Senator COOK(10.07 a.m.) —I move:

That the following matter be referred to the Foreign Affairs, Defence and Trade References Committee for inquiry and report by the first sitting day of the spring sittings 1996:

The proposed abolition of the Development Import Finance Facility (DIFF) scheme, with particular reference to:

(a)   the impact on existing and potential commitments by Australian industry under the scheme, including impacts on Australian workers;

(b)   the impact on the Australian economy and the economies of those countries with which Australia has relationships under the scheme;

(c)   the effects of the cessation of `Green DIFF' projects;

(d)   the impact on Australia's international relations in the Asia-Pacific region;

(e)   the role of concessional finance arrangements in advancing Australia's overseas development aid objectives and in assisting Australian companies to win export opportunities in the Asia-Pacific region; and

(f)   the Government's management and implementation of its decision to abolish the scheme.

This motion refers to the development import finance facility, universally known by its initials and acronym DIFF. This is a scheme which provides for soft loans in the form of aid basically for infrastructure and environmentally friendly development in developing countries, principally in the Asia-Pacific region. On 15 February in a document entitled `Meeting our commitments' released by Mr Costello, now the Treasurer, the present government indicated that it would abolish the DIFF scheme and replace it with a concessional loan scheme at some future time. Since then, and as recently as yesterday, on several occasions the government has confirmed on the public record that the scheme is to go.

This is an important scheme. The government's handling of its announcement of its intention to abolish the scheme and its vagueness about what it might do are matters of national comment, national notoriety and, in my view, national disgrace. This scheme ought to remain. It is an important scheme for Australia.

I do not think we have ever seen before in the field of foreign affairs a conjunction of so many organisations, interest groups and foreign countries opposed to and putting their opposition on the record concerning the abolition of the scheme. A range of organisations has made it clear that if this scheme were to be removed it would be a tragedy for Australia, a tragedy for Australian companies, a tragedy for Australian industry at large, a tragedy for our Asian neighbours and a tragedy for those unemployed people who are looking for employment in Australia.

The reason for moving for an inquiry into this matter is that I believe strongly the public has a right to know what the virtues of this scheme are and what the criticisms of it might be. It will provide at a committee level an opportunity for the government to try to justify what I think is frankly a stupid act, as it has been called by respected national commentators. It will also allow us to deal with the bungling efforts of the government to implement this scheme and the misleadings that appear to have occurred in the House of Representatives by the responsible minister.

This is not a light matter. The former head of the Department of Foreign Affairs and Trade, one of Australia's most respected former diplomats, Richard Woolcott, has condemned the government on the abolition of the scheme. Mr Woolcott is a considered person. He is in many respects the diplomat emeritus for Australia; a premier foreign representative for this country, distinguished at the United Nations and elsewhere, and is well known for his discretion and temperate language. In the Australian of 14 June a letter was reported from Mr Woolcott to Mr Howard. Mr Woolcott said a number of things in that letter which can only be taken as quite frank and outright opposition to what the government is doing. From someone whose language is temperate, these words are indeed bullets.

The essence of Mr Woolcott's letter is that the federal government's decision to scrap the development import finance facility would undermine Australia's credibility, offend neighbouring governments and harm Australia's competitiveness. The letter dated 4 June was to Mr Andrew Thomson, the Parliamentary Secretary to the Minister for Foreign Affairs. In that letter Mr Woolcott argued that the government should reverse its election commitment to abolish the DIFF because it contradicts the larger commitment that the government made of making closer ties to the region the government's top foreign priority. The letter states:

As things stand Mr Howard's and Mr Downer's rhetoric about closer engagement with Asia has been eroded by this action and our credibility and reputation for reliability in the region will suffer, especially in the Philippines following understandings reached during President Ramos's visit last August.

For his pains there has been what one could only describe as an attempt to besmirch Mr Woolcott's motives. However, that has rebounded on those who have attempted to do so. He is not alone in his opposition.

A number of industry associations have condemned the abolition of DIFF as an effort in cutting off your nose to spite your face. This is a scheme that generates contracts for Australian companies, puts them in a premier position in the world to win further contracts and is responsible for a number of leading Australian companies becoming more effective in Asia and winning contracts in their own right. The best example of that is Clough Engineering, the chairman of which is a former president of the Liberal Party in Western Australia and the chairman of the Liberal Party's review group in that state. His company has distinguished itself—and all credit to him and his company—by using the scheme intelligently, and it has gone further to win other contracts in Asia to build Australia's participation in that booming market.

