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Leaked document points to failure in defence industry policy



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M E D I A R E L E A S E

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ALEXANDER DOWNER MEMBER FOR MAYO SHADOW MINISTER FOR DEFENCE

LEAKED DOCUMENT POINTS TO FAILURE IN DEFENCE INDUSTRY POLICY

"Documents obtained by the Coalition show that Labor has admitted its total failure to develop a defence industry policy since 1987 and is now in a mad scramble to patch a policy together in the next three months."

"Labor's decision to make eight separate studies on defence industry policy highlights the need for a new D efence White Paper", the Shadow Minister for D efence Alexander Downer said today.

"The document (attached) says that the aim is to produce a 'comprehensive and coherent policy statement'. If nothing else this is an honest enough assessment of the current appalling state of defence industry policy.

"The aims of these eight studies show just how intellectually bankrupt the current defence industry policy is.

"The first project, for example, sets out to 'define "Defence Industry" in Australia', while the second is to 'clarif[y] the Australian D efence Force's strategic requirement for Australian industry'.

"These issues are so fundamental to defence industry policy it is absolutely astounding that this sort o f basic background work has not been done before.

"These studies acknowledge criticisms which the Coalition has been making about defence industry policy for years", Mr Downer said.

"But I doubt that three months work will produce a coherent defence industry policy if the Labor Government has not been able to develop one over the last decade.

"The fact is that tinkering around the edges o f the current defence industry policy will achieve nothing of creative value.

"The only way to get a workable defence industry policy will be if there are drastic changes to the system, in particular to the D efence Department's industry bureaucracy in Canberra.

"Proposals o f this sort will be an integral part of the Coalition's soon to be released defence policy statement."

(ends) July 9, 1992 (23) More Information: Peter Jennings (06) 277 4145

Parliament House, Canberra, AC T 2600 Telephone (06) 277 4145 Facsimile (06) 277 2143 After Hours Telephone: (08) 339 5152 or (06) 286 1504

COM M ONW EALTH p a r l i a m e n t a r y L IB R A R Y M iCAH

STUDY OF DEFENCE INDUSTRY POLICY

1. On the basis of our discussion with the Minister last Tuesday, I have amended the draft of the proposed study.

2. I envisage that the papers from the study will lead to the preparation of a comprehensive and coherent policy statement which would cover a wide range of existing activities and policies, together with appropriate enhancements.

a .s . e o d g e : DEPSEC A&L

L April 1992

Iroductivity... z Delence Priority

HON ROGER PRICE MP P a r l ia m e n t a r y S e c r e t a r y To T he m in is t e r f o r d e f e n c e PARLIAMENT HOUSE CANBERRA A.C.T. 2600

Minister Ray

For Information:

Minister Bilney Secretary CDF CDS DEPSEC S&I

STUDY OF DEFENCE INDUSTRY POLICY

1. Following our discussion last Tuesday, I have refined the proposed study looking more towards pulling together the various strands of industry policy and activities into a coherent and comprehensive policy statement, including whatever

enhancements come out of the various elements of the study.

2. As we mentioned, the proposed study will inevitably touch on matters which are the responsibility of Minister Bilney (R&D, and the CSP) and I see advantage in keeping our three offices closely involved throughout.

ROGER PRICE

STUDY ACTIVITIES

1. A Descriptive Analysis of the Australian Defence Industry

This study would provide:

(i) an analysis of Australia's current defence-related industry .

