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Overview of the DIFF scheme which has been abolished by the Government as a cost-cutting exercise.

ANDREW DODD: This week, the Federal Government announced sweeping cuts to its export promotion arm, Austrade. Over two years, $137million is to be cut from the Budget, but as deep as these cuts are, they're just part of the assault on trade promotion schemes. The most celebrated example has been the decision to abolish DIFF-the Development Import Finance Facility.

Few issues have affected the new government like DIFF. What's surprising is that the decision to scrap this relatively unknown component of Australia's foreign aid budget has caused so much grief. Several foreign governments have complained; the Australian aid community who have never really liked DIFF are unhappy as well; but the ones who are the most upset are Australian business men and women, the people who have used DIFF to prise open export markets in Asian countries and who are now having real trouble keeping those markets alive.

Today we'll meet several of those businessmen, people like Ron Tripp who runs a special education company called Relpar (?).

Ron, you'd better tell me where we are, where we're off to.

RON TRIPP: We're on the way to the airport because I'm going to Jakarta, today, to meet with the Indonesians that we've been dealing with up there.

ANDREW DODD: And what have you been dealing with the Indonesians over?

RON TRIPP: We've just completed a project for the special education of handicapped children. The training was undertaken under the supervision of Monash University; the equipment had 85 per cent Australian content; the value of the project was $AUS13 million.

ANDREW DODD: And it was a project that was partly funded through the DIFF scheme?

RON TRIPP: Yes, that's correct. It was funded under the DIFF, or Development Import Finance Facility. The DIFF scheme is a soft loan scheme whereby the recipient country negotiates a soft loan through the Australian Government Export Finance Insurance Corporation, so it's actually a loan that is paid back but paid back with concessions.

ANDREW DODD: But the DIFF scheme has been abolished. We all know that, so why are you off to Indonesia?

RON TRIPP: Well, the DIFF scheme has been abolished but already, I think, the Government have backed down a little on that in that now Mr Howard has written to recipient countries and said that they could have one or two projects of those that they anticipated under DIFF. There's a Senate inquiry currently being conducted and I'm hoping that some good sense will prevail and that a scheme similar to DIFF will be reintroduced by the Government.

ANDREW DODD: Since the abolition of DIFF, this kind of travel to Asia has become a growth area as countless local business people venture abroad in an effort to protect their commercial interests. For Ron Tripp, at stake is a $31 million contract, the second phase of a special education project for handicapped children. The first phase was a big success. It even had the personal support and patronage of the Indonesian Vice-President's wife.

Now, the whole project is in jeopardy and, somehow, Ron Tripp has to convince the Indonesian authorities the project can be revived. But his basis for saying this is actually very shaky. It depends on the Government reintroducing a version of the scheme they've just abolished, a scheme which offers soft loans to enable Australian exporters to win contracts abroad. To repair the damage, Ron Tripp has a lot of talking to do.

RON TRIPP: Absolutely. Yes, yes. I'm in damage control mode in a big way and I don't know what sort of reception-I've got a very cordial relationship with the senior people in the Ministry of Education and Culture but I don't know what sort of reception I'll get this time.

ANDREW DODD: Somehow he has to convince the Indonesian bureaucracy that the Australian Government will change its mind. He'll say the Senate's conducting an inquiry and that, down the track, Australia's entire aid program is undergoing review. But none of that provides much comfort.

We'll catch up with Ron Tripp later to see how he's coping in damage control mode.

But first, how did all of this happen? Why has Australian business found itself in this predicament? The answer lies not just in the decision to abolish DIFF, but also in the way it was done. Rather than phase the scheme out over two or three years, the Government simply scrapped it overnight. This meant that companies without formal contracts missed out on funding even though many of those companies had already spent large sums of money with the expectation they would receive funding.

Maybe it was the rushed way in which Alexander Downer abolished DIFF which led to the mistakes he made in Federal Parliament in June, mistakes which became a tad embarrassing.

EXTRACT

ALEXANDER DOWNER: As I have travelled round South East Asia and North East Asia, and as I have met Foreign Ministers and other Ministers from those countries and as I have met them here, let me tell the Honourable Member that not one Minister, be he a Foreign Minister, be he an Economic Development Minister-not one Minister has expressed any concern to me about the abolition of the DIFF program, not one, not one, not one ....

And it was drawn to my attention later by my Department-it was drawn to my attention later-that a Chinese Vice-Minister had written to me ....

