Daniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

Future Made in Australia is a plan for a stronger, more diversified and more resilient economy. There are three key components. Firstly, the Future Made in Australia Bill 2024 will embed the government's National Interest Framework to identify where Australia has comparative advantage in the net zero economy or an economic security or resilience imperative. Secondly, it establishes robust sector assessment processes to help inform rigorous government decision-making. Thirdly, it develops community benefit principles.

The National Interest Framework includes two main overarching streams. The first stream is to intervene where there is genuine comparative advantage in net zero projects or where there is public investment likely to be needed for the sector to make significant contribution to emissions reduction at efficient cost. This refers to the fact that, in some of the instances where there is comparative advantage, there might also be a deficiency of private investment—for example, if there is early-stage risk or uncertainty. This is the kind of situation that we find in a lot of instances where there is new or emerging technology or where there might be possible externalities arising from research. The second stream relates to economic security and resilience issues. This covers sectors where there might be some level of domestic capability that might be necessary in order for our broader economy to be resilient, where there might be risks that might be existing or emerging and where the private sector might under its own steam be unlikely to deliver what our economy needs.

I want to dwell for a moment on the second stream, the resilience stream. Some of the issues that arise in this regard arose as a result of COVID-19 and some of the issues that were exposed then. There was a realisation for many that Australia was not in a position to produce many strategically important goods and services and that our supply chains were exposed to disruption. Pandemics, of course, are just one example of risks to our economy and possible causes of disruption. There are others. War would be another. There are a number of macro risks. I think the issue goes deeper. Since then, there has been a broader consideration of the fact that some markets are vitally important to our economy and, indeed, all economies and that we live in an increasingly interconnected world. Critical minerals have also been increasingly identified as a possible risk to the supply chains that are going to become increasingly important to Australia.

For me, these systemic issues of resilience raise the prospect of a range of possible policy responses. One possible response in relation to these systemic resilience issues is storage. Storage is a first and, in a sense, most obvious response. This might be appropriate where a good is reliant on very, very complicated supply chains that would be almost impossible for any economy to replicate in a long-term manner. Storage for me is something that we need to bear in mind as an option.

Another would be bilateral agreements. This is something which came out during the response to COVID, where in response to some of the products that we wanted—for example, cutting-edge vaccines—bilateral agreements that might be negotiated in advance of an event such as a pandemic were a secondary policy response. I think bilateral agreements are something that we should definitely have in our policy toolkit, albeit that one must bear in mind that, at a time of crisis, bilateral agreements may be tricky to enforce at a time when some of the other parties that we have these bilateral agreements with will themselves be scrambling for the goods that are the subject of the agreement.

A third policy tool that I think is worth bearing in mind is working with other countries to diversify production where that production is currently highly concentrated. For example, this might relate to—and I'll deal with this in more detail—the production of renewable energy products, or it might deal with certain high-tech products where rare earth elements or certain critical minerals are integral. Where there are production supply chains globally which are highly concentrated at particular points, it might make sense for a number of countries to join together to diversify at that pinch point. So that's a third strategy, and that is indeed something which I know Australia is currently working on with allies.

Then, finally, there is increasing self-reliance in manufacturing, and that's obviously the subject of this bill. I think that there are a number of different strategies that we could explore as a country, and economic and social resilience could be supported by all of those. Increasing self-reliance in manufacturing is one of those. There are some goods for which that would only be a partial solution—goods where the supply chain is so complicated that it is, in effect, global. But increasing self-reliance in manufacturing is definitely a critical element of this. Indeed, increasing reliance in manufacturing could couple with the third strategy that I alluded to, which is to develop more diversified international supply chains. We could become an important part of those more diversified supply chains if we were to have a more robust and diversified manufacturing base here in Australia.

I want to just make a few observations on why some of these resilience issues are arising. I believe that there are four key aspects to Australia's growing exposure to disruption in relation to strategically important goods. One is that globalisation has led to increasing specialisation. Specialisation is important in that it has led to higher productivity growth. It has led to small- and medium-sized economies, however, becoming increasingly—or, in some cases, totally—reliant on imports for many goods, including a number which could be considered strategically important. This specialisation trend has been sustained over the last century. On balance, I believe that it is a good thing and that it has underpinned global productivity growth, but it has created risks.

