Game change needed to keep Australian manufacturing alive

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The Federal Government will soon release a statement on industry and manufacturing policy. It will respond to the Prime Minister’s Taskforce on Manufacturing – and it comes at a critical time, writes Federal Member for Throsby, Stephen Jones.

AUSTRALIA NEEDS A GAME-CHANGER if we are going to retain our manufacturing capacity.  The resource boom has sent the Australian dollar to parity and beyond. Miners are making record profits but manufacturing has its back to the wall.

It should not be beyond our wit to use the strengths in one sector to revive another.

The term ‘two-speed economy’ was invented to describe regions like the Illawarra.  We have a boom in the coal mining sector: record investment, opening up new pits, increased employment.  The BHP story says it all: in August last year the company announced a profit increase of 86 percent to a record $22.56 billion.  At the same time its former subsidiary Bluescope was announcing its exit from steel export, a radical restructure and the layoff of over 800 workers locally.

Labor moved quickly to provide a major package to assist the company, its workers and the region: we brought forward $130 million earmarked for the company under the Steel Transformation Plan and $10 million in Labor Market Assistance for the workers affected.  This is all good stuff for the time being – but we need a significant shift in policy thinking or more manufacturers will close.

That is why a group of Federal MPs formed the Labor Manufacturing Group in caucus.  We advocate policies that will ensure the future of a viable manufacturing industry in this country.  With over 25 members it has strong support from across the factional groups in the caucus. The Group meets regularly to hear from Ministers, business and unions on what we need to do to ensure a broad base of manufacturing survives.

We haven’t got forever to get this right.  As one manufacturer in my electorate says: ‘when the Aussie dollar is at 80-90 cents we have a very viable business.  We can compete with imports and win export business as well.  Now we have been above $1 for most of the last 12 months and we wonder how long we can survive’.  It’s a story that could be told in many of the fabrication shops around the country.

Many businesses haven’t survived.  A few months ago OneSteel closed its oil and gas pipe business at Kembla Grange.  Neighbouring firms Bredero Shaw and Socotherm have also closed.  Together these companies manufacture and coat the long distance pipes used to transport oil and gas from mine to market.  At a time when demand for pipes for oil and gas is booming you’d think they had a viable business.  But the high Australian dollar and low domestic demand has had its toll.  Their closure has a flow on effect for Bluescope down the road – 50,000 tonnes less locally produced steel.

Labor action

How do we ensure we can convert the mining boom into opportunities for local manufacturing?  How do we guarantee that local producers aren’t competing with dumped goods?

The thrust of policy to date has been to tighten up our anti-dumping laws and beef up the Australian Industry Participation Plans for Government contracts and large resource projects.  Significant steps have been made here with three bills moved through Parliament in 2012, giving Customs more power and resources to crack down on illegal dumping. 

Bluescope has been quick to move with investigations underway into alleged dumping of hot rolled coil from Japan, Korea, Malaysia and Taiwan said to be worth $50 million. We should continue to lift the bar in this area, but as one business in my electorate pointed out: ‘when it comes to dumping, many of the culprits have proved themselves to be first class innovators in getting around the law’.

Australian Industry Participation Plans require mining projects to set out how local manufacturers and service providers can get access to the large contracts available in the building and operation of a mine.  The Plans have existed for a while but lack teeth.  They haven’t been very transparent and nobody has policed the companies to see if they are making a genuine effort in this area.  Labor has now tightened the rules and made the process a lot more transparent.  But there are some in the caucus, including me, who would like to see the Government go further.

I have had representations from many businesses and business organisations complaining they are not getting a fair go at bidding for the business.  The large mining companies, with their established global supply chains, do not look to local fabricators when seeking tenders for work.  

Bold policy required

The mining companies need to be put on notice that if they don’t lift the level of Australian content – giving Australian businesses and Australian workers a fair go at tendering and winning work – then the Federal Government will move to mandate local content requirements.  There are plenty of levers available to the Commonwealth.  For example the Australian Industry Participation Plan is part of the Enhanced Project By-law Scheme. This program provides concessions from the general five percent tariff duty on certain capital goods for major investment projects including mining projects.  It is worth millions to mining developments.  This scheme could be adjusted so that local manufactured goods have to be included in future developments.  It wouldn’t take much to make a big difference.

The Steel Institute  – the industry body for the major steel producers and fabricators – estimates that local shops are getting less than 10-12 percent of the business from the mining boom.  The rest is being sourced offshore.  The Institute estimates that most manufacturers have the capacity to double their existing output.  This means jobs, apprentices and investment in new plant and equipment – and a sharp increase in productivity for the industry. 

Industry must step up

This shouldn’t come as a free handout to the manufacturing sector, which needs to face up to its own shortcomings.  Australia’s fabrication supply chain is fragmented and lacks the internal efficiencies to compete against cheaper, bundled imports from China. Many within the steel fabrication sector recognise that they do not have the economies of scale needed to win major tenders. 

Australian manufacturers need greater cooperation to develop the economies of scale to compete against global giants. Without this, small steel fabricators trying to compete against each other will lose out. They will continue to dwindle in number and they will share the blame for the loss of Australian manufacturing capacity.

There is a lot at stake, not only for regions like the Illawarra, but for the whole country.  Manufacturing makes a country smart. Nationally it employs around a million people – five times as many people as the mining industry – and adds almost $112 billion to the economy each year.

The expertise that manufacturing creates is hard to establish and even harder to replace once it is gone. Manufacturing invests in the equipment and technology and drives the innovations and capabilities that we need to maintain our productivity and economic capacity. 

The skills and knowhow involved take generations to develop.  That vital reservoir of national knowledge relies on Australian industry being involved in all elements of the production process.  

A country that makes stuff knows stuff, and if we want to be a country with high engineering capacity we have to be in the manufacturing business.

Author: Stephen Jones

Stephen Jones is the Federal Member for Throsby.


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