This is a brilliant move by LandBridge.
Definitely will not be good for Australia's own.
The challenge for the Australian government to overcome that good faith hurdle is going to be these three previous security reviews.
I don't think that is a very human or good thing for Australia just to copy what the United States is doing.
Should this case go the wrong way for Australia, it will raise question marks in the eyes of many other investors.
I think it just sends a bad signal to China.
It sends a bad signal to Australia.
It's not going to help investment in either place and worldwide.
The Chat Lounge.
Welcome to the Chat Lounge.
I'm Tien.
Joining me to discuss the Chinese company Landmark Group's legal battle against the Australian government to prevent the forced termination of its lease of the Darwin Port.
Dr. Warwick Powell, Adjunct Professor, Queensland University of Technology, Australia.
Dr Joe Mi, Deputy Director.
Institute of American and Oceania Study.
Chinese Academy of International Trade and Economic Cooperation.
And Dr. Edward Lehman, the founder and managing director of the China-based law firm Liman Li & Shi.
Welcome back to the chat, gentlemen.
Let's first take a brief look at the background of LandBridge's latest move.
Back in January, the Australian government signaled it could reclaim the 99-year lease of Darwinport, currently operated by the Chinese company.
Then about two weeks ago...
LandBridge filed for international arbitration with the International Center for Settlement of Investment Disputes, which is affiliated with the World Bank, and it argues that Australia has breached the China-Australia Free Trade Agreement.
Let's begin with our Chinese guest here, Jomi.
From a Chinese perspective, did that move surprise you?
I don't think it's surprising because, you know, under the framework of the free trade agreements between our two countries,
We have our disability settlement mechanism and if any enterprises were feeling that there is something wrong with the promises from each side, from the government, maybe they can use these channels to try to protect their benefits.
So, as you know, I was also involved in the negotiation of the free trade agreement between China and Australia almost 20 years ago.
So I was there when we were talking about the protections for the enterprises, especially for investors.
We guaranteed that both governments are able, or should be able, to provide transparent information to the enterprises and also to give them enough channels to try to deal with some of these uncertainties.
So for almost 10 years after the free trade agreements took into effect.
I think that most of these promises about the trading goods and the trading services are already met by both sides.
But if the companies found that there are something wrong with the promises, they are able to use the mechanism to deal with these problems.
So according to this kind of mechanism design, i would say that it's not surprising at all, especially when the enterprises are feeling a very weak position compared with the.
But Landbridge acted actually before negotiations had fully broken down.
Has that surprised you to any extent?
Not at all?
If I might.
Yeah, just as far as I mean how this is from a legal and tactical perspective.
I mean it's a rules-based counterattack.
It's not just a rhetorical flourish as far as when the filing took place.
So I just say from a legal perspective.
So what LandBridge has done is is they filed under the icsid, that international center for settlement of investment disputes, as you said, which was established under the world bank.
It's created back in 1965 and there's 160 state signatories, including australia, so This is the most credible and most institutionally legitimate forum for LandBridge to file under.
And it was signed.
Australia, like I said, has signed a convention and negotiated the CHAFTA provisions.
And it's now being called into account under that framework that it voluntarily created.
So, tactically speaking, what LandBridge has done is they've filed before the divestiture could come into play.
There was.
You know they were banging the drum back in 2020, back in 2021 or 2023 with, you know, in Canterbury.
As far as trying to do something about this,
And so you know, I think that this was a brilliant move by Landbridge to file it before the issuance of the formal divestment order by Australia.
And it's kind of a preemptive legal strike that accomplishes three things.
At first it puts the Australian government on notice, and now being conducted under the watchful eye of an international tribunal.
The second thing is it creates an undeniable record that Landbridge sought in good faith dialogue to trying to restore by a legal action.
And then third, it creates an implicit leverage against the unilateral coercive action of mid-arbitration where they're trying to divest it.
So they've kind of blocked them is the short answer.
From an Australian perspective Warwick, would you see it as a calculated pressure tactic or more of a defensive response or preemptive legal strike, like Ed just mentioned?
As Ed mentioned, I think it was a strategically very good move for all the reasons that Ed mentioned.
I think one of the challenges from Australia's point of view is that the lease provided or agreed to be given to Landbridge in 2015 was done so through an open competitive process where Questions of national security were considered, and have been subsequent reviews since, all of which have concluded that there were no national security risks to be concerned about.
And this does create some problems, because the move announced prior to the last federal election appears to be explicitly politically motivated, with very, very little ground.
Part of the problem for the federal government is that its own reviews and the reviews undertaken by defense concluded that there were no issues, and so, when it announced its intentions to bring the ports operational rights back into Australian hands, it then had to explain precisely why it needed to do that, given that the port's operations had been turned around, that the leaseholder had made substantial investments and actually made the port profitable.
And ultimately has left a legacy for that port of infrastructure that enables it to function at a higher level.
And I think that this move puts the spotlight on these issues as well.
Because when the issue of national security gets raised, it's one thing to talk about national security as political rhetoric.