This decision by the government has been universally condemned by business and industry associations around Australia. All media commentators have been opposed to it. I have scanned the media, and not one commentary can I find anywhere in which anyone has had a positive word for the government. These are distinguished independent media commentators. Perhaps the most succinct summary of the media's view appeared in the editorial of the Australian last Thursday, 20 June. The headline reads `The DIFF should be preserved'. The opening paragraph of that editorial which summarises its position succinctly reads:

The Federal Government has made a big mistake with its decision to end the concessional aid program known as the Development Import Finance Facility. If it is truly serious about closer engagement with Asia being its highest foreign policy priority, it should reverse its course by restoring the scheme and its budget for 1996-97.

The editorial then deals in considerable detail with its concerns about the scheme.

If they were the only voices raised in protest, then there would be a cacophony of protest from within Australia. But protest about this government reaches beyond our shores. A number of distinguished ambassadors accredited to this capital representing nations from the Asia-Pacific area have also raised their voices on the public record in Australia. Many of them put their views privately to the government before doing so, as one would expect from ambassadors. The ambassadors of the People's Republic of China, of Vietnam, of the republic of Indonesia, and of the Philippines have all entreated the government on the public record not to proceed with its ill-advised intentions to terminate this scheme.

They point to the value of the scheme in their own nations. They illustrate in their remarks—and there are so many of them that I will not go to each individual one—the immense damage that will be done to Australia's reputation in the region if this scheme is abolished. They go further in their muted ambassadorial language to refer to the bungling efforts of this government to terminate the scheme when a number of companies are currently in the throes of developing contracts and will have those contracts terminated while in mid stride. That of course raises questions in the region of Australia's reputation for reliability.

In the Asian region many things have been written about business ethics and business behaviour. Of all of those comments, one thing can be distilled from them: in this region a premium is placed on trust and honesty. Indeed, many contracts survive because people know and understand the reliability of individuals and of companies. So, when you lose a contract because you have not honoured it or you terminate a contract such as this, it calls into question trust and honesty. It also means that Australia does not start again from zero. It starts from a handicapped position well behind zero because, once a quality such as trust is lost, the efforts to regain trust are of Pavlovian dimensions. You have to succeed in proving trust at least nine to 11 times before anyone would ever believe that you are a trustworthy person. For this government to terminate those projects, in the future its reputation faces that sort of hurdle in Asian eyes.

It is not just the ambassadors. If it were, perhaps the government would try to square its account with them. They are faithful message carriers for their host governments as well. We now know from the public record that a number of ministers in foreign governments have raised this question directly with Australia. We have had the notorious example covered in question time and censure motions in the House of Representatives just this week regarding Madam Wu Yi and her vice-minister's letter to the Minister for Foreign Affairs, Mr Downer, in which she raised questions about the scheme. We know from what has been adduced under questioning in the House that at least two ministers in Indonesia—Mr Ginandjar and Mr Habibie—have raised this matter directly with the government as well.

I have here a copy of a letter dated 13 June from Jakarta under the signature of Minister Habibie in which he refers to a major project that would have attracted DIFF and raises an entreaty with the government that, given the importance of this project to Indonesia, the DIFF scheme should be extended in some way for this project at the very least. Coming from a government of a major developing country like Indonesia and our most important nearest neighbour, that is a major question in its own right. It certainly underlines the significance of the DIFF scheme that that government sees, and it underlines the importance of particular projects that go to assistance in developing our nearest neighbour along the path from being a developing country to being a partly and ultimately developed country.

This letter from Mr Habibie carries other significance too. Mr Habibie—or, giving him his proper title, Dr Habibie—is a significant figure in Indonesia. The press often write of him as a future president of that nation. What is certainly true is that he is a distinguished scientist in his own right, quite an impressive person, a major public figure in Indonesia and someone with a great deal of influence who could easily succeed at being appointed as president at whatever time it is that President Suharto chooses to retire, if he does.

As well, Dr Habibie is a friend of Australia. He came as a guest of the Australian government last year. His importance in the trade relationship between Indonesia and Australia, particularly in what Australia can contribute to that relationship in technology and in science based products and services, is quite significant. He appreciates our value. His raising these questions directly with the government comes from not just any minister. This is a senior figure in the whole of the Asia-Pacific region, a distinguished public figure and scientist in his own right and someone whose voice should be listened to. Those entreaties from our nearest neighbours and our most important regional associates have been overlooked by this government. One needs to get to the bottom of why they see that as being something that they can blithely flick off in the manner in which the Minister for Foreign Affairs seems to have chosen to do.

