AFR Article | ‘Made in Australia’ won’t trigger subsidy arms race, Minister says

05 May 2024

Australian Financial Review - Hans van Leeuwen

London | The Albanese government’s Future Made in Australia industrial policy does not pitch the country into a new global race to ramp up subsidies, according to one of the prime minister’s economic lieutenants.

Assistant Trade Minister Tim Ayres, who has just been in Paris for a summit of the 38-country Organisation for Economic Cooperation and Development, said government intervention to support and develop domestic industries was emerging as a new global norm.

He said Australia was now a leading voice in the debate at the OECD and the World Trade Organisation on how to harness and manage this trend.

This is despite the WTO in particular having attacked these subsidy policies in the past – particularly China’s globally damaging state-funded industrial largesse.

“We think that there should be a stronger discussion about the future direction of industrial policies across the OECD and the WTO,” Mr Ayres told The Australian Financial Review from Paris.

“We’re not afraid of a discussion about this … There is a new competition out there, the global trading environment has shifted significantly,” he said.

“This is the biggest industrial transition since the Industrial Revolution. It’s going to require significant levels of public and private investment. Australia has got an enormous opportunity here. And our approach at the OECD and the WTO is consistent with making sure that we capture that opportunity.”

He said that at the recent WTO ministerial in the United Arab Emirates, Australia had pushed to set up new mechanisms and processes that would deal with the changing global approach to subsidy regimes.

“It is one of the outcomes that we sought at the WTO round: a stream of activity and discussions and transparency about industrial policy arrangements, because we’ve all got a collective challenge.

“Australia is here at the OECD, and at the WTO, promoting a discussion about making sure that industrial policy and industrial growth is in the interests of individual countries building the capability that they need to.”

Not only China, but also the US and the European Union are now using subsidies to propel their energy transitions and secure their supply chains. The EU calls its approach “economic sovereignty”, and the US has gone on the front foot with the $550 billion-plus Inflation Reduction Act.

Australia’s approach was “consistent with the direction that our colleagues in Europe and North America are undertaking”, Mr Ayres said.

But asked whether this made it harder to call out China’s expansive industrial subsidies, he said only that the WTO and similar discussions should ensure that industrial policy was effective, and was developed collaboratively.

“We’re promoting more discussion and engagement so that we learn from each other, and that we have the fastest possible transition,” he said.

Mr Ayres’ trip to Europe also took him to Denmark, where he spruiked the Future Made in Australia policy to Scandinavia’s renewable energy and clean-tech manufacturing industries.

But the EU’s own clean-tech manufacturing sector has struggled to compete with cheaper Chinese imports, prompting a fierce debate on the continent about whether and how to either subsidise European industry or else slap tariffs on Chinese imports.

This has created tension between Brussels and Beijing. It has also come too late for some sectors – such as solar manufacturing, where many say Europe will never be able to compete with China on cost.

“It’s a mixed story in Europe,” Mr Ayres acknowledged. “That just affirms how important it is for Australia that the Future Made in Australia strategy captures these opportunities in Australia, and gives us the scale and capacity to make sure that we’re building globally competitive manufacturing.”

If the EU, with its huge economy and its market of 500 million consumers, has struggled to keep some of these industries competitive, it begs the question whether a smaller economy like Australia can achieve the scale and skill to succeed.

“The Australian domestic market is small in population terms, but we’ve got a significant transition to manage, that provides enormous economic opportunity,” Mr Ayres said.

“We’re also very rich in terms of solar and wind and all of the minerals that are required for the net-zero transition. That means that we’ve got a very significant opportunity and very significant scale in Australia, but also projecting into the region.”



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