It's a very different thing to demonstrate it to legal satisfaction.
What precisely is involved, what are the issues and why those issues actually constitute national security risks?
And that's not going to be easy to do.
Right.
Then some people would call it some escalation.
Do you agree?
From Landbridge's side?
Yes.
Well, look, escalation, de-escalation, I think often are a little bit overused as ideas.
And I guess we tend to use them a bit because these issues get framed in terms of contests and war and all that sort of stuff.
But in terms of a company seeking to protect its own rights, you wouldn't call it escalation.
You would literally call it a very intelligent rights protecting move.
Now what it also does though, is that it because everyone knows that this particular tribunal doesn't bring down a decision in a week?
This is going to create escalation. a process that will take some years.
And the passage of time also creates opportunities for the arrival at a mutually acceptable solution.
So in some ways it has compelled the Australian government to address it at this level, rather than reach for the heavy hammer of compulsory acquisition.
Like you mentioned, you can call it meaningful for Australia, because this could become Australia's first major investor state dispute case.
Then what kind of symbolic way does it carry for Australia?
It depends on how this unfolds, of course, and how the final result unfolds.
But again puts a country like Australia, which seeks to be, broadly speaking, open to foreign investment.
And for that to happen, you need to provide a safe and secure and predictable environment, legal environment for investors.
The concern is is that, should this case go the wrong way for Australia, it will raise question marks in the eyes of many other investors as to whether or prospective investors as to whether or not they will expose themselves to what is in effect.
So the argument runs a capricious decision by the Australian government.
We'll dive deeper into that or the implications later on.
But let's go back a little bit to the beginning.
When LandBridge secured this 99-year lease in 2015, the deal was widely seen as legitimate, even routine.
Then what has changed?
Maybe our legal expert here?
Yeah, I think that Darwin, I didn't realize this, but I mean it was bombed 200 times by the Japanese during World War II.
I guess, historically speaking, it's something that means something historically to that region as far as the port is concerned.
So I mean we don't want to go too far back with that, but I'm saying that the country's looked at it that way.
You know I mean, what's ironic with this whole thing from a legal perspective was that on the domestic front, Australian politics I mean Labor is the governing party and it's officially opposed.
You know these provisions in the new trade agreements.
And now it's kind of bouncing back because uh, they initially sort of flip-flopped as to what it is.
So I think that that's a bit embarrassing, I would imagine.
Other folks can chime in on what that is.
But from a legal perspective, I think that Landbridge has good grounds.
And like was pointed out, this is not going to get solved within a week.
But I think what it indicates is kind of a chilling effect on Chinese investment globally, which just shows that if people are going to change direction the way that they are I mean, look at what happened with Panama Canal and now it's happening here
And I think that it's obviously going to continue to damage the Australia-China relationship.
So from a legal perspective, it shows that the government isn't gonna stand by contractual obligation that they had.
I mean the out is always national security, public security, something like that, which is a clause that most governments have to basically abridge or end contracts like that.
And that's essentially what's happening in this particular case, because I don't think I mean, this has been going on since 2015, I guess, since the negotiations were going through.
So this has been kicking around for some time and it's finally rearing its head.
There is an interesting part in this, Ed, and that is in 2015.
So the process of the lease was run by the territory government, not the federal government, because the port is actually owned by the territory government.
But FIRB, the Foreign Investment Review Board, and other provisions under things like the Security of Critical Infrastructure Act came into force as part of the process.
And there were no objections from the federal government either, notwithstanding the Obama administration actually expressing quite a lot of displeasure.
So at that point in time the federal government didn't see this as warranting any particular concerns from a national security point of view.
Now.
The Obama administration was concerned in large part because the port of Darwin is near to military basing facilities that the United States uses as part of its troop rotations through northern Australia.
I guess the argument at that point in time was that Chinese ownership of the port or having the long-term lease of the port could give rise to assorted security risks, whether they were espionage or sabotage, or control over access to the port, or what have you.
And I think that this is where this case is going to end up.
Turning on is ultimately, what does constitute issues of national security.
What are they?
There is no checklist.
I mean, we hear often the use of concepts like the national interest, for example.
But of course, what constitutes a national interest is something that's quite amorphous.
And I think part of the challenge here now is that it will force the Commonwealth of Australia to define precisely what it means by national security.
And the minute it starts to do that, it opens up real questions around risk assessment as well as potential mitigations.
Because if there are reasonable mitigations for potential risks, however defined they are, then the question of excessiveness, I guess, comes to the table.
So the response to deal with these risks rather than through regulations or additional operational conditions or what have you, instead of doing it that way, to now say well, we're going to take it off.
You could be argued to be an excessive reaction.
So now I think that there's a you know, from a legal point of view, but also from a political point of view and an economic point of view, there's a lot of interesting things that cases like this will flush out.
You said Australia will have to define what constitutes national security.
You mean currently there is no clear definition of that in Australia.
When do you expect that to begin or this kind of process?
