Discuss about the Legal Aspects of International Trade.
This essay presents an analysis of business and corporations law by examining the various general functions and impacts of the law on conglomerates. The purpose of this paper is identifying a multinational company with its operations in Australia with the aim of unpacking the regulatory frameworks the company operates within. The paper also examines the impact of the various laws of Australia on the multinational company. This study is divided into three segments. The first part of the paper provides a brief description of the chosen company including the industry, within which the company operates, the global and Australian number of staff, and the location of the conglomerate’s global headquarters. The second part of the paper identifies and discusses the regulatory framework affecting the company in Australia and how it affects the company. The final part of the study presents a discourse of the impact of international conventions, agreements and treaties on the multinational company’s products and services.
The researcher chose BHP Billiton for the purposes of the above-described discourse.
BHP Billiton is one of the biggest global producers of key products such as uranium, copper, metallurgical coal, and iron ore. The company also has substantial interests in energy coal, oil and gas (BHP Billiton Limited 2016, p.1). Although the company falls within the overarching mining industry, this paper focuses mainly on the petroleum aspect of the multinational conglomerate. As such, the company falls within the Australian oil and gas industry. Furthermore, the oil and gas industry is heavily regulated with numerous law regimes in the six territories of Australia. Therefore, the extent of this present paper is not sufficient to cover the whole breadth of the regulatory framework of this industry. This paper, hence, provides a general review of the national and international regulatory frameworks and their impacts on the multinational company.
BHP Billiton is majorly involved in the extraction and processing of oil, gas and minerals from their production operations, which are mainly located in the Americas and Australia. The company’s global headquarters are located in Melbourne, Australia. The structure of the multinational company is Dual Listed, having two parent companies conducted as a singular economic entity. The company’s management and Board are run in a unified manner. BHP Billiton has a worldwide staff of over 65,000 employees and contractors working in over 91 locations in different countries (BHP Billiton Limited 2016, p.38). As of June 2016, the company had 26,827 Australian employees and this figure is inclusive of all the employees within the subsidiaries controlled by the company (Ibisworld.Com.Au 2016).
The company makes resource discoveries through Greenfield and Brownfield exploration and also considers divestment and acquisition opportunities to enhance their portfolio. In developing their options, the company then conducts evaluation, planning and investment in infrastructure and utilizes a rigorous and robust process in decision making (BHP Billiton Limited 2016, p.12). The preceding is the followed by extraction, processing as well as transportation of the products. With regard to the logistical and marketing design, the company manages distribution of their products via a global chain that includes pipelines and freight transportation. The sale of the company’s products is then conducted via direct supply agreements. The company makes government payments that total up to US$3.7 billion, US$178.7 million in social investment, US$3.6 billion on employees, US$5.2 billion on shareholders and US$14.0 billion to suppliers. The total economic contribution of the multinational company amounts to US$26.7 billion (BHP Billiton Limited 2016, p.12).
Among the countries within which the multinational corporation operates includes the United States, Pakistan, Chile, Algeria, the UK, Peru, Canada, Colombia, Malaysia, Singapore, Trinidad and Tobago, and Brazil.
The Government of Australia acknowledges the significance and necessity of a regulatory framework to keep up with the developments in the financial market. The Government of Australia accomplished in 2001, major reform of the Corporations law and the aim of the said reform was to streamline regulation while keeping with investor protection and market integrity (PWC 2017). It is noteworthy that the Constitution of Australia confers powers upon the Federal Parliament to legislate on maters taxation, foreign investment and international trade. The following is a brief outline of the regulatory frameworks within Australia that affect BHP Billiton, which is registered in the United Kingdom.
With regard to foreign investment, the Foreign Investment Review Board (FIRB) is the body charged with the duty of examining foreign persons’ proposals for undertaking direct investments in the country (PWC 2017). The non-statutory board makes recommendations to the Australian Government as to whether the corporations satisfy the requirements of the Foreign Acquisitions and Takeovers Act 1975 (FATA) and the Foreign Investment Policy of the Government. A foreign person can either be a corporation or a natural individual that holds a substantial interest. A substantial foreign interest is where the corporation owns over 15 percent of the voting or ownership rights. BHP Billiton is, hence, a multinational company that is subject to the FIRB and FATA approval.
