Steve Gibbons (Bendigo, Australian Labor Party) Share this | Link to this | Hansard source

I want to use this grievance debate tonight to talk about recent developments in Australia's manufacturing industry. As members of the House will be aware, the recent announcement of plant closures and job losses at BlueScope Steel is of serious concern on many levels. First and foremost, it is devastating news for the thousands of people who are likely to lose their jobs both at BlueScope and at its suppliers and subcontractors. Secondly, it is a stark warning that the current commodities boom and the high Australian dollar exchange rate are having a severe impact on our non-mining industries, including manufacturing, agriculture and tourism. Thirdly, it is a wake-up call that we need to take action before any damage to those industries becomes irreversible. This includes doing what we can to encourage greater purchasing by both government and private companies from local suppliers.

Australian governments from both sides of politics have been thoughtful promoters of free trade, but let us be clear about one thing: many of the world's largest economies and advocates of free trade use domestic content requirements as a way to support their local industry. For example, the country most people associate with the free market, the United States, has a long history of extensive local content requirements for its government purchasing, in particular since the implementation of the Buy American Act in 1933. This legislation was specifically intended to support the US manufacturing industry by ensuring that products used and taxpayer funded projects are sourced from US firms. Most US government projects require at least 51 per cent local content, and some, such as roads and rail, have a 100 per cent local content requirement. What is more, US firms do not even have to match the price of an imported competitor to secure business from the government. Prices charged by large US suppliers can be up to six per cent higher than that for equivalent foreign products before a government department can use cost as a reason for not buying locally. If the product is from small US businesses, the price can be 12 per cent higher than the imported equivalent. In the case of road and rail projects, the Secretary of Transportation has ruled that domestic content must be used unless it costs 25 per cent more than imports. In 2008, the US Government Accountability Office summarised the benefits of these policies as:

… protecting domestic employment through national infrastructure improvements that can stimulate economic activity and create jobs; protecting against unfair competition from foreign firms as a result of foreign government subsidies; and maintaining national security interests through the continued use and development of certain industries within the U.S. economy, like the iron and steel industries.

Exactly the same argument should apply here in Australia. The economic significance of Australian industry participation extends beyond direct participants in major projects to all of the suppliers and subcontractors involved through the industry supply chains. All levels of government must be committed to maximising the retention of skills and jobs in Australia, and they should gear their procurement practices accordingly, having due regard to the whole-of-life value-for-money considerations and Australia's international trade obligations.

Let me give you an illustration from my own electorate of Bendigo. Members will know that the defence manufacturing industry is an important part of Bendigo's economy. One locally based manufacturer, Thales Australia, sets a good example by buying the steel for its Bushmaster protected mobility vehicles from BlueScope Steel. Each Bushmaster contains 15 tonnes of steel. That means 838 vehicles to be supplied to the Australian Defence Force will have generated orders of more than 12,500 tonnes of steel from BlueScope, and that does not include the export orders from the Dutch and the United Kingdom governments. Should Thales be awarded an order for its Bushmaster utility vehicle, each of which contains five tonnes of steel, not only will this create more jobs and retain skills in Australia but a contract for, say, 500 vehicles would result in steel orders of another 2,500 tonnes from BlueScope. This example clearly demonstrates that, when it comes to government procurement, there is more to acting in Australia's national interest than buying from the currently cheapest supplier. While mentioning Thales, I will make one observation about the current light protected vehicle tender which the company will bid for with its Hawkei program. I draw members' attention to an article by Henry Thornton which appeared in the Australian on 6 September. As many members will know, Henry Thornton is the nom de plume of Peter Jonson, a former head of research at the Reserve Bank of Australia and a former candidate for Liberal Party preselection. He is hardly known as a trade protectionist and certainly not known for his radical views. In this article, however, Dr Jonson writes:

As long as the possibility of serious global conflict exists, no sensible nation should rely entirely on global free trade, which will immediately be disrupted in any serious conflict.

He goes on to say that the process for considering alternatives for the Hawkeye is:

…no way to treat a strategic Australian defence business. It amounts to anti-protection (giving advantage to foreigners).

It is not just government purchasing that is relevant here. Australia's private sector also has to take greater initiative with its procurement.

If recent reports about the Australian mining industry sourcing its steel requirements overseas are correct, it is a matter of great concern. While the current mining boom has brought and continues to bring significant benefits for mining companies and their shareholders, its impact on the nation is far more mixed, as the Australia Institute's recent research report has highlighted. According to this report, the mining boom is negatively affecting other sectors of the economy in several ways. These include driving up the exchange rate; driving up the cost of skilled labour for businesses in other sectors; driving up the prices of raw materials used in mining, such as concrete; and driving up the cost of other services, such as construction.

Despite some of its well-financed propaganda, it appears that mining is not the extensive employer and highly productive industry it likes to claim. It employs just 1.9 per cent of Australian workers, making it a smaller employer than the arts and recreation sector, and its record on productivity is woeful. It is one of the biggest users of, and advocates for, individual employment contracts. Despite this, its labour productivity fell by half between 2000-01 and 2009-10. What makes this result even more startling, according to the Australia Institute report, is that productivity in the rest of the economy is growing rapidly. In other words, the mining industry is holding back improvements to our national productivity, one of the key factors that contributes to increasing a country's standard of living.

Furthermore, much of the profit from the mining industry is leaving Australia. In 2009-10, according to the Australia Institute again, mining profits were $51 billion, of which 83 per cent, or $42 billion, accrued to foreign investors. Over the next 10 years, profits from mining are expected to be about $600 billion. If the present levels of foreign ownership continue, about $500 billion of these profits will end up in the hands of overseas shareholders. It is reprehensible that largely foreign owned companies, operating in Australia to take advantage of its political, legal, financial and social stability, should have no qualms about buying from an overseas supplier on the sole basis of short-term cost.

If companies wish to operate in this country, they have an obligation to act as responsible corporate citizens and to contribute to furthering Australia's national interests as well as those of their shareholders. The mining industry in particular should be very careful about their behaviour as corporate citizens because, perhaps more than any other industry, they are critically dependent on a social licence to operate.

The nature of the industry means it has some inherent drawbacks as far as the wider community is concerned. Exploration and production need to take place where the deposit is, which is often not in the most suitable social, environmental, logistical or economic location. Any suggestion that the mining companies as a group are failing as corporate citizens, including failing to support local suppliers and the wider Australian economy, may have significant long-term negative consequences for their shareholders.

I welcome the Prime Minister's remarks at the recent Australian Steel Convention in Canberra. Mining companies that are undermining our manufacturing industries by buying offshore should be publicly named and shamed and I urge her to ensure that this happens as quickly as possible. I encourage all levels of government in this country to review and strengthen their own procurement practices and ensure that local suppliers of products and services are given priority. I encourage more private sector firms to see beyond short-term price when it comes to their buying practices.