Well, in a sense, what constitutes national security is a case by case problem, right?
But there are certain categories of things that could go towards this issue of security.
But just as much as you can raise concerns about these issues because they are risks, you know the possibilities of certain things happening.
There are also mitigations to those risks, things that can be done to reduce the probability of these adverse things from happening.
And I think that the Australian government's defence is going to revolve heavily around this question of national security.
Whereas the Landbridge case, of course, revolves around the breach of clauses within chapter concerning fair dealings and discrimination, et cetera, et cetera.
So if the Australian side is going to argue the case, then they are going to need to explain why national security issues is at stake and why compulsory reacquisition or some kind of an acquisition, taking back control, is the only reasonable and necessary response.
And I think that there are going to be some hurdles to explain all of that.
The chat lounge unpacks views and opinions on hot issues in a more casual way.
And then back to LandBridge's side.
Show me LandBridge, is you know?
Invoking the China-Australia Free Trade Agreement and its arbitration claim.
And you said you were president or one of the representatives right when this trade agreement was drafted.
Which provisions could be decisive for land bridge legal action?
I want to also add some of my understanding about the so-called national security.
We know that national security is kind of a very sensitive word and widely used by different governments or different countries.
And I think that maybe Some people really want to try to copy the others, for instance, like from the United States for the three years.
So actually, when we are talking about the FERB of Australia, there are a lot of similarities between these two areas, two countries' practices on the national security.
So I don't think that is a very common or good thing for Australia just to copy what the United States is doing, because both countries are having a quite different stage of development and opportunity partners are quite different.
So, in my understanding that, if you are, Australia is just trying to use United States as a standard to copy its practices on national security?
It definitely will not be good for Australia's own.
Like, for this example, the Darwin Porch.
I think that most of these virus are from United States side, from the military bases.
But for Australia side, they want to have a better and stronger trade relations with the trading partners.
If the world is able to facilitate this kind of improvement, i think that people are benefiting from that and also the economies are benefits from that and it will be more secure to compare with the past.
If the companies are not able to provide the infrastructure or facilitation on the trade, i think that many supply chains will diverge from these areas and the people are suffering from that.
There will be more network security problems.
So let me return to that question you asked me.
I would say that in the free trade agreement, normally there will be several chapters.
And for this case I would say there are maybe two places we can try to find some solution or support.
The first is that in the chapter of the trading services and then the acquiring, or you know, the ranking of the diamond pool is based on the service trade in the sector of logistics or transportation, marine time transportation and also maybe they have some relations with custom clearance services or other services.
For The chapter of the trading services, they do have this commitment by the Australia side and if they are violating these promises I think that maybe the company can try to use the mechanism to deal with that and another channel, another chapter, is about investment, the investment australia is using in my standings, also using the negative list based fbi management method.
I don't remember that they have some kind of requirement for this investment, putting the negative release.
So i think the chinese companies can also argue with australian government on that.
So for both chapters we're quite clear, but I think that this chapter do have a separate chapter about the dispute settlement.
And for some of these issues maybe not managed in that chapter but for other issues it should be looked in details in this agreement.
I mean the context that I mentioned.
I'm sure that for both for the trading services and the investments, the companies can find some possible solution or channel to do some kind of argument for Australia government's behaviors.
Ed, what's your legal interpretation of this?
Legal provisions are likely to be decisive, things like fair and equitable treatment or rules around expropriation and compensation.
And what are the chances of success for land breach?
I mean, something's going to happen, that's for sure.
There would be compensation, I mean, if it's taken away from them, is my guess.
I mean, one has to first look at the rules of the body itself and then how the panel is formed, and then you know the evidence that's put in there.
Of course,
And, you know, like...
It was pointed out earlier.
I mean, they passed not one, not two, but three, you know security clearances before this thing went in place.
There hasn't been much that has changed in between.
The only thing that's changed is kind of the audience.
I mean, the audience was Beijing.
Then now it's sort of shifted to the United States.
And then as a result, Some changes have been made.
So there's essentially a contract in place for land bridge.
And if they decide to take that away from them?
Australia is a place where they have common law and they have this.
Due process is demanded.
They put it underneath, like I said, this particular tribunal, which is a smart thing.
So this international tribunal, of which Australia signed off on, is a signatory to, as is China, as is the United States.
So they will have to follow that rule as opposed to leaving it be up to the Australian government and the due process within Australia.
So I think, like I said, technically it was a good move.
I think that, whatever happens, They're going to get either be successful and or they're going to be compensated for it in one way or another.
That's kind of the short answer.
Jomi just mentioned how beneficial this has been or could be for Australia in the future.
And LandBridge also highlights it has improved port operations, even turning losses into profits.
But in a highly politicized dispute.
How much weight does this kind of commercial argument really carry, Ed?
In my opinion, it really doesn't.
And it even goes back to the American Civil War.
I mean, you know, Abraham Lincoln abridged people's rights, whether that was Robert E Lee, whose home was in the north and his property was in the north essentially,
They had seized his property and said that that turned into Arlington Cemetery.
