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2016-2017-2018
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
DEFENCE AMENDMENT (SOVEREIGN NAVAL SHIPBUILDING) BILL 2018
EXPLANATORY MEMORANDUM
(Circulated by authority of Senator Patrick)
DEFENCE AMENDMENT (SOVEREIGN NAVAL SHIPBUILDING) BILL 2018
OUTLINE
The purpose of this Bill is to ensure that Australia continues to develop and sustain a
sovereign naval shipbuilding capability.
The Bill will amend the Defence Act 1903 to require that new vessels to be built for the
Commonwealth of Australia for use by the Royal Australian Navy must, except in times of
defence emergency or in time of war, be built in Australia by a well-established, high
performance Australian owned and controlled shipbuilder.
The Bill reflects an understanding that Australia's uncertain strategic future requires a much
greater measure of self-sufficiency as a Pacific naval power, supported by a sovereign naval
shipbuilding and support sector.
Construction of Royal Australian Navy vessels in Australia by Australian shipbuilders will
serve Australia's national security interests and maximise the economic benefit of the naval
construction program to Australia.
The Bill will not prevent foreign shipbuilders tendering to be the prime contractor in any
shipbuilding program, but they will need to sub-contract the entire build to an Australian-
controlled shipbuilder that meets minimum experience and performance thresholds.
The engagement of Australian companies to build Australia's future naval vessels is important
for a number of reasons:
It will ensure the know-how of these programs is transferred to an Australian-controlled
company, not to a subsidiary company of a foreign entity.
Australian shipbuilders will be able to assure export customers that they have the
confidence of their own Navy.
It will ensure that foreign entities will not have veto power over any export opportunities
Australian naval shipbuilders wish to engage in.
There will be reduced exposure to foreign corporate risk in relation to naval construction
projects of great importance to national security.
It will ensure the shipbuilding workforce can be better managed.
Profits from Australian naval construction will be made in Australia by Australian
shipbuilders.
The Bill will ensure that Australia retains and develops sovereign shipbuilding and support
capabilities able to support a more self-reliant Royal Australian Navy in a strategic
environment characterised by considerable uncertainty and the need for Australia to
confidently exercise independent naval power in our immediate region.
While the Bill will allow overseas procurement of vessels for the Royal Australian Navy in
time of a defence emergency or war, it will provide an unambiguous legislative direction that
Australian naval construction must take place in Australia by Australian companies with
consequent benefits for our defence industrial base and long-term strategic self-reliance.
NOTES ON CLAUSES
Clause 1: Short Title
1. This clause is a formal provision and specifies that the short title of the Act may be
cited as the Defence Amendment (Sovereign Naval Shipbuilding) Act 2018.
Clause 2: Commencement
2. This clause provides for the commencement of the whole of the Act to be the day after
this Act receives the Royal Assent.
Clause 3: Schedules
3. This clause states that each Act specified in a Schedule to this Act is amended or
repealed as is set out in the applicable items in the Schedule. Any other item in a Schedule to
this Act has effect according to its terms.
Schedule 1 - Amendments
Defence Act 1903
Item 1--After Part IXD
4. Item 1 inserts Part IXE - Sovereign naval shipbuilding
5. Subsection 117AJ(1) states that the Commonwealth must not enter into an agreement
with an entity for the building of a vessel intended for use by the Royal Australian
Navy unless:
(a) the agreement provides that the vessel must be built in Australia by an
Australian shipbuilder that; is incorporated in Australia, is not controlled by one
or more foreign persons within the meaning of subsection 54(4) of the Foreign
Acquisitions and Takeovers Act 1975, and is not a subsidiary of a foreign entity
within the meaning of that Act;
(b) the agreement mandates for the provision, grant or conferral by the entity, or
the Australian shipbuilder, to the Commonwealth of intellectual property rights
relating to the vessel for the purposes of maintaining, repairing or modifying
the vessel; and
(c) the person who enters into the agreement on behalf of the Commonwealth is
satisfied that the Australian shipbuilder has demonstrated its:
(i) capability to deliver an ongoing ship building or upgrading program; and
(ii) capability to build or deliver major upgrades to vessels intended for use
by the Navy; and
(iii) international competitiveness; and
(iv) compliance with relevant industry standards; and
(v) financial viability.
6. Subsection 117AJ(1) applies only to vessels intended for use by the Royal Australian
Navy and does not apply to more generally to government vessels. However, this Bill
does not prohibit the Government from choosing an Australian shipbuilder for any
government vessels.
