Nick Xenophon (SA, Independent) Share this | Hansard source

I welcome the opportunity to speak on the seemingly complex and vexed issue of the Australian government's procurement process and how it serves—or rather, does not serve—the Australian people. I say 'seemingly complex and vexed' because it shouldn't be that hard to do the right thing by Australian manufacturers and Australian jobs. This is why I have been so pleased to work with Senator Madigan on this inquiry. We have co-sponsored this motion and I pay tribute to Senator Madigan for the work that he has done in initiating this.

Senator Madigan and I helped to set up an inquiry into the process because we are concerned that the procurement processes do not serve the interests of the Australian people—surely the first and foremost task of any government. In my home state of South Australia the Hon. John Darley MLC, a member of the legislative council, re-elected with my full backing and endorsement at the recent South Australian election, has also worked on issues of procurement. Recently we worked on issues with respect to office supplies procurement, where the South Australian government, I think, made some fundamental mistakes that discriminated against local suppliers.

Some might recall our repeated attempts to have the Parliament House dining room supplied with fine Australian-made crockery. Senator Madigan and I even sourced an extensive set made here in Australia at our own expense. The crockery succeeded in making the news but unfortunately has yet to see the inside of the Members' Guests Dining Room. In fact, as Senator Madigan said, the status and whereabouts of the crockery set are unknown. The parliament took it but is not using it. What a waste.

The Senate Finance and Public Administration References Committee inquiry has heard a range of views so far, and I have been impressed by the level of engagement with the issue, especially from Australian industry and union representatives. Submissions have also been received from several Commonwealth departments, as well as academic lawyers concerned that Australia should not break its free trade agreements by 'discriminating' against foreign suppliers. I will say more on that later.

Commonwealth procurement policy intersects with our relations with free trade partners, our region and our status in the World Trade Organization, but it also has a massive impact on the Australian economy and almost all local industries. It is hard to find a sector of the local economy that is not impacted by Commonwealth procurement. Australian government procurement is estimated at $41 billion a year. It is 10 per cent of the Commonwealth budget and accounts for 2.5 per cent of the national economy. As one witness at the inquiry said, 'Australian government procurement is equivalent in turnover to Australia's entire hotel and restaurant sector.' So we are not talking about a sideshow here; for many sectors and industries in Australia it is the main show in town.

Yet Australia has a reputation internationally of taking a narrow view of its options in relation to procurement. A narrow and short-term view of so-called best value for money and a black-letter interpretation of our free trade obligations have come to dominate the thinking of this government and the previous government. Unfortunately, the word is spreading. A few years ago I had a conversation with Michael O'Connor, the national secretary of the CFMEU, in relation to issues of dumping, and he recounted to me a comment passed by a Scandinavian at a timber industry forum in Scandinavia a few years back. No sooner had Mr O'Connor introduced himself and said he was from Australia than the Scandinavian official laughed and said, 'You're from Australia? You are the free trade Taliban,' because Australia takes a fundamentalist, literalist and purist approach to free trade that no other country in the world does. We are being mugs. It marks us out as extremists, naive at best and at worst ideologues without the spark to know our best interests.

I believe it is the role of senators and political leaders in general to determine what our policy should be in the future. We cannot bury our heads in the sand and mutter the tired old slogans of the past. As has been written, the past is another country. We must be concerned about Australia's future and how Australia's manufacturers and producers can prosper while fitting into the world economy. There can be no place for ideology or fixed dogma on an issue that directly affects the livelihoods of so many. There is serious work to do both within the inquiry and outside it, informing a debate about how the Commonwealth can lead the way.

Senator Madigan has strong and, in my view, well-considered opinions on this, and I share them. His links to the people of Victoria's manufacturing base are strong. He was onto something last week in the inquiry which resonated with me very much when he picked up on the issue of Commonwealth procurement and the so-called ban on 'discrimination' against foreign suppliers. Senator Madigan said:

The government procurement policy says they are not allowed to discriminate against a foreign product in procurement. Other countries might use the term 'discernment' as to what they purchase. So in our case here in Australia the word 'discriminate' replaces 'being discerning' in how we practise procurement.

This surely is a call for a return to a wider application of national interest in procurement and a wider definition of value for money—one that takes into consideration the longer term and wider benefits as well as the true cost of engaging foreign suppliers.

In terms of value for money, let us put this in perspective. If we buy some drill bits from another country which might be 40 or 50 per cent cheaper but only last a tenth as long as Australian-made drill bits—and Senator Madigan, as a practising blacksmith, has a lot of experience in these sorts of issues, and I believe him—then where is the value for money? It is a superficial approach in terms of durability. We need to look very closely at what so-called value for money means in the context of Commonwealth procurement policies. We need to make sure that, if we are buying something that is seemingly cheaper, it does not mean that it will last for a fraction of the time of an Australian-made product.