I'm just giving like a very hyperbolic example of when a government decides that it's in the national interest, they go ahead and seize it.
If you look at the Patriot Act in the United States under George W. Bush.
They abridged all, and this is the idea with Edward Snowden.
They were taking information and data and they were saying it was in the national interest that the United States government would have it, without due process, without notifying people.
It happens.
And so you see it happening time and time again in the United States.
And it could happen here that and I don't want to use this word in particular, but that sort of trumps everything as far as a contract is concerned.
Now you have to make compensation to folks for that, and sometimes they do and sometimes they don't.
But yeah, i think that's the wild card that will will mess this whole thing up now.
It will take years to undo it, but it started, the fuse has started, and i think it makes a seismic shift in relations uh, between countries for sure.
Then I think it's worth noting over the past decade, Darwinport has undergone at least three security reviews, each finding no national security risk.
And in 2023, authorities even concluded there was no need to alter or cancel the lease.
How might those past findings influence the arbitration process this time?
Let me break that down.
The idea of fairness, I think, is a very important one as a starting point, because when you break that question down, it goes to issues of good faith.
Is this attempt to expropriate the port?
You know political targeting, you know, and this is a test that the Australian government's going to have to pass.
It needs to demonstrate that it acted in good faith.
The challenge for the Australian government to overcome that good faith hurdle is going to be these three previous security reviews.
On the flip side, the government would need to marshal arguments that show that, somewhere between 2023 and 2025, that the circumstances exogenous to this contract had changed so much that it warranted a bunch of new security issues.
Even then, the question of good faith will arise, because if that was the concern, surely that should have been validated by another review.
The second one, I think, is this issue of the nexus between the security interests.
Can they demonstrate that there is actually and that the proposed measures that they're taking are the appropriate ones, given whatever, it is that the security concerns are as articulated?
Are they proportionate and ultimately are they non-discriminatory?
Is it a set of actions that are actually taking place because of the nationality of the counterparty, or is it because of the security issues at stake?
Those two things are going to be very hard to untangle, because national security ultimately involves defining a potential adversary, which means that the nationality of the counterparty is going to be part of this question, and that raises issues around discrimination.
So I think fairness opens up this hornet's nest or this Pandora's box of issues, which will put not only the issues on the table, but will put the Australian government position where it is going to have to do an exceptional job, given the fact that there is this history, over the course of 10 years of reviews that have given this particular arrangement a clean bill of health.
So the upside with this process and this may be the face saver for everyone concerned is that it gives time and it gives breathing room for some kind of a negotiated settlement ultimately to be arrived at that saves everyone's blushes and, by pushing it down this tribunal path before the australian government could give effect to compulsory acquisition, enables that to actually happen.
This has been the chat lounge.
Beijing has already warned it would take measures to defend the company's interests if Australia proceeds with the forced termination of its lease of the Darwin Port.
What kinds of responses can we realistically expect?
That's coming up right after the break.
Stay with us.
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Welcome back to Chat Lounge.
We continue our chat on Chinese firm LandBridge's Darwin Port Fiat and the future of global investment rules.
During this process, LandBridge is able to continue operating the port as usual, right?
Yep.
So what you just said makes a lot of sense because also some analysts say this kind of legal action, given its multi-year proceeding, could serve as a buffer actually to provide some positive impacts for Sino-Australian relationship.
But, Drawing from what you just mentioned, what do you expect to be the most likely outcomes of the arbitration then Warwick?
My own sense is that the parties will arrive at a negotiated settlement before a determination is reached.
And that's only because there's only upside for both parties if they can do that.
One, of course, is financial compensation.
And that's going to be a big question because if I was Landbridge, I would be seeking significant damages based on future income losses.
OK, so, you know, that's a very significant issue.
I'd also be seeking damages in relation to reputations, because the implication is of this particular matter is that LandBridge is not a trustworthy company, which has obviously significant implications for LandBridge as standing as a global port operator.
So the dollar figures involved will be quite substantial.
But from the Australian government's point of view, if they can get that as an outcome, It could certainly be presented as a success that the port and the operator of the port has been returned to Australian hands and everybody, in a sense, can walk away.
The Australian side will have to explain why they had to cough up so much money without actually winning the case.
In effect, conceding that their case wasn't as bulletproof as it was.
And the Landbridge side will take the money.
Ed, is that what you expect too?
Yeah, I think, I mean, certainly there's going to be money paid.
I remember, like you said, it was a losing proposition.
Now it's making money.
I think that the EBITDA is something like 42 million and it's growing at 25 annually, with 89 years of lease remaining.
So remember that they've been in just for 10 years now and it generates a pretty significant large discounted cash flow at a present value.
I mean, what the Australian government is probably doing is obviously looking for an Australian national company to acquire it, which might be the middle road here.
You know, the question is whether that's and then have it be subsidized somehow by the Australian government to be able to cover.
But this is a pretty big hole when you consider that they're selling it multiples of EBITDA, which is the profit that you're making.
