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Australia’s arms exports are unlikely to explode

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A Royal Australian Navy member stands guard on the deck of Her Majesty's Australian Ship Adelaide (III) upon arrival for a goodwill visit as part of the Australian Defence Force Joint Task Group, Indo-Pacific Endeavour 2017 in Metro Manila, Philippines, 10 October 2017 (Photo: Reuters/Romeo Ranoco).

In Brief

Earlier in 2018, the Australian government took a large gamble. Faced with the unenviable choice of allowing Australian naval shipbuilding to slowly perish or preserving it at considerable cost to the Australian taxpayer, it chose the latter.

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Australian shipyards have struggled to deliver big ship projects on time and on budget (with the Australian government’s own defence minister once declaring he would not trust a major supplier to build a canoe). With this track record, why would a conservative government opt for economic nationalism? Part of the answer is that the Australian government has been persuaded that, with guaranteed work in tandem with an industrial ecosystem of training and incentive schemes, Australian shipbuilding can become world-class, efficient and competitive. This is not fanciful: it is the same strategy behind East Asia’s manufacturing success. But it is high risk.

A domestic defence industry has been a longstanding tenet of Australian defence policy, going back as far as the 1987 Defence White Paper, which claimed that for self-reliance reasons Australia must be able to repair and maintain its own major weapons systems. But there are at least three additional reasons for which the Australian government has committed to indigenous continuous-build programs for Australia’s submarines and offshore patrol vessels.

First, Australian defence industry policy has not been working. Australia privatised all government-owned defence industry corporations during the 1980s, and since that time it has walked a fine line, recognising that the defence industry is essential but not making support for the defence industry an objective in its own right. In practice, this has meant a host of programs that assist Australian defence industry without mandating that the Australian Defence Force procure from local manufacturers. Unfortunately, a lack of orders meant that Australian ship building was by 2014 facing a ‘valley of death’.

Second, the development of a security–economic nexus driven by China’s increasing investment and technological reach is prompting concerns about foreign entities acquiring priority areas of the defence industry. The Australian government has made much of a policy of protecting sovereign defence capabilities, and a centrist parliamentarian has even proposed legislating that all ships acquired by the Royal Australian Navy must be built locally by local firms.

Third, the Australian government is chasing votes. Australia’s defence procurement has the characteristics of a two-level game, where the government seeks to maximise the congruence between strategic defence objectives and domestic political objectives. In this case, the preservation of shipyards in Perth and Adelaide is likely seen as important for supporting the labour market and the government’s chances of re-election.

It is against this backdrop that Australia’s renewed enthusiasm for a defence export program, unveiled in a new Defence Export Strategy, must be understood. The hope that the Australian defence industry can become globally competitive, thereby reducing the industry’s reliance on the Australian government, has long been seen as a potential solution to the defence industry policy dilemma.

In the 1990s great hopes were pinned on Southeast Asia as a destination for Australian defence exports. The modernising defence forces of the region, it was thought, could buy Australian equipment as they trained alongside Australian forces, helping forge stronger ties. But human rights concerns in Australia, for example on prospective sales of rifles to Indonesia and Thailand, often stalled the acquisitions and soured relations. Consequently, defence exports in 1993–94 were a modest AU$71 million (which is worth approximately AU$129 million or US$94 million today).

Australian defence export performance has certainly grown since that time, with annual exports over AU$1.5 billion and more opportunities for Australian small to medium enterprises to feed into global supply chains with programs like the Joint Strike Fighter. Australian industry has achieved some genuine export successes in products as diverse as radars and protected mobility vehicles. So on this basis, is the Australian government realistic to have set a target of making Australia a top-10 global defence exporter?

On the basis of exporting major defence systems, the top-10 target seems very ambitious. The Stockholm International Peace Research Institute (SIPRI) currently ranks Australia 19th in the world. While the Australian government argues that SIPRI’s methodology ignores Australia’s component exports, it admits that it currently lacks a robust methodology to measure export performance.

Leaving aside measurement, there are serious obstacles in terms of arms export competition. While defence spending continues to increase globally, many of the middle or emerging major powers like India and Indonesia are set on building their own defence industry, while others like Japan and China have now entered the export game themselves.

Then there are the constraints that Australia imposes on itself. As a supporter of the rules-based global order, Australia seeks to export ethically and legally. It signed the Arms Trade Treaty, which compels Australia to deny an export application if the export would pose human rights, crime or security risks.

Moreover, the left wing of Australian politics continues to view defence exports with suspicion, most recently with regard to the possibility of Saudi Arabia using Australian exports in its war in Yemen. Equally, Australia does not wish to export capabilities that give its own forces an edge, nor does it want to see its own technologies acquired by a potential competitor. An embarrassing example of the latter was China acquiring wave-piercing and aluminium-hull design technology for its Houbei-class fast-attack craft from an Australian high-speed ferry designer.

With these constraints, steps like the appointment of a part-time ambassador for defence exports and more sales training for Australia’s overworked defence attaches might not be enough to bring a step change in defence export success.

Greg Raymond is a Research Fellow in the Strategic and Defence Studies Centre at The Australian National University.

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