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Issue #1687      June 3, 2015


Iron ore, “free” markets and the US alliance

The Australian public is to be “spared” a parliamentary inquiry into the current, low price of Australia’s iron ore. Andrew “Twiggy” Forrest of the country’s third-ranking iron ore producer, Fortescue Metals Group, recently lobbied and got the backing of his friend Tony Abbott for such an inquiry. Forrest made a lot of allegations about market manipulation and tax avoidance on the part of his larger rivals, BHP Billiton and Rio Tinto – allegations supported by minor players in the industry. Two weeks after backing a potentially lid-lifting inquiry, the PM backed down. The Treasurer and the pro-corporate media breathed a collective sigh of relief. BHP chief Andrew McKenzie said “we thank the government for its consultation across the industry and we welcome the decision.”

Bill Shorten couldn’t resist taking a swipe at the hapless Abbott. “There is no doubt the Prime Minister’s actions and those of his ministers have damaged the industry,” the Opposition leader said. “This has been a debacle of the government’s own making.”

Forrest claimed the current low iron ore price was about more than weak international demand. He said the “big two” were maintaining high levels of investment and production in Australia to cause a shake-out in the minerals sector from which they sought to benefit. He claimed they were looking to knock out their smaller rivals and concentrate ownership still further. Forrest previously suggested that the “big four” producers in Australia should agree to limit production in order to lift the ore price. This prompted talk of a charge of advocating a cartel against Forrest who pleaded the “national interest” had motivated his suggestion.

The Fortescue Metals chief went in hard about the tax arrangements of BHP Billiton and Rio Tinto. When asked about the subject on ABC Radio last month, Forrest let them have it. “Well that’s a really sensitive issue, isn’t it,” he said. “You’ve made huge profits and then you’ve funnelled those profits through a tax shelter in Singapore. You’ve taken around a billion dollars in profits, you’re arguing with the Australian Taxation Office, you’re not playing a fair game, either on the iron ore volume, the iron ore price or even the tax you pay.” Forrest’s complaints about the use of the marketing “hubs” would have been stronger had it not been discovered that Fortescue established an (as yet inactive) marketing company in Singapore last year.

An exposé of the workings of one of Australia’s major “free” (i.e. monopoly-dominated) markets would have raised more questions in the minds of overseas customers – Chinese customers, in particular. Chinese Premier Li Keqiang recently signed $63.5 billion-worth of deals during a state visit to Brazil. The agreements cover resources and food exports, contracts that Australian producers would have been keen to tie up. China has lifted a ban on the import of beef from Brazil; a move that may worsen prospects for Australian graziers.

Lately, China has been seeking to diversify sources of supply to its still booming economy. Australia’s expanded role in the US military “Pivot” to the Asia-Pacific and Indian Ocean regions is raising concerns. The Abbott government’s strident backing of US provocation over disputed islands in the South China Sea has also chilled relations. “The alliance between Australia and the US is a major constraint on the relationship between China and Australia,” Wu Xinbo of the Institute of International Studies at Fudan University said recently.

Australians are becoming worried about the prospect of war with China flowing from a build-up that includes the Commonwealth’s increased military spending, the basing of US Marines at Darwin and now the stationing of B-1 strategic bombers northern Australia. A lot of assumptions about our national interest and security are being shaken. If, after the PM’s latest U-turn, the Senate fails to launch a thoroughgoing inquiry into the iron ore price, widespread assumptions about the operation of “free” markets will be protected for a time longer. But a major rethink about capitalist markets, the US alliance and Australia’s future place in the world is inevitable.

Next article – Nauruan police admit attack

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