The program was briefly referred to in the discussion with me in Jakarta by Professor Ginandjar, the Indonesian Minister of State for National Development, and Dr Habibie, the Minister for State Research and Technology ....

LAURIE BRERETON: Why couldn't you recall those meetings during Question Time itself? Haven't you just been too clever by half? ....

ALEXANDER DOWNER: I have to say, Mr Speaker, that I really explained the position fairly fully yesterday ....

SIMON CREAN: When, precisely, did your Department remind you of the discussions with Ministers Habibie and Ginindjar from Indonesia ....

ALEXANDER DOWNER: Well, that was this week, Mr Speaker ....

KIM BEAZLEY: When, precisely, this week? Was it after Question Time yesterday or before it? ....

ALEXANDER DOWNER: The fact is the record is clarified and that is the beginning and the end of the matter ....

KIM BEAZLEY: You have lied twice, lied twice ....

MR SPEAKER: The Leader of the Opposition will withdraw that ....

KIM BEAZLEY: I'll withdraw it. You've deceived twice ....

LAURIE BRERETON: He suffers from smart alec syndrome ....

UNIDENTIFIED:Hear! Hear!

LAURIE BRERETON: ... smart alec syndrome ....

ALEXANDER DOWNER: I have fulfilled my obligations to this House ....

Mr Deputy Speaker, I wish to make a statement about the controversy over the last week which flowed from some remarks I made in Question Time on 18June. I sincerely regret that those remarks inadvertently misled the Parliament. At no stage did I deliberately seek to misinform the House. I apologise for that inadvertence. The House will recall that, in particular, I said in answer to a question, that not one Minister, be he a Foreign Minister or an Economic Development Minister, has expressed any concern to me about the abolition of the DIFF program-not one.

Mr Speaker, I made these remarks in the heat of Question Time and in good faith and with absolutely no intention whatsoever to mislead the House. The statement I made was wrong.

ANDREW DODD: This must have been the worst week of Alexander Downer's parliamentary life. There were three separate censure motions. At the end, the Prime Minister declared he was supporting the Foreign Minister this time, but the inference was clear. One more error like this and it would be sayonara.

For the Opposition, this prospect is so enticing, they're refusing to let the issue rest, and when the Shadow Industry Minister, Simon Crean, came across some old Coalition documents recently, he couldn't help himself. He had to raise the issue one more time. You see, when he moved into Tim Fischer's old office, recently, he opened a filing cabinet and uncovered a stash of Shadow Cabinet minutes dating from 1991.

SIMON CREAN: They came as part of the new tenancy. There are some real disadvantages changing office after an election but when you get a bonus like this, it sort of makes the pain a bit easier. But these were documents left by Tim Fischer that really exposed the detail of thinking in a number of different areas on the part of Coalition members.

ANDREW DODD: Well, some people we've spoken to are suggesting that there wasn't a whole lot of thinking about DIFF and the abolition of DIFF, but what have these documents revealed?

SIMON CREAN: Well, what they show is that the proposal was that there should be a saving in DIFF by delaying payments, but then goes on to make the point that Alexander Downer apparently favours DIFF as he supports tying aid to trade. Now, that's completely contrary to the position he's argued in the Parliament in the last couple of months. He doesn't support DIFF and he believes there should be a separation of trade for aid.

ANDREW DODD: When it comes to aid issues, the second most important Member of Parliament is Andrew Thomson , the Parliamentary Secretary for Foreign Affairs. Because Alexander Downer was too busy to talk to Background briefing, Andrew Thomson stepped in.

ANDREW THOMSON: Well, Mr Downer's opinions of-well, what's that, five years ago-are, like anyone holding high office, liable to undergo some change given circumstances, but this was driven, as I said, by a need, an obvious need to apply some sort of a reduction to the 1996-97 aid budget, and rather than sort of plunging the scalpel into Africa or South Asia or, even worse, Papua New Guinea or the Pacific, we found this was the item of least priority in the aid budget, and, hence, it was cut.

EXTRACT UNIDENTIFIED: Good morning, ladies and gentlemen. I declare open this public meeting of the Senate Foreign Affairs, Defence and Trade References Committee which is inquiring into the abolition of the Development Import Finance Facility, commonly referred to as DIFF.

ANDREW DODD: The latest round of political theatre over DIFF is being played out in a Senate committee room where the Labor Party has the upper hand. The stated task is to assess the impact of the abolition of DIFF. The political motive is to further embarrass Alexander Downer. And strangely enough, the Labor Party is being helped in this task by countless captains of industry who've been more than happy to appear before the committee to criticise the Government over the abolition of DIFF, and that's because they've all got a lot at stake.