So that's a pretty big hole for somebody to cover.
But I think it's going to be very messy to untangle.
Like we said, it's not going to happen immediately.
Australia has to start to think now how to kind of get out of this without making everybody angry, or else going forward with it.
By that, I'm saying not seize it.
There's two legal points.
I mean, one is actually seizure of that property and the other one is a kind of a, a legal maneuver, where you're not technically seizing it but you're you're making it in essence not able to function, and so both of those are alternatives that could happen.
They could also do something, which would be highly unusual, but with the australian national government saying that in the labor party, saying that they're not going to cooperate anyway is go ahead with the divestment I'm not saying that they're doing it, but just an option and then sidestep it.
A lot of countries have sidestepped international treaties and their repercussions on that on that type of action too.
I don't anticipate that that's the case, but that would be an alternative on the table.
What would you expect that to happen?
Well look, I think part of the challenge for the Australian government is that its political position domestically could be enhanced because it can play the national security or nationalism card.
The downside risk is that it opens up the possibilities of broad reputational damage, of course.
But also there's plenty of Australian businesses engaged in business in China who will, I think, be quite nervous about all of this.
Because if the Australian government wants to run a case on national security, even after three reviews determined that there was no national security issues.
What's to say from an Australian business's point of view, that they could get caught up in all sorts of other national security questions.
And that's a very unpleasant thought for businesses involved in cross-border transactions.
So I actually don't think that there's a lot of upside for the Australian government other than at a domestic electorate level to an extent.
Probably the greatest upside is that it can demonstrate to the United States that it has in the end acceded to Obama's preferences and, no doubt, the State Department's preferences.
And Ed touched on this possibility that in fact, what's driving a bunch of this is the State Department pushing very hard for Australia to do something about this.
The word on the street is that when the Labor candidate announced and the Prime Minister on the campaign trail last year announced that they would bring the port back into Australian hands, the word on the street is that they had gotten wind that the opposition, the liberals, were intending to make such an announcement within days and therefore they jumped in ahead of them to cut the liberals off at the pass.
You can imagine behind the scenes how that was being set up.
The liberals, you know, who had become very, very hawkish, would be quite happy to play the national security card and again force the Labor Party to either fold and fall into line.
And ultimately, that's what the Labor Party did.
And now it's got itself caught in a problem of that.
Frankly, I don't think it has a lot of upsides from Australia's point of view, other than any perceptions that the government has about its relationship with the United States, much of which incidentally, has gotten rockier over the last 12 months anyway.
The question here is, can Washington's pressure on Australia work, actually?
Well, yeah, I think it can.
And you know Australia continues to pay the bills for submarines.
For example, when congressional reports, research office reports, service reports consistently show that the submarines will never get built, that American naval admirals giving evidence also confirm that the American shipbuilding or submarine building industry can't build these things, that the UK can't.
Parliament has also heard evidence that the UK can't live up to its end of the bargain either.
But Australia will continue paying the AUKUS bill.
So you know, Australia does have a track record of wanting to be seen by the United States, of being a loyal sub-imperial ally.
And this sort of activity again, despite the fact that there were three security reviews, all of which found no issues.
The only party that raised security issues was the Obama administration.
In that context, you wonder who this is actually in the aid of.
And you know, a cynic would conclude that this was largely being driven by the US administration applying pressure to the Australian government.
Right.
And then you just wanted to kind of add one thing just to sort of sum it up from the probability.
So, I mean, you have four real scenarios.
You've got a negotiated settlement, which is probably the highest.
And that would be a way out.
The second one would be Landbridge would win on the merits and the probability would be meaningful for that.
The third one is Australia wins on the security exception.
Yeah, that's a possibility, but it's difficult.
We were just unpacking.
And then the fourth is sort of a political resolution, outside the arbitration which one it will be and which one is the fastest.
And what's happening behind the scenes, I guess, is the question.
The only thing we know right now is they're on the track for the arbitration.
That's for sure.
Which one do you incline?
Well, I think it's going to be a negotiated settlement myself.
I think that that's the way that those things, that's the highest probability.
I mean both governments would prefer to avoid a binding public ruling that humiliates one side or the other.
I mean, land bridge.
They filed.
This creates leverage and this would be a trigger to do back-channel diplomatic engagement between parties.
And they would come up with something.
The template was Germany versus Vattenfall, which is like a Euro 14 billion settlement on nuclear plants that closed.
It was between Germany and Sweden.
So there is some precedent for it, where they do back channel and then they they decide not to go forward with this.
But that would be my take on it to try to give everyone face i mean, there's a whole bunch of other things that are going on but to dig in and stand the arbitration.
They might do that because There are things we cannot see as regular folks, even trying to be experts, between governments and between political parties within their own government that make these things more opaque.
Right.
But maybe Jomi can tell us something that, you know, even experts here cannot explain or cannot see.
Jomi, from a Chinese perspective, what's your expectation?
Do you see land bridge may accept what Ed just mentioned, the middle way?
