes a substantial evidentiary burden on claimants, and such claims may succeed only in exceptional cases.
In contrast, it is readily apparent that the procedures for retrospective review under FATA fall short of the due process standard. AHKIA does not further clarify the requirements of due process in administrative adjudicatory proceedings. However, ISDS jurisprudence has consistently construed administrative due process as centring on procedural transparency, especially as embodied in the right to a fair hearing and the right to participate in the administrative process.Footnote 165 A well-established line of cases has found FET violations where the host State denies the investor any possibility of participation, or provides only limited opportunities to present its position in the taking of decisions that are able to cause serious economic loss to the investor.Footnote 166 In the 2020 decided Global Telecommunications v. Canada, the tribunal found that Canada’s FIS review, which resulted in the prohibition of the investor’s proposed acquisition, constituted a violation of the FET obligation, based in part on the finding that the investor was not given an adequate opportunity to present its case during the review.Footnote 167 In addition, some tribunals have further held that the FET obligation requires host States to provide reasons for their decisions, which must be grounded in sufficient factual evidence.Footnote 168
However, the level of procedural transparency in the retrospective review mechanisms under FATA appears to fall significantly short of the due process requirements typically associated with the FET standard. While Australia has introduced reforms to the FIS regime aimed at improving procedural clarity and timeliness,Footnote 169 the statutory framework governing retrospective review mechanisms (i.e. the last-resort and call-in powers) continues to lack sufficient transparency.
A central concern is the limited obligation imposed on the Treasurer to disclose the rationale behind decisions that affect investors. Under the amended FATA, the Treasurer is required to provide reasons in only two specific circumstances. First, when exercising the last-resort power, the Treasurer must issue a written notice including the reasons for determining that a national security risk exists, unless such disclosure would prejudice Australia’s national security interests (Section 79B). Second, when extending the review period beyond 30 days, a written notification must be provided to the investor, outlining the reasons for the extension (Section 77A(2)), such as tax risks or proximity to sensitive government facilities.Footnote 170
Another significant limitation concerns the restricted statutory opportunities for investors to be heard during the review process. The only formal engagement requirement arises when the Treasurer invokes the last-resort power, which obliges the authority to take reasonable steps to negotiate in good faith with the investor to address or mitigate the identified national security risks before issuing a final order.Footnote 171 In all other cases, including retrospective reviews initiated through the call-in power, there is no statutory obligation for the Treasurer to justify decisions or engage with the investor prior to making a final decision.Footnote 172
This suggests that the Australian Treasurer’s exercise of the call-in power, if conducted strictly in accordance with FATA, would result in decisions rendered in absentia. Given that the call-in power can be exercised up to ten years after the completion of an investment, any restrictions imposed retrospectively could result in considerable losses for investors, particularly in the case of mining investments, which typically involve substantial up-front capital expenditure. Accordingly, a decision in absentia may reasonably lead a tribunal to find a violation of the due process element of the FET standard.Footnote 173
Although FATA incorporates procedural transparency safeguards for the exercise of the last-resort power, compliance with the FET standard ultimately depends on how these safeguards are implemented in practice. Evidence from Australia’s recent FIS operations indicates that, even where some degree of investor communication has reportedly occurred in practice, the process remains largely opaque. For example, following the Treasurer’s 2023 decision to block Austroid’s proposed acquisition of Alita Resources, the investor stated that it was unable to discern the basis for the rejection, despite its ‘full cooperation and detailed responses’ to government inquiries during the review process.Footnote 174
It is worth noting that ISDS tribunals have consistently applied a high threshold for procedural transparency when assessing compliance with the FET standard. The Metalclad tribunal, for example, found a breach of FET where the denial of a construction permit lacked evidentiary support grounded in legitimate criteria under domestic law and was motivated primarily by political considerations.Footnote 175 The decision underscores the central importance of substantiated reasoning in satisfying the FET standard, particularly as a safeguard against decisions influenced by political factors. In this light, the discretion afforded to the Australian Treasurer under FATA to withhold reasons for decisions made pursuant to the last-resort power on national security grounds presents a potential risk of inconsistency with Australia’s FET commitment under AHKIA. This risk is especially pronounced in circumstances where retrospective reviews target Chinese CM investments, as it may be difficult for the Treasurer to justify such decisions in non-political, security-neutral terms – thereby increasing the likelihood that reasons will be withheld altogether.
Accordingly, Australia’s retrospective review framework raises concerns regarding its compatibility with the FET obligation under AHKIA, particularly in review scenarios based on the call-in power. In light of the Treasurer’s broad discretion in implementing the FIS regime, the extent to which the current framework can deliver the level of procedural fairness required under Australia’s FET commitment in AHKIA remains an open question – though current practice strongly suggests a negative answer.
