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Wednesday, 16 November 1983
Page: 2765


Mr CONNOLLY(11.45) —I compliment the previous speaker, the honourable member for Hawker (Mr Jacobi), on his very penetrating analysis of some of Australia's trade problems and emphasise that the Opposition parties of course are not opposing these amendments to the Export Finance and Insurance Corporation legislation. EFIC's objective is to encourage Australia's export trade by providing exporters with a specialised range of insurance, guarantee and financing facilities not normally obtainable from the private commercial market. It is empowered to provide, among other things, insurance to exporters against the risks of non-payment by overseas buyers, for a variety of commercial , economic and political risks; guarantees to Australian banks in respect of finance which they provide to Australian exporters; finance for Australian exporters of capital goods and related services at concessional rates of interest to match overseas competition; insurance of investments of Australian firms and enterprises in foreign countries against the risk of loss from expropriation, war damage or exchange transfer delays; and the indemnification of banks and insurance companies against loss arising in respect of various types of bonding facilities.

The purpose of this amending legislation is to strengthen the services offered by EFIC with the objective of developing further Australia's export trade. The Corporation's facilities are to be expanded to provide foreign currency finance and to give Australian exporters access to lower interest rate currencies for medium and long term credit to meet the terms provided by competitors. I think that it is fair to say that no Australian company involved in the export market would seriously question the useful part that EFIC has been able to play, since its inception, in underpinning at a financial level the capacity of Australian companies to trade overseas. However, EFIC's annual report for 1982 clearly identifies the difficulties being faced by Australian exporters. There was, for example, a major fall in the amount of insurance cover given by EFIC in the metals area, due to decline in price and demand. Similarly, there was a fall in the export of machinery and transport equipment, although there were increases in exports of iron ore and steel, miscellaneous manufactured goods and live sheep and cattle.

A further acknowledgement of the economic problems faced by exporters in overseas markets was a growing usage of EFIC's cover for irrevocable letters of credit, which represents an increase of some 20 per cent over the previous year. EFIC also played a useful role in insuring the provision overseas of professional and technical services against the risk of non-payment. It is worth noting that the Middle East in particular offers great potential for Australian consultancy services in a range of areas, not the least of which is dry farming techniques. I recall in my earliest years in this House being probably the first member of parliament to recommend strongly that EFIC's terms of reference be changed to ensure that adequate cover could be made available for not only exporters of Australian goods but also exporters of Australian services. I am delighted to see the increase in export of services which has resulted in recent years principally because this additional level of insurance cover has been made available.

EFIC's facilities have become essential to the undertaking of a number of major projects. In the period covered by the last financial year, some 17 specific projects, of an aggregate value of $17.5m, were under cover. In addition, EFIC's direct lending facility provides immediate and long term finance to overseas borrowers to support the sale of Australian-made capital goods and the provision of consultancy and related services by Australian firms. Cover is also given in the form of insurance and guarantee facilities to protect exporters who sell capital goods on supply credit, and construction contractors who receive payment for works and services over an extended construction period.

It is worth noting that the Association of South East Asian Nations continues to account for up to 90 per cent of EFIC's insurance portfolios which, in June 1982, had a current liability of $89.4m. This insurance cover has enabled Australian companies to make investments overseas, especially within our own region, which help them to diversify and thus gain access to foreign markets.

It is quite clear that while there are indications of economic recovery, especially in the United States, the recession is still having a major impact on the potential expanding export markets and all indications are that recovery will be slow. Liquidity problems in the private sector in many developed countries may increase the trend for buyers of Australian goods and services to demand more generous credit terms, while others will seek extensions of payment beyond the original arrangements. In addition, as more countries, especially in the Third World, face foreign exchange difficulties to pay for their imports, greater pressure can be expected on countries such as Australia to provide extended credit facilities. In such a difficult international climate, the role of EFIC is therefore particularly sensitive. In its annual report for 1982 it stated:

What is clear is that the global incidence of private buyer insolvency and public buyer default is increasing at a disturbing rate. If the recent experience of our counterparts is any guide, this is likely to be reflected sooner rather than later in EFIC's loss ratios. It is precisely in times such as these that EFIC facilities are of most value to the exporting and banking community.

