Australia’s Defence Industry: A Series on the Current Landscape

This Insight examines the outcome of the Defence Strategic Review 2023 (DSR) and is the first in a series of publications that will examine what lies ahead for the existing legal and regulatory landscape underpinning Australia’s defence industry, including what actions have been taken as a result of the recommendations, given the short passage of time since the DSR was released on 24 April 2023.

By defence industry, we are of course referring to capability, acquisition and sustainment of defence assets, but we are also referring to research and development, security of critical infrastructure, privacy, cybersecurity, artificial intelligence, climate change, procurement, innovation and the largescale political, economic and social initiatives that will need to facilitate the successful growth of the defence industry in Australia.

LK has an experienced team with in-depth knowledge of the legal and regulatory climate, and the capacity to explain how the existing and future landscape will operate to facilitate the growth of the defence industry.

Part 1: The Defence Strategic Review – Recommendations 1 to 5

Defence capability, policy and strategy is overwhelmingly designed to secure and maintain peace and prosperity, and to maintain Australia’s security and sovereignty. The most recent DSR, conducted in 2023, concluded that although Australia had in the past faced significant security risks, a confluence of recent factors meant that a radical shift in the strategic circumstances of the nation had taken place.

Significantly, the DSR noted that the number of competitors vying for major power in the Indo-Pacific region had increased with intensity, with the United States no longer the unipolar leader in the region given the incredibly complex global strategic and security environment it is required to meet. That being said, the DSR highlighted that the US remains a critically important and central ally with respect to Australia’s security and defence strategy, noting that Australia’s investment in this relationship is also critical to scientific and technological advancement.

Importantly the DSR illustrated that defence is not just about defend and deter with respect to Australia’s borders, but that it is about our region more broadly, and the provisions of assistance to other nations needing humanitarian assistance and disaster relief because of climate related events.

What were some of the red flags identified?

The DSR observed:

• In the post Second World War and latter Cold War periods, Australia was in an enviable position in that no direct military threat was facing it. Equally, the war on terror, which arguably began at the beginning of the 21st century did not create issues of existentialism for Australia, although thousands of Australians were sadly directly affected.
• Now in the third decade of the 21st century, our risk profile has changed, particularly with the joust for power between the US and China within our region, creating geopolitical uncertainty and the potential for conflict.
• The nature of conflict has changed. Even at the beginning of the 21st century the concept of cyber warfare was somewhat “futuristic”; now, incredibly rapid advancements in technology mean that cyber warfare has the potential to paralyze entire industries and risk national stability.
• Power dynamics in our region are shifting dramatically, with emerging powers and changing alliances redefining traditional strategies. This change highlights the growing need for Australia, to strengthen its relationships with neighboring countries and invest in their economic development. Finally, the time it would conventionally take for an adversary to launch a major attack (warning time), has reduced because the nature of potential attacks against Australia’s national interests has changed. Cyber threats are one factor,  but other risks, such as the use of military force to disrupt critical trade and supply routes that facilitate our economic prosperity or the use of longer-range precision strike weapons targeting critical infrastructure, have all but eliminated the protective benefits afforded by Australia’s geography. “Down under” is no longer so distant or secure.

The overarching message from the DSR was that a return to fundamentals and first principles was required to manage our strategic risks, which are now at their highest level in 80 years.

What were the key messages from the DSR?

Message 1: Evolution of the Australian Defence Force

The Australian Defence Force needs to evolve into an integrated force with capability across maritime, land, air, space and cyber. In terms of assets, the DSR strongly supported the acquisition of conventionally armed, nuclear-powered submarine capability, and continuous naval shipbuilding. To support this evolution, the immediate development of a network of ports, barracks and bases across northern Australia was recommended, with an emphasis on implementing effective and efficient supply chains.

The DSR rightly recognised that an integrated force requires significant people resources and made observations about the need to increase rates of retention and recruit more quickly. Pay, conditions and culture for service people were noted as needing to be competitive.

Message 2: Minimum Viable Capability

The concept of minimum viable capability in the shortest possible time was identified as being critical to more efficient and effective acquisition of capability. The adage “do not let perfect be the enemy of good” succinctly captures the essence of this strategy.

