Don’t Let the Trade Amateurs Fool You: We Can Do More for Our Local Industries
Amy Bracegirdle and Alex Cassie
There are two photo opportunities that politicians love the most. Shaking hands with foreign dignitaries and having a beer with blue collar workers. Patronisingly, they consider these as playing to different audiences, as if metalworkers don’t see them in Lima or Tokyo.
Politicians are happy to tell a plucky exporter in a swing seat that their latest Free Trade Agreement (FTA) will open the world to them, but it’s only the biggest and noisiest CEOs and interest groups who get their say about what they’d like out of an FTA. Trade Ministers are more likely to pursue a new FTA for political reasons than for industry gain.
The low uptake of preferential trade agreements by exporters and the inability to clearly demonstrate a benefit to the economy is evidence of this. Even worse, while negotiating these deals, the government has been dismantling Australia’s own strategic public purchasing programs designed to help local firms expand both in the domestic market and abroad.
The Liberal Party believes that ‘opening a market’ will elevate the natural winners, on a domestic or international scale. Industry policy sounds a little too interventionist for the dries. But failure to connect trade policy to the reality of our economy has consequences, not least of all for the ‘battlers’ the Liberals would claim to represent.
The lack of any leadership on industry policy has left the derided trade negotiators at DFAT with an inevitable outcome: they have a hammer when even they know the problem isn’t a nail. Instead, trade policy and industry policy should go hand-in-hand.
Firstly this may help us avoid past mistakes in future trade negotiations, such as Investor-State-Dispute-Settlement clauses, potential risks of government procurement provisions and the removal mandatory labour market testing requirements.
To ensure we maximise the economic benefits to Australians through trade, accompanying industry policy must be developed which provides structural assistance to sector of the economy adversely impacted by future agreements. One key area of industry policy that should be utilised more is that of government procurement. The Commonwealth Government spent $65.4 billion on goods and services in the 2018-19 financial year. When this is spent locally, this supports local industry and local jobs, whilst also having a multiplier effect in downstream industries. Government should use, and be encouraged to use, their procurement decisions to support local industry and job creation. In future, carve-outs in trade agreements for government procurement to preference local suppliers should have much higher thresholds.
There is also a belief that interventionist industry policy is no longer compatible with Australia’s trade obligations. The Federal Liberals cancelled local industry development initiatives aimed at boosting the innovation and capacity of local firms. But these initiatives can operate under preferential trade agreements. In Germany, USA and South Korea governments make better use of the legal space that is retained for these initiatives and pursue policies aimed at creating and commercialising markets for local producers. While the Australian manufacturing sector has been eroded over the last decade, the South Korean experience is a stark contrast. Over the last decade South Korea, while expanding its trading partners, has comprehensively utilised WTO and PTA compliant industry policies, such as localisation of existing technologies and products in the Procurement Conditioned Small and Medium-sized Enterprise R&D Program. South Korea and Germany both have ‘Hidden Champions’ programs. These programs equip small and medium firms with the export finance to become component suppliers to big brands across the globe. These are ‘hidden’ champions because they are not the branded car that arrives on the container ship, they might be the parts that hold the car together. We still lament the loss of the Holden, but wouldn’t it be nice to manufacture the parts that make up trains all over the world? Yet our country has no equivalent export finance program targeted at these small firms.
Someone once claimed we were ‘innovative and agile’ in Australia, and that red tape holds back creativity. Conservatives claim that it is the free market that gets the US its patents. But since 1982 the Small Business Innovation Research program has required US federal government departments to allocate R&D spend to local firms. Australia began a model of one of these programs under the Gillard government, but it was scrapped by Abbott as unnecessary ‘red tape’.
In 2013, the Labor government made the Australian Industry Participation Plan (AIPP) mandatory. This program required large firms holding government contracts to demonstrate that they had sought Australian suppliers. The AIPP was legal under international trade obligations. In 2014, the Abbott government scrapped it.
These are just examples of what could be possible if the government could be bothered to develop industry policy. They are not inconsistent with trade policy, and in fact are often precisely intended to increase our exports. Instead, successive federal governments have left industry directionless, and state governments are regularly warned off local content requirements by federal public servants whose brief is to minimise questions from competing nations rather than to find solutions that work under our obligations.
We should not get drawn into the narrative that trade policy is either the solution or the obstacle to development of local industry. We can and should have a government procurement policy that puts Australian products first, and R&D investment in Australian products. We can and should have a Buy Australia policy that is the front for an in-depth, industry wide manufacturing policy that ensures there are Australian products to buy. We can and should create winners on the world stage by fostering them domestically. The happy side effects would include reinvigorating the Australian economy, limiting sovereign risk, and upskilling our industries. Perhaps then manufacturers could actually be happy when they see the Trade Minister shaking hands in Brussels.
Alex Cassie is the Political and Community Organiser of AMWU WA. She previously worked at DFAT, including in the Office of Trade Negotiations and in US Trade Policy.
Amy Bracegirdle is a National Research Officer at the AMWU.