5.4 Treaty Exceptions: Limited and Uncertain Application to Mineral Security Measures
All current Australia–China IIAs, except the decades-old CABIT, include general and security exceptions clauses intended to preserve regulatory space for the Parties in relation to covered investments. As demonstrated above, Australia’s pre-establishment screening and restrictions on Chinese investment fall within the scope of the NT obligation under ChAFTA (though a breach is unlikely), while its retrospective security reviews and resulting divestment orders are likely to breach the FET and expropriation clauses under AHKIA. This raises the further question of whether Australia may rely on the relevant exceptions clauses to preclude liability – a possibility which, as the analysis below suggests, is doubtful.
5.4.1 General Exceptions: Unlike to be Invocable
Both ChAFTA and AHKIA include general exceptions clauses, although only AHKIA’s applies to the investment commitments.Footnote 176 Article 18 of AHKIA, modelled on GATT Article XX and GATS Article XIV, provides that a host State’s investment obligations do not preclude it from adopting measures necessary or related to achieving certain specified public policy objectives. The relevance of Article 18 in the context of a Chinese mining investor’s claim depends on whether Australia could justify its retrospective reviews and the resultant restrictions on the CM investment by reference to any of those listed objectives.
The most plausible basis for justification would be the protection of ‘public morals or public order’, which are debated concepts in international investment law.Footnote 177 However, AHKIA clarifies that this exception applies only where a ‘genuine and sufficiently serious threat is posed to one of the fundamental interests of society’,’Footnote 178 thereby establishing a high evidentiary threshold. Australia would need to demonstrate that the continued presence of Chinese investment in the CM sector constitutes such a threat. In addition, Australia must also establish a direct nexus between the measure and the stated objective and demonstrate that the measure is necessary.Footnote 179 Following the approach adopted in WTO jurisprudence, tribunals may apply a rigorous necessity test, undertaking a holistic assessment of the importance of the objective pursued and requiring Australia to establish that no reasonably available alternative measure could achieve the same objective with a less restrictive impact on international commerce than the contested measure imposed on Chinese investment.Footnote 180
Australia might alternatively seek to invoke the exception for measures ‘relating to the conservation of exhaustible natural resources, if such measures are made effective in conjunction with restrictions on domestic production or consumption’.Footnote 181 While most of Australia’s 31 designated CM resources qualify as exhaustible resources, this exception would not apply unless the contested measures are accompanied by corresponding domestic restrictions. In practice, however, Australia’s CM strategy prioritizes the expansion of resource development rather than the limitation of domestic production, thereby undermining any attempt to rely on this exception.
5.4.2 Security Exceptions: Uncertain but Likely to Apply
Both the ChAFTA and the AHKIA contain security exceptions clauses. Article 16.3 of ChAFTA directly incorporates Article XXI of the GATT and Article XIV bis of the GATS, mutatis mutandis, while Article 19 of AHKIA is largely modelled on the same WTO provisions. These clauses exempt a Party from its treaty obligations when it adopts measures that ‘it considers necessary for the protection of its essential security interests’.
As noted earlier, Australia may seek to justify its restrictions on Chinese CM investment by invoking national security concerns. Specifically, it may argue that allowing Chinese entities to maintain or expand their holdings in Australia’s CM resources could compromise national security. A Chinese mining conglomerate may seek to acquire substantial interests in Australia’s CM producers or mine owners to achieve vertical integration. Such integration could potentially undermine Australia’s efforts to develop self-reliant or ally-supported CM supply chains, increasing Australia’s dependence on Chinese supplies and elevating the risk of supply disruptions, whether intentional or incidental.
However, Australia’s concerns in this scenario centre around long-term risks that CM supply dependence could erode national autonomy and resilience, rather than immediate military threats historically viewed as shielded by WTO-modelled security exceptions clauses.Footnote 182 This raises the critical question of whether such economic and strategic vulnerabilities fall within the scope of the security exceptions clauses in ChAFTA and AHKIA.
