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Tuesday, 12 May 1970

Mr CREAN (Melbourne Ports) - The Opposition does not oppose this Bill which makes certain amendments to the Export Payments Insurance Corporation Act. The Bill will enable EPIC, as it is called, to cover the external Territories of the Commonwealth, in particular Papua and New Guinea. It seeks to increase the maximum contingent liability - that is, the total amount for which it is liable, in certain circumstances, under its various policies - by SI 00m in respect of contracts of payments, insurance and other guarantees. The Bill also seeks to increase by $60m the contingent liability on insurance of Australian investments overseas. As a fourth proposition it seeks to increase the maximum staff salary that can be paid without ministerial authority.

As I have indicated, the Opposition regards these as necessary enough improvements to this quite significant legislation. In introducing it the Minister for Trade and Industry (Mr McEwen) made what was in some respects a rather peculiar speech. Not only did he extol the virtues of the Export Payments Insurance Corporation but he very kindly branded in advance a measure that had not even come before the House, that is, the Australian Industry Development Corporation Bill. In this debate 1 do not want to proceed upon the second line. I said to the Minister at the time that I felt he should have moved the adjournment on both debates. At least we will have an opportunity next week to talk about the merits of the Australian Industry Development Corporation which can now be judged by everybody. I do not want to say anything further about that at this stage. The Opposition at least has always looked favourably upon the institution about which we are talking, the Export Payments Insurance Corporation. Again the Minister for Trade and Industry was at great pains to underline that before this institution had been born some 14 years ago there had been considerable resistance in certain quarters to its formation. I would like to place on record the fact that those objections did not come from this side of the House. Candidly we would have liked the Export Payments Insurance Corporation to have gone even further than it did. Since it began a considerable number of amendments have been made to the legislation that established it, mainly increasing the amounts of contingent liability.

I would like to take some figures from the 1969 annual report of this Corporation. The Corporation was created by legislation in 1956: so it is almost 14 years now since it began. The number of policies taken out in the course of the year is still relatively small, lt is a fairly select band of people that has recourse to the Corporation and later I will say something about extending its ambit. On page 6 of its 1969 annual report the face values and number of policies are shown. For the year ended June 1969 there were in total 740 policies. Of these. 367 - slightly less than half - were for amounts under $100,000; 224 were for amounts between $100,000 and $400,000; 122 were for amounts between $400,000 and $2m; and 27 were for amounts exceeding $2m.

When we look at the face value of the operations we see that although there were 367 policies - nearly one-half of the total transactions - in the first group I mentioned, they accounted for only $12,686,000 out of a total face value of $298m or near enough to S300m. They were a very minor part of the total. But when we lake the contracts for amounts over $2m - there are only 27 of them - we see that they accounted for a face value of $13 Im or almost half of the value of all contracts that were undertaken during the year. So at least to some exporters these contracts are of considerable significance. On page 7 of the report there is a break-down of the nature of the exports that are insured. Of a total face value of $298.8m, $84. lm, or more than a quarter of the amount, is for greasy wool, $43.9m is for processed wool and $20. 6m is for dairy products. So in aggregate half of the contracts that arc insured are in respect of (he handling of those prime items of export trade, wool and dairy products.

In an article headed 'Finance for Exports', appearing on page 424 of the December 1969 volume of the Bank of England Quarterly Bulletin' - the most recent available - a very comprehensive history of export payments insurance is given, lt is conducted in Great Britain by an organisation known as the Export Credits Guarantee Department. The article says:

Because most export contracts are won in the face of international competition, including competition on credit terms, post-shipment finance may have to be provided by the exporting country.

That is the situation that brings these organisations into being. We can get a lot of trade overseas provided wc make the arrangements for our own self-finance, at least internal, rather than expecting to bc paid immediately by the person to whom we sell. The article continues:

If the United Kingdom's experience can be taken as n guide, most of this finance is of a short term nature but the United Kingdom, like other countries exporting capita! goods, has in recent years provided an increasing amount of medium and long-term finance.

