The toughened regime is on the agenda in the final talks over an industry statement due within weeks as Labor and the unions negotiate ways to shield manufacturing and construction companies from the damage inflicted by the higher Australian dollar.
ACTU president Ged Kearney told The Australian that stricter procurement rules had to be an option in the policy response to the pressure on jobs as local employers missed out on the flow-on spending from vast resource projects.
"We can't be left with an economy that has no manufacturing. A services economy simply can't survive," Ms Kearney declared last night. "We must take a long-term view of this, otherwise we'll be left with a devastating legacy."
The Australian revealed yesterday that stronger procurement rules for big resource and infrastructure projects would be part of an innovation statement that Julia Gillard and her ministers are preparing for release next month.
While the government does not want to mandate the level of local content a big investor must buy, the union movement is urging the inclusion of stringent requirements on the private sector.
Ms Kearney backed the use of mandatory local content rules as part of the policy outcome.
"It's something that should be considered," the ACTU President said.
One option being discussed is a union proposal to make industry assistance for big companies conditional on guarantees that the companies would buy local goods and services rather than imports.
There would be a threshold to apply the rules to the biggest resource and infrastructure projects.
"When people receive assistance from the commonwealth they have an obligation to give back to the community," said Construction, Forestry, Energy and Mining Union national secretary Michael O'Connor.
Mr O'Connor questioned whether the community was getting the best return from the current level of industry assistance and said there were direct and indirect jobs to be created from stronger procurement rules.
"If the companies are receiving assistance, there should be some obligations on them," he said.
"It needs to be on the table. And if it's not being pursued, why not? Explain to taxpayers why it shouldn't be."
Mr O'Connor is a member of the government's manufacturing taskforce, the forum for much of the discussion over the new industry statement.
The government helps industry with $9.8 billion in annual subsidies, tax breaks and tariff concessions.
While carmakers and clothing manufacturers get the biggest aid, the Productivity Commission's annual survey showed that budgetary assistance to the mining industry climbed to $506 million last financial year.
Canberra changed its procurement rules in 2011 so that companies bidding for more than $20m in work had to sign up to Australian Industry Participation Plans and spend more on local supplies.
Union leaders said the rules for private companies receiving industry assistance could be similar to the commonwealth procurement policy, although it was not clear late yesterday what financial threshold might apply.
The labour movement is said to be comfortable with the government's overall direction on the new industry statement, being led by Industry Minister Greg Combet.
The nation's peak steel industry body, the Australian Steel Institute, welcomed the government's move but warned that new measures must be accompanied by rigorous reporting obligations and strict enforcement.
ASI chief executive Don McDonald said a policy change was urgently needed due to the lack of domestic demand in the steel and heavy engineering sectors.
Mr McDonald pinned much of the blame for the decline on the booming resource sector, which he claimed had imported large amounts of fabricated steel.
"The ASI believes that a key component for better industry engagement, flowing to more jobs, would be a robust Australian Industry Participation Plan process and the ASI has put a detailed AIPP policy prescription to government," he said.
"To be effective, AIPPs need to be adopted which provide meaningful and transparent disclosure of the levels of engagement and local industry supply by product sector.
"For AIPP processes to support job growth, there need to be clear guidelines on implementation, rigorous reporting obligations and strict enforcement of local content policy."
Minerals Council of Australia chief executive Mitch Hooke rejected suggestions that mining companies spent too little on local content.
He said that federal government data from 2009 showed the mining industry's total demand for goods and services was $85.7bn, of which $75.8bn - almost 90 per cent - was supplied by local industry.