Government procurement will be the key tool for onshoring more manufacturing, Industry Minister Karen Andrews will say in a major speech today.
That speech was, as is now standard practice, handed to newspaper journalists ahead of delivery to get some morning coverage. As is also now standard practice, the speech won’t get proper analysis because it will be old news by the time it is delivered.
Still, a little analysis wouldn’t go astray, given how crucial the issue of onshoring manufacturing and securing supply chains is going to be in post-pandemic Australia.
The government has indicated it isn’t interested in returning to tariffs, increasing incentives for research and development, or nationalising industries. Government procurement will, it seems, be the primary mechanism.
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“Our government changed procurement guidelines in 2017 for contracts worth over $4 million to ensure officials examine and understand the wider benefit offered by alternative providers,” is what Andrews’ office told the media she would say. “State and local governments often procure directly from local manufacturers in some areas like transport and health, where the federal government provides funding. A collaborative national approach is crucial.”
Maybe the speech will cover this off, but the government has changed more than guidelines when it comes to procurement.
In 2018 Australia — after several years of effort — “acceded” to the World Trade Organisation’s Government Procurement Agreement, with a commencement date of May 2019. It was intended to open up government procurement markets in signatory countries to firms from other signatory countries.
Trade Minister Simon Birmingham excitedly announced that we were now part of the agreement that “will give Australian businesses the opportunity to secure government contracts in markets worth an estimated $1.7 trillion”.
It means Australian goods, services and construction suppliers will now have access to 47 government procurement markets around the world, including new opportunities in the European Union, Canada, European Free Trade Association states, Ukraine, New Zealand and Chinese Taipei.”
Future signatories would include China and Russia, he said. In October last year China submitted a revised offer as part of efforts to join the agreement.
What Birmingham didn’t mention was that there was a quid pro quo in the treaty.
For getting access to government procurement markets in places like the EU and, in the future, China, we allowed firms from those countries greater access to our government procurement markets, with a few exemptions, like defence spending, Indigenous businesses and health services — areas where most countries would have exemptions.
In fact, the government went out of its way to avoid mentioning that the agreement would enable foreign firms to get greater access to government procurement.
The DFAT page explaining it refers only to Australian firms getting access to foreign markets, not the greater access foreign companies will get here.
That greater access, of course, is of great benefit to Australian taxpayers who will get goods and services for lower prices because of increased competition — but that’s not something the government apparently wanted anyone to know.
Of course anyone familiar with the Trans Pacific Partnership process (and, further back, the Productivity Commission’s demolition of DFAT in its trade agreements report) will recognise that DFAT is sloppy at best and often deliberately misleading when it comes to spruiking the trade agreements its bureaucrats have spent years swanning around the world negotiating.
One thing DFAT is very quiet about is that the government changed the law to expand access to judicial review for foreign firms aggrieved that they missed out on contracts.
“There were limitations on the access that we provided to suppliers to our judicial system, in our judgement, and we have now extended and made very clear and very accessible how a judicial review will operate with the Government Procurement Agreement,” DFAT told a parliamentary committee a year ago.
“There wasn’t a lot of transparency or clarity about that process in terms of how it could be undertaken and the kinds of criteria that could be considered.”
While most bilateral free trade agreements — as the Productivity Commission has often shown — are a waste of time, the problem with the multilateral GPA is that it restricts the government from changing the rules around procurement now to favour local firms.
For example, we carved out “health and welfare services”, but not the supply of health and welfare products, other than blood products, so how using local procurement to boost local manufacturing of PPE and other health products can be compliant with the GPA isn’t at all clear, especially when we’ve made it easier for foreign firms to take legal action in Australian courts.
Indeed the government said in 2015: “International agreements limit the extent to which the government can preference local suppliers.”
Now we’re told that preferencing local suppliers is going to be fashionable again in a post-pandemic Canberra.
The government has always pretended there was no quid pro quo to the GPA. Now it’s about to become a live issue. And don’t think exactly the same issue doesn’t apply in every signatory country.
All those benefits that DFAT promised would flow from the GPA may well be lost in the race to post-pandemic protectionism.