AUKUS will bring both opportunities and challenges to Australia’s defence industry, requiring an active effort by Canberra to better empower local businesses to compete with the enormous might of United States industry, a new ASPI report finds.
The ambitious agreement to expand the collective defence capabilities and industrial capacities of Australia, the United Kingdom and the United States is vital to Indo-Pacific security and stability. Despite the challenges, it is worth the hard work to sustain political will and financial investment, the report states.
“Whatever the rhetoric, however, the benefits are far from assured,” it states.
“While the effort has had successes, including cooperative artificial intelligence/autonomy trials and landmark legislation, most of the hard work remains.”
Focussing on Pillar Two of the agreement, covering collaboration on cutting-edge technologies such as AI, cyber and quantum, the report says the pact could enable unified action to maintain deterrence against international threats. As such, it is a generational opportunity that could give Australian defence industry a massive boost, helping to build the capacity the nation needs.
However, it could end up posing a threat to Australia’s industry, especially to small and medium enterprises, as technical trade barriers are lowered and businesses compete with US counterparts that are better resourced and more familiar with the complexities of the American system.
“AUKUS provides both opportunity and challenge. The competition that it unleashes could bring Australia’s defence industry to the forefront or it could crush the industry under the weight of the globe’s biggest player,” the report states.
“Which direction it goes depends on the ability of the Australian Government to enter the fray as an active partner with the defence industry and quickly address the problems that hold the industry back.
“Government holds a unique role in growing a successful defence industry, more so than in any other sector.”
The report singles out research and development funding as a key issue. Public funding of early-stage R&D is the biggest factor in US success and “the most glaring gap in Australia’s defence industrial strategy”.
“Regulatory reform is critical … But, regardless of any resulting improvements, the nation’s defence industry will struggle to compete with international partners at current levels of public R&D funding,” the report states.
The report also highlights Australia’s need to better distinguish between dual-use technologies and sensitive military technologies, which the regulatory regime presently treats in much the same way.
It provides detailed case studies on three Australian companies, Sypaq, Hypersonix and Mellori Solutions.
The report makes 12 concrete recommendations through which the Australian government can play the necessary role in using AUKUS to jump-start growth in the defence sector.
These include removing public sector disincentives to take risks, establishing expert-led governing bodies, differentiating between dual use and riskier military technologies, supporting access to capital so Australian businesses can scale up to meet the massive US market, and dramatically expanding liaison programs to help local businesses navigate complex US processes.