I would suggest that the experience of the United Kingdom is also becoming the experience of Australia in this field. It is not so much that finance is required for the majority of our exports. If one takes into account that last year Australia's total export trade was in the region of $3,400m - certainly over $3,000m - and the value of contracts covered by export insurance was in the region of S300m or about onetenth, it is seen that only a marginal amount of trade is covered in this way. Nevertheless that marginal amount is significant.

If Australia in the years ahead is to strengthen its internal economy and play its part in world economy it has to diversify its export trade. The fields that perhaps have been neglected up to date include exports of capital goods as distinct from what might be called consumer goods and raw materials. Some years ago there was created in Australia an organisation known as the Australian Banks Export Refinance Corporation Ltd. It has been in operation now for 5 years. I want to quote one or two passages from the fourth and fifth annual reports of that body - a consortium I suppose it is called these days - which was formed among the banks. The proprietor members of it are the Australian and New Zealand Bank Limited, the Bank of Adelaide, the Bank of New South Wales, the Commercial Bank of Australia Limited, the Commerical Banking Company of Sydney Limited, the Commonwealth Trading Bank, the English Scottish and Australian Bank Limited and the National Bank of Australasia Limited. All of what are called the private trading banks and the Commonwealth Trading Bank are members of this Corporation. In its fourth annual report on page 10 under the heading 'Credit Terms in International Trade', the Corporation notes:

In some circumstances, the banks, . . .

That is, the proprietor members: with the backing of the Australian Banks' Export Re-Finance Corporation, have in fact agreed to provide post-shipment credits for periods of up to 10 years.

That is long term finance as against short term finance. We all know that banks by and large regard themselves as providers of short-term credit rather than long-term credit. I am sure that my colleague, the former banker, will agree with me that banking science can no longer be summed up in the simple proposition that the mark of a good banker is that he can tell the difference between a mortgage and a bill of exchange. It is a much more sophisticated and complicated proposition nowadays. The article continues:

The level of exports which rests on the provision of medium- or long-term credit to overseas buyers is a relatively small part of the total Australian export structure. However, as more Australian manufacturers are attracted into this field by the export facilities and incentives provided, requirements for this type of finance will undoubtedly increase.

In the last available annual report that organisation underlines that point even more:

At the end of nearly 5 years of the Corporation's operation, it is apparent that use of its facilities is quickening, which points to increasing success of exporters in the highly competitive overseas markets for capital goods.

The resources of the Corporation are available to banks which are providing medium to longterm finance for exports of a capital nature, and ensures that finance is not a limiting factor in the development of that field.

The level of exports which requires provision of medium or long-term credit to foreign buyers is a relatively small part . . .

That repeats what was said in the annual report of the previous year. The report continues:

However, as more manufacturers are attracted into this area by the facilities and incentives provided, requirements for this type of finance should increase, although any expansion in the scale of exports of capital goods is likely to be intermittent due to lack of continuous opportunities in individual export markets.

Perhaps this points to a need to widen the scope and also to increase the technical and know-how resources that are available to the Export Payments Insurance Corporation. I read an interesting article the other day in a Canadian publication, the Bank of Montreal's 'Business Review' issue of 27th June 1969. It stated that it had been decided to replace ECIC - that is, the Export Credit Insurance Corporation - by a new organisation to be called the Export Development Corporation - the EDC - which has been given a far wider scope and flexibility to enable it to respond effectively to the changing needs of exporters. I suggest that that is the kind of development which is necessary also in Australia. The proposition of creating the Industry Development Corporation is an interesting one but I submit that there may equally be a need to graft something on to EPIC in Australia as was done to EC1C in (be case of Canada to turn it into an export development corporation that will have available to it wider statistical information and resources of skill, knowhow and experience to explore this very significant development which has to be expanded by Australia in the years that lie ahead.

We heard this afternoon from the Minister for Trade and Industry during question time an implied indication that there was no doubt that the buyers of Australian wool were far better organised than the sellers of Australian wool. I think that equally sometimes the exporters of Australia are not as well organised as they can be. In fact, in some respects of course there is no direct incentive for most firms to export at all; at least not yet. That may be a circumstance that is ahead of us and 1 do not want to overlook the very important role that has been played in Australia over the years by that body known as the Export Development Council. That is an organisation of commercial and business people for the promotion of Australian trade overseas. Nevertheless, there is not much doubt at the moment that as long as there is an assured market at home there will not be any great enthusiasm on the part of people who might be able to export to seek export markets.

