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Thursday, 26 June 2014
Page: 3977

Senator XENOPHON (South Australia) (09:32): The primary aim of this bill that I have moved with my colleague Senator John Madigan is to require Australian flags flown, used or supplied by the Commonwealth to be manufactured in Australia from Australian materials. At the outset, I would like to foreshadow that Senator Madigan and I will be moving amendments to require only that the flags be only Australian made, consistent with the requirement set out in the Australian Consumer Law, and that has arisen out of a very useful Senate inquiry process. I will be moving those amendments should this bill go past the second reading stage in committee.

In essence, this would mean that the flags would have to meet the following requirements: the goods have been substantially transformed in Australia and 50 per cent or more of the total cost of producing or manufacturing the goods is attributable to production or manufacturing processes in Australia. This amendment is in line with concerns raised by industry—flag makers in this country—during the committee inquiry into the bill and, in particular, the cost of manufacturing all elements of a flag in Australia. It is a pragmatic and sensible amendment. It is an amendment that should remove any concerns that the government or the opposition have in relation to this. At the outset, I would like to acknowledge the role of Senator Kim Carr. He has been a passionate advocate for manufacturing in this country, and I am grateful for the conversations I have had with Senator Carr in respect of this bill.

While I acknowledge the concerns of flag makers in relation to these costs—and I believe they are real concerns—I do want to take the opportunity to point out just how far we have failed in supporting our manufacturing and associated industries when it is too expensive to even make material for our own flags. In recent years, we have seen our manufacturing sector face challenge after challenge, with little effective support from governments of either persuasion. Without support and with the added burden of the closure of Ford, Holden and Toyota as automotive manufacturers in Australia, we are at real risk of causing a huge chasm in Australian manufacturing. And we also know that our dumping laws are not strong enough. We know that the coalition made a promise at the last election that they would reverse the onus of proof in dumping cases, something that Senator Madigan and I are passionately in favour of. In fact, I have moved amendments, co-sponsored by Senator Madigan, in relation to that. I know that Senator Whish-Wilson from the Australia Greens is also passionately concerned about manufacturing and the way that these free trade agreements operate. It is very important that the commitment of the government at the last election is something that is honoured in order to save Australian manufacturing jobs.

The former Prime Minister's Taskforce on Manufacturing in its August 2012 report estimated that 950,000 people were employed in the sector and that it contributed eight per cent of gross domestic product directly. That did not include the significant amount it contributes indirectly through flow-on effects to other businesses. It also contributed 29 per cent of Australia's exports despite the high dollar. But the report also stated that, over the four years prior, over 100,000 jobs had disappeared from manufacturing. The report also estimated that another 85,600 jobs, at a minimum, would be lost in the five years following the publication of the report. Sadly, that is coming true with the demise of original auto manufacturers in this country. That figure could well be significantly higher now given that Ford, Holden and Toyota are planning to exit Australia by no later than the end of 2017—in Ford's case, it is in 2016. If we lose our manufacturing sector, we will be at a global disadvantage. We will lose not only tens of thousands of jobs but also our self-sufficiency. I also find that it beggars belief that the Australian government would not even allow Australian manufacturers, shipbuilders, to tender for those two supply ships. Absolutely staggering. They were not even given the opportunity to be part of that process which would have meant thousands of jobs in a number of states, including my home state of South Australia.

I do believe flag makers when they tell us that they simply could not source Australian material to make flags that would satisfy the bill as it stands. It is, quite frankly, an embarrassment to have allowed our manufacturing sector to have reached this stage, to be on its knees, but, in support of the manufacturers and flag makers we still have, we will seek to amend this bill because we want to be sensible and pragmatic and we want to save as many Australian jobs as possible. Who knows—if this bill gets through, if this gives a shot in the arm to Australian flag makers, maybe in the not-too-distant future they will be able to make flags that are 100 per cent Australian made using Australian materials.

This bill was prompted by the concerns of Senator Madigan and me regarding government procurement—in particular, relating to procurement for Parliament House. I commend Senator Madigan for having initiative in the procurement inquiry. Both the government and the opposition will be familiar with our push to have the Department of Parliamentary Services accept an Australian-made dinner set, a crockery set, for use in the members' dining room because the current set is made in England, China or the United Arab Emirates. Despite spending over $10,000 of our own money to commission the 750-piece set, DPS has so far refused to use it. Senator Madigan and I are now considering which charities would benefit most from the donation of Australian made, high-quality china.

