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Is the nostalgia surrounding the Button Steel Plan misguided?

By Mikayla Novak - posted Friday, 23 September 2011

In late August, BlueScope Steel announced it would close a blast furnace in Port Kembla and a hot strip mill in Hastings, southern Victoria, as part of an operational restructure that would see the company withdraw from the export market.

Citing a number of factors including a strong Australian dollar, high raw material costs, the continuing economic stagnation following the global financial crisis and low prices commanded for its steel, the company is cancelling its export business and scaling back its operations to fit the needs of a smaller Australian client base.

It is fair to say that BlueScope's decision has come across as an unpopular one, especially given that up to 1,000 jobs are envisaged to be lost from the company as a consequence.


But one of the more intriguing elements of the BlueScope move is that it has enlivened the debate about the role of manufacturing, and even the merits of free trade in Australia.

The national secretary of the Australian Workers' Union, Paul Howes, cried foul on the announcement of the BlueScope restructure by suggesting, "we are now facing a major crisis in Australian manufacturing. Base metal manufacturing, downstream manufacturing – everything is under pressure at the moment."

The Australian Manufacturing Workers' Union national secretary Dave Oliver endorsed Howes' crisis memo, calling for "government intervention to guarantee that we've got a viable manufacturing industry in this country."

It is instructive that the two union bodies have not explicitly called for a return to the dreaded high customs tariff regime that existed prior to the 1990s, a false prophet of economic policy which harmed the long term viability of the Australian manufacturing sector like no other.

However, the manufacturing unions have not been shy in suggesting that government implement a suite of non‑tariff policies with the intention of shielding domestic steelmakers from global competition. For example, Howes has suggested that "we need to get serious about a sectoral support plan – one that includes tough local content policy, currency changes and a stronger anti‑dumping regime."

It is intriguing, and indicative of their longstanding 'us versus them' culture, that the unions have targeted the Australian mining industry as something of a culprit for the manufacturing industry's woes, even though Rio Tinto, for one, has indicated that its existing operations comprise as much as 86 per cent local content with expansion projects using 75 per cent.


In what can only be construed as a worrying sign for the mining sector and the Australian economy more broadly, the federal Industry Minister Kim Carr stated in a recent speech that "everyone … knows there are disputed claims about the level of local content in resources projects. My position is, whatever the level is, it's not good enough."

The problem posed by an imposition of regulations conscripting local miners to purchase additional Australian steel, where cheaper inputs could be sourced overseas, is that it would simply drive up the input cost base of mining operations and weaken their cost competitiveness in global markets.

This would in turn compromise the economic viability of a mining industry that reputedly has a capacity, and in some instances a desperate need, to absorb a number of the 1,000 BlueScope employees to be made redundant, and other labourers with valuable skills.

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About the Author

Mikayla Novak is a Research Fellow with the Institute of Public Affairs. She has previously worked for Commonwealth and State public sector agencies, including the Commonwealth Treasury and Productivity Commission. Mikayla was also previously advisor to the Queensland Chamber of Commerce and Industry. Her opinion pieces have been published in The Australian, Australian Financial Review, The Age, and The Courier-Mail, on issues ranging from state public finances to social services reform.

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