Rio Tinto Group

Rio Tinto debacle exposes flaws of legal system

PUBLISHED : Tuesday, 14 July, 2009, 12:00am
UPDATED : Tuesday, 14 July, 2009, 12:00am

Beijing is justifiably proud of its economic achievements. The government can point to surging vehicle sales, mammoth infrastructure projects and ritzy shopping malls as evidence of progress. But the arrest in Shanghai of Australian mining executive Stern Hu and three mainland colleagues raises another facet of the nation's development.

Charges of stealing state secrets and bribery have been levelled at the employees of the Anglo-Australian firm Rio Tinto. Exactly what they have done wrong remains unsaid more than a week after the allegations were made - plainly laying bare the reality that the mainland's legal system fails to measure up to internationally accepted standards for the rule of law.

Foreign investors are naturally worried. Diplomatic relations with Australia are strained. Repeated requests by Canberra for consular access to its citizen were initially ignored, but eventually allowed. We are no closer now than when the arrests were made two weekends ago to understanding the nature of the allegations.

'Stealing state secrets' is a charge the central government refuses to quantify or qualify; it is very broad in scope. The claim is therefore one that can be applied at will to any manner of circumstances. It is often handed to anti-government activists, academics and journalists. Unusually, this time, it has been applied to businesspeople.

Rio Tinto is one of the world's biggest mining companies. Recently it has earned Beijing's ire, first over high prices of iron ore, then over business negotiations that went sour. During the commodities price boom, Rio and other mining companies were able to dictate terms. Prices have since fallen, but Beijing remains furious about the manner in which it was treated.

Then Rio pulled out of a deal in which the mainland government-owned company Chinalco was to have bought a US$19.5 billion stake in the miner. Rio's share price was rising and it no longer felt the need to sell when it rejected the offer. That Australian Prime Minister Kevin Rudd's government was probably prepared to block the sale on strategic grounds if it went through doubtless further angered Beijing.

All manner of questions arise after the arrest of Rio's top iron ore negotiator on the mainland and three fellow workers. Economic partnerships with the mainland, transparency and clarity of the law are put in doubt. There needs to be disclosure of details in the Rio case. The central government's silence is deafening.

Beijing needs to be open about charges it lays involving state secrets. As increasing numbers of international companies work on the mainland in sensitive areas, concern will be high about what constitutes acceptable behaviour for their senior executives. There are many other people involved in negotiations that may be considered sensitive. They need clear rules so that they can regulate their behaviour accordingly. It is clear that iron ore negotiations are a sensitive issue for the Chinese government.

The state secret laws are under review. It is possible that they may be toughened. From the perspective of foreign investors, there will be fears that this could increase the complexity and risk of doing business on the mainland. In the interests of justice and economic development, national security laws, just like other statutes, should be administered fairly and openly.