15 October 2015
by Laura Tingle
Charting a new course on the submarine deal of the century
Whatever might have been happening within the upper echelons of the Abbott government in its dying days, down at Aussie's – the Parliament House coffee shop – there was a clear sign that it had reached some point of no return: you could get a table. Like the proverbial rats, the lobbyists had all disappeared.
During sitting weeks at Parliament House, lobbyists spruiking their wares are wont to occupy a table at Aussie's and stay for the rest of the day, using the spot as their Canberra office.
With the Turnbull team getting itself organised, the lobbyists were back with a vengeance this week. Waves of them.
There were the foot soldiers of small business lobbying over changes to the "effects test" in competition legislation; media executives lobbying on media policy reforms; and everywhere, there were diplomats, naval gold braid and international suits spruiking the merits of the contenders for Australia's $50 billion submarine contract.
The French, the Japanese and the Germans are in increasingly fierce competition for this contract. Final bids in the "competitive evaluation process" that will determine which group becomes Australia's international partner are due in on November 30. A decision is expected from the government in a few months.
This is not a decision about a sub as such, just the group that the government will do "three years of further development work [with] before we finalise the future submarine's capability and cost", according to Defence Minister Marise Payne.
But events of the past 12 months have meant that, whatever the shape and capabilities of the various boats on offer, the context in which the decision will be made has been through more Crazy Ivan manoeuvres than Sean Connery ever managed in The Hunt for Red October.
The former prime minister's embrace of the cause of Japanese submarines set off a particularly wild ride for this debate.
There was, or wasn't, a sealed deal on submarines between Tony Abbott and his Japanese counterpart Shinzo Abe; Australia did, or didn't, want to buy a submarine "off the shelf"; Australia would, or wouldn't, buy a submarine built somewhere else, despite having promised before the election that our new subs would be assembled here "centred around" South Australia's shipyards.
Prime-ministerial visits last year saw Japan emerging as the leading option over its European competition.
The sudden fancy for the Japanese option coincided with the Japanese lifting a long moratorium on selling defence technology to other countries, and a sudden miraculous nailing of a trade agreement after years of stalled progress. But perhaps most significantly, it emerged that the Americans had apparently let it be known that it would be really neat if we could become much better friends in a defence sort of way with the Japanese.
The result of all these manoeuvrings was a political debacle for the Coalition in South Australia.
It got quite confusing, too, when the whole idea of how viable it actually was to buy a submarine "off the shelf" came under scrutiny; how and where a submarine built offshore would be serviced; and how to get around intellectual property and security issues with a country that had not sold such a large piece of military hardware to anyone else.
A major correction to the course of the good ship Abbott came with his near death experience in February when South Australian senator Sean Edwards extracted, in return for his vote, a promise of some sort from Abbott that there would be "a full and open tender process" for the submarines, giving South Australia a foot in the door.
The ground has been shifting ever since. The Japanese have gradually gone from being the front-runners regarded as having an unfair advantage, to possibly the least likely of the three bidders because of the lack of experience in building offshore.
The whole question of whether you build onshore or offshore has also shifted.
The Japanese, the French and the Germans are all now suggesting that not only can they build in Australia: hell, they would prefer to do it that way.
The Germans are the most unambiguously pushing the idea that, if they are successful, they will start as they plan to continue and build – for a fixed price – our submarines right here, taking over a range of existing manufacturing plants around the country to do so.
The French are also offering a local build, but have suggested they might build the first one at home.
Along the way, the underlying currents of this debate have shifted from being driven explicitly and overwhelmingly by strategic considerations, or even by South Australian politics. The arrival of a new regime in Canberra with a focus on innovation and technology only serves to further morph the discussion.
For example, the Germans aren't just promising to build subs here but to make Australia the regional hub for it's Asia-Pacific naval shipbuilding (it has sold subs to 20 countries), to transfer technology and business structures here, and (like the other bidders) to contract out production of some of the 350,000 odd components of the subs to local small and medium businesses. They are also pledging to open a submarine engineering and training centre linked to existing TAFEs and universities.
The discussion among the defence industry cognoscenti in recent weeks has started to morph: there is a growing argument that instead of announcing one winning partner, the government should proceed with developing bids further, with at least two parties to keep the competitive tension alive.
Whether it does or not, the submarine contract is the best representation you could possibly imagine of the transformation of our industry policy debate from one about protecting old industries to one about seizing opportunities to give the country a base of expertise in transformational, and disruptive, technologies.
But at some point, strategic considerations are also bound to re-emerge.
In Boston this week, Foreign Minister Julie Bishop and Defence Minister Payne met with their US counterparts, Secretary of State John Kerry and Defence Secretary Ash Carter, for the annual Ausmin talks.
The communiqué from the talks – with its emphasis on naval co-operation – was a timely reminder that the US desire for Australia to get closer to Japan – at a time when the US is worried about its capacity in the Pacific as China's role expands – was a crucial factor in the way the submarine debate has run here, and that that message has not changed..
There's a long way to go on this story, and lots and lots of strategic and economic issues to consider. Getting a table at Aussie's could be a struggle for quite some time.