: the relative importance of the domestic defence market across different industries

• : define "Defence Industry" in Australia

: a simple input-output assessment of the

linkages between Defence and Australian industry and exports

: an examination of the links between Australian defence industry participants and overseas interests

(ii) an informal survey of a small sample of companies providing goods and services to Defence, to assess:

: their reliance on Australian defence contracts

: their current and prospective markets for

commercial and/or export business and the synergies between these markets and their ' defence business

: their levels of R&D, access to other Australian R&D (including DSTO) and/or reliance on

overseas R&D

: their impressions of the appropriate role of Defence industry policy

: their views on impediments to expanding their markets, including exports (eg in the areas of technology transfer, R&D, access to capital)

(iii) an overview description of the impact over the last 10 years of Defence industry policy, Defence expenditure and DSTO activities on Australian industry including

: the level of Defence demands on Australian

industry

: the extent of technology transfer from overseas

: opportunities for on-going collaboration with overseas firms and governments

: the impact of Defence offsets

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(iv) a comparison of selected overseas countries' defence industries in terms of

: size (both absolute and relative to size of

economy)

: domestic self-reliance

: exports relative to domestic demand levels

: privately and publicly funded R&D

: Government policies in the areas of defence . industry guidelines, industry assistance,

defence export enhancement and control, R&D support etc.

Time: 3 m o n t h s

plus l month to establish c o n s u l t a n t c o n t r a c t s

and 1 month

t o d r a w

together the d i f f e r e n t

papers.

The study would be carried out by external consultants and the Department of Defence. The informal survey (item (ii) above) would be handled through selected industry associations in a low key manner.

2. Clarification of the ADF's Strategic Requirements for Australian Industry

This study would build upon the priorities set out in DOA 187; the prospective force structure, equipments, systems and platforms, and support arrangements implied by the Force Structure Review over the next 10 years;

and other current studies underway on expansion, stockholding etc. It would attempt to clarify the main capability requirements over the next decade and beyond,

to provide a firmer framework for

(i) Australian Industry Involvement specifications for capital procurements

(ii) future commercial support strategies and priorities

(iii) DID program implementation

(iv) DSTO priorities and commercialisation arrangements.

The study would be carried out by a consultancy with Professor Dibb. The final paper would be a "think- piece".

Time: 3 months

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3 . Broader Government Industry Policy and Defence The study would summarise current Government industry policy and strategies, the role Defence might take in future to advance those broader concerns, and the

capacity for Defence industry to utilise other Government industry policies and programs to enhance its

performance. The study might also describe how selected countries (particularly (defence) trade competitors) use defence and other industry measures to enhance their industry performance and exports.

The study would be undertaken by DITAC.

Time: 2 months

4. Dialogue with Industry

This study has already been foreshadowed, and arises from the recent DIG study of the Industrial Mobilisation Course. The study goes far more widely into

communication between Defence and industry (see draft Terms of Reference at Appendix A cleared with Ministerial staff).

This study would be conducted primarily in-house but under the auspices of the DIG. Time: 5-6 months,

i n c l u d i n g

Die endorsement.

5. Defence Industry Development Program

A study has commenced seeking to:

: clarify the Program's conceptual basis and

structural framework

: historical and appropriate future financing

: procedures for determining priorities (with ADF Headquarters, the individual Services and DSTO).

Other issues to be considered are:

: program monitoring and project review

: scope for product development and commercial

adaptation, international collaboration and peer review

: other means to improve the efficiency and

effectiveness of the Program, including the timeliness of project completion.

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The study is being conducted in-house. DSTO is to be involved and ADF Headquarters will be consulted. Some external assistance may be necessary.

Time: 4-5 months

6. Export Enhancement

A study has commenced - it is examining current export enhancement activities which were introduced following a Ministerial Statement in 1986. A particular focus will . be the respective roles and contributions of Defence,

Austrade and individual firms and industry associations. If possible the study will include consideration of selected overseas countries' policies and procedures.

The study is being conducted in-house. Exporting firms, Austrade and industry associations are being consulted.

Time: 4 months

7. Other Related Studies

(i) Cost of Tendering

The DIC has underway an important study on the costs of tendering, and the mutual obligations of Defence and companies in the tendering process. The aims include reducing transaction costs and improving timeliness of tender processes. Note that a summary

report has already been presented to the DIC in March 1992. Time: 5 months

(ii) Role of DSTO

Initiatives to improve the exploitation of DSTO1s technologies, facilities and expertise for Australian industry development are being pursued independently of this study. There is, however, a

need for a think-piece on the future role of DSTO in enhancing Australian defence industry capability. This could be done by DSTO and the study team in IPP Branch.