7. Section 117AJ only applies to vessels of over 30 metres in length. The length overall
of 30 metres specified in subsection 117AJ(1) would cover all major vessels for the
Navy including patrol boats similar to the Pacific class patrol boats, offshore patrol
vessels, corvettes, frigates, destroyers, cruisers, aircraft carriers, amphibious ships,
submarines, supply ships, and auxiliaries but would exclude smaller vessels such as
launches, rigid-hulled inflatable boats, lifeboats, small landing craft and barges.
8. Paragraph 117AJ(1)(a) specifies that the Commonwealth may only enter into an
agreement for the building of a vessel intended for use by the Navy with an entity that
is incorporated in Australia, that is not a subsidiary of a foreign entity, nor controlled
by foreign persons within the meaning of the Foreign Acquisitions and Takeovers Act
1975. This is to ensure that Australian naval construction will only be undertaken by
Australian shipbuilders, incorporated in Australia and under the control of Australians.
9. Paragraph 117AJ(1)(a) is consistent with the provisions of Australia's free trade
agreement obligations which exclude much national security-related procurement from
their non-discriminatory provisions, including procurement of naval vessels, small
craft, pontoons and floating docks, as well as naval marine equipment (see for
example Chapter Fifteen (dealing with government procurement) of the Australia -
United States Free Trade Agreement).
10. Paragraph 117AJ(1)(b) provides that an agreement for the building of a vessel intended
for use by the Navy must provide for the provision, grant or conferral by the entity, or
the Australian shipbuilder, to the Commonwealth of intellectual property rights relating
to the vessel for the purposes of maintaining, repairing or modifying the vessel. This
provision ensures that the Commonwealth will retain the ability to ensure ongoing
maintenance, repair or modification of Navy vessels in Australia.
11. Paragraph 117AJ(1)(c) requires that the Commonwealth must be satisfied that the
Australian shipbuilder has demonstrated its capability to deliver an ongoing ship
building or upgrading program, to build or deliver major upgrades to vessels intended
for use by the Navy, international competitiveness, compliance with relevant industry
standards, and its financial viability. The conditions set out in paragraph 117AJ(1)(c)
are consistent with the standards that have already been applied to Australian
shipbuilders engaged in major naval shipbuilding programs for the Commonwealth.
12. Subsection 117AJ(2) provides that the section shall have effect despite any other law
of the Commonwealth but shall have no effect in time of war or during a time of
defence emergency. Section 4 of the Defence Act 1903 defines these circumstances as
follows:
Time of Defence Emergency--Means the period between the publication of a
proclamation [by the Governor-General] declaring that a state of defence
emergency exists in relation to Australia and the publication of a proclamation
that that state of defence emergency no longer exists.
Time of War--Means any time during which a state of war actually exists, and
includes the time between the issue of a proclamation [by the Governor-
General] of the existence of war or of danger thereof and the issue of a
proclamation declaring that the war or danger thereof, declared in the prior
proclamation, no longer exists.
War--Means any invasion or apprehended invasion of, or attack or
apprehended attack on, Australia by an enemy or armed force.
13. Subsection 117AJ(2) thus allows the Commonwealth to enter into agreements with a
foreign shipbuilding entity in a time of a defence emergency or in a time of war when
circumstances may make construction by an Australian shipbuilder unsuitable to meet
the immediate defence needs of the Commonwealth.
Item 2--Application
14. Section 117AJ, as inserted by the Schedule, will apply in relation to an agreement
entered into on and after 9 May 2018, the day after the introduction into Parliament of
the 2018/19 Commonwealth Budget.
15. The primary purpose of this provision is to ensure that all future naval construction
programs that are currently under consideration by the Commonwealth, and likely to
be subject to agreements in the period following the introduction of the 2018/19
Budget, are subject to the provisions of this Bill.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act
2011
Defence Amendment (Sovereign Naval Shipbuilding) Bill 2018
This Bill is compatible with human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act
2011.
Overview of the Bill
The purpose of this Bill is to amend the Defence Act 1903 to require the Commonwealth to
only enter into an agreement for building a vessel for the Royal Australian Navy if the vessel
is to be constructed in Australia by an Australian shipbuilder.
Human rights implications
This Bill does not engage any of the applicable rights or freedoms as it deals with agreements
by the Commonwealth for the building of vessels for the Royal Australian Navy.
Conclusion
This Bill is compatible with human rights as it does not raise any human rights issues.
Senator Patrick