VZCZCXRO7320
PP RUEHPT
DE RUEHBY #0886/01 2520749
ZNR UUUUU ZZH
P 080749Z SEP 08
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC PRIORITY 0064
INFO RUEHBN/AMCONSUL MELBOURNE 5526
RUEHPT/AMCONSUL PERTH 3799
RUEHDN/AMCONSUL SYDNEY 3727
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 CANBERRA 000886 
 
SENSITIVE 
SIPDIS 
 
STATE FOR USTR/BELL 
 
E.O. 12958: N/A 
TAGS: ECON ETRD ESTH EIND AS
SUBJECT: AMBASSADOR MCCALLUM CALL ON INDUSTRY MINISTER CARR 
 
¶1. (SBU) Summary:  Minister for Innovation, Industry, Science 
and Research Kim Carr wants the Rudd government to set up a 
10-year plan to address key innovation needs, which would 
include funding of A$1.5 billion per year to improve research 
training and infrastructure and changes to the tax treatment 
of private sector research and development.    The government 
"white paper" on automotive manufacturing will be WTO 
compliant and preserve planned tariff reductions, but will be 
designed to "absolutely" preserve an automotive industry in 
Australia.  End Summary. 
 
¶2. (SBU) In a brief but cordial courtesy call on September 4, 
Ambassador McCallum, DCM Dan Clune, and econoff called on 
Minister for Innovation, Industry, Science and Research Kim 
Carr.  Carr, a member of the Labor Party's left faction from 
South Australia, is charged with overhauling Australia's 
science and technology efforts, and reviewing the performance 
and competitiveness of Australia's remaining manufacturing 
sectors.  His Department is in the process of drafting 
government "White Paper" responses to both the National 
Innovation Systems review they received last week, and the 
Bracks Review of the automotive industry that was concluded 
in August.  A third review on textiles, clothing, and 
footwear, is expected to be submitted to government in the 
next few weeks.  These White Papers will lay out preferred 
policies to respond to the findings in each report. 
 
¶3. (SBU) The Ambassador thanked Minister Carr for the strong 
cooperation U.S. agencies have received from Australian 
organizations, such as the Commonwealth Science and 
Industrial Research Organisation, under his portfolio. 
Noting that sustaining a culture of innovation has become a 
subject of great interest in Washington, the Ambassador 
sought Carr's views on the national innovation systems review 
and other government efforts to foster and sustain Australian 
industries. 
 
Innovation Review 
----------------- 
 
¶4. (SBU) On innovation systems, Carr said that the government 
would release the review's findings "shortly" but that he 
expected it to serve as the foundation for a ten-year 
government plan to completely overhaul and strengthen 
Australia's research and development structures.  The process 
has been heavily influenced by the Rising Above the Gathering 
Storm report (chaired by former Lockheed Martin CEO Norm 
Augustine, who visited Australia in May) in the U.S. and its 
counterpart in the UK.  Carr said he expected that Australia 
would follow similar paths, although he noted Australia would 
be looking to provide government funding to undertake the 
needed reforms, unlike the U.S. Congress.  The public 
research sector in Australia was in need of serious help, 
Carr said, and the government would need to provide about 
A$1.5 billion a year for ten years to improve research 
training and infrastructure.  He noted that the PRC was 
doubling R&D expenditures "every few" years and that others 
in the region were close to that. 
Australia's R&D spending had fallen to 1.8 percent of GDP, 
and that was "not satisfactory" to the Rudd government.  Carr 
also said he felt the government side was the "easy part" as 
there was little resistance across the Parliament to spending 
more on R&D. 
 
¶5. (SBU) On the commercial side, he said the government would 
have to significantly alter the tax structure affecting 
commercial R&D, and replace the Howard government's 
multi-billion dollar Commercial Ready joint funding program 
Qmulti-billion dollar Commercial Ready joint funding program 
with something similar but more effective.  Internationally, 
Australia would look to step up bilateral and regional 
collaboration, and leverage flagship programs like the Square 
Kilometer Array (SKA), where Australia is one of two 
competitor sites.  Australia would look at opening up its 
high-level training systems, to provide greater access and 
mobility to senior researchers from abroad.  Such openness, 
Carr said, was critical to attracting and maintaining top 
research talent, and would not threaten Australia's 
competitiveness. 
 
Carr on Cars 
------------ 
 
¶6. (SBU) Turning to the automotive report, Carr said that the 
findings indicated that U.S. manufacturers in Australia were 
doing better than their parents in the U.S. GM's local 
subsidiary Holden was doing very well in Australia, Carr 
said, and the government would push to expand that success. 
 
CANBERRA 00000886  002 OF 002 
 
 
Holden's leadership was "top notch" and enjoyed a very good 
relationship with Canberra.  Ford, Carr said, had serious but 
not fatal problems in Australia, and had not been helped by 
the departure of senior leaders who had been getting a handle 
on the challenges faced in Australia.  Carr said the problems 
facing Australian manufacturers were "extraordinarily" 
similar to those faced in the U.S., and attributable to high 
petrol prices, lack of credit, and a lack of alternatives to 
what had seemed like economic winners just a few years ago. 
He said the model pursued by the Big Three in the U.S. had 
worked for forty years, but the statistics on falling sales 
and reduced driving miles in the U.S. were staggering.  The 
government was working very closely with industry on these 
issues, Carr said, and the upcoming white paper should be 
seen as a "strong blueprint" for future policies.  The 
government's response, Carr emphasized, will be WTO compliant 
but will absolutely preserve an automotive manufacturing 
industry in Australia.  (Note:  Despite calls by many 
including Steve Bracks to delay the planned reduction in auto 
tariffs, Prime Minister Rudd has said the tariff cuts will 
take place as planned.)  Carr confirmed that Holden will soon 
begin manufacturing a hybrid vehicle in Australia, and that 
Toyota had done very well and would expand on its hybrid 
engine and manufacturing facilities in Victoria announced 
earlier this year. 
 
¶7. (SBU) Comment:  Carr seemed at ease with the policy 
complications of reforming both the auto industry and 
innovation systems.  Although his approach to preserving the 
automotive industry in Australia smacks of European-style 
industrial policy, he seems committed to WTO-consistent and 
market-based policies.  End Comment. 
 
MCCALLUM