These are the points to which I believe the Government must give particular consideration in the next year or so because they could be of fundamental importance to the long term viability and protection of Australia's trading position. Australian companies are thus operating in a world where the trading environment fundamentally is different from that of any previous period in this century. The report of the Australian Trade Commissioner Service of October 1983 , which the Minister for Trade (Mr Lionel Bowen) tabled in this House a few days ago, makes the following interesting points:

Not only is world trade becoming increasingly competitive but major structural adjustments and technological advancements throughout the world's industrialised nations are resulting in major shifts in world production and consumption patterns. Product and market opportunities in some traditional areas are declining while new opportunities, for example in services and skills, are emerging. Other nations are already responding to these world developments and Australia needs to move quickly if it is to take advantage of new product and market opportunities.

Australian industry must, to be successful at exporting, continuously adapt to changing world trading conditions. I regret that the record would suggest that in a range of industries that has not been the situation to date. I would agree, however, as the report states, that the Government must support the activities of Australian companies in new product development for export with a view to effecting changes in the composition of Australian exports to parallel more closely existing and anticipated world demand, support and facilitate Australian financial investment overseas and overseas investment in Australia, and support the development of long term Australian Government and business strategies in the trade and industrial spheres.

In the context of that very significant report the question must be asked: What has the Government done since its election in March this year to support the development of Australian trade? I think the single most important measure affecting exports taken since 1 March relates to the exchange rate. There was a devaluation of the dollar of 10 per cent. However, the same dollar has since been allowed to appreciate, which has effectively wiped out the effects of the March devaluation. It is worth noting that depressing economic activity through exchange rate appreciation always operates partly through exports. The appreciation of the Australian dollar means that exports become more expensive to sell. It also means that returns to exporters are accordingly reduced.

A second major decision affecting exports indirectly but most significantly has been the Government's support of full indexation of wages to the consumer price index. Devaluation of the dollar will tend to expand exports. Unfortunately, it will also tend to raise the prices of imports, thus contributing to rises in the consumer price index. However, by indexing wages to the CPI the Government has effectively ensured that the price increases resulting from the devaluation will pass through into wages and hence cost increases, offsetting to some extent the beneficial effects of devaluation for exports. These matters are of significant importance to all Australian industries involved in the export field. It is worth noting, as a comparison, the position in the United States of America. It is estimated that in the United States the on-cost of wage increases in the steel industry, for example, represents 60c in every dollar. I do not know what the equivalent Australian figure is, but I have no doubt that it would probably compare unfavourably with that experience.

Australia has always been regarded as a great trading nation. From the earliest days of our colony we exported the produce of our soil. The composition of our exports has changed dramatically over the last 30 years. For example, in 1952-53 manufacture accounted for 5 per cent of our exports. By 1980-81 this amount had grown to 18 per cent. In 1952-53 minerals accounted for 7 per cent of our exports and that increased to 28 per cent in 1980-81, while farm produce over the same period has fallen from 83 per cent to 49 per cent. The consumers of our production have also changed radically in that same period. In 1953 the United Kingdom accounted for over one-third of our exports. Today it is some 4 per cent . Japan, on the other hand, has taken the position as our major market. The Association of South East Asian Nations region in particular is now our largest group customer, with exports increasing by over 260 per cent in less than eight years.

The problem which many Australian exporters must face is simply that the importers of Australian bulk commodities would quickly go elsewhere if there were alternative sources of supply at a reasonable price and on the basis of reliable delivery. What a sad reflection this is on the credibility of this country and obviously no government, and certainly not the private sector and those industries involved in major exports, can afford to be complacent about this situation. In recent years Australia has dropped from No. 11 to No. 17 on the list of the world's trading nations. The value of our manufacturing exports has declined over the last four years from 22 per cent to 18 per cent of total exports, while the domestic market for our manufactured goods has become saturated. The value of Australia's exports as a proportion of its gross domestic product is low relative to that of a number of other OECD countries. I seek leave of the House to incorporate a recent OECD analysis of this situation which compares Australia's performance with that of a range of other OECD countries. It is most unsatisfactory.

Leave granted.