Although the chapeau ‘it considers necessary’ in these clauses could be read as suggesting that their invocation rests solely on the discretion of the Parties, namely as entirely ‘self-judging’,Footnote 183 WTO jurisprudence has generally been reluctant to adopt such an interpretation.Footnote 184 In Russia–Measures Concerning Traffic in Transit, the Panel held that an entirely self-judging interpretation would be ‘contrary to the security and predictability of the multilateral trading system established by the GATT and the WTO Agreements’.Footnote 185 Therefore, if Australia sought to invoke the security exceptions clauses in ChAFTA or AHKIA, it would be subject to a tribunal’s objective review of whether the circumstances specified in the clauses for invoking the exceptions are met.Footnote 186
Among the enumerated circumstances, the most plausible basis for Australia to justify its FIS restrictions on Chinese critical minerals investment is that the measure was taken during an ‘emergency in international relations’.Footnote 187 Ostensibly, Australia’s concerns over CM supply security arising from Chinese influence suggest an inter-State economic conflict with implications for international relations. The Panel in US–Steel and Aluminium held that economic conflicts in international relations may also constitute an ‘emergency in international relations’, provided their gravity or severity is at least comparable to war in terms of their impact on international relations.Footnote 188
Given this, Australia would face considerable difficulty in demonstrating that CM supply vulnerabilities meet the requisite threshold of gravity. A particularly instructive precedent is US–Steel and Aluminium, where the Panel rejected the US justification for imposing duties on steel and aluminium imports, namely severe global excess steelmaking capacity, holding that the circumstances did not reach the level of gravity and severity required to constitute an ‘emergency in international relations’ under Article XXI of the GATT.Footnote 189
The other plausible circumstance for justifying Australia’s retrospective restrictions on Chinese CM investment is that the measure is ‘relating to the traffic in …goods and materials for the purpose of supplying a military establishment’.Footnote 190 Its relevance rests on the fact that many CM resources have potential military applications. However, invocation of this circumstance requires a ‘close and genuine relationship of ends and means’ subject to objective determination.Footnote 191 Establishing such a nexus may be difficult for Australia because of the dual-use nature of CM. The divestment order targeting Chinese ownership in Northern Minerals illustrates this challenge. Following the order, Northern Minerals agreed to supply all concentrate from its Browns Range project to Australian company Iluka Resources, which operates Australia’s first fully integrated rare earth refinery.Footnote 192 However, the refinery’s outputs are reportedly used not only in defence applications but also in civilian industries such as electric vehicles and wind turbines.Footnote 193 This multiplicity of end uses renders the objective nexus between the divestment order and a military-supply rationale highly contestable.
However, in contrast to the WTO security exceptions clauses,Footnote 194 the list of covered measures in AHKIA appears to be illustrative, as Article 19 introduces the list with the term ‘include’.Footnote 195 The CMS v. Argentina tribunal, for instance, applied a broadly worded security exceptions clause that did not specify a list of covered measures to shield Argentina’s suspension of the currency convertibility regime during an economic crisis, reasoning that:
If the concept of essential security interests were to be limited to immediate political and national security concerns, particularly of an international character, and were to exclude other interests, for example major economic emergencies, it could well result in an unbalanced understanding of Article XI. Such an approach would not be entirely consistent with the rules governing the interpretation of treaties.Footnote 196
In an era when CM resources have become the cornerstone of technological advancement and economic security,Footnote 197 Australia’s restrictions on Chinese CM investment, when justified on national security grounds, could arguably be more closely aligned with the intent of the security exceptions clause than the kind of economic recovery measures considered in the CMS v. Argentina case, and thus may be shielded by Article 19 of AHKIA. Despite the more limited language of ChAFTA’s security exceptions clause, a tribunal may apply a broad interpretation that includes such restrictions.
Notwithstanding the potential applicability of the security exceptions clauses to Australia’s FSI-based restrictions on Chinese CM investments, their scope of protection is far from absolute. Australia should therefore exercise greater caution in implementing its FSI regime to avoid breaching substantive obligations in the first instance.
6. Implications and Recommendations
China has strengthened its institutional capacity to respond to such developments. In 2021, Beijing mandated SOEs to enhance their familiarity with international dispute settlement mechanisms and host States’ legal frameworks in order to better safeguard their interests in overseas operations.Footnote 198 Concurrently, it launched a national arbitration training initiative with the objective of preparing 3,000 legal professionals in international arbitration by 2025.Footnote 199
This strategic emphasis on legal preparedness may incentivize Chinese investors, particularly SOEs, facing restrictions under Australia’s FSI regime to pursue recourse through IIA-based ISDS, especially where such measures are viewed as discriminatory or lacking procedural fairness. This trend is supported by recent data: since 2020, Chinese investors have initiated 11 of the 19 known ISDS claims, indicating a growing willingness to invoke IIA protections in response to perceived discriminatory treatment.Footnote 200
In light of the above, this research offers following targeted recommendations to Australia concerning the implementation and prospective reforms of the FIS regime, as well as the future renegotiation of ChAFTA Chapter 9, with the aim of reducing its potential exposure to ISDS claims brought by Chinese investors.
6.1 Cautious Regarding Retrospective Intervention
As a preliminary matter, the Treasurer should exercise caution when intervening in established Chinese CM investments, whether through the call-in or last-resort power, given the risk of breaching Australia’s FET obligation under AHKIA. Particular caution is warranted when considering a divestment order targeting Chinese investments. Australia’s assertive CM policy, especially its publicly stated objective of ‘friend-shoring’ CM supply chains, could provide affected investors with direct evidence to support claims that such measures amount to unlawful expropriation taken in a discriminatory manner. Even absent a finding of discrimination, the failure to provide reasonable compensation could still constitute a breach of the expropriation clauses under CABIT and AHKIA.
