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Manufacturing is not dead, it’s just transitioning

By Mel Mac

In recent days there has been much conjecture as to who let Arrium get into over $4bn worth of debt and the usual blame games and misinformation that is the state of our modern media. Our four largest banks have unsecured loans worth $1bn that are included in this total. Last week the Industry Minister and Member for Sturt in South Australia Chris Pyne, did the media rounds explaining that the government was doing everything in its power to help Arrium. This included bringing forward a Victorian rail contract worth $80m and a government inquiry into Asian steel dumping in February this year.

SPC Ardmona recently won its anti-dumping case against cheap dumped Italian tomatoes, the Anti-Dumping Commission (ADC) and the Federal Government ruled that two major Italian exporters, La Doria and Feger, had indeed been dumping their produce in Australia. The case was decided on appeal with SPC arguing the ADC had not looked into the huge subsidies the European Union (EU) pays to Italian growers and manufacturers. As a result duties on Feger products 8.4% of the product price, with a duty of 4.5% applied to La Doria products.

Countries in Asia-Pacific produce billions of tonnes of steel and often have excess that they can sell cheaper than what their local domestic markets sell it for. As in the EU some companies engaging in dumping get subsidised via loans and tax concessions giving them extra incentives to continue the practise. While Mr Pyne mentioned protection from steel dumping from countries such as China, Taiwan, Malaysia and South Korea during his rounds he didn’t mention Japan or India. They also dump excess steel and this is of interest because we have recently signed free trade agreements (FTAs) with China and Japan and the government is looking to sign one with India in the very near future.

A senate inquiry about The future of Australian steel this month was told by the ADC commissioner Dale Seymour, that during the last few years the number of steel investigations has increased and represents 75-80% of their case loads. Mr Seymour also confirmed that 75% of Arrium products were tied up in dumping.

In America last month the government imposed tariffs of 226% on imports of steel from China, with goods from Brazil, India, South Korea, Russia, Japan and the UK subject to duties too. UK steel industry’s largest trade union Community said:

“We are drowning in this flood of Chinese imports and the US action will only serve to divert more Chinese steel towards Europe. “Unless the Secretary of State [for Business, Innovation and Skills, Sajid Javid] is prepared to join others in Europe and stand up for our industry soon, the debate will be over as we will have no industry left to save”.

Mr Pyne has backed the Australian Labor Party (ALP) call to mandate the use of Australian steel on government infrastructure projects but South Australian senator Ann Ruston doesn’t agree, saying:

“I think we need to be mindful of the fact that we are an exporting nation, we have a very small population, we’re not going to get rich selling to ourselves, so we must be very careful that we don’t put in jeopardy our trade arrangements overseas”.

Mr Pyne also alluded to future submarine work for Arrium but they make “long steel” products which is mainly steel reinforcing bars and beams for homes and buildings whereas “flat steel” is used for submarine hulls. We have produced our own steel for submarines before with Australian company Bissalloy Steel Pty Ltd producing 8,000 tonnes of it in the 1980s-90s for the Collins submarines with research and development provided by BHP.

International investors are showing a keen interest in Arrium with Flinders University Professor John Spoehr saying he wouldn’t be surprised if a Chinese company was investigating taking it over and that:

“We will see various different possibilities unfold over the next few weeks and months as various different global players either look to genuinely invest or they are interested in asset stripping, which is really the last thing we want to see occur in relation to Arrium’s future”.

The New South Wales government procured 6,500 tonnes of steel for $8.3bn from Spain for the Sydney NorthWest rail project a couple of years ago. AWU National Secretary Scott McDine said the decision was a ‘disgrace’ and that:

“Australian steel should be used on taxpayer-funded infrastructure projects — that must be the the default position … Victoria is building its multi-billion dollar level crossing project with Australian steel, and the South Australian government mandates the use of Australian steel on taxpayer-funded projects”.

“The NSW Government should hang its head in shame for rejecting Australian workers in Whyalla in favour of Spanish steel”.

AWU Acting SA Branch Secretary Peter Lamps said:

“The Federal Government created 3000 Spanish jobs that could have gone to South Australia when it handed the contract for two replacement supply ships to Europe this month.” And that: “Every other steel-producing nation in the world has measures in place to ensure local steel is given preference”.

Australia Institute chief economist Richard Denniss has said that a real FTA would be one sentence: “there will be no trade barriers between countries”. This is a fair point to make and with recent events the public is right to question what exactly are in these FTA’s signed in such secrecy and in our names.

The ADC has said it has been laden with steel investigations for the last few years and Arrium and its financial woes have also been known for some time. The big four banks should answer as to why they provided $1bn between them in unsecured loans. And the government needs to explain why it hasn’t acted sooner and whether it was the same reasoning as applied to the near death of SPC Ardmona and the demise of Holden manufacturing in Australia. Manufacturing isn’t dead, it’s transitioning, and deserves local government’s support as well as federal government and some of the profits from our infrastructure and property boom in New South Wales in particular. Australia and its manufacturing infrastructure as well as the jobs that go with them need protecting if we are to make it through the digital disruption unscathed. And lastly a nation surrounded by water that continually sends its manufacturing offshore is not a smart one but a dumb one with all of the knowledge that leaves with it.

This article was originally published on Political Omniscience.

