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Wednesday, 11 November 1964

Senator HENTY (Tasmania) (Minister for Civil Aviation) . -I move -

That the Bill be now read a second lime.

This Bill proposes a number of amendments to the Export Payments Insurance Corporation Act 1956-61. The amendments will have the effect of generally strengthening and improving the facilities which the Corporation can provide for the benefit Of Australian exporters. Before dealing with these, I ought perhaps to refer briefly, for the benefit of honorable senators, to the purpose for which this institution was established and the progress it has made. The Export Payments Insurance Corporation, or E.P.I.C., as it is more commonly known, was set up in 1956 to insure exporters against the risk of overseas buyers failing to pay for exports. This protection has encouraged exporters to develop and penetrate new markets, which otherwise would have been virtually inaccessible, because of the trading risks involved.

E.P.I.C. has made outstanding progress in this field and has now firmly established itself on the export scene. In J 957-58, its first full year of operation, E.P.I.C. insured some £11 million of exports for 43 policy holders. In 1963-64, six years later, E.P.I.C. insured some £64 million of exports for 436 policy holders.

There can be no doubt then, that exporters are becoming more and more conscious of the need to secure themselves against non-payment, if they are to continue to expand their existing export markets or develop new ones. Nor can there be any doubt, that E.P.I.C. is fully aware that it has a vital role to play in providing this security. However, security against the risk of non-payment is not the only benefit of export insurance. An exporter, if he wishes, can. arrange for E.P.I.C. to assign his insurance policy to a bank and this often proves of great benefit to the exporter in obtaining finance for exports on credit terms.

In particular, where a manufacturer of capital goods wishes to export on medium or long term credit - and there is a growing demand for credit in this field - he generally needs to obtain E.P.I.C. insurance cover in order to secure bank finance. However, even with this added security, banks do not always find it easy to accept the risks which are not covered under the standard E.P.I.C. insurance policy and in the past, this has sometimes presented difficulties for exporters seeking export finance.

The main purpose of this Bill is to strengthen this feature of export insurance. It proposes that E.P.I.C. should be permitted to guarantee advances made by a bank to finance export transactions, against non-payment by the buyer, regardless of the reason for non-payment. In other words, the normal E.P.I.C. insurance contract covers only specified risks of nonpayment; the proposed guarantees will cover non-payment for any reason whatsoever. The guarantees would work in this way:

The exporter would obtain from E.P.I.C. normal payment insurance cover on the transaction and assign the policy to his bank.

If the bank required further security the exporter could then obtain from E.P.I.C., for a small additional premium, a guarantee in the bank's favour which would extend cover to include risks of non-payment not insured against, under the normal policy.

The extent of indemnity under the guarantee would be 90 per cent. initially, rising to 100 per cent. after two years, if performance of the contract had been satisfactory.

This reduces the need for the exporter to provide collateral security to the bank and protects the bank's interests - if non-payment occurred the bank would receive payment under the guarantee within three months of the date of non-payment, regardless of the cause of nonpayment.

The bulk of Australian exports are transacted on a cash or short term credit basis and the guarantees will not be used for these. They will in fact be confirmed to transactions in which:

Capital or semi-capital goods are involved;

The value involved is £100,000 or more;

Credit terms of two years or more are being extended to the overseas buyer.

It sometimes happens that, because of the size of a transaction or the risks in the export market, E.P.I.C. is unable to provide insurance cover on its own account. In these cases, the Government already has the power to accept liability for insurance cover under the " national interest " provisions of the Act, if it considers that it is in Australia's national interests that the transaction should be insured and the export made. The Bill before the Senate proposes that where guarantees are also required on these "national interest" transactions, they may be authorised and the Commonwealth shall accept liability for any claims which may arise under them. There have also been cases in the past where, because of the size of the contract and the risks involved, E.P.I.C. has felt unable to insure the full amount of a transaction on its own account but would have been prepared to share part of the risk with, the Government. Since the present legislation does not provide for the sharing of " national interest " contracts between E.P.I.C. and the Government, it is intended to amend the Act so that E.P.I.C. can participate in these cases if, and to the extent, it wishes.

The Bill also proposes several other amendments to the Act which I shall deal with briefly. It proposes that in future the maximum cover which the Corporation may offer will be prescribed by regulation, rather than in the Act as at present. These percentages are at present 85 per cent, where the cause of loss is commercial and 95 per cent, where the loss is from any other cause. The purpose of this amendment is to enable E.P.I.C. to make changes in the level of cover provided without undue delay. This would allow E.P.I.C. to move quickly to meet changing competitive conditions in international trade. For the time being it is not intended to vary the present maximum level of cover that E.P.I.C. has been providing. The Bill also proposes that the Minister may approve higher percentages of cover than those prescribed in the regulations, in special circumstances. The type of special circumstances in which higher cover might be warranted could arise where the insurance cover under the- standard E.P.I.C. policy would expose the exporter to unduly high financial risk; and where the effects on the exporter of accepting this risk could endanger current or- future export transactions in a particular market.

The Bill also proposes an increase in the maximum contingent liability' which the Corporation can assume under its contracts which, in effect, sets a maximum to the business the Corporation can write. When E.P.I.C. was established in 1956" this maximum was set at £25 million. It soon became apparent that this needed to be increased and in 1959 the Act was amended to provide for a maximum contingent liability of £50 million. As at 30th September 1964, the actual contingent liability on contracts was £34 million. Since business under firm offer or negotiation totalled £12 million at that time, the total current and prospective, contingent liability of the Corporation is now about £46 million - only £4 million short of the statutory maximum. There is therefore an urgent need to increase the maximum contingent liability of the Corporation and the Bill proposes that it should be raised from £50 million to £75 million.

Finally, the opportunity has been taken of making several minor amendments to certain sections ot the Act. It is proposed to amend the banking provisions of the Act to take account of the change of name of the Commonwealth Bank and to bring them into line with the corresponding provisions included in other recent Commonwealth legislation relating to statutory authorities. It is also proposed to raise from £2,500 per annum to £3,500 per annum, the maximum salary of a position which the Corporation may determine without ministerial approval. Honorable senators will be aware, of course, of the continuing need to increase our export income. If we are to do this we must strengthen and improve, from time to time, the facilities available to exporters. The proposals contained in this Bill are designed to do this and I am confident that they will enable both E.P.I.C. and the exporters it serves to add to the already valuable contribution they are making to the drive for increased exports. I commend the Bill to honorable senators.

Debate (on motion by Senator Kennelly) adjourned.

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