David Johnston (WA, Liberal Party) Share this | Link to this | Hansard source

by leave—I present the report of the Australian parliamentary delegation to the Republic of Korea and the United States of America which took place from 13 to 24 September 2006. I seek leave to move a motion to take note of the document.

Leave granted.

I move:

That the Senate take note of the document.

I will speak briefly to this report because I know that there are other speakers on this matter. The Senate Standing Committee on Foreign Affairs, Defence and Trade is exploring a reference relating to Australia’s capability with respect to naval shipbuilding. Pursuant to that reference we wrote to the Hon. Dr Brendan Nelson, the Minister for Defence, and asked him if the committee might go to see Hyundai and Daewoo in South Korea and then some other naval shipbuilding operations in mainland United States. Thankfully, the minister was very supportive of the committee’s inquiry and assisted us by writing to the Prime Minister endorsing the proposal, and the Prime Minister authorised and further endorsed the proposal. I want to say thank you to Dr Nelson, firstly, and of course to my Prime Minister, importantly, for assisting us to get to the places that are set out in the report. So I thank my Prime Minister and my Minister for Defence for their assistance in facilitating this delegation, which really is more accurately described as a working trip in support of a reference.

I want to thank Senator Mark Bishop and Senator Steve Hutchins, the two members of my committee who accompanied me, for all of their assistance and hard work. This was a very difficult trip to many places—which I will set out in a moment—in the course of nine days. I also want to thank the officials who came with us. Ms Lisa Fenn, from the secretariat, was a tireless worker who greatly assisted the committee in our endeavours; indeed, our report would not have been the success that I believe it is without her hard work. And I thank Mr Martin Quinn, counsellor with the Australian Embassy in Seoul in the Republic of Korea; Mr Jim Gledhill, Defence Materiel Attache in Washington, who was of enormous assistance to the committee; and Lieutenant Commander Peter Mingay, a specialist marine engineer on exchange assignment in San Diego with the United States Navy, who assisted the committee with matters of technical information relating to engine systems, power systems et cetera.

The trip left Sydney on a Wednesday. We got to Seoul on Thursday morning at about 7.30. We got to Pusan at about 9.30, got in a helicopter and went to Daewoo. We had a look at their operation, which is large heavy ship building, and saw some submarines and other vehicles and vessels that they have been constructing for both South-East Asian countries and for their own government. We went to Hyundai on the following day and to Poongsan, a munitions factory that provides munitions for our five-inch guns on our Anzac frigates. On Friday we left for Los Angeles and on Saturday we arrived at New Orleans in Louisiana. On Monday we went to Northrop Grumman at Pascagoula to see Arleigh Burkes and LHDs being manufactured. We had an outstanding tour of that facility and learnt many things. On the following Tuesday I must say that as a Western Australian I was very proud to visit Austal’s premises in Alabama to see the construction of a very large, fast ferry for Hawaii and the new littoral combat ship which Austal has secured a contract to construct in Alabama. Austal is doing quite amazing things in the United States; from the things that we saw, I think they are going to go from strength to strength. I want to thank all of the staff at Austal for their assistance and for their support of the committee’s work in assisting us to understand exactly what they are doing.

We went to Lockheed Martin and were privileged to meet the CEO and chairman of the board, Mr Bob Stevens—the famous Bob Stevens in charge of one of the largest defence contractors in the world, at Lockheed Martin. Of course, Lockheed provide to us the Aegis system that is going on board our air warfare destroyers. That was at Moorestown in Pennsylvania. Then on the Thursday we went up to Raytheon at Tewksbury in Massachusetts to see the defence systems integration facility there. This was a most outstanding visit. The logistics and work being carried out by Raytheon in preparing and understanding systems to be integrated in defence platforms had to be seen to be believed. On the last day, the Friday, having been away for just over a week, we went to the General Dynamics operation at Bath in Maine to see where the Arleigh Burkes are manufactured. The Arleigh Burkes are the US Navy’s principal vessel as a platform for the Aegis phased array radar system, which will be the centrepiece of the new air warfare destroyers.

Having said all of that, I do not want to go on other than to say, again, thank you to the Minister for Defence for supporting the committee in the way that he did. The overall report is due to be tabled next week. It is a very large report, as one would expect, with the committee having travelled and done the work that we have done. I reiterate my thanks to all those people who assisted us. It was an outstanding trip and I think the committee benefited greatly from understanding what the world’s leaders in ship manufacture and construction are doing.

Mark Bishop (WA, Australian Labor Party, Shadow Minister for Defence Industry, Procurement and Personnel) Share this | Link to this | Hansard source

I rise to make a few remarks on the report of the Australian parliamentary delegation to the Republic of Korea and the United States of America. I am quite content to endorse the basic thrust of the remarks made by the leader of that delegation, Senator Johnston, in his report. I want to make a few comments for the record and, at the outset, acknowledge the support of the Prime Minister, the Minister for Defence and, interestingly enough, the head of the Defence Materiel Organisation, Dr Gumley, who, I have been made aware, was instrumental in informing the Prime Minister that it would be of value to the members of the committee to visit those two countries to inspect the relevant shipyards and to meet with representatives of those major companies. To those three persons—the Prime Minister, the defence minister and the head of the DMO—acknowledgement must be made of their support because it is most unusual. I think it is the first time in all of my time in this place that a domestic Senate committee has been able to travel overseas, so I acknowledge that support.

