Why we must save Australia’s steel industry

Why we must save Australia’s steel industry article image

If this Federal election is about ‘jobs and growth’ and ‘a fair go’, the declared themes of the Coalition and Labor campaigns, then the fate and long term future of the Arrium steelworks in Whyalla is an exemplar of challenges all sides of politics must come to grips with.

Arrium is symbolic of the big question neither the Coalition nor Labor want to confront at this poll, the question of whether Australia will continue to be a manufacturing nation?

There is no shortage of well-paid economic and political commentators that think Australian manufacturing should whither on the vine.

Wedded to doctrinaire economic theories they see the decline of manufacturing as inevitable, natural and indeed something to be welcomed. They oppose any notion of industry policy and have embraced a free trade free-for-all in which negotiating new agreements has become an end in itself, and a source of much self-congratulation, rather than part of strategic approach to trade and industry policy.

We are at a tipping point.  Manufacturing is in crisis. Over 200,000 manufacturing jobs have disappeared since 2008, and the rate of job loss has accelerated sharply.  Manufacturing employment fell 6 percent in 2015 alone, and there’s more bad news ahead.

Manufacturing output is expected to contract further with the looming shutdown of auto assembly operations and major factory closures in a wide range of sectors. Capital spending in the manufacturing sector has fallen dramatically.

Last year, manufacturers spent 35 percent less than in 2011. This is a very worrying sign that companies are ready to abandon manufacturing in Australia without convincing signals from the Commonwealth and state governments that the ongoing viability of this sector will be supported.

Australia is well behind our counterparts

There was never anything inevitable about this. What we have been witnessing has to a large extent been driven by the policy decisions of successive governments.

The decline in Australian manufacturing output and employment is not typical of other industrial countries.  Australia is well behind our counterparts – and now has the smallest share of manufacturing in total employment of any OECD country.

With manufacturing now accounting for just 6.2% of GDP in 2014-15, we are indeed hovering just above the poorer developing economies of Africa such as Botswana at 6% and Rwanda at 5%, two countries that have never had a significant manufacturing base.

The likely economic costs, loss of industry skills and wider social costs of this are already large and may grow much bigger. In the case of Arrium, a Flinders University study has predicted closure of the steel works would potentially result in the loss of more than 5,000 jobs and a hit to the economy approaching $1billion.

Manufacturing is vital to our economy

If anything, the analysis is quite conservative because of the longer-term flow-on effects on the steel fabrication sector and other negative multiplier effects throughout the nation. 

Despite the decline, manufacturing is still vital to our economy. It is deeply embedded across our national economic life and anchors far-reaching supply chains spreading throughout the economy that support hundreds of thousands of jobs in other sectors including minerals and energy, agriculture, forestry, construction, and services.

Our manufacturing sector employs almost a million workers and is a cornerstone of innovation. Indeed no country can be an innovation leader maintaining a first world standard of living without the ability to apply innovation in manufacturing. Manufactured goods account for over two-thirds of world merchandise trade.

Free trade agreements

Many countries around the world (including high-wage industrial countries) are expanding manufacturing output, creating new manufacturing jobs, and boosting manufactured exports.  All successful manufacturing nations, Japan, Germany, South Korea, and others have negotiated trade agreements which expand trade but still enable them to use government procurement and other active government policies to develop globally competitive manufacturing industries.

But that hasn’t been the story in Australia.

As the Productivity Commission has revealed, predictions of growth and jobs from Australia’s free trade agreements have rarely been delivered because the economic models employed exaggerate the benefits, ignore many of the costs, community hardship and assume away unemployment effects.  

The Australian National University’s study of the outcomes of the US Australia free trade agreement after 10 years showed the preferential agreement diverted trade away from other countries.

Economic damage

Australia and the United States have reduced their trade by US$53 billion with rest of the world and are worse off than they would have been without the agreement.

That study concludes that “deals that are struck in haste for primarily political reasons carry risk of substantial economic damage.”

The Coalition Government has claimed that Australia’s FTAs with Japan, South Korea and China will lead to tens of thousands of additional jobs. Yet the government’s own economic modelling, by the Canberra-based Centre for International Economics, estimates that by 2035 those three FTAs will have produced a total of only 5,400 additional jobs.  That’s less than 300 jobs a year.

The same study indicates that the three North Asia FTAs – with Japan, Korea and China – taken together will boost total Australian exports by only 0.5 per cent.  They'll boost imports by 2.5 per cent. These FTAs are more like "import agreements" than export agreements.

