Senator KEMP (Assistant Treasurer) (7:31 PM) —I table a revised explanatory memorandum relating to the Textile, Clothing and Footwear Strategic Investment Program Bill 1999 and move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard .

Leave granted.

The speeches read as follows—

TEXTILE, CLOTHING AND FOOTWEAR STRATEGIC INVESTMENT PROGRAM BILL 1999

Honourable senators will be aware the Prime Minister announced in September 1997 the key elements of the government's response to the Industry Commission's review of the textile, clothing and footwear industries.

The package of measures announced by the Prime Minister for the TCF industries included a tariff pause at levels scheduled for 2000, until 31 Decem ber 2004, and adjustment initiatives designed to promote sustainable and internationally competitive TCF industries into the next century. I will later introduce a separate bill, the Customs Tariff Amendment Bill, to implement the government's decision to reduce duties on TCF items from 1 January 2005.

The proposed TCF strategic investment program bill allows for the establishment of the TCF Strategic Investment Program as the key initiative for the TCF industries. The TCF Strategic Investment Program is a five-year, $700 million package aimed at encouraging additional investment in the TCF industries to add value to the products of early stage processing. The program aims to help in the development of sustainable, internationally competitive TCF industries in Australia during the transition to a freer global trade environment, by providing incentives which will promote investment, innovation and value adding in these industries. The program will also provide incentives to areas which are heavily dependent on TCF manufacturing industries, primarily regional areas.

The benefits available under the TCF strategic investment program will be paid as cash, annually and in arrears. All firms engaged in textile, clothing, footwear and leather manufacturing in Australia, as defined by the Australian Bureau of Statistics, will be eligible to apply for assistance under the program.

The TCF strategic investment program will come into effect on 1 July 2000, following the termination of the TCF Import Credit Scheme on 30 June 2000. The benefits to be paid under the program for investment expenditure on new plant and buildings, research and development activities and value adding will be calculated as follows:

(i) Up to 20 per cent of eligible investment expenditure on new plant and buildings;

(ii) up to 45 per cent of expenditure on eligible research and development related activities (including product development expenditure, other than advertising and media related expenditure); and

(iii) Up to five per cent of TCF value added by the company in Australia in the year of their claim.

In addition to the mainstream application of the program, and recognising that restructuring of the TCF industries may have some adverse impact on employment opportunities, the program will support two specific initiatives to assist areas which are heavily dependent on TCF manufacturing industries:

(i) Subject to satisfying the criteria for reconfiguration and adjustment, affected firms may apply for assistance under the SIP for the purchase of `state of the art' second-hand plant and equipment.

(ii) Subject to meeting the specified criteria, authorised agencies in regions affected by restructuring in the TCF industries may be eligible to apply for assistance under the Commonwealth's existing Regional Adjustment Program to create employment opportunities in the affected regions.

These initiatives will primarily benefit regional areas which are heavily dependent on TCF manufacturing industries.

The TCF strategic investment program will minimise the risk of a successful World Trade Organisation (WTO) challenge. In line with the WTO's rules, the overall level of assistance to individual companies from the grant program will be limited to five per cent of its total sales of eligible products in the preceding twelve months.

To comply with Australia's obligations under the Closer Economic Relations (CER) with new Zealand, sales to new Zealand would not receive payments under the scheme's value added provision and would not be included as sales for calculating the five per cent limit on overall subsidy payments.

The proposed bill provides for in Part 1 Introduction; in Part 2 General Provisions of the TCF(SIP) Scheme; in Part 3 Supplementation of the Regional Assistance Program; in Part 4 Information Gathering Powers; in Part 5 Recovery of Scheme Debts; in Part 6 Offences; and in Part 7 Miscellaneous Provisions.

The proposed bill provides for enabling powers for the minister to make a ministerial scheme pursuant to the new act, to be called the TCF(SIP) scheme, which will set out the necessary rules relating to the program.

The Commonwealth Department of Industry, Science and Resources will administer the TCF Strategic Investment Program.

TELECOMMUNICATIONS LAWS AMENDMENT (UNIVERSAL SERVICE CAP) BILL 1999

Madam President, the Australian telecommunications regime includes universal service arrangements, to ensure that all Australians have reasonable and equitable access to a standard telephone service and to payphone services.

The Telecommunications Act 1997 places a Universal Service Obligation (or `USO' for short) on one or more carriers, requiring them to ensure that these services are reasonably available to all Australians, wherever they may reside or carry on business. At present, Telstra is the carrier which fulfils the USO throughout Australia.