The document read as follows-

OECD OBSERVER No. 121 MARCH 1983

New

United

United

Japan

Luxembourg

Netherlands

Zealand

Norway

Portugal

Spain

Sweden

Switzerland

Turkey

Kingdom

States

CURRENCY

Luxem- New

bourger Zealand Swiss Turkish monetary unit

Yen Franc Guilder Dollar Krome Escudo Peseta Krona Franc Pound Pound Dollar

Unit per US $ 31st December 1982 at market rates 235.00 46.92 2.63 1.37 7.05 89 .06 125.60 7.30 2.00 186.75 0.62 1.00 Units per SDR 31st December 1982 259.00 51 .75 2.90 1.51 7.78 98.24 138.54 8.05 2.20 205.99 0.68 1.10

IMPORTS-(goods only)

Total (CIF) million US $ 142,669 61,852 * 65,920 5,734 15,620 9,744 32,178 28, 848 30,595 8,944 102,799 260,982 From other OECD contries million US $ 49,433 49 ,455 * 47,361 . . 14,000 6,719 16,445 22,944 26,329 4,228 80,498 138,175 From rest of world million US $ (excl. unspecified) 93,229 12,368 * 18,558 . . 1,621 3,010 15,728 5,904 4,266 4,716 22,072 122,803 Total imports as percentage of GDP at current prices 12.6 62.5 * 46.9 22.9 27.3 40.9 17.3 25.7 32.4 15.5 20.7 9.0 Volume change of total imports from 1976 to 1981 percentage per year 2.3 2.2 * 1.2 1.0 2.1 . . 2.7 * 1.3 * 6.9 -4.1 -2.5 3.1

EXPORTS-(goods only)

Total (fob) million US $ 151,759 55,476 * 68,464 5,618 17,928 4,142 20,457 28, 543 26,892 4,772 102,808 233,740 To other OECD countries million US $ 71,750 46, 482 * 56,874 . . 15,974 3,218 12,208 22,277 19,613 2,282 72,564 132,276 To rest of world million US $ (excl. unspecified) 80,009 8,414 * 10,030 . . 1,954 825 7 ,989 6,266 7,279 2,489 29,368 100,488 Total export as percentage of GDP at current prices 13.4 56.1 * 48.7 22.5 31.4 17.4 11.0 25.4 28.5 8.3 20.7 8.0 Volume change of total exports from 1976 to 1981 percentage per year 7.1 3.3 * 2.0 3.9 5.7 . . 12.0 * 3.4 * 4.9 5.5 2.8 5.3

CONSUMER PRICES

Increase 1982 per cent (Dec. 81-Dec. 82) 1.8 10.4 4.3 15.3 11.7 18.8 14.0 9.6 5 .5 29.6 5.4 3.9 Average annual increase 1977-1982 per cent per year 4.6 6.2 5.5 14.9 9.7 21.0 16.0 10.3 4.2 56.5 12.0 9.8 Industrial production change 1982 (Dec . 81-Dec. 82) -0.9 -15.5 -7.1 . . 0.2 -2.4 * -1.1 ** -1.6 -7.7 ** . . 0.8 -6.1

INTERNATIONAL TOURISM

Recepits as per cent of GDP 0.1 1.7 * 1.2 1.0 1.3 4.4 3.7 0.9 3.2 0.7 1.2 0.4 Expenditure as per cent of final private consumption 0.7 4.5 * 4.3 3.7 5.3 1.5 0.8 3.7 3.6 0.3 2.2 0.1

* BLEU: Belgium-Luxembourg Economic Union.

* 1974-79.

*1975-80.

* September 1981-September 1982.

** November 1981-November 1982.

** Q4-81-Q4-82.

OECD OBSERVER No. 121 MARCH 1983

Australia Austria Belgium Canada Denmark Finland France Germany Greece Iceland Ireland Italy

CURRENCY

Australian Belgian Canadian Finnish French Deutsche Irish monetary unit

Dollar Schilling Franc Dollar Krone Mark Franc Mark Drachma Krona Pound Lira

Unit per US $ 31st December 1982 at market rates 0.98 16.69 46.92 1.23 8.38 5. 29 6.73 2.38 70.57 16.63 0.72 1,370.00 Units per SDR 31st December 1982 1.08 18 .41 51.75 1.36 9.25 5.84 7.42 2.62 77.84 18.34 0.79 1,511.00