It is true, I suppose, that on balance Australia does have to export to survive, but we have tended to rely in the past upon certain staples. One example is wool but they are basically primary products. In recent times we have gone into the field of minerals. Using the field of minerals as an example it does seem that instead of the problem being treated as a whole there is a tendency for individual exporters to get into the hands of fairly well organised buying groups overseas. It seems in some respects that Australia is still at a great disadvantage in this matter, particularly in its trade with Japan. If one reads - as I think one has to these days - something about the structure of the Japanese economy, one sees that there is not any doubt that the Ministry of Trade in that country plays a very much stronger role in co-ordinating the activities of its importers than does the Australian Department of Trade and Industry in coordinating the activities of our exporters. I do not know how long that situation can continue to exist. It may be that the Minister for Trade and Industry thinks that this is one of the roles that might well be taken under the wing of the Industry Development Corporation, and wc will have an opportunity to look at that later on. But I do commend to the Minister and to the Minister for Shipping and Transport (Mr Sinclair) the experience in Canada where instead of just looking at this matter from the point of view of an insurance corporation, there has been a tendency to look at it in terms of expanding the exports that it is hoped to insure. The Bank of Montreal's Business Review' states:

One of the most interesting new developments is the creation of facilities to insure Canadian investments. . . .

We have that already in this country and one of the purposes of this measure is to increase the contingent liability backing that. The article continues: . . in lesser-developed countries against such political risks as war, insurrection or revolution, expropriation or confiscation, and prohibitions against the repatriation of earnings or capital . . .

To some extent some of those measures, if not all of them, are covered by the special risks insurance that is transacted by EPIC. As the Minister indicated when introducing this Bill, one of the principal things he has in mind is to allow the Corporation's writ to run as far as trade with Papua and New Guinea is concerned and, in particular, the development of the copper proposition in Bougainville. Again, I would imagine that there is in mind the export of capital machinery from Australia to assist in that venture. I suggest that that is a worthy objective. It should also be increasingly pursued in respect of our other near neighbour, Indonesia. I am one who always believes th:tt I effective form of defence of a country is to build better relations with neighbours and we are more likely to have better relations with our neighbours if they feel that we are assisting them with know-how and other facilities which we have but they have not. This is particularly true of Indonesia which is at a stage where it must have large sums of money invested in capital undertakings. It may well be that Australian business is in the position to supply many of these capital needs. No longer can we think of our export trade only in terms of primary production and the great new hope - minerals. I think we should also be expanding our export of manufactures, particularly our export of manufactured capital equipment that will enable the countries to which it goes to diversify their economies. We are well placed in this part of the world from the point of view of numbers of customers except that in banker's terms those customers do not yet have enough money in their pockets to be good propositions. They will get more money in their pockets only as the levels of their economies are lifted, and we are in a very good position to help them.

As I have indicated, we offer no objection to the passage of this measure. I congratulate EPIC on the work it has performed from year to year. Each year its annual report has been a record of greater success than in the preceding year. That this should be so is a tribute to the management and to the skill of the staff. I would hope that we take a longer term view in the decade now beginning and diversify the nature of our exports. Perhaps we should think in teems of financing items the payment for which might take as long as 10 years. The banking mechanism may have to be adapted to allow this to be done. For instance, in the United Kingdom model certain funds are not counted in considering the liquidity of the banks if they are lent on a long term basis to encourage export trade. I would commend that sort of expansion to the Government. The body in Great Britain is the Export Credits Guarantee Department. There is wide co-operation in the United Kingdom between that Department and the Board of Trade, which is the equivalent of our Department of Trade and Industry. I have no doubt that there are very happy and fruitful relations in Australia between EPIC and the Department of Trade and Industry but it seems to me that as yet we do not have as much enthusiasm in this country for exports as such as seems to exist in some of the older economies, particularly those of Europe and that of the United States. But if Australia is to survive as an expanding economy this is the way in which our trade must improve in the years ahead.

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