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7 comments

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  1. gee

    so it seems that every other country is engaged in subsidies, currency manipulation, dumping, tariff protections and supporting local manufacturing capacity except for Australia.

    How stupid are we?

  2. Wally

    We should have a huge import duty on steel that is not manufactured from Australian from ore and we should also consider banning the export of minerals that have not had any value added. Digging up the ground and sending it overseas for rock bottom price does very little for our economy, it may make Gina and Clive richer but ultimately it undermines any ongoing long term benefits to our society.

    If our mineral exports dropped by half but we received double the price we would be no worse off at that time and we would retain minerals we could sell for an even higher price in the future. Our mining moguls like Gina and Twiggy Forrest are as dumb as dog shit, they continue to ramp up supply to make up for low prices, this just exacerbates the problem.

  3. guest

    In her book (2014) Naomi Klein has things to say about FTAs and trade deals. More specifically, in the case of Paulo Maccario and his solar power factory Silfab in Toronto, Canada (pp. 65-69),

    “By 2012, Ontario was the largest solar producer in Canada and by 2013, it had only one coal-fired power plant left. The local content requirements – as the ‘buy local’ and ‘hire local’ provisions were called – were also proving to be a significant boost to the ailing manufacturing sector: by 2014, more than 31 000 jobs had been created and a wave of solar and wind manufacturers had been set up.” Some of the workers came from the auto sector – Chrysler and the autoparts giant Magna. (pp. 67-68)

    Then Japan and the European Union complained, claiming discrimination against them. The WTO ruled against Canada. Silfab’s foreign investors withdrew support for factory expansion. (p. 69)

    In trade, some are more equal than others.

  4. Kyran

    Having thought about a lengthy dissertation on Australian Design Rules, a mere distraction on international trade standards, I couldn’t help but note ” $4bn worth of debt”. It reminded me of a comment.
    Andrew Denton: Mmm. There’s a saying that if you owe the bank a thousand, it’s your problem. If you owe the bank a million, it’s the bank’s problem. If you owe $10 billion, whose problem is that?

    http://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjgtanjyI3MAhVP5GMKHfHdDnoQFggbMAA&url=http%3A%2F%2Fwww.abc.net.au%2Ftv%2Fenoughrope%2Ftranscripts%2Fs981486.htm&usg=AFQjCNG-quQYsc5FWSk3m2RRYyuQ4DodFA

    This interview epitomizes so much of where we are, having had no regard for where we were. For all of Bond’s deficiencies, he knew the system. Seems to me, we have no idea where we are going to.
    Thank you, Mel Mac. Take care

  5. totaram

    ” If you owe $10 billion, whose problem is that?”
    A good point, but very different for a company or household and very different for the federal govt. which issues its own sovereign fiat currency, freely traded on international markets.

    I’m sure you’ve seen these remarks before, but let me repeat: the federal govt.’s “debt” consists of bonds sold in the bond market. Many financial institutions buy these bonds, including Super Funds etc. So who are the creditors? Not just banks as loan givers, but people who have bought these bonds with their money. This may include you and me. These bonds then represent financial wealth for those who hold these bonds. This COULD be a problem for bond holders, because the bond issuer can default on paying back the bonds. In the case of Australian Treasury bonds, no default is possible. The reason is this: the bonds are denominated in AUD, the fiat currency of the govt. Will the govt. willingly default on repayment of these bonds, when it controls the RBA which issues the currency? Never. Everyone knows this, but they don’t follow through with the obvious implications: ratings agencies and their “ratings” have no influence on the yield rate of the bonds. Japanese govt bonds have now got “junk status” by the ratings agencies, because govt debt is over 200% of GDP. What is the yield on these bonds? I encourage you to find out (it is negative, whatever that means and you have to ask the Bank of Japan for further details). The point is that according to the ratings agencies, the yields should be so high that no one will buy these bonds any more (e.g Greece!). The significant difference is that Greece ceased to issue its own fiat currency and became a “user” of the Euro which is issued by the ECB, over which Greece has no control and is therefore susceptible to bullying (by the ECB, the IMF and other non-elected agents of the 1%). Greek govt bonds lost their value when the ECB refused to buy them on the bond markets any more, thus causing the Greek govt to need a “bailout” from the the IMF which imposed “conditions” etc. In the case of Australia, the RBA is required by law to intervene in the bond market to ensure that the bond yield remains within the target band of its interest rate setting.
    There is a lot to learn and you can do it by going to:

    http://bilbo.economicoutlook.net/blog/

    and searching for “bonds”.
    In summary: the federal govt. is NOT like a household or company, because it is the sovereign issuer of its fiat currency, which is freely floated on the international market.

  6. paul walter

    Anne Ruston is a brute, beleive me. How do these sorts of creatures, male and female, gravitate to Tory politics?

  7. Bronte ALLAN

    With the introduction of this stupid so-called “free trade agreement” (sic), Australia almost stands alone now as one of the only countries in the world that has no tariffs! All this was not helped by the Hawke/Keating era when they started to reduce our tariffs. Australia’s manufacturing industry has been on a decline since, with the likelihood that within 20 years or so, we will not make anything! We import practically everything now from Asia, especially, including such ludicrous things like our “own” flag etc! Just how stupid has this situation now become, & it will only get worse! ALL Governments should hang their collective heads in shame–from being once a relatively “major” manufacturing country to almost no manufacturing is criminal, at best! Free trade, bloody NOT!!

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