IMPORTS-(goods only)

Total (CIF) million US $ 23,765 21,003 61,852 * 66,500 17,502 14,197 120,497 162,691 8,911 1,036 10,631 91,201 From other OECD countries million US $ 17,103 15,705 49,455 * 56,450 14,808 8,866 79,559 120,161 5,987 892 9,852 53,714 From rest of world million US $ (excl. unspecified) 6,553 5,298 12,368 * 10,050 2, 694 5,331 39,959 42,408 2,924 144 721 37,459 Total imports as percentage of GDP at current prices 14.8 31.6 62.5 * 23.4 30.1 28.9 21.2 23.8 24.3 35.1 63.7 26.0 Volume change of total imports from 1976 to 1981 percentage per year 1.0 * 3.7 2.2 * 2.3 -1.1 1.8 4.0 3.7 2.1 . . 7.7 2.5

EXPORTS-(goods only)

Total (fob) million US $ 21,775 15,808 55,476 * 70,566 15,976 13,977 101,270 175,284 4,294 905 7,835 75,715 To other OECD countries million US $ 12,915 11, 137 46,482 * 60,279 12,958 8,790 68,233 129,642 2,432 687 6,661 47,962 To rest of world million US $ (excl. unspecified) 8,654 4,671 8,414 * 10,287 2,995 5, 187 33,035 44,820 1,858 218 1,070 26,815 Total export as percentage of GDP at current prices 13.6 23.8 56.1 * 24.8 27.5 28.5 17.8 25.7 11.7 30.7 46.9 21.6 Volume change of total exports from 1976 to 1981 percentage per year 1.2 5.9 3. 3 * 4.5 6.1 7.8 5.5 5.2 4.9 . . 9.1 4.6

CONSUMER PRICES

Increase 1982 per cent (Dec. 81-Dec. 82) 11.0 4.7 8.1 9.3 9.0 9.0 9.7 4.6 19.1 60.3 12.3 16.4 Average annual increase 1977-1982 per cent per year 9.6 5.2 6.4 10.3 10.8 9.6 11.7 4.7 20.3 49.4 15.2 16.8 Industrial production change 1982 ( Dec. 81-Dec. 82) -10.0 -5.9 0.6 * -11.2 . . -3.1 -3.1 -4.7 -6.9 * . . -1.7 * -5 .4

INTERNATIONAL TOURISM

Receipts as per cent of GDP 0.7 7.7 1.7 * 0.9 2.2 1.4 1.3 0.9 5.3 0.7 4.0 2.2 Expenditure as per cent of final private consumption 1.9 6.2 4.5 * 2.0 3.9 2.2 1.6 4.6 1.0 2.9 4.8 0.8

* BLEU: Belgium-Luxembourg Economic Union.

* 1975-80.

* November 1981-November 1982.


Mr CONNOLLY —I refer now to the question of management attitudes which must improve. A relative handful of companies carries the burden of earning the foreign exchange which we need to maintain our standard of living. For example, 140,000 people, or 12 per cent of total manufacturing employment in Australia are involved in export industries. Approximately 6 per cent of all manufacturing establishments are classified as being involved in exports. In 1979, 80 sales by designated export industries represented 14 per cent of total manufactured sales . During the 1970s, compared with the experience of the previous two decades, Australia performed relatively poorly as an exporter. Our exports increased significantly in value terms, reaching $21.7 billion in 1982, while our share of world exports declined from 1.68 per cent in 1970 to 1.26 per cent in 1982.

The reasons for this export performance are variable, but all of them are significant. One is Australia's concentration on the export of goods for which world demand has grown slowly, especially agricultural commodities. Overseas trends towards protectionism and bilateralism have affected particularly our commodity exports. Many of our commodity exports have grown at less than world average rates. As an exporter, predominantly, of less processed items Australia has not secured the faster trade growth in more highly processed items found by our competitors. Australia's industry structure reflects an import substitution bias rather than an export led strategy. That has been built into our commercial and secondary industry base, at least since the 1940s, and it needs to be very seriously regarded in the context of whether we should persist with a policy of tariff protection which is quite clearly not resulting in the ultimate objective of policy, as instituted during that earlier period. Export franchise arrangements between overseas companies and their Australian licensees or affiliates have also, in many cases, restricted Australian companies' exports to a number of destinations which are open to competition from parent companies.

