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Wednesday, 9 November 1983
Page: 2462


Mr LIONEL BOWEN (Minister for Trade)(10.45) —I move:

That the Bill be now read a second time.

This Bill proposes what are essentially technical amendments to the Export Finance and Insurance Corporation Act 1974. However, these amendments form an integral part of a total approach by the Government to export development. In recent years there has been an intensification of credit competition in international trade. The recession in Western countries and slowdown in domestic activities has resulted in a scramble for all available export orders. In the capital goods area, interest rates and the cost of finance have become the key determinants of competitiveness. Most countries subsidise interest rates and there is an increasing use of aid funds to soften further credit terms in order to secure major contracts. Agricultural trade is also under pressure with major exporters aggresively attempting to expand overall market share. On top of these pressures, there is a lengthening list of countries with serious debt repayment problems. Requests for extended credit terms have become more frequent.

An all-out credit war has been averted largely due to the limitation on subsidised credit terms which has come from international understandings, particularly the Organisation for Economic Co-operation and Development's arrangement on export credit which sets minimum interest rates and maximum repayment terms for capital goods transactions. The arrangement, however, is under pressure as domestic interest rates in a number of countries approach or fall below the minimum rates applying to export credits. Japan in particular is now in that situation. Against this background of intense credit competition, and also in response to widespread criticism from the business community that credit facilities currently available to Australian exporters are no longer on a par with those available to our competitors, the Government has undertaken an extensive review of Australia's export credit policy. It was the Labor Government in 1974 which last took a serious look at the problems confronting exporters in the field of export credit. At that time, the existing Export Payments Insurance Corporation was reconstituted as the Export Finance and Insurance Corporation, or EFIC as it is generally referred to, with an export bank function to provide exporters with concessional finance to meet the subsidised interest rates being offered by most of our competitors.

The Government has now decided on a range of initiatives designed to ensure that markets for Australian exports are made secure and developed to their full potential. On the export credit side, the supporting services available to exporters through EFIC are to be strengthened and the Government will pursue a more effective export credit policy generally. The Government's intention is that EFIC's facilities be expanded to enable the Corporation to provide foreign currency financing and give Australian exporters access to lower interest rate currencies for medium and long term credit with which to meet the terms being provided by competitors. The Government is also examining the various sources of funding for EFIC's finance facility, including general offshore borrowing, to ensure that the most suitable funding arrangements are utilised.

The operating policies of EFIC currently restrict the provision of export finance to Australian dollar loans and the provision of buyer credit guarantees to Australian lending institutions, that is, where EFIC provides a lender making a loan to an overseas buyer of Australian goods with a guarantee of repayment. While the interest rates of our major competitors were above the OECD minima, this did not, in general, place Australian exporters at a disadvantage. That the yen and some other currencies can now be provided at below the OECD minima, and that other important trading currencies may shortly follow suit, make it desirable to extend EFIC's facilities to provide for foreign currency financing. This will be done by empowering EFIC to give a guarantee-what is known as buyer credit-to an Australian or overseas lending institution which provides a foreign currency loan to the overseas borrower or buyer, or, alternatively, EFIC itself raising foreign currency offshore in its own name and lending itself in that foreign currency to the overseas buyer.

The benefits of foreign currency financing are twofold; not only will exporters have access to low interest rate currencies to match their competitors, but also with interest rates for many currencies presently lower than Australian interest rates, there is scope for the Government to achieve savings in the present cost of providing interest rate subsidies on Australian dollar loans. In some cases where the currency is below the OECD minima, no subsidy will be necessary. In other cases it will still be necessary to subsidise the interest rate on a foreign currency loan down to the OECD levels. It is this requirement with which the Bill is primarily concerned. No legislative action is required to enable EFIC to provide foreign currency financing. It is, however, necessary to provide EFIC with authority to provide subsidies to lenders giving buyer credit loans.

As part of a more aggressive approach to export credit, I have requested EFIC to revise its operating procedures to reflect the Government's wish that the Corporation play a conspicuous and determined role in assisting Australian exporters to secure orders. Of course, this will be consistent with the Corporation's obligation to operate in accordance with sound commercial principles and comply with accepted international practice. This approach will include the establishment of credit lines or other facilities with countries which offer worth-while trade development prospects. Exporters will no longer be required to demonstrate a need to meet competition when seeking concessional export finance and EFIC, subject to OECD understandings, will take the initiative in determining appropriate credit terms. There will be a more flexible approach to the definition of capital goods and the value of transactions which qualify for export finance assistance. The Corporation has also been asked to inform the Government prior to withdrawing or limiting cover for individual countries on commercial grounds, where such action may place significant trade at risk.