Time: 2-3 months

8. Longer Term Study

Apart from the above study activities, some longer-term studies have already been foreshadowed. These include in particular the proposed Industry Commission reference and a possible BIE research study of the impact of defence procurement on some particular area of industry.

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9 . Programming and Resources

An outline of the study program is at Attachment B . The aim is for papers to be finalised for Ministers and the Parliamentary Secretary around August/September, and for material for public dissemination to be finalised in October. "

The costs of the study will be met primarily from A&L funds, with the contributions from other Programs and DITAC being met by those operations. The estimates are:

' (a) Defence personnel $M

study team (7 full-time for 6 months) .174

DID, Exports reviews (to be absorbed by EIP Branch) TBA

other (advisory group, contributors team, HQADF, ACLOG, DSTO) (to be absorbed)

TBA

higher level involvement (to be absorbed) TBA

(b) Consultancies (to be estimated and absorbed) TBE

(c) Other - DITAC (to be absorbed by DITAC)

- industry associations, companies etc.

TBA

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ATTACHMENT A

COMMUNICATION BETWEEN DEFENCE AND INDUSTRY

DRAFT TERMS OF REFERENCE

To review and report on ways of improving cross-fertilisation between Defence and industry, and promoting a mutual appreciation of the corporate cultures, strengths, weaknesses and operational environments of Australian industry and

Defence by:

1. ’ Identifying and assessing current and projected interaction between Defence and industry, taking into account in particular the Force Structure Review, Commercial Support Program, purchasing reforms and changes in management practices in Defence.

2. Examining training and development activities for officers employed in relevant areas of both the Defence organisation and Australian industry which would enhance the relationship between Defence and industry in the

future:

- clarifying the specific objectives of each activity;

- setting out appropriate sponsors, participants, procedures and costs; and

- taking into account, inter alia, existing activities including seminars and working groups, and the recent DIG review of the IMG course.

3. Reviewing the role of the Defence Industry Committee and recommending any changes to its structure and operation.

4. Recommending any other related measures which might enhance interaction between Defence and industry and increase Australian industry participation in Defence work.

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STUDY OUTLINE

1 A C T I V I T Y A P R I L MA Y J U N E J U L Y A U G U S T S E P T E M B E R OCTOP.i

1. D e s c r i p t i v e a n a l y s i s

A u s t r a l i a n D e f e n c e i n d u s t r y

[-Set Contract/s - -| 1--------------- - C o n t r a c t e d - -

---S t u d y ------ --------------------------- ,

2. C l a r i f y A D F ' s S t r a t e g i c

R e q u i r e m e n t s f o r I n d u s t r y

__________ - „ - - |

- c o n t r a c t 1 ------ S e t ------ - - C o n t r a c t - - 1

3. B r o a d e r G o v e r n m e n t I n d u s t r y

P o l i c y

1 -------- --------------------------- |

| 4. D i a l o g u e w i t h I n d u s t r y I ---

I - D I C e x a m i n a t i o n 1 ------ 1 1 ----- 1

I s . D I D R e v i e w ______ | I -------- --------

6. E x p o r t s E n h a n c e m e n t R e v i e w _ „ _ ___ j

7. O t h e r

(i) D S T O P a p e r

1 ----------------

— —

- - - - - - 1

(ii) C o s t of

T e n d e r i n g (incl

DIC)

' ........... - -

— —

- - - - - - - - - - - - - - --------------------,

A d v i s o r y C o m m i t t e e I--I I--I I--I I--I I--I 1 -------------- 1

1 C o n s u l t a t i o n w i t h I n d u s t r y |--------------------------- --------------------------- |

I P r e p a r a t i o n o f p a p e r s t o

I M i n i s t e r / P a r i l a m e n t a r y

1 S e c r e t a r y , a n d m a t e r i a l f o r

I p u b l i c d i s s e m i n a t i o n

I------------------------ | 1 -------------- 1

.... -

- - 1