The Australian Securities and Investments Commission (ASIC) is the body responsible for incorporating companies and a corporation such as BHP would then be issued with an Australian Company Number (ACN). Foreign companies are required by law to establish a subsidiary Australian company. The general law that governs companies in Australia is the Corporations Act 2001. The Act contains provisions with respect to Australian branches, incorporation, among other business related provisions of corporations.
For the purposes of direct income tax, a company is an Australian resident if it is either incorporated within the country or if not, carries on business in Australia. BHP Limited is therefore liable for payment of a 30 percent corporate tax of all it global assessable income (PWC 2017, p.22). BHP Billiton is also subject to incentives for capital investments issued by the government. For capital expenditures that were incurred on petroleum exploration after 14th May 2013, deductions on 15 years or less are applicable. However, mining rights costs that were directly acquired from the government are subject to an outright deduction.
With regard to indirect tax, multinational or foreign corporations are liable for stamp duty and land taxes. Furthermore, a company such as BHP is liable for payroll tax, which is the tax that is levied upon employers on salaries made to employees and contractors. Moreover, this tax is exacted regardless of the source of employee payments – either local or foreign payroll (PWC 2017, p.22). This tax is charged at rates ranging from 4.75% – 6.85%. By virtue of the provisions of the Customs Act 1901, a general 5 percent duty tax is payable for importation and exportation of goods into Australia. The goods and services of BHP Billiton are furthermore subject to a 10 percent Goods and Services Tax (GST). This tax is also payable during importation at the same rate.
Petroleum Resource Rent Tax is also payable by companies in the Oil and Gas industry, charged at a rate of 30 percent on projects of over 30 million barrels (Minter 2013, p.11).
BHP Billiton is also subject to the Taxation of Foreign Arrangements (TOFA) rules. Those rules prescribe ways of timing and recognizing foreign exchange losses and gains for the purposes of taxation. TOFA rule are applicable to foreign currency bank accounts. Multinational corporations are also affected by Australian employment laws such as the Fair Work Act 2009. The legislation contains numerous provisions important to BHP and among them includes the Minimum National Wage and the National Employment Standards. Other work related regulations that impact BHP Billiton include occupational health and safety legislation (mostly based on a unified regime) and the Superannuation Guarantee (Administration) Act 1992. The Superannuation law, for instance, requires employers to contribute certain amounts to their employees, failure to which the employers become liable of paying a charge.
With regard to the offshore petroleum industry, the Offshore Petroleum and Greenhouse Gas Storage Act 2006 and its accompanying regulations provides the internal regulatory framework within the commonwealth waters. That Act provides for power sharing between the states and the government.
There are several treaties and conventions that impact the mining industry in general. However, this paper focuses on the Conventions, Treaties and Agreements that impact the Oil and Gas Industry in Australia.
Scholars argue that the sheer influence, modus operandi and organizational structure of multinational corporations make them immune to conventional regulation methods (Deva 2004, p.39). In this regard, the international community still grapples with whether to adopt a ‘home state’ or ‘host state’ legal responsibility. With respect to regulation, debates are presented as to who conducts the regulation, which institution enforces and how regulations should be enforced against the corporations that fail to adhere to regulations. In general, regulation of multinational corporations can either be internal, external or both. Against this backdrop, the following section presents a brief overview of the international conventions, treaties and agreements that impact the oil and gas industry.
By virtue of Article 38 of the Statute of the International Court of Justice, international conventions, customs and principles form part of municipal law. Accordingly, all conventions to which Australia is a party, will be binding upon all corporations incorporated within Australia. Furthermore, following the arguments in the preceding paragraph, all international treaties to which the host countries of BHP are a party are binding upon the multinational company. It is significant to note that Australia is a dualist state and this means that treaties are applied indirectly in national law and not directly. Treaties must be ratified by Parliament before they can form part of municipal law (Sloss 2011, p.4). Courts can also utilize judicial power to protect the rights of parties that are based on treaties. Since BHP Billiton is registered in England and Wales with its registered offices in Australia, it is bound by the treaties to which Australia is a party. However, even in the absence of incorporation of conventions, courts have determined that in certain instances, officials may take into account the provisions of international agreements (Minister of State for Immigration and Ethnic Affairs v Teoh 1995).