The Bill proposes a revised definition of 'lending' to include the provision of finance in any form. The expanded definition will enable EFIC to keep abreast of current trade financing techniques such as the purchase of and dealing in bills of exchange and promissory notes. This is particularly relevant to the financing of lower value transactions where the more complicated, lengthy and costly process of loan negotiations and formal documentation can be avoided. The Bill will also give effect to the Government's decision to remove the restrictions which generally limit EFIC's services to those not normally available from the private sector. I am concerned to ensure that EFIC does not become open to challenge if private operators were to seek to operate selectively in the less risky areas of EFIC's traditional activities. Rather than see the viability of a soundly run government operation undermined, this avenue for challenge is to be removed. Whilst the Government is anxious to preserve EFIC's traditional role, it does not see any need to extend EFIC's facilities into other areas of insurance as long as the private sector is effectively meeting the need of exporters.

The regulations under the EFIC Act are to be amended to enable EFIC to provide up to 100 per cent cover against the risk on non-payment arising from political causes. The basic principle of credit insurance is that of co-insurance whereby the exporter, by bearing a share of the risk, will act with prudence and caution . While the Government sees merit in this practice, as it can influence the firms and organisations with which an exporter chooses to deal, it does not apply with the same force with respect to political risk which is beyond an exporter's influence. The increase in cover for political risks is consistent with the Government's wish to encourage exporters to pursue all reasonable commercial opportunities. Obviously, the practice of limiting Australia's exposure in countries with a poor payment record or those known to be an imminent risk of default will continue. Cover against commerical causes of loss, such as buyer insolvency, will remain at 90 per cent.

Earlier, I mentioned briefly the use of aid funds in mixed credits by many of our competitors. A limited scheme, the Development Import Finance Facility, has been available through the Australian Development Assistance Bureau since 1981 to provide aid grants in conjunction with EFIC loans to soften the overall financial package available to support Australian exporters faced with competition from mixed credits. The DIFF scheme has only now started bearing fruit and to overcome the uncertainty for exporters involved in protracted negotiations on the future availability of funds, the Government has introduced a $60m commitment ceiling for the scheme as an interim arrangement pending the outcome of the current examination of Australia's aid program by the Jackson Committee. This will significantly strengthen the scheme by enabling exporters to tender for contracts in the knowledge that funds will be available if they are successful.

I also mentioned earlier the work within the OECD to avert a credit race in international trade. To date, these efforts have been directed towards limiting subsidised finance and extended repayment terms for exports of manufactured goods. More recently, there has been increasing pressure to extend more generous payment terms than the usual 180 days for a range of agricultural commodities. Much of this stems directly from the demands of countries with debt servicing problems but there is also a strong push towards the use of attractive credit by suppliers to expand market share. Australia has instigated a study of the use of credit in agricultural trade and will continue to pursue an international agreement within the ambit of the OECD to limit the provision of officially supported credit for agricultural products.

Australia's ability to win and maintain export markets depends increasingly on an effective framework of export credit arrangements. In particular, the support services available through EFIC must reflect the changing needs of Australian exporters in a rapidly changing international environment which is presently characterised by intense international competition involving generous credit terms for all available export business. As this situation is likely to continue through the 1980s, an essential feature of export credit policy must be an aggressive approach towards maintaining existing markets.

The proposals I have outlined do not in themselves involve additional expenditure by the Government. The consequences of a more vigorous approach to export may be an increased amount of interest rate subsidy. However, this will be dependent on the success of exporters in winning business, and savings should be achieved through the use of lower interest rate foreign currency financing. The Government expects that these initiatives, when taken as a package, will meet much of the criticism from the business community that Australia's export credit facilities are not on par with those available to our competitors. They will also provide EFIC with the base from which it can play the conspicuous and determined role envisaged for it by the Government. These initiatives build further on the trade promotion measures to boost Australia's export performance which were announced in the Budget context.

There is a continuing need to maintain Australia's international competiveness and none of the Government's measures I have outlined seek to compensate for the basic competitive elements such as price, quality and delivery. However, they are all designed to achieve greater penetration into the growth areas of world trade by adopting a more aggressive approach to exporting. Our promotional measures are heavily weighted towards manufactured goods as it is this area of world trade which has expanded and where Australia's performance has slipped back. Our manufacturing sector has contracted and employment has fallen dramatically. Manufactured exports can play a key role in reducing unemployment.

The full range of measures I have outlined and other initiatives such as the current review of the Australian Trade Commissioner Service and the examination of a possible overseas trading corporation demonstrate clearly the planned approach that this Government is taking to revitalise the export sector of the Australian economy. Although the proposals contained in this Bill are technical and of limited impact in themselves, I am confident that the Government's total approach to export development, of which they are part, will be welcomed by exporters as a positive step towards regaining our position as a world trading nation. I commend this Bill to honourable members.

Debate (on motion by Mr McVeigh) adjourned.