I would say that there will be many possible options if they are going to reach some settlement on these problems.
If they have to give it back to the territory of Australia.
In that case maybe they can try to, not only about the payment of this investment but also about the alternative maybe you know some other course whether it is possible for Australia to find some not that sensitive course to be rented by the land bridge, or they can give some kind of other solutions for securing that logistics and the investment.
I think that is not just the ideal options, but that maybe can be considered from both sides if they have to reach that point of dealing with this problem.
And also you know we have to understand the decision if the land trade have to quit from this investment.
I don't know whether they are be sued for alternative investors to investing in that port and also the local businesses and also the local supply chains.
Maybe they are not like before.
This is a really not so good thing for Australia, because the world, the global supply chain, is under reconstruction.
There are so many new facilities uh, with enough new impacts.
I don't think that's the economy.
So uh practically, if the company have to reach that step, i would say that they may argue for the options investment and not just the bear, of course, or you know the place of a very bad conditions.
Maybe they have to think about the possible.
The dimensions here in some ways are a bit asymmetric as well.
So from the Australian federal government's point of view, the threshold issue here is national security, which is about as significant as you can actually get.
And so if the Australian government cannot get the port operations back into Australian hands, it runs the risk of essentially losing an incredible amount of face in the process.
Whereas from Landbridge's point of view, even if the arbitration came down in favour of the Australian government, then becomes a question of compensation right.
So it's just a question of money.
Whereas the Australian side, it's actually not about money at all.
There's something much more at stake.
Which means I think that there is, and this is why I think this move is actually incredibly clever because, instead of enabling the Australian government to exercise compulsory acquisition, a very powerful legal instrument, it has compelled the Australian government to justify its position in an extremely public environment.
And part of the problem with having to run a detailed national security case is that you need to actually demonstrate that you know what exactly constitutes national security.
And I'm not sure that governments will necessarily want to do that.
So there is an incredible amount of pressure on, I think, the Australian government ultimately to reach an agreement.
Now that agreement, I think, will ultimately involve Landbridge walking away from the lease, because that's really what the only face saver that the Australian government can have.
So the real issue is going to be what gets negotiated on the other side.
Now, it may be issues related to Landbridge, which it necessarily will be.
It may involve alternatives for Landbridge, which aren't directly financial, perhaps.
But given that this also impacts bilateral relationships at a macro level.
The fact is that Chinese investments in Australia have plummeted over the course of the last two years, and part of that has to do with the environment that has emerged.
And perhaps there may be some political settlement that will improve the investment environment for chinese investors, provided that it's not in some of these things that have literally become out of bounds.
We don't know what the outcome would be, but one thing is for sure that the Chinese side wouldn't want the forced termination of Australia's lease of the Darwin Port right.
And Beijing has warned it would take measures to defend the company's interest if Australia proceeds.
Then, Jomi, what kind of responses can we realistically expect?
For both sides of China and Australia.
We have some channels or dialogues between our two parts about the trade and investment issues and also about the fulfillment of the chapter, the political agreement.
I think that we will use this mechanism to talk about the possible impact on the bilateral relations, especially economic relations.
It's not workable.
I would say that there are several other mechanisms we can try to use like, for you know, some of this supply chain and the industrial chain security checked by Chinese government also.
And we also have some other kind of issues to protect the benefits of the Chinese companies.
I think that is natural for the Chinese government to react according to the requirement of the law, the foreign trade law and other laws.
And for these corporations.
I think that we can do more to improve the bilateral trust by giving goodness.
But if not possible, I think most of these related stakeholders, maybe they will also suffer from these uncertainties and instability.
But I don't think that will be a good result for the China side to do that.
Before Jomi takes off, one more question for you.
If we bring in a comparison, you know, the Panama Port case, I think earlier Ed mentioned this.
Chinese firms seem to be responding more proactively in Australia.
Why do you think we are seeing that difference in the approach?
Well, I mean, that is maybe the nature of the Chinese companies.
We are really trying to work hard to reach something of a mutual benefits by both sides.
Australia is one of our very important trading partners.
If you compare it with the trade data, we have actually increased a lot for the past 10 more years.
I think that is also.
You know the results after the companies are having more investment in Australia and also trying to improve the infrastructure to support Australia to make its raw materials into the wells.
So the trade benefits both sides and also the investments are doing even longer term and more sustainable impact on the local community.
I think that is such a company.
What are they really good at and what do they really want to have.
So we have seen so many examples.
I think it's not just about one company.
It's about the understanding, especially after we joined WTO.
We believe that a corporation should base on the promises.
We should not just violate our own promises because of some other country's threat.
Many Chinese companies share the similar philosophy and principles.
All right.
Thanks for that.
I'll let you go.
Thank you, Jomie.
Okay.
Thank you.
The Chat Lounge.
The Chat Lounge unpacks views and opinions on hot issues in a more casual way.
China-Australia economic ties have only recently begun to stabilize, you know, after years of tension.
Is it worth the risk for Canberra to potentially disrupt that recovery?
