Buying submarines could be a risky business for Australia

Buying submarines could be a risky business for Australia

Shortly after concluding his first official trip to China as the Australian Prime Minister, Malcolm Turnbull, on 26 April, announced that the Royal Australian Navy (RAN) will purchase 12 submarines from the French firm, DCNS, in a deal valued at 50 billion Australian dollars. This ended speculations that Japan would secure the lucrative defence contract often labelled as ‘historic’ in terms of Australia-Japan bilateral security ties.

The making of this mega-deal has had a checkered life, starting in 2007, moving on a circuitous path that witnessed technical re-evaluations, policy debating, political upheavals and government changes. From the onset, there were requirements that were set out for top-specs in purchasing world-leading submarines by the RAN. It has been widely reported that the existing Collins-class submarine fleet suffered a variety of usability issues, which raised questions of build and design quality. The Australian Navy’s craving for more mature technologies and top-notch manufacturing capabilities was ostensible, suggesting an urge to replace the much-maligned vessels.

Of the competing options, Japan seemed to have offered a working solution, relying on its highly acclaimed Soryu-class submarine with an off-the-shelf design requiring minimum adaptations and thus savings on cost. However, production could only be in Japan. A preference for Military-Off-the-Shelf (MOTS) seemed (especially after Japanese Prime Minister Abe’s visit to Australia in July 2014), as a policy choice by the Abbott administration, to have prevailed.

Public policy controversies, including local industrial calls for job creation, were put aside in the face of warm Australia-Japan security ties. Verging on a policy botch-up, the former Defence Minister David Johnston said that he “wouldn’t trust” the Australian Submarine Corporation (ASC) to build a canoe and complained that ASC was inept at cost controls. But Johnston’s remarks were quickly met with fierce criticism from the opposition in ignoring job creation opportunities for the local shipbuilding industry in South Australia. He was declared persona non grata by the Labor party in the Senate before standing down as the Defence Minister.

With the new government under PM Turnbull, the course of policy thinking seems to have deviated much from his predecessor. The final decision on submarine policy certainly confirmed such change of mind. In light of this, there are at least three risk issues that require our attention. The first issue is in regard to the DCNS deal – this deal has promised all submarines would be built in Adelaide with ASC so jobs would be retained. Job creation would certainly lead to a drop in the local unemployment rate, but is this boom sustainable in the long term for the industry and its skilled workforce?

Looking at the precedents of mining industry, the local economy has had massive investment inflows during peak years, but suffered significant hikes of unemployment rate soon after commodity prices crashed; the lesson was obvious where fluctuating business cycles were the enemy of the economy. Despite the issue of investment, to make things even more complicated, the skills of building submarines would take decades and generations of highly trained workers to acquire – for example it took 60 years for Japan to master the Soryu technology. This lack of accumulated expertise is one fundamental reason why Australia cannot build submarines itself. It is hard to argue against cyclical economic conditions, but long-term industrial strengths can only be attained with stable and continuing investment in a skilled workforce and education. Fluctuations in capacity building effort almost always lead to quality issues and this is a risk that can be foreseen and resolved.

The second issue that must be addressed is the risk of blowing out the Federal budget, again. While such an assertion costed the job of Defence Minister Johnston, it was more a demonstration of political upheaval than a fact-based assessment of the capacity of the ASC. According to Hans J. Ohff, the former CEO of ASC, the problem may stem from the top: “as the shareholder of ASC, the Department of Finance appoints the Board, who while well-endowed with commercial, legal and political experience, completely lack expertise in naval design and shipbuilding.” Could this be the reason that the ASC “was at least $350 million over budget in building three air warfare destroyer ships”? And it would be imprudent to quickly assume that ASC would not repeat its failure of cost control again this time with the French firm DCNS, given its track record.

Finally, the risk of antagonising China is always an impending threat due to the heightened tensions between Japan and China. Strategically, this gives Australia little room for maneuvering in terms of future security relation building initiatives among its allies. Further, Australia-Japan security cooperation suggested by the defence agreement that was signed during Abe’s state visit to Australia in 2014 is likely to see China’s interferences. Potential joint-projects carrying a purpose of “Transfer of Defence Equipment and Technology” between Japan and Australia, if perceived as security threats in the eyes of China, would face more risk in terms of retaliations from its largest trading partner. In regards to closer Australia-Japan security relations, one influential Australian analyst had admonished: “one obvious problem is that it will damage our relations with China, which is not something we should do lightly.”

The fact that PM Turnbull made the decision only days after his return from China explains that trade with China might have a considerable amount of influence on Australia’s security policy. Several articles in China’s media have conveniently linked the submarine contract with China-Japan relations. One Xinhua’s article concluded with a quote by a Kyushu University professor, who stressed that the perception of a strengthened Australia-Japan military alliance will bring huge political risk to Australia, and that Abe’s submarine project had too many security elements ingrained.   

In sum, the job of acquiring and maintaining a strong fleet of submarines in Australia is notoriously difficult and expensive, as it is for any country. This mega deal would greatly benefit from controlling risk stemming from cyclic investment, budget control, and political relations.  Australia’s decision of purchasing 12 submarines from France should allow leverage to open the door to long-term, non-speculative financial investment and to cultivate a knowledge-based ship building industry for generations to come.

Currently based in Beijing, Leon Zhu is an independent analyst who focuses on Australia-China foreign relations. He holds a Master of International Relations from the School of Government at the University of Melbourne. While research on Asian history and security relations forms his core area of interest, his writing often extends to include foreign affairs in the Middle East and Europe. Prior to his Master’s studies, he worked for the Consulate General of Canada in Shanghai, China.

Categories: Asia Pacific, Security

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