A straight price comparison between an Australian product and one from overseas does not tell the full story—not by a long shot. The value to Australia of sourcing native goods starts with the initial purchase and then keeps on going. It includes security of employment, higher standards of manufacturing, confidence that minimum environmental, social and employment conditions have been met, and the multiplier effect of government money fanning out throughout the Australian economy. By comparison, $1 spent on a foreign-source product appears to leave the country immediately.

This is critical stuff. Why? Because in my home state of South Australia we have seen the demise of General Motors Holden, a great tragedy for our state. That will mean thousands of jobs are potentially on the line in the whole supply base—the automotive component manufacturers, who are really state of the art and cutting edge. If they are to have any chance of surviving in the longer term, we need to lead by example in Commonwealth procurement policy so that they can have a fighting chance of expanding their markets or developing new markets.

The inquiry heard that the standards by which overseas products were made—be they employment conditions, product standards or environmental safeguards—were generally not checked or even checkable by our government. The inquiry heard detailed evidence from paper manufacturers and their industry representatives, as well as paper consumers from government departments. We are not talking about a few reams of copy paper here. The Australian government uses about 600,000 tonnes of paper a year across more than 20 Commonwealth departments and agencies. Only two departments, Defence and Human Services, sourced Australian paper, we heard. Admittedly, due to the size of these departments, Australian paper makes up 57 per cent of the total, but the question has to be asked: why doesn't it make up 100 per cent of the total?

It appears from evidence to the inquiry that when purchasing paper made in Indonesia, Germany or Austria—which we do—there is no way of checking the supplier's pledge that it is made from 50 per cent recycled sources and does not use, for instance, rainforest timber. The Australian Tax Office purchases paper from Indonesia stamped '50 per cent recycled'. One would hope the label is true, because Indonesia is fast running out of its old growth rainforests. And that has something to do with orangutan habitats, palm oil and other related issues. I could go on about that, but I am already banned from Malaysia and I do not necessarily want to be banned from Indonesia anytime soon.

Australia's Forest Products Association is rightly frustrated. Its CEO, Ross Hampton, told the inquiry:

As far as our departments are asked to look, that is the point. They have a list and they click on a box that says that it is 50 per cent recycled, they tick it and they move on and then they are into lowest price.

He went on to say:

It goes to the heart of what we are talking about, because no-one does look further than the label at the moment. That is what happening. You get the label and it says '50 per cent recycled—tick'.

But who can blame the government for taking overseas labels at face value? It clearly could not afford to send investigators to all corners of the world to verify the claims made by foreign manufacturers in order to win supply contracts. Nor could it; that would be insane. So we are left with the so-called relative sanity of taking environmental and other labels at face value.

We heard at the inquiry just last Friday that you can just buy a rubber stamp for $10 and stamp the product as certified, or environmentally friendly or whatever standards it is supposed to meet. We, in another country, have no way of checking that. We need to insist on having almost an onus of proof on overseas suppliers that they are complying. There must be a more rigorous standard rather than us having to go and check whether they comply. We are told, though, that to do this could be discriminatory—and discrimination would breach Commonwealth procurement policy as well as our various free trade deals. To use Senator Madigan's words, we are not being discerning—and we need to be discerning. Applied across the width and breadth of our $4 billion procurement program, this view hobbles our national interest. We do not hear the rest of the world complaining much, do we? In short, we are being taken for mugs.

A similar point can be made about furniture manufacturing standards and the various environmental and employment standards met by local companies. In my home state of South Australia, Molnar Hoists, in Adelaide, ticks off on all the categories—safety; reliability; spare parts; social, economic and environmental factors; and a better resale value. So why do they have to compete on such an unlevel playing field? This issue has much in common with Australia's poor record on dumped imports. The much-vaunted 'level playing field' does not exist for many Australian manufacturers and producers, given the difficulty of lodging an action against dumping and the stance taken by the Commonwealth on matters of international trade. There have been improvements, and I acknowledge the work that was done by the former government in relation to that. They needed to go much further, but I am grateful for some of those changes. I urge the government to take the changes even further and give that support to small and medium sized manufacturers.

The case involving South Australian tissue paper producer Kimberly-Clark and dumped goods from China and Indonesia is telling. The case led me to introduce a private senator's bill—the Customs Amendment (Anti-dumping) Bill in 2010. In the case of Kimberly-Clark the government imposed dumping duties on Chinese and Indonesian tissue products in 2008 after investigations found that Chinese products were being sold at two to 25 per cent below the cost in its domestic market, while Indonesian toilet paper was found to have been dumped at 33 to 45 per cent below value. But this decision was overruled in 2009 following a review by the Trade Measures Branch of Australian Customs, which determined that there was 'no material injury' to Australian manufacturing as a result of these dumped imports. Many saw that as a bizarre decision that was not in the national interest, that was not fair, and that did not even stick to the letter or spirit of the WTO.