Well, my own view is that, given that there were three reviews that showed that there was no security issues, that pursuing this matter has no justifiable basis.
So that's not my opinion.
That's the opinion of three reviews undertaken by relevant departments and agencies looking into the matter.
The fact that the government and the opposition have both come in behind this issue seems to be entirely capricious and political to me.
Now, this is unhelpful unless the process of arbitration, and the negotiations that I'm sure will take place in and around that process, delivers an outcome that, in a sense, everyone can live with.
Then it does run the risk of souring relationships further on the investment front.
What that means on the trade front, time will tell.
I don't anticipate in the short term that there would necessarily be any spillover.
You know, trade is mutually beneficial for Australia and for China, but it does, once again, sell relationships.
Let's face it, trade is actually a pretty easy part of bilateral relations, but it's investment that ultimately determines the extent to which parties intertwine with each other in the long run in ways that are not as easy to untangle, as this particular case proves.
Right.
To add, from a legal perspective, the key takeaways from the Darwin port dispute for Chinese companies and perhaps for the policymakers as well.
Yeah, I think, I mean, the first is invest where your treaties have teeth.
I think that's the lesson to be learned here.
Yeah, I think with the Panama situation, there was not a unified front.
I know that that came up earlier and their land bridges is maintaining a unified front with China.
And so one is, are these agreements going to hold?
This is the lesson for China.
Second is to document your commercial performance as future legal evidence.
So Lanebridge, like we talked about, I mean, they've got 42 million Australian EBITDA
And it's a 25 percent annual growth.
And so they need to document that, why that's good for business and good business metrics.
And, you know, as a lawyer, that's what I would tell people to do.
Same with the Chinese government.
So that if this gets taken away, that you've got those kind of damages which appear to be, you know they would be above a billion dollars or more closer to 2 billion.
So every profit report, every capital expenditure record.
China needs to keep these notices in case this gets taken away from them.
The third thing is Engage with the host government security concerns proactively and don't wait until a divestment notice happens.
At least, I think, by making this preemptive arbitration that they went ahead and did that.
They were seeing that was coming.
There was some telegraphing of that.
But you know, commission independent arbitration, technological or technical security audits should be done.
And that should be part of the process.
The next thing would be to recognize that this is a systematic and it's not episodic.
So you know, they have to figure out what supply chains shoring and deliberate restructuring of global supply chains along geopolitical alliance lines.
It's already been underway with semiconductors, rare earths, port logistics.
I mean, rare earths is one of the things I would assume that they're getting from Australia now.
They need to look into alternatives at all times.
And if you look...
It's not a great example all the time, but certainly Mr. Trump looking at Greenland.
So China needs to continue to look for those places if other parties aren't going to cooperate.
And then I think the last thing that China has to look is they have to look at state needs to ensure its future trade and investment agreements include the kind of international standards to be able to be met.
And so, I mean, obviously, China is doing that full time.
They don't need any advice from outside sources.
But sometimes there's a gap that China has when they're negotiating these deals and not keeping kind of their peripheral vision that these things might cave in.
I mean, I don't know what I say with my clients, which is not.
At this level, of course, but is that you got to hope for the best, prepare for the worst and you've got to have a backup or a second plan if things change?
And this changed in a relatively quick period of time.
It's 10 years, of course, but what's the backup and was that ready to be put in place? so we'll you know time will tell right you mentioned um it's likely that uh australia still moved to you know reclaim the port even if um the ruling ultimately favors land bridge right it's just a compensation so what would be the the amount then in that case Well, yeah, if you look at the numbers, so you've got 89 years left on the lease.
You've got $42 million that they're showing in profits, earnings right now.
So then you extrapolate that out over time, the course of time, and you say it's increasing by some 25.
Again, these are not my numbers.
These are numbers that I've got elsewhere, but the number could be very substantial.
And going to the point that was brought up before, I mean this lands on, perhaps on the territory, partially on the federal government of Australia, but certainly it's going to be something that the taxpayers, unless they can find a private buyer, is going to have to swallow.
I mean, this penalty or this national security or this breaking of the contract.
And The question is whether that's going to be something that the taxpayer wants to be involved in.
I mean when you look at it as a purely financial thing from a taxpayer perspective from Australia, It's actually making money and it looks like it would continue to make money.
So that would be a net benefit to the taxpayer.
And then kind of negative for the political you know, the ruling party, or parties you know in the future.
That wouldn't be positive for them.
So those are kind of things that they have to consider.
I think no one's talked about that.
I'm talking about the actual taxpayer itself, which might have to eat the price tag of payout if they did this.
I mean, as was pointed out, certainly by Warwick, is that they will continue on until there's some kind of a result.
So that would be the case.
I don't see that they would come in and seize that.
It's possible, but unlikely while this arbitration process is in place.
And I think, while the arbitration process is in place and there's also a couple of other fallbacks under the the China-Australia agreement between the two countries, although that wasn't completely formed, ironed out, if you will, from a dispute resolution perspective that could come into play.
