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Legislative Council - Fifty-Third Parliament, Second Session (53-2)
2016-06-22 Daily Xml
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Bills

Steel Industry Protection Bill

Introduction and First Reading

The Hon. M.C. PARNELL (16:16): Obtained leave and introduced a bill for an act to provide for the use of Australian steel in designated public works constructed by or on behalf of a public authority. Read a first time.

Second Reading

The Hon. M.C. PARNELL (16:17): I move:

That this bill be now read a second time.

The purpose of this bill is to secure a future for steelmaking at Whyalla and also at Port Kembla in the Illawarra region of New South Wales. As we know, the blast furnaces are at serious risk of closure from a prolonged downturn in international steel prices and also by the dumping of below-cost product by foreign competitors and manufacturers. The Whyalla blast furnace must find a market for the 1.2 million tonnes of steel it has to produce each year to remain viable. It is a continuous steelmaking facility and it is not possible to simply turn it on and off to meet higher or lower demand.

The South Australian government, the South Australian parliament, indeed all Australian governments, should step up to this challenge. It is important to note that the threats to both Australian steel plants are not caused by the workers or their lack of skills or innovation; we have some of the highest skilled, most productive and most innovative steelworkers in the world. However, the global market is in the grip of a price war with government-owned and supported furnaces primarily in, but not limited to, China, selling at or below cost.

Indeed, Australia's ruling free trade ideology has left the industry unprotected against international predatory behaviour. The global steel market is a global failure. We are seeing global economic failure in the steel market and it is the responsibility of state and federal governments to step in and address that global failure. South Australia would not be the first or only government in the world to act on protection of its steel industry.

This bill is largely based on a similar bill introduced into the New South Wales parliament by my colleague the Hon. David Shoebridge MLC which should pass the upper house of that parliament this week, with the support of the Labor Party and the whole of the crossbench. In New South Wales so far only the coalition is voting against it.

The United States, which is often held up as a free market champion, has a long tradition of procurement policy focused on the steel industry. You can see this in states such as Pennsylvania and Illinois. I understand that the origins of my bill, which I say were based on the New South Wales bill, are in turn based on previous work done by legislators in Pennsylvania and Illinois.

When you look at those states overseas, you realise that they get it. They understand the importance of their steel industry. The rest of the world does understand that, without intervention and with a failing global market, the steel industry will fail. With the loss of the steel industry comes a loss of strategic capacity for world economies, and that is why it is so important that we hang onto that industry here in South Australia. The American federal government has taken action through legislation. Members might have heard of their Buy American Act, and most recently their American Recovery and Reinvestment Act. That act, which is part of the so-called Obama stimulus package, includes a provision that the multibillion dollar public works projects that are funded by that act need to be made not only out of American steel but all manner of American raw materials and manufactured goods.

In recent months, the Senate Standing Committee on Economics has undertaken hearings on the future of the Australian steel industry. It has received strong submissions from industry and unions. I just want to refer briefly to one of the submissions that was referred to by the Australian Workers' Union, and that is a submission prepared by the consulting firm BIS Shrapnel. I will just read a couple of sentences from that report because I think it sums up, pretty simply, the importance of governments and parliaments taking action. The executive summary of this report, entitled 'The Benefits of a Government Procurement Policy for Local Steel ', reads as follows:

The Australian steelmaking industry is under severe pressure from rising imports, in particular escalating imports of cheap steel from China. A significant proportion of this steel being exported to Australia is reputed to be ‘dumped’ at prices which are below the cost of production i.e. at a loss by the Chinese and other Asian producers. For the Australian steel industry to remain viable and profitable, it firstly needs to produce at (or near) capacity and secondly, sell as much of its product as possible into the domestic market, and sell less into the less profitable (or often unprofitable) export markets where global oversupply has pushed down prices and margins.

The construction sector is the key source of domestic demand for steel (over 80%), but demand from the private sector is expected to decline over the next 3 to 4 years due to a contraction in private sector construction and the shutdown of local motor vehicle manufacturing. Public sector demand, on the other hand, is set to increase as public infrastructure construction picks up and (later) as public non-dwelling building moves into an upswing.

That is the consultant's summary: that the key to the steel industry is in public infrastructure spending. What the BIS Shrapnel report said was that at present less than 50 per cent of steel used in Australian public sector construction is produced domestically. That share, BIS Shrapnel says—and I think this is generally agreed—is forecast to fall to just 43 per cent by 2019-20, as government contractors increasingly turn to cheaper imported steel. That steel is imported not because it is necessarily cheaper to make but because it is being dumped in Australia. It is being sold in Australia through a failing global steel market.

The BIS Shrapnel report identifies a readily achievable target of 90 per cent of Australian steel used in infrastructure projects. That would increase annual domestic demand by some 778 kilotons. That would be enough to keep viable not just the Port Kembla furnace but also the Whyalla furnace. So what would the cost of this be to Australian governments? The fact is that it would be insignificant compared to the benefits of local procurement.

The consultants advise that the total cost to all Australian governments of a national steel procurement policy would be in the order of $61 million to $80 million a year, and it would effectively be about one-fifth of 1 per cent of total infrastructure costs. The Greens' view is that that is a very small price to pay. In fact, it is a price that would be paid back many times in returns from state and federal taxes and in the avoidance of additional costs that would come if the industry shut down and towns like Whyalla went into a prolonged economic malaise as a result of that shutdown. The Greens say we cannot allow that to happen. I was interested to get the preliminary response from the state Treasurer to the Greens' proposal, quoted yesterday in InDaily. It states:

Treasurer Tom Koutsantonis told InDaily: 'What a wonderful compliment from Mr Parnell and the Greens that they seek to put Labor’s steel procurement policy into legislation'.

