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The view from the Leaders' Summit

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What might need to be done to take full advantage of Australia's position in the Asian Century? To do nothing could be to miss out, so what policy areas need attention? We opened up the floor at the Leaders' Summit and a few themes emerged.

Unsurprisingly, the conversation at the Summit swung towards a few key areas of concern for Australia's manufacturers, such as strategic investment, free trade and, of course, energy policy.

 "I think as a manufacturing community we have to stand up and say 'governments are making strategic choices where they spend taxpayers' money; we give $1.7 billion generally to industry in R&D tax concessions,'" suggested Bruce Grey, the managing director of the Advanced Manufacturing Cooperative Research Council.

Both sides of politics support targeted investment, though with a few differences, for example the Coalition's pledge - if it wins office in September - to take $500 million out of the assistance currently on offer to automotive makers up to 2015.  And then there's the federal government's Plan For Australian Jobs suite of policies, budgeted at $1 bn, which the opposition is critical of.

It will be funded by taking money usually tied up in the R&D tax concession for companies with revenues greater than $20 billion a year (estimated to include 15-20 firms).

Both sides of politics have their own ideas of what makes for effective targeted investment. It's a question of what is seen as providing the best bang for the taxpayers' buck.

"We also give $1.4 billion to National Health and Medical Research Council, for example, and $800 million to the Australian Research Council. I don't know how many billions to the car industry. But is this spending leveraging our export capabilities?" asked Grey at the summit, suggesting we might also look to Asia, specifically Taiwan.

"If you look at Taiwan, that's a good example. The Taiwanese have a population similar to Australia, in a country smaller than half the size of Tasmania, and last year they exported $320 billion, and we export $280 billion, and we've had the resources boom on.

"Other countries provide incentives for manufacturers. Notably, Dexter Clarke, head of corporate affairs at Futuris and a presenter at the Summit, mentioned the tax break given to automotive firms opening plants in Thailand."It's an amazing advantage [in Thailand] Tax-free for eight years," said Clarke.  

"But there are conditions. It is based around the investment you make as well and it's not just a free grab."

A major issue for the industry is the affordability and availability of energy. The massive investment in east coast gas development is for LNG that will be exported to Asia, where, due to the lack of gas availability in countries such as Japan, it can be sold for prices higher than it could in Australia.Many high-profile manufacturers have spoken about the situation, which - according to research commissioned by the Plastics and Chemicals Industry Association (PACIA) forfeits $21 in potential value-add for every $1 exported - is frustrating to those struggling to secure long-term contracts to run their factories.

The keynote speaker at the Endeavour Awards dinner the day after the summit, Sue Morphet of Manufacturing Australia, warned of dire consequences for industrial users if action is not taken. Later she put the cost of inaction at 200,000 jobs.Another critic of Australia's gas policy settings, Dow Chemical CEO Andrew Liveris, said "the sky is the limit" for Dow's investment if Australia made its energy policy more favourable to industrial users.

Ian Harrison of Australian Made mentioned the disincentive to invest in major projects in Australia created by the cost of gas.

"You look where the energy prices are going and think 'this is crazy?" said Harrison.  "Why would I invest - or if you're a shareholder you would say 'why are you investing my money in this environment when there is so much uncertainty about the cost structure beyond which you can control?'

"I don't know why you want to export your gas from the Eastern Seaboard. The Western Seaboard, sure, but why don't you make that available, thinking of your own energy, to your manufacturing base. So you can say we're going to enjoy - in the secondary rather than the primary industry - some of the benefits of what's around here."

The Asian Century has created challenges as well as opportunities for Australian manufacturers. The demand from Asia - and the resulting lack of access for local users - for the country's natural gas is one of the most notable.  

"You've got to become a bit more strategic about how you develop the economy - and that's what scares me," said Harrison. "You've got all that stuff on the Eastern Seaboard and you're going to ship it forever to China or Japan and they're subsidising their manufacturers and you wonder why you're going backwards."

As well as concerns about where investment is best aimed and energy prices, another theme when the floor was opened up was free trade.  "It goes back to the point about being strategic," said Grey.  

"The Americans targeted the industry in terms of manufacturing many years ago, and they started with pick-up trucks, and you had all the three major Japanese auto makers making pick-up trucks in Thailand, and we negotiated a free-trade agreement.

"And you look at the tariffs on pick-up trucks in the US, that bastion of free trade, and they have a 25 per cent tariff on pick-up trucks, which is what they make the most of. On everything else it's five."  

(Originally published in Manufacturers' Monthly's Leaders' Summit supplement, and based on the magazine's annual Leaders' Summit, held in May.)

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