Lifeblood of our economy

I am not against the expansion of trade or negotiating free trade agreements and strongly support further developing Australia’s manufacturing trade capacity. Trade is the lifeblood of our economy.  But we need to take a much more strategic approach to trade; indeed a much more hard-headed approach that supports a diverse economy including our manufacturing industry.

The Coalition Government has negotiated poorly in the South Korea, Japan and China free trade agreements, conceding far more than our trading partners. They have struck deals at any cost, going for quantity, not quality.

The “success” of this policy is evident in Australia’s huge current account deficits. In 2015, for every dollar of manufactured goods exported, Australia imports 2.5 times more.

International debt

The rapidly growing deficit in manufactures is the biggest single contributor to Australia’s ongoing current account deficits, which have driven our rising international debt, now exceeding $1 trillion.

I’ve vowed to make the future of Arrium in Whyalla a key election issue. Despite commentary that some of Arrium’s problems were “self-inflicted” there is no doubt in my mind that appropriate procurement and anti-dumping policies would have helped prevent Arrium going into administration.

Whyalla will turn into Australia’s biggest ghost town without Arrium operating and thriving. The cost of assistance now would be a fraction of the cost of the welfare bill and loss in tax revenue if Arrium falls over.

Some commentators seem to think that workers will quickly find new jobs, mainly in the services sector, but that’s hopelessly naïve. Moreover when an investment is lost, there’s no inevitability that an equivalent investment will be made elsewhere in our economy, and even if it is there’s likely to be a long time lag involved. Australia won’t build a new economy by laying waste to what we have.

Long-term viability

In the case of Arrium there’s an urgent need for capital injection and ongoing  commitments from the Commonwealth and state governments to give an immediate boost in confidence to Arrium’s employees, local businesses and the Eyre Peninsula community at large. Such commitments would relate to ensuring immediate profitability and the long-term viability of the business.  Measures would include making the plant more energy efficient and to allow for more diverse steel products to be made locally rather than being imported.

An overhaul of government procurement laws is essential ensure that Australian steel (and other locally manufactured products) is used in taxpayer funded infrastructure projects (whether federal, state or local where Commonwealth money is involved) taking into account the social and economic benefits of local procurement.

This is something I have campaigned on for years. Sensible government procurement laws must take into account the economic effects of local procurement (including employment outcomes, promoting local manufacturing excellence and economic growth); the desirability of imported goods used in Commonwealth procurement projects being certified as meeting Australian Standards; and the whole of life benefits of a local procurement.  The failure of successive governments failing to embrace these common-sense policies has very clearly been against our national interest.

Anti-dumping laws

We also urgently need to strengthen our anti-dumping laws. Again I’ve been campaigning on this for years, introducing anti-dumping legislation into the Parliament and initiating Senate inquiries.

But there’s much to be done in this area. I support reforms that include reversing the onus of proof in dumping cases so that the importer of goods, against whom a dumping application has been made, must prove the imported goods have not been dumped; giving the Anti-dumping Commission power to self-initiate investigations; and back-dating of duties to the date of initiation of an anti-dumping inquiry.

With the impending closure of auto manufacturing in this country by the end of next year, some 200,000 jobs are at risk, including 45,000 direct jobs in auto manufacturing and the first-tier supply chain and broader supply chain and economic multiplier effects.

The Commonwealth Government in its budget has $1 billion set aside for its Automotive Transformation Scheme (ATS), but only a quarter of that will be spent because the current criteria for the ATS are too narrow.

Pressing issue

I support the views of the industry including the Federation of Automotive Product Manufacturers and the Australian Automotive Aftermarket Association to broaden the scope of the scheme to allow small and medium manufacturers to grow and flourish.

This is a pressing issue that the Federal Government has failed to acknowledge in the budget or in changing the ATS.  If we don’t protect and support our manufacturing sector now, and put in place industry and trade policy settlings that boost our manufacturing exports, Australia will pay a high price in decades to come.

I want Australia to adopt a much more hard headed approach to trade and industry policy.

I’ve long been arguing for greater parliamentary scrutiny of our trade agreements, urging assessments of the costs and benefits by independent bodies such as the Productivity Commission; and pushing the Australian Government to look at the wider national interest in supporting a diverse economy in our trade negotiations.

Achieving those objectives requires effective parliamentary scrutiny to challenge governments and bureaucrats as they make the decisions that will determine Australia’s future prosperity and security.

That’s very much what the Nick Xenophon Team will be about in the next parliament.


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