Our ongoing interactions with DPS prompted us to move for a Senate committee inquiry into procurement processes generally, which Senator Madigan led the charge on. I believe that government procurement should make the best use of taxpayer money possible. In my view, this should include consideration of the benefits of using Australian products, not just the cost. It also needs to include reliability, quality and other factors. There are the flow-on effects of having something made here in Australia. The flow-on effects to our economy mean stronger businesses and that means more jobs. Focusing on Australian products also means more support for our manufacturing sector and, therefore, jobs beyond the business retailing the products.

In my view, it is all about value-adding. A business importing office paper, for instance, might be able to give departments a lower up-front cost than an Australian company, but ordering through an Australian company means that jobs in the retailer are supported and so are jobs in the paper mill and forestry sector. We also know that it meets high environmental standards and that workers are employed under fair and safe conditions. These guarantees are priceless. A particularly painful reminder of this occurred in Bangladesh in April last year when 1,129 people lost their lives and another 2,515 were injured when the Rana Plaza building collapsed. Many of the victims were garment workers who were forced to continue working even after the lower floors of the building was closed due to structural concerns. Any decent person would be repelled at the idea of financially supporting this sort of human rights abuse. Our government procurement procedures should actively reject any shadow of such practices relating to the manufacture of procured goods.

In my view, the procurement of Australian flags is symbolic of all the problems with government procurement at federal and state government level. The Australian flag is one of the most powerful and evocative symbols of our nation. It is also a particularly powerful symbol when used in conjunction with the parliament. I think most people, not just Australians, would feel uncomfortable about the idea that the flag flying over their parliament was made in another country. If you put this to the man or woman on the street in China, in the United States, in the UK or in any other country in the world, they would expect that the flag flying on top of their parliament or on top of their government buildings would be made in the country it represents. But in Australia we take such a black-and-white view of procurement rules and free trade arrangements. We are the 'free trade Taliban', as we are taunted overseas. We take this literalist, purest view of free trade like no other country in the world.

I see that Senator Gavin Marshall is in the chamber. He is well familiar with the free trade agreement with Thailand. We do a free trade agreement with Thailand and we get cheap cars from Thailand with no duty. There is meant to be no duty for our cars, but, after the agreement was signed, sealed and delivered, the Thai government changed the rules so that a Ford Territory, for instance, because of its engine size, pays a massive duty. It costs $57,000 to buy a top-of-the-line Ford Territory here and it costs $105,000-plus in Thailand. We have been taken as shmucks in relation to this. I do not say that disrespectfully to the Thai government, but I say that we have been sold a pup when it comes to some of these free trade agreements.

One of the main arguments raised against this bill in the Finance and Public Administration References Committee report is that the Commonwealth cannot put country-of-origin requirements into procurement rules because it would breach our free trade agreements. But not everyone follows the rules the way we do. The United States, for example, our partner in the Australia-United States Free Trade Agreement, has specific legal exemptions in place for the US Department of Defense, known as the Berry Amendment. The Congressional Research Service explains the amendment in the following terms:

The Berry Amendment … contains a number of domestic source restrictions that prohibit DOD—

that is, the Department of Defense—

from acquiring food, clothing (including military uniforms), fabrics (including ballistic fibers), stainless steel, and hand or measuring tools that are not grown or produced in the United States. The Berry Amendment applies to DOD purchases only.

According to the Department of Finance, this is consistent with exemptions allowed to the US under the free trade agreement we have with the United States, but any similar provisions for Australia, at least in the department's view, would be in breach. It seems that, when it comes to raising the white flag, the Department of Finance deserves a gold medal.

Dr Nick Seddon is Adjunct Professor at the College of Law in the Australian National University. He appeared before the committee's inquiry in a personal capacity to share his extensive knowledge of government procurement matters. Regarding the US exemptions, I asked him the following question:

There are two pieces of legislation in the US. There is the Buy American Act, that has been in place since President Hoover in 1933; there is also more recent legislation that requires flags on US government buildings and defence establishments to be made in the United States. How do you say that those key pieces of legislation in the US sit with the US's interpretation of the free trade agreement that we have with them?

Dr Seddon responded:

I have always been puzzled by that. I have never understood how America can enter into these agreements and have legislation like that at home. It baffles me.

So why do we not take advantage of the same exemptions the US does?