Quite clearly, the world export environment will remain extremely competitive for the foreseeable future. Broad structural changes taking place in the world economy are resulting in major shifts in world production and consumption patterns. We have seen a rundown in industrial countries of certain basic industries such as shipbuilding, textiles and automobiles, all of which have tended to move to other economies where the costs of production, particularly labour costs, are significantly lower. There has been a growth in industrialised countries of new industries with greater long term promise, for example, the high technology industries such as computers, telecommunications, information systems and so forth. There has been a major revolution in the electronics industry which is gradually coming to play a core role in the world economy comparable to that once played by the automobile industry. We see a major growth in the service industries as employment generators, while regional changes within industrialised countries, for example, the rapid growth in the south-west of the US, have also brought with them significant changes of world and local demand. There is scope for the Government to play a stronger role in encouraging the development of Australian products and processes to meet world demands as they are and as we anticipate that they will be. These must be realistically directed to producing products with a practical and commercial application.

I will refer briefly to the matter of freeing of world trade. After a quarter of a century, to 1974, of almost uninterrupted reduction in barriers to trade and capital flows, governments around the world are increasingly turning to new forms of protection. These are primarily of a non-tariff type, and the proportion of world trade conducted under all kinds of non-tariff restraint increased by at least 5 per cent over the last half of the 1970s. By 1982 it approached 50 per cent of world trade. Many countries are thus obviously applying policies, instruments, devices and procedures in an endeavour to provide an advantage for their own products over foreign competition. Today non- tariff barriers are becoming more important than tariffs in determining trade flows.

Domestic policies, such as direct subsidies and industry related taxation policies, also have had a direct impact on trade competition. The General Agreement on Tariffs and Trade system of negotiation and regulation, which was developed when tariff barriers were high and when many of the anti-trade measures now employed did not exist, is quite clearly no longer capable of living with the world as it is, as distinct from the world's trade environment in the 1960s and early 1970s, when it was taken for granted that major economic growth was to be expected. Today we must work extremely hard for such growth. This can be achieved only if a country's domestic policies are interrelated with its foreign trade policies. It is no longer possible to identify some Australian industries and somehow try to hermetically seal them off in terms of the needs for overseas trade. It is now of fundamental importance to this country, and thus a responsibility of this Government, that in all its industrial relations policies and in all its trade expansion policies it must try to interrelate costs of production with opportunities of sale and market competitive forces.

Financial incentives to industries can have a substantial effect on international trade flows. Increasingly, as I said, governments have been using such measures as part of their assistance package to encourage domestic production. In Australia's region, countries such as Singapore, Taiwan, Malaysia and South Korea use a range of such measures. Tax holidays for pioneer industries ranging from between five and 10 years, tax exemptions for expanding industries, concessional exchange rates for exports, and concessional tax rates for priority sectors, are just some forms of direct government assistance available in countries which are now openly competing with Australia in a part of the world which is one of the few which shows any prospects of major growth over future decades. It is plain to see that if the main markets capable of expansion, such as the Pacific Basin, continue effectively to distort the pattern of trade, finally all will suffer, leaving only complementary economies, dependent on the export of raw materials capable of maintaining markets for their products, provided they have a comparative cost advantage, as in importing , for example, iron ore from Australia rather than from Brazil. It is in that context, therefore, that the costs of production are absolutely critical. The recent decision by Japanese coal importers to reduce Australian contracts to 12 months effectively means that we must hold the competitive edge continuously in order to maintain the substantial markets which are so vital to our coal industry's future viability.

Where lies our future? The evidence quite clearly suggests that Australia's trading future lies in the Pacific Basin. Much can be done, but we must have a practical approach directed at diversifying our markets, exploiting our advantages and providing our abundant resources, embracing new technology to increase productivity and, above all, we must free trade domestically and do all we can to encourage a freeing of trade internationally. As I said earlier, the major controls on trade are now both direct and indirect. GATT was principally directed at what are called the direct control mechanisms over flows of trade, tariff protection and so forth. Now the problem is much wider than that.


Madam DEPUTY SPEAKER (Mrs Child) —Order! The honourable member's time has expired.