John Coulton is the Executive Director of the large engineering company, Siemens Ltd. I spoke to him just after he'd appeared before the committee.

JOHN COULTON: I think, over the last three years, we've probably had something like $80 million worth of business.

ANDREW DODD: And how important in securing those 10 or so projects was DIFF? Could it have happened without DIFF?

JOHN COULTON: I don't believe so. DIFF was critical to all of them. They were all projects that were targeted by the recipient countries, governments, for aid-related support, and had Australia not gone in there, other countries would have picked them up.

ANDREW DODD: Now, how has the decision to abolish DIFF affected Siemens?

JOHN COULTON: Well, firstly, we've had immediate projects that have been negotiated here cancelled and, obviously, if the project is not restored, then that level of business or probably something in the order of $40 or $50 million per year is going to be lost to the company and to the country.

ANDREW DODD: And how many projects have been knocked back now that DIFF has been abolished?

JOHN COULTON: We've had to finish working on 19 power projects that we were in the early stages of bidding for. We had two water projects and one communications project virtually signed up that we've also had to terminate work on.

ANDREW DODD: So those three, the last three that you mentioned, what stage had it got to before you had to terminate the work?

JOHN COULTON: In two of the cases, we had firm contracts with the customer that just needed ratification of DIFF support, and in the other case we were in the final stages of negotiation when the scheme was cancelled.

ANDREW DODD: As the Senate Committee hearings dragged on over several days, it became apparent DIFF has helped many Australian companies do two of the things the former government prized highly: exporting Australian goods and opening new markets for those goods in Asia. It also became apparent that the decision to scrap DIFF has cost many of those companies dearly, companies like Labax Environmental-the Chairman, Ian Berckelman.

IAN BERCKELMAN: We have a project in Indonesia, at the moment, that should put Australian environmental firms on the map, if it goes ahead-I say, if it goes ahead. The finance that was initially promised for this project to go ahead has been taken away and we're fighting the government of the day to see if it will be reinstated. The project itself is to equip 21 environmental monitoring laboratories in different regions of Indonesia.

ANDREW DODD: How long have you been working on it?

IAN BERCKELMAN: We've been working on the project for three and a quarter years and it's up and going and ready to sign.

ANDREW DODD: When talking about DIFF, there are a few organisations you keep coming across. There's AusAID-the body that administers aid for the Department of Foreign Affairs, and there's EFIC-the Export Finance and Insurance Corporation. That's the government body which actually hands out the loans which include DIFF funds. And there are a few terms that you just can't avoid, try as you may, terms like soft loans, mixed credits and concessional finance. All three terms describe DIFF, but what do they mean?

Janet Hunt is the Executive Director of ACFOA, the Australian Council for Overseas Aid.

JANET HUNT: A soft loan is basically a loan with very low interest rates and mixed credit simply means a mixture of a grant from AusAID and a loan from EFIC. And what was the third one?

ANDREW DODD: The other one was concessional finance?

JANET HUNT: Concessional finance simply means finance on concessional terms so, again, low interest finance. It's enabling the country to borrow in order to do a development project but without having to borrow at the high interest rates on the open commercial market.

ANDREW DODD: And all three terms can describe the DIFF scheme?

JANET HUNT: Well, the DIFF scheme is best described as a mixed credit scheme which provides concessional finance for a development project.

ANDREW DODD: And that concessional finance is a soft loan.

JANET HUNT: And that concessional finance is a soft loan, yes.

ANDREW DODD: Admittedly, it does appear quite confusing but it's actually quite simple. The DIFF scheme means that aid dollars are blended with loans provided by the Australian Government. Let's say a foreign country wants help with a project to build a new water treatment plant. The Australian Government, through EFIC, lends that country the money in return for an Australian company getting the work. But in order to prevent that country being saddled with high interest rates, DIFF steps in and repays the interest or extends the terms of the loan, and that means the foreign country gets a soft loan or concessional finance. Several countries provide soft loans. In fact, DIFF was introduced because in the early 1980s, the Japanese and several European countries were offering similar schemes.

Bob Geldof has given the world 'Bandaid'. According to DIFF's critics, DIFF has given the world bad aid.

EXTRACT

UNIDENTIFIED: This backlog of outstanding survey work prompted the Royal Australian Navy to search for a better method for surveying our coastal waters. Research was undertaken by the Australian Defence Science and Technology Organisation to investigate the potential of a laser airborne depth sounder, or LADS, for precise ....