The purpose of the visits was for committee members who have been involved in a fairly intensive inquiry into the utility or otherwise of Australian domestic manufacturing of naval craft to become exposed to and familiar with some of the practices that occur in competitor countries, in particular the Republic of South Korea, which is a world leader in the manufacture of large commercial craft and has a growing indigenous naval industry, and the United States, which has a longstanding naval construction industry. As Senator Johnston said, we met with major companies in regions of South Korea and the United States.

The underlying theme of the inquiry of which this overseas visit was a subpart is whether outcomes of the naval construction industry in this country should be market driven, remote from and not dependent at all upon government involvement or intervention or whether there is justification for Defence involvement to affect market outcomes in defence orientated industries. That really is the intellectual divide that is emerging in a range of the submissions to the committee.

It is clear from our visit to the eight or 10 sites in the United States and South Korea that major international ship manufacturers and major international defence supply operators are heavily integrated with government at all levels in the operations of their companies in those two countries. In South Korea we met with representatives of the Hyundai and the Daewoo shipbuilding companies. Those companies are world leaders in the manufacture of oil and gas tankers, overseas and undersea oil and gas platforms and container ships.

Both companies have a heavy commercial focus and bias permeating all aspects of their operations. The involvement of those companies in naval shipbuilding is done at the express request of their own governments, which, as a policy decision, have a desire to have an indigenous strategic manufacturing capability for defence purposes. Indeed, it was clear to us that if both of those companies could get out of the naval shipbuilding side of their business they would do so at a rate of knots. It is significantly different to the commercial shipbuilding side, where they have scale and scope advantages over competitors and where they are really doing quite well. They do not want to be allocating any funds or time at all to a much more difficult task.

In the United States the committee visited a range of shipping sites in Louisiana, Missouri and Maine. Again, it is clear that in the United States there is a policy call by government that there be two large shipbuilders maintained in that country, and there is clearly managed competition. There is heavy private sector involvement at all levels. It was clear from discussions at those sites, and with the two major companies, that commercial considerations in all of their deliberations at a company level and a site level are paramount, particularly where there are long supply orders going over decades.

There is also heavy government involvement in Navy procurement in terms of process and regulation, and there is significant input into decisions to award contracts worth billions of dollars over decades from members of the House and the Senate in the United States. Representatives in shipbuilding areas from both of those houses are regularly briefed by companies and regularly participate at all levels in the decision making as to the awarding of contracts—a different system to that of this country.

In Louisiana, Austal, an Australian company, is establishing a large manufacturing base in naval shipyards. Interestingly Austal is heavily involved in the design and manufacture of the US Navy’s littoral combat ship. Committee members were told there is significant city and state assistance provided by local authorities to attract and retain Austal as a major manufacturer in that region. Indeed, it is the largest manufacturer in that part of the United States. Further detail of that extensive city and state assistance provided regularly can be found at paragraph 3.28 on page 17 of the report.

There is a critical point and a clear message from exposure to those two major world leaders of shipbuilding, and that is that there is large, persistent, continuing and significant involvement at all three levels of government in all facets of naval shipbuilding. The United States government, for instance, is involved in strategic planning, strategic management, managed competition, procurement allocation, financial assistance, tax incentives, labour market planning and assisting joint venture operations between competitor companies. In addition to that level of involvement from the United States government, and similarly in South Korea, there is significant and ongoing interchange between military and civilian personnel. There is extensive political involvement of elected representatives in contract allocation.

What is the point of this recitation? It is that there is no pure market in naval shipbuilding in either the United States or South Korea. We know from available evidence that similar assertions can be made concerning major shipyards in both Spain and France. Thus there is no apparent reason why Australian defence naval manufacturing, hull construction, systems fit-out and systems integration should not be done 100 per cent in this country. There is no pure market in this country, there is no pure market in the United States, there is no pure market in South Korea and there is no pure market in Spain or France. Government involvement, direction, regulation, assistance and purpose are all predicated on national objectives relating to strategic industry policy, a subset of defence policy as determined by respective governments in those countries.

For us to say that we do not need the industry, we should not be paying the extra costs and we should not be calculating the premium that is required to establish, maintain, grow and develop an industry for an island continent is really to say, ‘We are different from the rest of the world, who have made decisions opposite to those.’ That is clearly the thrust of this. This is clearly a conclusion that can be made from the report under discussion. I suspect it will become a feature of the eventual report of the committee itself, which is to be tabled late next week.

Finally, I too want to express my appreciation for the assistance provided by Ms Lisa Fenn, who was the secretary of the committee in its travels overseas. Her courtesy, her planning, her organisational skills and her ability to relate with a range of people at a most senior level in both countries was remarkable. I should put on the record our appreciation of her for the work she has done to date, particularly the drafting of this report and her commitment elsewhere.

Question agreed to.