The cost of fulfilling the USO is shared amongst all the carriers, in proportion to each carrier's market share. At the end of each financial year, Telstra puts in a claim for the cost of fulfilling the USO during that financial year. The Australian Communications Authority assesses that claim and rules on the actual cost, then bills the other carriers for their contributions. This assessment of the USO claim by the Australian Communications Authority ensures that an independent regulatory authority transparently assesses the cost of the USO in each year.

A problem has now arisen with these arrangements. In previous years, under the equivalent provisions of the former Telecommunications Act 1991, Telstra, Optus and Vodafone simply agreed on an estimate of the cost of fulfilling the USO. The sum agreed was $230 million in 1993-94, to be increased by the Consumer Price Index each year. For the 1996-97 financial year, the agreed sum had increased to $252 million.

The three carriers and the Australian Communications Authority used that time to develop a new model for estimating the cost of the USO. In September 1998, Telstra put in its claim for the 1997-98 financial year, using the new model. That claim was $1.828 billion, seven times the agreed cost for the previous year.

While this amount needs to be assessed by the Australian Communications Authority, the government recognised that the claim had the potential to destabilise the entire industry and deter investment in Australian telecommunications. The government moved swiftly to alleviate the uncertainty hanging over the industry by an interim solution, pending a detailed review of the USO arrangements.

On 12 October 1998 the government announced that the USO cost for 1997-98 would be capped at $253.32 million, which is the agreed cost for 1996-97 plus CPI. The government said that it would seek to reach an agreement with the industry for such a cap, but failing such an agreement, the government would introduce legislation to impose a cap.

The government continues to negotiate with Telstra and the other carriers, seeking their agreement to a negotiated cap.

In case an agreement is not reached, the government is today introducing legislation to cap the USO cost for the short term. This legislation will, therefore, serve as a fallback.

This will be an interim solution only, to provide sufficient time for a measured and orderly review of future USO funding arrangements. While the terms of reference of this review have yet to be finalised by the government, it will broadly con sider the full range of options to fund the costs of the provision of loss making USO services, while promoting an Australian telecommunications industry that is efficient, competitive and responsive. This review will take into account the interests of all parties, including the universal service provider. It is in the best interests of the industry that sustainable competition takes place in a framework in which USO providers have appropriate incentives to sustain adequate investment and improve levels of service for all users.

The government expects to carry out that review in 1999, and to enact any changes to USO funding arrangements before the commencement of the 2000-2001 financial year. In the interim, this problem could recur. Therefore, a cap will also be applied to financial years 1998-99 and 1999-2000.

The legislation itself is quite simple. The Australian Communications Authority will continue its assessment of Telstra's claim for 1997-98. However, this legislation caps the USO cost to be used for working out industry contributions to Telstra for 1997-98 at a maximum of $253.32 million. Should the Australian Communications Authority assessment produce a lower figure, that is the amount which will apply.

For 1998-99 and 1999-2000 the USO cost to be used for working out industry contributions to Telstra will be fixed at $253.32 million plus CPI. Telstra and the Australian Communications Authority will not need to repeat the process of calculating a USO cost for those two years.

However, the minister will be given a power to change the amount for 1998-99 or 1999-2000, to allow for changes in circumstances. Such a change to the fixed cost will be by a disallowable instrument, so that the parliament may consider the proposed change.

That sums up the legislation.

The government is introducing legislation before the Australian Communications Authority completes its assessment of Telstra's claim for the following reasons. Firstly, once the assessment is completed, the Telecommunications Act gives the carriers only 28 days to pay their share of the USO cost. It would be too late by then to pass legislation. Secondly, it is necessary to follow up the government's 12 October announcement within a reasonable time if industry certainty is to be maintained.

Finally, I would like to reassure the Senate that the government prepared this legislation determined that any cap should not put at risk Telstra's ability to fulfil the USO. In fact, recourse to this legislation as a short-term measure affects Telstra less severely than other carriers would be affected if a substantially increased claim is allowed without a properly detailed review. Under the interim solution proposed, Telstra can be expected to receive an amount comparable to last year, indexed to CPI for a three-year period. This outcome minimises instability in the industry while a longer term solution is implemented. In the meantime, the government can be satisfied that the USO will continue to be delivered, while long-term arrangements are being reviewed.

I commend the bill to the Senate.

Ordered that further consideration of the second reading of this bill be adjourned till the first day of sitting in the winter sittings 1999, in accordance with standing order 111.

Ordered that these bills be listed on the Notice Paper as separate orders of the day.