I believe that we need to reform our antidumping laws, which in turn will impact on our Commonwealth procurement policies. The Kimberly-Clark case highlights my ongoing concerns about an absence of fair treatment from the Commonwealth towards Australian manufacturers. Of course, I balance my call for a reframing of Commonwealth procurement with some caution. I support the Australian Industry Group's sensible submission to the inquiry that the Commonwealth must continue to adhere to established principles of best practice in procurement. But that must include a reasonable and robust consideration of what best value for money is.

I agree with Ai Group's view that best practice, far from being a buzz word for management boffins, can be a guide for a government seeking savings for its budget. It says:

No areas or agencies of government should be off limits to the application of best practice principles such as efficiency, effectiveness, transparency and equity in government expenditure.

But the key point on procurement is how wide to frame the value proposition for the nation. The Ai Group makes the point as good as anyone:

Government should take a long-term and holistic approach when applying these principles to individual costs and expenditure items. The emphasis should be on value for money over the whole life of a product or service and should take into account factors such as risk, reliability and future maintenance costs.

The Ai Group said the major barriers and distortions for local suppliers to the Commonwealth were:

An undue emphasis on upfront costs rather than whole-of-life costs in government procurement. This emphasis resulted in the purchase of lower quality goods and services and neglected the costs involved in maintenance and through-life support, which were key advantages that local suppliers were able to offer.

If this process gets us anywhere, I would like to see the Commonwealth assess and quantify the wider, long-term and indirect benefits to Australia of engaging local suppliers. The Ai Group puts it in these terms:

Government spending measures should be assessed holistically so that any spill-over benefits that are not easy to quantify are taken into account.

We should be quantifying these benefits so that we can target and achieve them through Commonwealth procurement. The Ai Group's concerns must be listened to. It represents 60,000 businesses in manufacturing, engineering, construction, automotive, food, transport and many other sectors. The businesses which it represents employ more than one million Australians. This is about the national interest of Australia and Australians.

The ALP's Australian Jobs Bill last year addressed procurement concerns, but I believe the thresholds were set too high. An August 2012 report from the Prime Minister's Taskforce on Manufacturing estimated that 950,000 people were employed in the manufacturing sector and that it contributes eight per cent of our gross domestic product directly. That does not include the significant amount that it contributes indirectly through flow-on effects to other businesses. The report also stated that over 100,000 jobs had disappeared from the manufacturing sector over the previous four years. That means that 100,000 families around the nation were affected by this plunge in employment in our manufacturing sector. We have to stop being mugs. Other countries are laughing at us for being such purists about free trade. We can go further by reframing Commonwealth procurement.

I will finish by highlighting a very important example of Commonwealth procurement that would be transformed by a better application of the national interest test—shipbuilding for the Department of Defence. Right now, the Commonwealth is weighing up what additional warships it will ask local industry to construct in coming years—if any. Defence has indicated it will need to acquire 80 ships for the Navy in coming years. The estimated cost of these is about $100 billion. The so-called 'valley of death' awaits many thousands of shipbuilding workers in Victoria, New South Wales and my home state of South Australia, as well as in other parts of the country. A witness to the inquiry, Dr Tom Skladzien, National Economic Adviser to the Australian Manufacturing Workers' Union, said:

It's better to have a defence industry and not need one, than need one and not have one.

Dr Skladzien articulated well a range of concerns about defence procurement and I would urge honourable senators to look at his remarks and his evidence.

It is a stark picture, but it is not a stretch to see the same peaks and troughs, the same boom-and-bust pattern, stretching across the economic and social fabric of the nation—driven by short-sighted procurement policy. The Commonwealth's procurement regime could reasonably be called a latter day, free-trade-inspired cargo cult. It is not serving Australians and more and more of us are waking up to it.

The United States and Europe woke up long ago. The United States is the greatest free trade country in history, yet can find a way to act in the best economic interests of its people. Just look at the tough and controversial negotiations it is having with Australia on the Trans-Pacific Partnership free trade agreement. It is fair to say that the US and Europe operate on a completely different level than Australia does in relation to local suppliers and industries. We must be less credulous of the rest of the world, who are clear eyed about their own national interests, yet remain aware of the benefits of free trade over time.

Commonwealth procurement should not be couched in terms of discrimination nor driven by a desire to be whiter than the driven snow on free trade. We cannot afford to be so naive. Rather, we should be framing decisions about Commonwealth procurement more realistically and more fully, recognising the true benefits of a sustained, competitive and responsive local supplier base. In the end, it is about us no longer being taken for mugs.