ANDREW DODD: Here's a project the aid community would say is not good aid. Developed by an Australian company, it's an airborne system using lasers for measuring ocean depths. General Manager of the LADS Corporation, Tom Sperling, is hoping to sell the system to Indonesia with the aid of DIFF funding.

TOM SPERLING: It's a project, yes, that we had hoped we could get DIFF funding for; the project value was about $30 million. The project inevitably involves improvement to the marine estate and helping out populations living in coastal environments. Collecting hydrographic data is like roads and bridges. It is vital that shipping traversing the Indonesian Archipelago know all about the shipping lanes. Therefore, proper hydrographic data enables the expansion of their economy.

ANDREW DODD: But nevertheless, you would probably recognise that when it comes to aid, the LADS scheme probably fits on the boundary of aid. It's not exactly humanitarian aid, is it?

TOM SPERLING: Aid funding for infrastructure projects is part of the DIFF scheme. Bathymetry or hydrographic survey provides infrastructure for the development of economies. That's where we felt if fitted firmly within the DIFF criteria.

ANDREW DODD: I mean, you're smiling as you say that, so I think there is some recognition within the company that this is a common criticism of DIFF that it funds things which many people see as being, prima facie, not aid.

TOM SPERLING: I'm smiling because it's a nice day outside, but we're very sure that DIFF funding is appropriate for a LADS project in Indonesia.

ANDREW DODD: According to Janet Hunt of ACFOA, 80 per cent of DIFF projects can be described as bad aid-in other words, they don't aim to eradicate poverty or have a humanitarian focus.

JANET HUNT: One of the earlier DIFF projects was an aircraft hangar in Bangladesh. Now, I would have thought that most Australians would consider that our aid to Bangladesh should be really for poor people. I mean, there is immense poverty in Bangladesh and I would have thought an aircraft hangar was not one's number one priority for aid in Bangladesh. More recently, there have been traffic-signalling systems in a number of Asian medium to large-sized cities, places like Bandung in Indonesia. Again, Idon't think that those really are what people support aid for.

ANDREW DODD: Whilst Janet Hunt's organisation, ACFOA, says that 80per cent of DIFF is bad aid, other aid groups aren't even that generous. AidWatch, for example, says DIFF projects are driven by commercial priorities and that the benefits don't trickle down to those living in extreme poverty.

And these elements of the aid community have some interesting allies. The economists in the Federal Treasury also dislike DIFF. They not only think it's bad aid; they also say it's lousy trade.

Their submission to the recent Senate inquiry says:

DIFF is also poor industry policy. DIFF does not provide a basis for a sustainable improvement in the current account deficit. Moreover, DIFF subsidies distort resource allocation, both within firms and industries and across the economy as a whole. Simply because other countries provide similar assistance to their exporters does not mean Australia should follow suit. It is Australia which bears the greatest economic cost from doing so.

Also aligned with Treasurer is the Productivity Commission which has supported the Government's decision to abolish DIFF. They say the benefits DIFF gives to individual exporters are not passed on to the wider community. In one sense, the Federal Government has played its hand quite cleverly, harnessing the aid community's partial opposition to DIFF to deliver the cuts favoured by Treasury.

Andrew Hewett of Community Aid Abroad says there are three reasons why the Coalition targeted DIFF.

ANDREW HEWETT: First of all, there was the hangover, an ideological commitment which they had from the Fightback days of no subsidies to business whatsoever. They saw the abolition of DIFF as a nice, clean-cut way to remove that sort of subsidy.

Secondly, I think they thought it would be a move which would placate non-government organisations which have been extremely critical of DIFF in the past. They wanted to achieve savings in the aid budget. They thought if they could cut DIFF, that would be a way in which-they would disarm their critics of such a cut in the aid budget.

Third, I think there was a actually a degree of ignorance about the aid program and about DIFF in particular. They didn't realise, or seemed not to realise, the importance that DIFF is in terms of our aid program to countries like Indonesia and China, and how DIFF has changed and has become a bit better as a program in recent times, particularly with the introduction of Green DIFF.

ANDREW DODD: Green DIFF. That's another term. More on that in a moment.

DIFF has an interesting history. In 1992, it underwent a massive transformation. In response to criticism that the wrong sorts of projects were receiving concessional finance, the OECD-which is, effectively, the international aid donors club-said: 'Enough's enough'. They tightened the rules and introduced what became known as the Helsinki Guidelines. They must have been in Helsinki when they did it. The guidelines stipulate that only non-commercial projects are eligible for DIFF-like funding-in other words, large money-making projects miss out.