6.2 Strength the Administrative Due Process in Call-in and Last-resort Powers
If Canberra deems it strategically necessary to reduce existing Chinese holdings in the future, such as to achieve full supply chain decoupling from China in coordination with allies, it would be prudent for the government to consider introducing communication and reasoning obligations for the exercise of the call-in power under FATA or, if more readily amended, under FATR. These obligations, similar to those already applicable to the last-resort power, would help ensure that investors are afforded statutory safeguards of procedural fairness.
When exercising retrospective review powers, the Treasurer should undertake thorough fact-finding and evidentiary verification prior to issuing a final decision. It is inadvisable for the Treasurer to withhold the reasoning behind a decision by relying broadly or abusively on national security grounds, as authorized under Section 79B(1) of FATA. While Australia, like most advanced economies with FIS regimes,Footnote 201 prefers not to publicize FIS decisions and their underlying reasoning in order to preserve regulatory discretion, ensuring greater transparency vis-à-vis the investor does not conflict with this broader policy stance and would significantly reduce Australia’s vulnerability to FET claims.
6.3 ChAFTA Investment Chapter Renegotiation
In ChAFTA, the Parties committed to exploring the inclusion of FET, expropriation provisions, and a more comprehensive ISDS mechanism in future negotiations.Footnote 202 While such negotiations appear unlikely amid ongoing geopolitical tensions, should they proceed, Australia should approach them with caution – particularly regarding the inclusion of FET and expropriation within the scope of ISDS, which is likely to broaden the legal grounds for Chinese investors to initiate claims against the State. This caution would be consistent with Australia’s publicly stated opposition to the inclusion of ISDS clauses in future IIAs.Footnote 203
In addition, Australia could use the opportunity of future negotiations to update its schedule of NCMs to explicitly cover measures taken under FATA and FATR as they existed prior to the adoption of the new chapter. This would more effectively insulate Australia’s pre-establishment restrictions on Chinese investment from potential NT claims. Alternatively, Australia might consider removing the ratchet clause altogether to preserve greater regulatory flexibility for future FIS reforms. Such an approach would also align with China’s interests, given its commitment to adopt pre-establishment NT based on a negative list in the future chapter and its significant reforms to its own FIS regime, now codified in the 2020 Foreign Investment Law.Footnote 204
7. Conclusion
By examining Australia’s selective implementation of FIS in the CM sector to advance friend-shoring objectives, this paper argues that CM supply security has been incorporated into the expanding conception of national security underpinning Australia’s FIS regime, thereby reinforcing its role as a strategic instrument amid intensifying geopolitical tensions. It further demonstrates that Australia’s selective FIS restrictions on Chinese CM investment, particularly retrospective divestment orders and disproportionate interventions, may contravene its obligations under IIAs with China, especially where procedural transparency is lacking.
Importantly, Australia’s approach is not exceptional but emblematic of a broader global shift. In response to escalating geopolitical competition over access to CM resources, major economies such as the US, the EU, Canada, and Japan have similarly prioritized friend-shoring as a core strategy for CM security and restructured their FIS regimes to embed selectivity into both institutional design and enforcement. The substance of friend-shoring selectivity in FIS implementation lies in the shift of states that historically upheld the liberal economic consensus toward more nationalist directions. This shift, together with declining faith in multilateral institutions such as the WTO, has resulted in growing challenges to the constraints imposed by international agreements. As relevant to this paper, the expansive and potentially coordinated invocation of national security by developed economies, including Australia, risks pushing the boundaries of the security exceptions in WTO law and IIAs in ways that strain both the legal coherence and the functional resilience of the international trade and investment law system.
As FIS regimes continue to proliferate across jurisdictions, States must confront the challenge of balancing openness with strategic autonomy through targeted foreign investment governance, that is, the discipline to exercise national security discretion within a framework grounded in transparency, non-discrimination, and proportionality. In parallel, this global shift necessitates a more rigorous interrogation of the proper scope of national security justifications under both IIAs and WTO law. Such efforts are essential not only to sustaining the coherence, predictability, and normative legitimacy of the international investment regime but also to the possibility of restoring a liberal international economic order under the right future conditions.
Acknowledgements
The author gratefully acknowledges the insightful feedback provided by Professor Vivienne Bath, Professor Luke Nottage, Professor Weihuan Zhou, Professor Dan W. Puchniak, Professor Henry Gao, Associate Professor Jeanne Huang, and Assistant Professor Vincent Ooi on an earlier draft. All remaining errors are the author’s own.
Annex A. Treasury-Published Decisions on Chinese Mining Investments
Annex B. Japanese Acquisitions of Australia’s Critical Mineral Producers From 2021 to 2023Footnote 205
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