--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Dec 3 Australia's new Liberal government is discovering that it's easier to promise to be business friendly and welcoming to foreign investment than it is to deliver in practice.
Prime Minister Tony Abbott vowed that Australia, the world's top iron ore and coal exporter and soon to be the No.1 in overseas liquefied natural gas sales, was "open for business" in a triumphant election night speech in September after his party vanquished the former Labor Party-led government.
What Abbott was trying to do was draw a line underneath the policies of the Labor government, whose mining and carbon taxes, coupled with increasing red and green tape, had been viewed as hurting investment in the country's key resource sector.
However, in its first major test of openness, the Liberal government decided to veto the A$2.8 billion ($2.6 billion) takeover of GrainCorp by U.S. agribusiness Archer Daniel Midland (ADM).
In rejecting the deal, Treasurer Joe Hockey cited farmers' concerns about lack of competition if ADM was allowed to take control of GrainCorp, which handles about of a third of the wheat exports from the world's No.2 shipper of the grain.
Certainly, ADM would have gained a strong foothold in the sector, but the fact is that any competition concerns already apply to the existing GrainCorp dominance, given it handles 85 percent of wheat from the east coast.
It's possible that it was more important for Abbott and Hockey to appease the government's junior coalition partners, the Nationals, a rural-based party that campaigns on getting better deals for farmers.
Whatever the reasoning, the risk is in the message being sent: that Australia isn't as open for business as was promised.
The GrainCorp rejection also brought a rare public rebuke from the U.S. State Department, which along with expressing disappointment also noted that the United States is the largest foreign direct investor in Australia.
If the GrainCorp decision was difficult, the new government faces another tricky call involving a Chinese company, with the accompanying risk of annoying Australia's largest trading partner.
Yanzhou Coal Mining Co wants to buy out the 22 percent of its Australia unit Yancoal Australia that it doesn't already own and take the company private.
Yancoal was listed on the Australian stock exchange in June 2012 after a merger with Australia's Gloucester Coal.
But there are a number of issues to sort out first, such as undertakings by Yanzhou when it paid A$3.5 billion for Felix Resources in 2009 and later merged those assets with Gloucester Coal last year.
These included running the unit as an Australian company and selling its stake down to less than 70 percent by the end of 2013.
Any change to these conditions will require the approval of Australia's Foreign Investment Review Board, whose recommendations are subject to the government's final say.
Another complicating factor is that Singapore-listed Noble Group, which holds 13 percent of Yancoal Australia, is believed to want more than Yanzhou is prepared to pay.
In theory, a decision will have to made by the end of this month on whether Yanzhou can go ahead and privatise Yancoal, but time is running out for all parties to reach a compromise, meaning the government may be forced to grant an extension to Yanzhou, or make another controversial call.
CLIVE PALMER HEADACHE
Another headache for Abbott and Hockey is the legal stoush between China's CITIC Pacific and maverick Australian mining billionaire Clive Palmer over royalty payments at the $8 billion Sino Iron project in Western Australia state.
While the delayed and over-cost project started loading its first iron ore cargo this week, it's under a cloud as Palmer claims he is owed hundreds of millions of dollars in royalties.
The complicating factor is that Palmer won a narrow victory against Abbott's party in the Queensland electorate of Fairfax in the September general election and is now a member of the House of Representatives, the lower chamber of federal parliament.
Worse from Abbott's perspective is that Palmer's eponymous Palmer United Party will have at least two seats in the upper house Senate, and possibly a third once the disputed Senate election in Western Australia is sorted out.
This gives him a realistic opportunity to either support or block Abbott's agenda, including the business and investment friendly policies to scrap the mining and carbon taxes.
Even if Abbott does manage to scrap the taxes, it's still not certain this will be enough to arrest the problems that Australia's resource sector is facing.
Rio Tinto's decision to shut the alumina refinery at Gove in the Northern Territory, while keeping the accompanying bauxite mine open, is a case in point.
Rio blamed the low alumina price and the high Australian dollar for the refinery's losses, saying that keeping it open was no longer viable.
But the bauxite mine is obviously still viable and it's here that Australia faces its biggest dilemma.
Digging things up and shipping them overseas is still profitable, as can be seen by the massive iron ore projects being run by Rio and BHP Billiton, among others.
But adding value to the raw ores and oils is tougher, as evident from Rio's Gove refinery decision, the closure of Norsk Hydro's aluminium smelter north of Sydney and the idling of oil refineries.
And it's not just the resource sector where beneficiation is difficult in Australia. Ford has announced it will close its two auto plants in the country in 2016 and there is increasing possibility that General Motors will follow suit.
The high Australian dollar is largely beyond the control of the government, but high energy costs, taxes, wages and slowing productivity growth are areas that it can tackle.
But these require tough choices from politicians generally more focused on maintaining popularity in opinion polls.
The former Labor government tried to buy voter support by imposing taxes on the resource sector and industry and using the proceeds to boost welfare.
It didn't work as the taxes didn't raise the expected revenue as commodity prices moderated, while the uncertainty crimped investment and jobs growth.
Abbott has promised to reverse these policies, and he may succeed in cutting taxes, but reducing the cost of labour, even if done through measures to boost productivity, means a fight with the unions, something a first-term prime minister may be reluctant to take on.