For the aid community, it came as good news. Then in 1994, the former Labor Government went a step further. In a flurry of altruism, it introduced a scheme called 'Green DIFF' and set aside $20 million for business projects which improve the environment. The aid community was delighted and, slowly, the nature of DIFF projects began to change.

The Labor Opposition says the Government's decision to abolish DIFF was based on an old assessment, before the Helsinki Guidelines and Green DIFF took effect. Senator Peter Cook.

PETER COOK: A lot of the so-called expert comment that have argued that DIFF, from an economic point of view, isn't perfect, has been based on reviews done of the old DIFF and not of the new DIFF, since the international rules changed, and a lot of the argument that only a small number of companies received benefit from DIFF relates to the old DIFF, not the new DIFF since the international rules changed.

So it may well have been, too, that the now government -in Opposition-was enchanted by what it saw as imperfections in the old DIFF but hasn't, in fact, focused on the new DIFF. And I do think that there is a real need to do that. Certainly, the on-ground evidence that we've got from Australian companies is that it does create market opportunity for them, does render real aid, and does position Australian companies to pick up international work following on from their DIFF experiences and enhance our exports.

ANDREW DODD: But Alexander Downer's right-hand man on aid, Andrew Thomson, is saying DIFF has not changed enough.

ANDREW THOMSON: If we had had the money in this financial year, we would have tightened the guidelines and insisted that future projects have that sort of focus and nothing else, but, of course, we didn't have the money this year to do it.

ANDREW DODD: So the Helsinki Guidelines aren't tight enough, in your view?

ANDREW THOMSON: Not for our Australian aid policy, no. It's not the case you could drive a truck through them, but there is scope for the sort of projects which we don't think the Australian electorate wants funded.

ANDREW DODD: Give us an example.

ANDREW THOMSON: Well, the Friendship Bridge over the Mekong River, whilst, as bridges go, it's a reasonable bridge, was one that really got up the nose of the electorate, so to speak. We found that during the election campaign and last year, as we were asking particular groups of electors what sort of priorities they wanted to see in our aid budget, and they very often named that bridge as something that really irritated them. So it's not so much what they don't like; it's what they like; and where you see NGO's providing very basic things-little clinics and schools in poor countries; the sort of things that attract donations from people-that's what the electorate really wants to see its tax dollars spent on in an official aid budget.

ANDREW DODD: But the Friendship Bridge didn't receive any funding from DIFF.

ANDREW THOMSON: No, but it was a part of the aid budget and, hence, it struck the electorate as not the sort of thing that they wanted their tax dollars paying for.

ANDREW DODD: But you're talking specifically about DIFF, so where in DIFF have you got objections to the places that money is going?

ANDREW THOMSON: Well, until particular projects are presented for funding or for consideration, it's hard to enumerate particular ones but, as I say, it's more the ones that we like seeing funded, those that have an immediate and very basic focus, providing things that we, for example, would take for granted but very poor people don't have. Electricity is a good example of that.

ANDREW DODD: There were some 52 projects in the pipeline worth an estimated $1.2 billion. Can you name any of those projects that don't fill the criteria that you say should be part of the new revamped DIFF?

ANDREW THOMSON: Well, until the criteria are fully settled on-and that process has not been completed-it's difficult to say.

ANDREW DODD: There's another aspect that makes the whole DIFF debacle all the more embarrassing, for whilst Australian companies have been spending money in an effort to win DIFF projects, in some instances the recipient countries have also been spending money-for example, Ian Berckelman's project to equip 21environmental monitoring laboratories in Indonesia.

IAN BERCKELMAN: They had to have, in some instances, new air-conditioning, new ducts for smoke inhalation to be taken out, acid-proof benches-it was just a total rehabilitation phase. There were new benches, there was space made for new equipment to go in, new electrical points were put in; fume cupboards were installed. It was a very large rehabilitation, basically, as you can imagine for half a million dollars.

ANDREW DODD: It's been suggested that the Indonesian Government outlaid this figure of $500,000 because AusAID in Australia said to the Indonesian authorities that they could go ahead and spend the money with a fair likelihood of a return so, in other words, the project would end up being a goer.

IAN BERCKELMAN: Well, in fact, that's correct, but they were told to spend the money or the project wouldn't go ahead, so they didn't have a choice. They had to bite the bullet and rehabilitate those 21 laboratories and, now, the project is in danger.