Second, supply chains for many goods have become increasingly global. Even the humble Nutella now has an incredibly complicated global supply chain, which the Economist has pointed out in a number of cases. More to the point, the iPhone and many other critically important high-tech goods—many critically important parts of the future renewables economy—are also now subject to global supply chains. That can be a problem where parts of that supply chain are subject to market manipulation. The OECD estimates that 70 per cent of global trade now involves what they term 'global value chains'. This can be contrasted with more simple trade economies going back centuries, where it was much more a case of countries or economies swapping goods that one produced and the other didn't. Now we talk about many, many goods—and not just high-tech goods, although high-tech goods are critically important because they are of such strategic importance.

A related and third point is that some intermediate inputs are now highly concentrated, including endowments and processing of some natural resources, such as rare earths, and the production of some key inputs—for example, in the production of medicines. This can leave upstream producers very exposed to market power. Finally, the production of some final goods has become highly concentrated. An example is the processing of rare earths used in the production of lithium batteries and many renewable energy mechanisms. This concentration has sometimes been a by-product of the productivity gains arising from specialisation. However, it has led to the supply of some goods being very vulnerable to the vicissitudes of bilateral relationships and, in some cases, has left markets subject to manipulation.

Many of these factors that I've talked about—and many of these are multidecade factors or, indeed, from over the last century or more—have arisen for very good reasons, most particularly the productivity gains that I talked about earlier. However, while beneficial in many respects, many of these trends have also led to risks arising, particularly for small and medium economies. In classifying goods and services as strategically important or not, I believe Nutella is a strategically important good for my diet and my welfare in the mornings, but clearly there are many other, even more, strategically important goods, such as the telecommunications devices that I have talked about, such as high-tech goods relating to the clean economy of the future. But identifying goods as strategically important is not a simple binary exercise. It's going to be a matter of determining this according to a set of criteria and rigorous empirical analysis of where those strategic goods might have pinch points in their global supply chains.

That's why the sector assessments that are a key part of this framework are so important. These sector assessments are going to be undertaken very rigorously, and it's very important, I think, that Treasury plays a key role in this so that it will bring not just high-quality empirical data but also the analytical framework. There are all sorts of goods that one might imagine could be critical to the resilience of our economy, like food and food packaging. We've talked a lot about the sophisticated products that are part of the clean energy transformation, as well as medical equipment—not just PPE equipment and sanitisers but also the constituent components of vaccines and medical treatments, glass vials, chemicals and medical equipment. That whole part of our economy, I believe, is also critically important to our resilience.

The list of strategically important goods that might underpin our economic and social resilience is potentially a long one. We will need to intervene in these areas, I believe, in a very thoughtful way, because, for some of these goods, it won't be possible for Australia or, indeed, any single country to provide itself with end-to-end full resilience and full guarantees. So it's going to be very important for us to think strategically about how we intervene.

As I mentioned earlier, there are a number of strategies that can be undertaken to manage resilience. One is storage, and that is something which I think we should think about as one of our policy tools. One is international access, which can be managed to some degree through agreements. One is diversifying global supply chains, and I think, as I've mentioned, this is highly related to this fourth policy stream, which is enhanced domestic manufacturing capacity. In some instances, it will be diversifying global supply chains through us playing a key role. That might be, for example, in the processing of rare earth elements, and it might be that the diversification of global supply chains takes the form of Australia engaging in offtake agreements with other advanced economies such as Japan or the US and that it's only through those offtake agreements that the investment in upstream processing can become derisked enough that long-term investors will invest in those.

When production becomes highly specialised, the prospects of building up alternative supply options, even in conjunction with other countries, can be challenged. I wanted to just look for a moment at rare earth elements because they are critical to some of the issues that we're looking to manage most immediately in relation to this broader strategy. If you look at rare earth elements—and the numbers vary a little depending on which year you look at it—there are four major producers of rare earth elements in the world as of 2022: China, with 70 per cent, the US, with 14 per cent, Australia, with six per cent, and Burma, with four per cent. Depending on exactly where you define the boundaries of rare earth elements and which year you look at, those percentages can change a bit. Suffice to say that not only in the production of rare earth elements but the processing of them, there is significant potential for there to be market concentration issues. We know that rare earth elements are critical for all sorts of things like automatic catalytic converters, fluid cracking catalysts in petroleum refining, and permanent magnets. They are also a key component of many renewable energy devices such as wind turbines and generators.

A key issue for me is, firstly, how we de-risk the extraction and production of rare earth elements and also how we think about the processing of rare earth elements, an area where Australia has huge opportunities. When we look at this bill and we look at the development of a national interest test—which I believe is critical and a really important part of this overarching framework, based on comparative advantage and rigorous evaluation of resilience—coupled with sector assessments, this is going to be a significant step forward in Australia's consideration of its future economic development opportunities.

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