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Wednesday, 16 November 1983
Page: 2770


Mr O'KEEFE(12.04) —The Export Finance and Insurance Corporation seeks to encourage Australia's export trade in goods and services by providing a specialised range of insurance, guarantee and financial facilities not normally available from the commercial market. The provision of finance to exporters and their customers from Australian sources is at present largely in the hands of the trading banks, the Australian Banks Export Re-Finance Corporation Ltd and, of course, the Export Finance and Insurance Corporation, which we are debating today. Other providers of funds include merchant banks, finance companies and confirming houses.

EFIC was established in 1956 as the Export Payments Insurance Corporation and is involved in the provision of export credit. Since that time EFIC has provided great assistance to Australian industries in their export of goods, including wool, wheat, meat, sugar and, of course, our great mineral resources. It has played a very important part in developing this trade which is of so much benefit to the economy of Australia. Where overseas importers of capital goods have access to subsidised finance, EFIC will match this by lending directly to the overseas buyer up to 85 per cent of the Australian content of the contract value. This is a very important feature. Funds are borrowed by EFIC from the trading banks at commercial rates of interest and lent at concessional rates. The gap between EFIC's borrowing rate and the subsidised lending rate is financed from the Budget. At 30 June 1981 EFIC had entered into loans in support of capital goods exports amounting to almost $300m. Its budget for 1981-82 was $ 9m. It must be recognised that EFIC operates in a unique market environment. The participation of EFIC may, for example, yield important economic externalities in respect of Australia's export trade performance and, more generally, world trade.

EFIC's direct lending and related buyer credit guarantee facilities is confined to situations where there is a clear market gap in the financing options open to Australian exporters. These facilities are partly, if not solely, a response to the actions of other governments and can best be provided through a government- owned institution. EFIC's export payments insurance and associated operations offer protection for Australia's international trade and commerce both against political non-commercial risks and against commercial risks of default by overseas importers. EFIC fills a market gap. It can fulfil these functions more efficiently because it is owned by the Government. It has been a great source of assistance, of course, to Australian commercial business in the overseas markets . There would not appear to be a more cost effective way of securing the associated externalities or responding to the international market imperfection. It is unlikely that EFIC would prejudice viable private financial enterprises in Australia performing the same function. To the extent that EFIC seeks to provide insurance and guarantees on a fully commercial basis, these operations should be distinguished in its accounts from any business done on a non-commercial basis.

The Corporation operates on commercial lines and is self-supporting, with a Commonwealth Government guarantee of last resort. It is good to look at EFIC's facilities. They fall into five main categories: Insurance to exporters against risks of non-payment by overseas buyers for a variety of commercial, economic and political risks; guarantees to Australian banks and financial institutions in respect of finance that they provide to Australian exporters; finance in special circumstances and at concessional rates of interest for Australian exports of capital goods and related services-and, of course, of those great Australian products which I mentioned earlier in my speech; insurance to Australian firms investing in enterprises in foreign countries against the risks of loss from expropriation, war damage or exchange transfer delays-a very important field in overseas trade today; and assistance to banks and insurance companies for the provision of the various types of bonding facilities which have become an increasingly important aspect of export tendering in recent years . All these facilities can directly or indirectly assist an exporter in solving his financial problems. Indeed, over many years they have been of great assistance and have proved valuable to Australian trade. While EFIC cannot provide finance for short term export business, the fact that an exporter has an EFIC policy covering the insurable risk of non-payment both in the pre-shipment and post-shipment period often makes banks and other finance houses more willing to provide finance. In effect, EFIC is a good competitor. EFIC is prepared to make arrangements for any claims under a policy to be paid directly to a policy holder if he and the banker so authorise.

The Minister for Trade (Mr Lionel Bowen) indicated in his second reading speech that there has been increased credit competition for international trade and that Australia must be aware of this situation to keep up with its valuable exports. Interest rates and the cost of finance have become very competitive. Many overseas countries are subsidising these items to increase further their share of trade. Over the time of my membership of this Parliament, EFIC legislation has been amended on a number of occasions, always owing to different world trading conditions. It is good to know that governments in this country are prepared to keep up with these conditions because if they do not it will be of great detriment to trade generally, to our primary industries and, of course, to our great resource industries, for example, coal, copper, tin, and nickel- right across the very broad spectrum of resources.

This measure is designed to boost Australia's export performance. Amendments to the EFIC Act will give it power to provide foreign currency financing and to give Australian exporters access to lower interest rate currencies for medium and long term credit. In short, EFIC is prepared to meet foreign currency dealings throughout the world with benefit to our trade. No amendment is required to enable EFIC to provide foreign currency financing but one is needed to allow it to provide subsidies to lenders giving buyer credit loans.

Exporters will no longer be required to demonstrate a need to meet competition when seeking concessions. The Australian Banks Export Re-finance Corporation and EFIC, subject to understandings by the Organisation for Economic Co-operation and Development, will take the initiative in determining appropriate credit terms. The amendments introduced remove restrictions which limit EFIC's services to those not normally available from the private sector. In short, EFIC is providing great assistance to this country's overseas trade. It has my full support and that of the Party I represent.