There is good reason why all of these people have stood up and spoken out in support of this scheme. That good reason can be simply encapsulated by saying this is a scheme which works and which is effective. Destroying something that works and is effective and that greases the wheels of fraternal and good relations in the region for a win-win outcome, both for the developing country and for Australian industry and Australian government, is the silliest of things that one could imagine. It has two-way benefits. Over 700 projects have been funded under this scheme, and all of them are vastly appreciated by the partners who have joined together to make those projects successful.

Another interesting and important dimension of the scheme and one that needs particular commentary, I think, concerns the innovation by the previous Labor government under the ministerial control of now Mr Gordon Bilney for the introduction of green DIFF. One knows that in the Asia-Pacific area, where the pressure is often on governments to take development at any price, matters of environmental damage do occur. One knows that those governments are placed in an intolerable dilemma. They are often faced with having to decide whether they should plumb for projects which will create economic growth, jobs for their underemployed population and development for their nation or whether they should plumb for the environmental elements that sometimes those projects might endanger. That is a terrible and intolerable position for those governments to be placed in.

So green DIFF to encourage development in the environmental area is quite a significant innovation and an important one for Australia, which takes its corporate responsibility in the world on matters environmental as being a high priority, a first priority. If those projects about water purification, about greenhouse gas emissions and about other elements of environmental degradation in those nations were to be undercut because of the removal of green DIFF, that would be a blow to the global ecology and to the ecology of this region. This government waxes lyrical about its so-called environmental credentials but engages in a blackmail over Telstra. Here is one area in which it could prove its environmental credentials, if it so chose; but it chooses not to by cutting this scheme.

Those countries faced with the dilemma of creating jobs at the risk of environmental degradation are faced with the possibility of pollute-now-and-pay-later development. The DIFF scheme plays an important role in ameliorating those terrible choices those countries are faced with, and green DIFF in its own right should stand no matter what.

But the worst feature of what the government has proposed, and one of the matters that need to be inquired into further and which this inquiry would allow, is the impact on the viability of companies currently engaged in the DIFF program. There are currently 52 projects in the DIFF pipeline for 1996-97 and beyond. These projects have already been formally agreed to in bilateral aid consultations between Australia and foreign officials.

In addition AusAID, our foreign aid agency, has provided letters of advice to Australian companies in respect of these projects and has asked them to prepare project feasibility studies. In other words, a number of Australian companies have invested their capital in winning these contracts. Having won them, these companies are being asked to take those contracts to the feasibility stage, which involves these companies in outlays. These companies are now to be cut off. They are to lose the money they have outlaid and the investments they have made in good faith under an understanding of this scheme continuing.

Fifty-two projects around the region are not projects to be lightly sneered at. Of the 52 projects, $67 million has been expended to date. Eighteen of those projects are in China, 16 are in Indonesia, seven are in the Philippines and five are in Vietnam. Those 52 projects have a DIFF value of $379 million and a contract value of $1,082 million. So, by those figures, we can see the magnitude of damage being visited on Australian companies gratuitously by this government. It has an impact on these companies' viability in the local market as well as internationally, with implications for employment and job availability for Australians—not to mention the damage it does to foreign relations within the region.

The loss of contracts valued at $1,082 million is not something that this government—which has promoted its concern about the current account deficit, a reasonable and proper concern, as being one of its centrepieces of economic policy—can walk away from. Under DIFF Australian companies lever themselves into contracts which help the current account deficit improve and which lead those companies, having established their bona fides in the region, on to other contracts which improve the current account deficit as well.

If a government is dinkum about its concern on the current account deficit, it would not cut DIFF and it would not expose Australian companies to the financial risk and Australian workers to job loss that cutting DIFF would do. So the inquiry should look at what major financial damage is inflicted on Australian companies, what loss of jobs this will potentially create and actually create and what damage it does to our image abroad when we do not keep our word that we are reliable, when trust in Asia is a vital and necessary ingredient in business.

It is not as if the only country with a scheme such as this is Australia. One of the things that are true about the Australian economy now is that it is increasingly globalised. Therefore Australian companies have to succeed not only in a globalised economy which is our domestic economy but also in a globalised economy which is the economy of our region and of the rest of the world.

If Australian companies with access to DIFF are denied that particular advantage, then countries that provide DIFF style or soft loan schemes to their own companies— countries such as Italy, France, Germany, Japan and a number of other countries—will take contracts off Australian companies simply because the playing field is not level. In the international arena it is unequal. Developed countries—the European countries I have named and Japan—are very fond of providing particular assistance to their companies operating in the world in order to encourage them to win contracts against all comers.

