Australia's only producer of passport paper could close by the end of the year, sparking concerns that passports and other crucial identity documents will be partially manufactured overseas.
There are fears Australian documents would become easier to forge if the paper were made offshore.
The Shoalhaven Paper Mill is the only manufacturer of specialised ''watermark grade'' paper with special security features.
The paper is made by a skilled workforce of about 100 and then sent to an undisclosed government department where the passports are put together.
The mill owner, Australian Paper, says that unless Canberra commits to buying a wider range of products to supply brochures, publications and forms for government departments, it would have no choice but to close, leaving Australia to source its secure documents overseas.
''Paper is becoming a bit of a dying industry,'' said Jack Evans, a spokesman for the Construction, Forestry, Mining and Energy Union, who has worked at the mill for 20 years.
''Time's against us. Unless the government comes on board, I think we'll have to close within six months.''
At the Senate inquiry into commonwealth procurement, Australian Paper called on the government to buy 20,000 tonnes of paper a year from Shoalhaven Mill, which is the maximum it can produce. The paper would make up about a third of the government's estimated annual paper usage of 60,000 tonnes.
The CFMEU said if the government switched to an overseas provider, forged passports would become easier to produce as the lower-quality overseas paper product was easy to copy.
The Department of Foreign Affairs and Trade did not reply to a request for comment on the future of the Australian paper industry.
The Senate committee is expected to hand down its findings on Shoalhaven Mill on June 30.