Radio Australia: Asia Pacific News:

Australia's being warned that Beijing will not surrender to ever increasing iron ore prices and that Canberra should quickly open a strategic and economic dialogue with China, before it retaliates. Some extra urgency appears to arise from Australia's decision to hit big miners with a 40 per cent tax from mid-2012, a decision that might signal even higher prices for China. In a new paper for Canberra-based think-tank, the Australian Strategic Policy Institute, veteran academic and China watcher, Richard Leaver, says the issues with China surrounding iron ore are not 'business as usual', as Canberra claims, but war.


Presenter: Linda Mottram
Speakers: Russell Trood, Australian Liberal Party Senator; Richard Leaver, reader in International Relations, Flinders University; Carl Ungerer, Director National Security Project, Australian Strategic Policy Institute

MOTTRAM: Just hours after the Rudd government's announcement that big miners in Australia will face a 40 per cent tax, the authors of a new paper say there's a much bigger picture that Australian governments have consistently failed to grasp. Launching the paper, former academic, now Liberal Party Senator Russell Trood.

TROOD: We need to think beyond the very simple proposition that Australia is little more than a very large mine the resources of which we should exploit for financial return.

MOTTRAM: It's called resource diplomacy, and Australia's not very good at it, the authors argue .. tending to behave as a very large mine and failing to assert its influence on key markets or to leverage its massive commodities advantage for broader purposes.

And nowhere are the risks of that failure more evident than with China over the issue of massive iron ore price rises. Co-author, Richard Leaver, specialises in economic aspects of international relations, and is based at Flinders University. He warns for example about a common interpretation in Australia that the move to shorter term contracts for iron ore, with ever increasing prices, is a big win for the Anglo Australian giants BHP-Billiton and Rio Tinto.

LEAVER: This has clearly been a major irritant in the bilateral relationship with Beijing in my view. Beijing is not going to surrender about the price rises that are clearly coming its way in the next 12 months. I expect them to take action.

MOTTRAM: Richard Leaver predicts the situation will bring into play China's substantial domestic stock piles of iron ore.

LEAVER: And if the authorities in China want to play a new hand all they have to do in my view is single out one of the three big iron ore suppliers, bring to bear upon them the pressure that could be applied through the threat to use stockpiles in place of offshore buying.

MOTTRAM: Richard Leaver says that what the Australian government calls business as usual with the Chinese, is actually a war and he calls on Canberra and Beijing to sensibly talk about conventions to moderate it.

LEAVER: At the very least we need to start off taking a leaf out of the American tool kit of diplomatic techniques and start up some kind of strategic and economic dialogue with Beijing based around iron ore, that this is too important to the Chinese, to us, to our balance of payments, to some big companies that we'd usually consider Australian, at least in origin.

MOTTRAM: Another example where the paper says a lack of Australian resource diplomacy has been in evidence is in the Rudd government's refusal to sell uranium to India. The paper's other author, is Carl Ungerer, from the Australian Strategic Policy Institute.

UNGERER: To date the government has maintained its defence of our non-proliferation principles and refused to supply uranium to the civilian nuclear industry in India but there's not doubt I thikn that it remains a thorn in the bilateral relationship and indeed I agree with Russell it's an impediment to closer strategic ties.

MOTTRAM: But Australia already sells uranium to a non-NPT signatory .. to Taiwan, via the U-S. The paper also argues Australia could follow the U-S example and sign a bilateral civilian nuclear deal. It would become law in Australia, thus giving Australia oversight and conditions to ensure material is not diverted for military purposes. The report further suggests reform of the NPT itself, to define nuclear weapons states as those that have signed the Comprehensive Test Ban Treaty. This too could clear the way the report says for Australian uranium sales to India while upholding Australia's non-proliferation commitments.

Whichever route is chosen, the authors argue Australia must use more sophisticated diplomatic tools linked to its great commodities strength.

Resources are set to be a big factor as Australia seeks to manage a rising China and a competing India. And higher Australian taxes on big miners may just have become an extra irritant.