DIFF is not conceived to be a particular device by which you beat those countries, but the truth is that it works that way as well as achieves its particular aid and developmental objectives. To disarm Australian companies unilaterally in the face of others that remain armed by those industry support schemes means that this government would run up the white flag and say, `Australia won't be competitive. We won't assist. We won't match some of the others, therefore we are bound to lose.' Goodwill being damaged by the abolition of the scheme will mean that, if all things are equal but our prices are a bit higher, goodwill will not save us, because we have lost trust by the abolition of the scheme and other countries support their industry far better than Australia does.

I mentioned the current account deficit. I mentioned that this government has on the chopping block three other major things that help our trade as well as DIFF. I mention them now, but in passing. The export market development scheme, we understand, is slated for complete removal. The ITS scheme is also slated to go that way, despite the fact that it is a loan based scheme and not a direct outlay under the outlays side of the budget. We know that the Expenditure Review Committee of this government on 4 June imposed on Austrade a 24.3 per cent cut in running costs, thus meaning a cut of one quarter to the Austrade running costs budget.

Austrade is a labour intensive agency that is an intelligence network for Australian business in the world, spotting market opportunity for Australian business. If you slash it by that amount, you reduce the reach of Australian business international intelligence to win market opportunity around the world and thus undermine efforts by Australian companies to turn back the current account deficit. It is a bit like starting Cathy Freeman in the 400 metres in Atlanta in Blundstone boots and saying to her: `The extra weight you are carrying on your feet is an incentive to work harder to win your event.' It is a total and utter nonsense.

My final point concerns the bungling manner in which this government has gone about the abolition of the scheme. It knows it is doing something unpopular. Rather than face the music squarely, tell the truth and accept constructive criticism, there has been an effort by the Foreign Minister (Mr Downer) at least, and maybe by others, to try to hide the facts from the Australian community. On this basis alone there is a clear case for an inquiry into these events.

We have seen in the media this week the struggling efforts by the Minister for Foreign Affairs to try to work out how many angels can dance on the head of a pin—in other words, to engage in very fine rhetoric to pretend he did not mislead the House of Representatives when he said that he had not received opposition by ministers in other countries to the abolition of the DIFF scheme. We saw him duck and weave when a letter was produced from a vice minister from the People's Republic of China on behalf of their minister for economic development and foreign trade, Madam Wu Yi. We saw him look flabbergasted and confounded in the face of the advice from ministers Ginandjar and Habibie, from the Republic of Indonesia.

The best summary that I can bring to mind of his performance was that on the 7.30 Report last night when in editorial comment the reporter Barry Cassidy gave the view that even if you believe—and it takes some stretch of the imagination to do this—the tortuous explanations of Mr Downer, then the explanation itself proves that he is incompetent. If the first ground does not hold, the ground of incompetence holds and he should go as a minister. Therefore, that an inquiry to set the record straight, to give Mr Downer a chance to come clean for the Australian people so we can learn the facts of who advised whom, when and where, what was said and what misleadings did occur is an important element of this inquiry. Under the last item—the government's management and implementation of its decision to abolish the scheme—an inquiry will be worthwhile and will help shine a light on these matters.

My final reason for wanting an inquiry into this event is best described by the efforts we have made through the normal forums of this chamber to find out more and better information with the DIFF scheme. On 20 May this year I asked Senator Short a question in question time about what the government's intentions were. Let me go to that question. The first question was: `Are you aware that Japanese, German, French and Italian companies will now be rejoicing at your government's decision to abolish the DIFF system because of the benefits flowing to them at the expense of Australian companies as a result of this decision?'

The second question was quite direct: `Don't you agree that the DIFF scheme would have helped position Australian companies to win some of this work, but that that will now not happen?' The third question was: `What bids for contracts by Australian companies are now in jeopardy because DIFF is to be axed? How many jobs are entailed?' The last question was: `What effect will the loss of these contracts have on our trade position and the current account deficit?' They are questions seeking information. They are questions seeking fact.

What answer did the opposition receive from the Assistant Treasurer? We received an answer, if one can dignify it by the word `answer', which just retailed a lot of economic gobbledegook and never answered the question. This is a favourite performance of Senator Short. No information was given to this chamber. Information was sought through the proper forum of question time. None was given. If the question time forum does not work, then the Senate has no alternative but to go to an inquiry to elucidate the facts.

Senator Short —Have you checked your answers during your time in office? I never got a sensible answer out of you in my life.

Senator COOK —No amount of interjection from you, Senator Short, will save you because you are notorious as a bungling obfuscator. On this occasion your obfuscation did not answer the question. You evaded the question, you denied the question, you went around the question, and now an inquiry is necessary to find out what the truth is. (Time expired)