I will take the Treasurer's congratulations and thanks wherever I can get it. Mind you, he has not yet said that he is going to vote for it, but certainly he is acknowledging that he is proud of his government's steel procurement policy and he sees it as a compliment that the Greens are seeking to legislate in this space.

One of the issues that is often raised by people who do not believe that we should go down a path of mandating local procurement is this issue of international treaties. As members might recall, I asked a question yesterday, which has now been referred to the Treasurer, in relation to a specific international treaty on government procurement that Australia is about to sign. If that treaty is signed, it will put additional unnecessary barriers in the way of national interest policies such as protection of our domestic steel industry.

My advice to the federal government is: do not sign it. Similarly, the Greens' advice to the federal government is: do not sign the Trans-Pacific Partnership Agreement either, for the same reason. As members might appreciate, these treaties incorporate provisions that allow foreign companies to effectively sue the Australian government for perceived breaches of these free trade agreements. So, if we try to do something as dastardly as protect our steel industry then the argument goes that we are leaving ourselves open to legal liability.

The point that I have made is that just about every country has found ways around these provisions—certainly the Americans have, certainly the Chinese have. I prefer a more honest approach. I would rather we not sign these treaties in the first place, rather than seeking to find backdoor methods of getting around them. We know that international trade is important but so too is our national interest. I will turn now briefly to the provisions of the bill. Clause 4 is the key operative provision. It is quite simple. It provides:

A public authority must not construct designated public works unless steel, other than excluded steel, used in the construction of the works is Australian steel.

Clause 5 provides:

A public authority must not construct designated public works unless steel, other than excluded steel, used in the construction of the works is manufactured in a blast furnace or electric arc furnace located in Australia.

That gives you the definition of Australian steel. There is a comprehensive definition in clause 3 of what is excluded which, in short, covers any forms or quality of steel not manufactured in Australia, or could not be manufactured in Australia for a reasonable cost, or specialty imported items or components that are not made, or could not be reasonably made in Australia and would impose unreasonable costs if required to be made from Australian steel. So, basically, once you have sorted out those exemptions it still leaves us with about 90 per cent of the steel used in infrastructure projects being able to simply be Australian steel.

In terms of reasonable costs, the bill includes a definition so that that phrase means a cost imposition that does not exceed 20 per cent of base costs. Clause 5 also provides that relevant contracts are to include a penalty clause, because there is no point in having a statutory provision without having another provision that makes it enforceable, and that penalty clause would impose a financial penalty on any contractor who breached the Australian steel requirements, and that penalty would be equal to the product of the quantity of the steel used in the contract that did not conform to the provision of the bill and a penalty price set by regulation that would be at least $1,000 a tonne.

Clause 6 of the bill provides that all relevant contracts are to include provisions requiring contractors and subcontractors to submit a cumulative steel usage report to the public agency with which they have contracted before any progress payment or a final payment is made. The cumulative steel usage reports are to specify the quantity of steel that is used, broken down by the origins of that steel, along with evidence that establishes the veracity of the quantities and the origins.

Clause 7 of the bill requires annual reporting by public authorities so that the community can see that the requirements of the bill are being met. The bill also has a number of relevant definitions. I have already mentioned the definition of 'excluded steel'. There are also definitions to ensure that the bill covers the gamut of public authorities and designated public works. 'Public authorities' would include the South Australian government agencies, Public Service agencies, local councils, state-owned corporations or any other personal body that is prescribed by the regulations to be a public authority for the purpose of this act. So, for example, it would automatically include SA Water, but extra steps would be needed to cover public infrastructure projects that are undertaken by private companies, such as SA Power Networks—they would not be automatically included.

The reason I use the example of SA Power Networks is that I received a piece of correspondence just yesterday from someone who had been out and about and got talking to some contractors who were working on stobie poles. In talking to these contractors, it became apparent that stobie poles made in South Australia are made from Chinese steel. Stobie poles in South Australia that are repaired are repaired using Chinese steel.

I have not had a chance to ask a minister in question time yet about the veracity of that claim, but let us say that it is true, let us think that through. The stobie pole, is one of the National Trust-listed heritage icons of South Australia: it is on a list that includes Balfour's frog cakes, Bickford's lime juice cordial, Haigh's chocolates, the Hills Hoist, the kitchener bun, pie floaters, Popeye and the deposit container legislation system. Stobie poles are on that list. If my correspondent is correct, and if all new stobie poles are being made with Chinese steel, then I think that is an outrage. Maybe we will see BankSA and the National Trust, who I think together maintain this list of heritage icons, remove the stobie pole from the list as no longer being truly South Australian.

In conclusion, if the Whyalla steel industry shuts down, it is never coming back. We do not get a second chance at this, but with the right policy we can ensure that this industry, which has operated for well over half a century, operates for another 50 years. We can protect good, honest, solid jobs and support countless more across the state, and we can use the steel industry as a springboard for a high-tech manufacturing revolution, but we will only get investment in the steel industry if we give the industry security, and that means long-term security with a long-term commitment to take Australian steel and use it in public infrastructure projects, and that is what this bill provides.

This is a future that we can make happen if Australian governments join the rest of the world in acknowledging that the global steel market is failing. The Australian steel market is the subject of predatory action from international competitors who have no interest in Australia retaining its steel industry. The national interest requires common-sense intervention to protect the strategic steel industry in Australia. Saving the Australian steel industry should be something that all parties in this parliament, and in other parliaments across country, can unite behind to protect this important industry.

Debate adjourned on motion of Hon. J. M. Gazzola.

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