The overarching international convention with regard to oil spills is the United Nations Convention on Law of the Sea. It provides the rights and duties of states in authorizing and regulating oil production and exploration (Allen 2011, p.90). Australia ratified that treaty in 1994. The International Convention on Civil Liability for Oil Pollution Damage 1992 is another treaty that establishes liability and compensation mechanisms in the event of oil spills from tankers ratified by the Protection of the Sea (Civil Liability) Act 1981. The International Convention on the Establishment of an International Fund for Oil Pollution Damage 1992 is also a convention that provides for the contribution of oil companies in compensation of costs incurred as a result of oil spills. It was ratified by the Protection of the Sea (Oil Pollution Compensation Fund) Act 1993.
The Australia – United States Free Trade Agreement (AUSFTA) is an agreement that impacts multinational organizations with respect to foreign investment. Under that agreement, the United States is an investor even if the entity itself is not US-based but carries on business there.
The Convention for the Protection of the Marine Environment of the North Atlantic 1992 (OSPAR Convention) is a Regional Agreement applicable in the North East Atlantic region. Article 35 expressly deals with oils spills.
Conclusion
This paper has discussed the internal and external regulatory framework of the oil and gas industry in light of BHP Billiton Limited. It is clear that enforcing international law on multinational companies, however, is difficult due to the challenges expressed in the paper. However, the internal regulations of multinational companies, as discussed, are robust and formidable.
References
Cases
Minister of State for Immigration and Ethnic Affairs v Teoh (1995) 128 ALR 353
Statutes
Fair Work Act 2009 Australia
Foreign Acquisitions and Takeovers Act 1975 Australia (Cth)
Offshore Petroleum and Greenhouse Gas Storage Act 2006 Australia (Cth)
Protection of the Sea (Civil Liability) Act 1981 (Cth)
Protection of the Sea (Oil Pollution Compensation Fund) Act 1993 Australia (Cth)
The Corporations Act 2001 Australia (Cth)
The Customs Act 1901 Australia
The Superannuation Guarantee (Administration) Act 1992 Australia (Cth)
Treaties
Australian Government, Department of Foreign Affairs and Trade, “Australia – United States Free Trade Agreement,” entry into force January 1, 2005 [2005] ATS 1, accessed April 20, 2017, https://www.info.dfat.gov.au/Info/Treaties/treaties.nsf/AllDocIDs/7DED2CE49FDACEC5CA256EAF00277EF4.
Convention for the Protection of the Marine Environment of the North Atlantic 1992, adopted 22 September 1992, 2354 UNTS 67 1993 (entered into force 25 March 1998) (‘OSPAR Convention’)
International Convention on Civil Liability for Oil Pollution Damage 1992 as amended in 2002 with effect from 2003 973 UNTS 3 (entered into force 19 June 1975).
International Convention on the Establishment of an International Fund for Oil Pollution Damage 1992 (‘Fund Convention’).
United Nations Convention on the Law of the Sea, opened for signature 10 December 1982, 1833 UNTS 3 (entered into force 16 November 1994) (UNCLOS)
Other Sources
Allen, J., 2011. A Global Oil Stain-Cleaning Up International Conventions for Liability and Compensation for Oil Exploration/Production. Austl. & NZ Mar. LJ, 25, p.90.
BHP Billiton Limited, 2016, BHP Billiton Annual Report. Annual Report 2016. Melbourne, viewed 20 April 2017, https://www.bhpbilliton.com/media-and-insights/reports-and-presentations/2016/09/2016-annual-reporting-suite.
Deva, S., 2004. Acting Extraterritorially to Tame Multinational Corporations for Human Rights Violations: Who Should Bell the Cat. Melb. J. Int’l L., 5, p.37.
Ibisworld.Com.Au 2016, BHP Billiton Limited – Retail viewed 20 April 2016, https://www.ibisworld.com.au/australian-company-research-reports/mining/bhp-billiton-limited-company.html
Minter, Ellison 2013, Oil and Gas in Australia and New Zealand, viewed 20 April 2017, https://www.minterellison.com/files/Uploads/OilandGas_FB/files/assets/common/downloads/publication.pdf.
PWC n.d., Doing business in Australia: An introductory guide, viewed 20 April 2017, https://www.pwc.de/de/internationale-maerkte/assets/doing-business-in-australia.pdf.
Sloss, D 2011, Domestic Application of Treaties.
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