Minimum viable capability does not mean sub-standard capability. Rather, it is designed to achieve the best possible capability within the time available, which means that an acquisition procured pursuant to this concept will adapt and evolve. For example, communication services on a ship may, at the time of acquisition, do what needs to be done but may be upgraded significantly through the life of the asset. Other systems, such as surveillance or weapons may be retrofitted with upgraded products.

The concept of minimum viable capability and the upgrading or adapting of that capability will not happen in a straight line and will be influenced by emerging threats, risks, opportunities and technologies. The result of the concept, which will require close and highly functioning partnerships between government, government business enterprises and the private sector, means that capability that is good enough can be delivered today, which in the current strategic climate the DSR identified as being a better result than waiting for something perfect but that will not be delivered until tomorrow.

Message 3: Budget Review

The DSR rightly recognised that financial resources are finite. The acquisition of new capability, the sustainment of existing capability, and the need for significant investment in both technology and human capital means that more funding is required. Therefore, challenging decisions regarding funding priorities await; managing the budget for defence spending will require trade-offs.

Message 4: A more coordinated approach

The DSR recommended a shift away from infrequent white papers to one where the national defence and security strategy is reviewed, measured and adapted with a regular cadence. This approach will allow developments, opportunities and risks to be captured, which will ensure a consistent approach across government, and to assure that future implementation, oversight and planning is managed cohesively.

What were the key recommendations from the DSR?

Recommendation 1: A renewed focus on the Indo-Pacific Region

Our geographic proximity dictates this renewed focus and means that the region from the north-east Indian Ocean through maritime Southeast Asia into the Pacific, needs to be the leading district for our military interest.

Recommendation 2: A national approach

Linked to Recommendation 1, the DSR observed that major power competition, arguably between sovereign states and non-state actors, creates threats and risks that are different to any of those faced by Australia since the conclusion of the Second World War in 1945.

National Defence based on a national approach and broad national strategy  that is focused on regional security and diplomacy is critical to maintain a balance of power in the Indo-Pacific region. This involves statecraft, which refers to:

• internal measures such as increased defence and national security spending, including significant investment in cyber security and the protection of critical infrastructure, as well as legislation to limit and resist foreign interference; and
• external measures, such as expanding bilateral, trilateral and multilateral partnerships such as the renewed Quad Partnership with Japan, India and the US.

Evidently, this recommendation emphasises that effective diplomacy and statecraft rely on having sufficient and appropriate resources.

Recommendation 3: Deterrence

It goes without saying that the maintenance of peace and security is of the highest importance for Australia’s national interest. Deterrence, which is about creating a strategic context whereby a potential adversary is compelled to abandon, deter or reduce a planned strategy, is a critical part of maintaining peace. A potential adversary will not, however, be deterred unless the strategic context is credible.

At the time the DSR was released, Australia’s deterrence policy was centered around demonstrating the capacity to independently defeat threats within the immediate region. Therefore, the policy must evolve to enhance effective defence capabilities for  deterring higher-level threats, which will still require significant support from the US.

Growing Australia’s deterrence capability is not just about having critical asset capability, it is also about demonstrating resilience to a potential adversary through having economic and environmental security, fuel and energy security, a readily scalable industrial base and democratic assuredness.

Recommendation 4: climate change and support to disaster relief

Defence regularly contributes to domestic disaster relief efforts. In doing so, it is taken away from its primary responsibility of strategic security. The DSR identified that the acceleration of major climate events (floods, bushfires, drought) means that defence experiences concurrent pressures, which has negatively affected force preparedness. The DSR recommended, therefore, that to relieve this pressure, defence be a last resort for providing domestic relief to the community.

The DSR also highlighted Australia’s potential to leverage renewable resources and recommended that defence focus on the clean energy transition,  particularly by investing in clean technology supply chains.

What does this all mean for the legal and regulatory landscape?

Three words describe what is needed: upgrades, innovation and agility. In this series, LK Law practitioners will explore that landscape by examining the implications of existing and proposed changes, as well as examining what else could be done to assist the legal and regulatory regime to innovate so it facilitates, not complicates, the implementation of the DSR recommendations.

Next article in the series:

Part 2: The Defence Strategic Review – Recommendations 6 to 14.

Brooke Hall-Carney