Commonwealth procurement is currently guided by the Commonwealth Procurement Rules, or CPRs. As an aside, I suggest that the CPRs need a case of CPR because they are not working. They set out the following areas to be addressed: (1) value for money; (2) encouraging competition; (3) efficient, effective, economical and ethical procurement; (4) accountability and transparency; (5) risk management; and (6) procurement method. Paragraph 5.3 of the CPRs reads:

The Australian Government’s procurement framework is non-discriminatory. All potential suppliers to government must, subject to these CPRs, be treated equitably based on their commercial, legal, technical and financial abilities and not be discriminated against due to their size, degree of foreign affiliation or ownership, location, or the origin of their goods and services.

According to evidence from the Department of Finance:

These commitments provide access for Australian suppliers to the government procurement markets of other countries, whilst also placing obligations on the Commonwealth Government to open up access to our procurement market. These commitments limit the extent to which the Commonwealth Government can preference local suppliers.

Despite the existence of the US domestic product provisions, the department considered that because this bill aims to discriminate between suppliers it would not conform to the current CPRs. In my view, this ties in with Australia's absolutist, purist, fundamentalist and stupid approach to free trade, which has been reinforced by successive governments.

This has been particularly obvious in relation to anti-dumping policy, where Australia refuses to take the same opportunities that other nations do to protect their industries, on the basis that they are in breach of WTO rulings. These other nations, including the US, obviously do not believe this is the case, or, if they do, they are willing to take the risk to save their manufacturing jobs and stand up for their economy.

Our literalist, purist approach is disadvantaging Australian industry and killing Australian jobs. In effect, we are playing by Queensberry rules in the middle of a bar fight, and if we do not toughen up we will end up with more than a bloody nose.

It is also interesting to note that the National Australia Day Council, which is the coordinating body for Australia Day celebrations and the Australia Day awards, takes a different view. During the last Senate estimates session, I had the following exchange with representatives of the council, including Mr Jeremy Lasek, the CEO, and Mr Adrian Watts, Corporate Direction.

Mr Watts: … for the last seven years that I am aware of, all flag purchases that are flown on flagpoles that we have purchased have been Australian made. That has been my choice for the organisation.

Senator XENOPHON: You might be in breach of WTO obligations, according to the Department of Finance.

Mr Watts: That has been our choice of procurement over the last seven years. There have been reputable suppliers in Australia for that.

So it is clear that it has been the preference of the Australia Day Council, due to a quality control preference, and they are not going to change that position. I congratulate them for it. It is a relief to see that the council understands the importance of insisting on Australian made flags. Interestingly, they do not seem to have come up against any accusations of breaching FTAs.

One question the Department of Finance should ask itself is this: how do we define 'value for money' under the CPRs? Does it include consideration of the flow-on effect of using Australian companies? Does it consider the value of returning taxpayers' money back to the Australian economy? My colleague Senator Madigan will no doubt elaborate on this. Or does it just consider the list price? My instinct suggests it is the latter, and evidence provided to the committee by Australian flag makers backs that up. Carroll & Richardson Flagworld Pty Ltd, in their submission to the committee, stated:

In recent times we have seen a shift in purchasing emphasis by the Australian Government that places at risk the ability of companies such as ours the opportunity to compete fairly with overseas sourced flags. Local importers can easily bring in container loads of flags and swamp our market with cheap and inferior products. The manufacturing plants they source these imported products do not have the meet the stringent conditions placed on local companies to meet a host of legislative and regulatory requirements.

They continued:

… we have seen the most difficult customer to convince of the need to support and buy Australian Made Flags is the Commonwealth Government itself through its departments. The reason offered by public servants is that their hands are tied because of the requirement they have under the present Commonwealth Procurement Procedures and our WTO obligations. I cannot think of any other country in the world that would allow its National Flags to be made in another country and then imported to the detriment of local companies who are willing and capable of making the flag.

Common sense tells us that government departments and agencies should be supporting Australian companies, not making them jump through more hoops than their competitors.

The aim of this bill is straightforward. Senator Madigan and I will be proposing an amendment to the bill to address concerns raised by flag manufacturers about the cost of production. Also, there has been no conclusive argument made by the Department of Finance or any other body as to how this bill would breach Australia's free trade obligations.

The Australian flag is the symbol of our nation. We should protect and honour that symbol and treat it with the respect it deserves. Government procurement is about much more than ordering cheap office stationery. It should reflect the values we hold as a nation and seek to create the greatest return for Australian industry, jobs and, in turn, society. Free trade agreements are vital to Australia's prosperity, but if we continue to elevate these agreements over our own national interest we will be risking even more than our flags.