And there might be some sort of white knight that would want to participate in that.
That would change the dynamics completely.
So we're dealing with a lot of hypotheticals, but I think that it's not a good sign when people aren't playing by the rules that they set.
That's what I think is difficult.
And I think it just sends a bad signal to China.
It sends a bad signal to Australia.
It's not going to help investment in either place and worldwide.
I mean, why do we have these agreements if they are not used indiscriminately?
But under huge political pressure, things usually or sometimes, I should say. are distorted.
And Warwick, let's zoom out for now.
As global supply chains are being reshaped, could cases like this evolve from isolated disputes into something more systemic, signaling a broader trend of infrastructure becoming politicized?
Well, that's the risk, isn't it?
And weaponisation of foundational infrastructure, in this case maritime transport related infrastructure, would cause untold disruptions to global commerce.
Is that in the interests of most countries involved?
Probably not, actually.
If you look at this issue of national security, It's actually only coming from the Five Eyes from the United States.
Well, let's call it the political West.
It's paranoia in Europe vis-a-vis Huawei, for example, and a whole bunch of Dunrow doctrine ambitions from the United States in relation to the Western Hemisphere and, of course, Australia here.
I don't see other parts of the world necessarily being as animated about this issue as the political West is.
The infrastructure investments that have been made mainly by China or Chinese companies throughout the global south have delivered important benefits to countries.
And those countries have negligible reasons to have these national security concerns drive their politics.
I think what this points to is a global bifurcation where the political West, which has dominated the globe for the best part of five centuries, sees itself in essence on the back foot now and is working overtime to stave off the evolution of the global system in a direction where the political West is no longer the economic hegemon.
Anything that the United States touches or has the capacity to influence, I think, is likely to be exposed to these kinds of risks, because ultimately this is going to be, in part it's going to be a political battle across the globe.
Then how should Chinese firms adapt if that's the direction?
Well, in a broad sense, you've got sort of two worlds, don't you?
You've got a world where political Western sensibilities will be heightened.
So the first issue is to try to calm those sensibilities down.
Then you've got the global south world, which, of course, will be subject to incredible pressures.
And those pressures will vary depending on exposures to, for example, US dollar denominated debts, et cetera.
And companies and governments are going to need to work overtime to make sure that the diplomatic relationships that they have are solid and that the extent to which the political West can influence the bilateral relationships between China and these other countries is controlled.
And that's a difficult thing, but it's doable.
We know that the political West has, over many, many decades, been able to exercise influence in all sorts of countries.
It does that through actually not the network of military bases, but it's the network of the CIA and associated apparatuses across the globe.
And through the control of information systems.
Regime change operations, domestic disruptions and, in fact, even going dirty with things like assassinations and kidnappings are risks that are rising in the world.
And ironically, they're not rising from so-called the rogues that the West used to accuse others of being.
But in fact, it's the West itself that's becoming the rogue.
We don't want to see that.
And last bit from Ed, please.
Your legal advice for not just Chinese firms, maybe all companies that could face this kind of a situation when things are getting worse.
I think I mean, I think you got to be bold.
I think you got to be innovative.
Stuff changes.
I mean, I don't think people should should be afraid.
And this is not a good situation or good outcome.
But I think it has to be taken on a case by case basis.
This too shall pass.
I think that things will get positive.
This has been a rough patch, but i, you know, i don't think that people should become insular, and this was said.
I mean, the ambassador said that they are going to protect, they have an obligation to follow through with this and with helping out with land bridge, And so you can't just fold, I think is the way to do it.
And you can't be afraid, just because this has happened in certain instances, that it's going to happen again.
Otherwise, then why do you have a country and a foreign policy?
And why do you have plans for businesses to be able to operate worldwide?
I mean, as Warwick said, this is all reciprocal.
I mean, if things go bad for Chinese companies in Australia, than it could also be the same for Australian companies in, or the Five Eyes companies inside of China.
So, I mean, there's always this give and take.
But I think you know, as a business person, I think people have to think not just in a micro issue but in a macro issue and carry on.
You know it very well could turn out probably you know that Landbridge could win this case, that Australia might lose this case, that there are elements within Australia that might say that this should carry on and it shouldn't be national security and divest or do whatever.
I think it's too early to say what to do, but I think one has to have, as a business person or as a country, their own plan and not be affected, to be reactive to what other people are trying to do to you.
You just have to readjust that plan to have some other pathway forward.
We'll have to wait and see how this may pan out.
But one thing is for sure, we don't want to live in a tit-for-tat world.
And on that note, we conclude our chat for this session.
Many thanks to Dr. Edward Lehman of the law firm Lehman, Lee & Shi, Dr. Warwick Powell from Australia's Queensland University of Technology, and Dr. Joe Mee from the Chinese Academy of International Trade and Economic Cooperation.
We'd love to know what you think.
Drop us a line at radio at cgtn.com.
I'm Tian.
Join us for more chat at the chat lounge next week.
Until then, take care.
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