ANDREW DODD: So the Australian Government said to the Indonesian Government: You have to spend $500,000 or else this project won't go ahead. They've spent the money and now the project's been abolished.

IAN BERCKELMAN: That's absolutely correct. You've got 21 empty rooms-good, isn't it?

ANDREW DODD: What does that do for you? What do you think about that?

IAN BERCKELMAN: I think it's absolutely outrageous and I think the Indonesians think so, too.

ANDREW DODD: How do you know that that's what the Indonesians think? Have they told you that?

IAN BERCKELMAN: Well, would you think it was outrageous if someone asked you to spend half a million bucks and then pulled away the project you spent it from? I think you'd agree with me.

ANDREW DODD: Is it acceptable that AusAID says to the Indonesian Government: Go ahead, spend $500,000; you have to spend that money for a project to get up. The Indonesian Government spends the money, and then the company putting forward the proposal is told: 'I'm sorry,'-just two weeks before the approval was going to come forward-'the project isn't going ahead'.

ANDREW THOMSON: Well, as I say. There's two things there. One is democratic risk, if I could characterise it as that; and secondly, this money that was flowing under DIFF was Australian taxpayers' money, so it's perfectly within our entitlements as a sovereign government and a sovereign people to apply Australian law to the dispensing of that money, and Australian law requires that the Commonwealth is not to be bound by any legal liability until things have be en formally approved under the Commonwealth's own laws. So until companies had letters of formal offer, while they were still in the letters of advice stage, they were at risk-there's no doubt about that-but there's nothing that says we should subordinate our own administrative processes or our own law just because we're giving money to a foreign government. I don't accept that argument at all.

ANDREW DODD: So quite apart from the legality, you think it's good business practice or unavoidable business practice to say 'Go ahead, spend $500,000', and then not honour the commitment?

ANDREW THOMSON: There was no commitment to honour.

ANDREW DODD: There was no legal commitment but there was certainly an understanding.

ANDREW THOMSON: There was an understanding-there should have been an understanding that this was Australian taxpayers' money and that they have the perfect right to apply their own laws to the way it's dispensed. I mean, sovereign risk implies changes of policy, whether it's done in a transparent democratic Westminster-style fashion like Australia or some other way. Well, that's just too bad. That's life.

ANDREW DODD: You say that this is unavoidable, but in actual fact there were lots of ways you could avoid this embarrassment that Australia is now going through in the region, and one of those was to phase it out slowly. Why didn't you phase the DIFF scheme out over two or three years?

ANDREW THOMSON: Well, that is a reasonable question. First of all, we'd made commitments during the election campaign especially to protect the flow of aid to Africa and to increase the participation of NGOs in the aid program. And we recognise, also, our obvious interest in protecting the aid flows to the Pacific and, of course, to Papua New Guinea where we're locked in by treaty.

So it was driven, we thought, by necessity that we abolish the scheme and save the money as quickly as we can, for reasons generally across the board, the need to reduce the Commonwealth's debt as fast as possible, but also by the other areas of the aid budget where we just did not want to plunge the scalpel into. And if we have to wear some sort of friction with our neighbours who were receiving this money from the Australian taxpayers according to the Australian taxpayers' own laws, then we'll just have to take that friction. There's no other way about it.

ANDREW DODD: On 23 July, Alexander Downer threw a spanner in the works by announcing that some of the proposed DIFF projects could get a reprieve. The 'Downer Round', as it was dubbed by the Opposition, means China, Indonesia, the Philippines and Vietnam can nominate one or two DIFF projects which, finances permitting, Australia will fund from a separate part of the aid budget. To meet this commitment, the Government increased part of the allocation for those countries in the recent budget, but it's unclear whether another part of the aid budget was cut to fund it. Also causing confusion is the issue of which of the Australian companies will be lucky enough to get some of this funding.

Andrew Thomson says the confusion isn't being caused by the Australian Government; it's our neighbours' fault.

ANDREW THOMSON: Whilst it's very frustrating for companies, many of whom have telephoned me and I've done my best to describe this process to them, it's an unavoidable part of dealing with an Asian government that doesn't quite subscribe to our administrative transparency, shall I say.

ANDREW DODD: What do you mean by that?

ANDREW THOMSON: Well, where you have governments that do not have active parliaments like ours which allow quite fierce scrutiny of the way government funds are administered, it's difficult to glean from governments in Beijing, Jakarta, for example, or even Manila, exactly what project is going to be finally agreed upon, so it's simply a matter of time.

PETER COOK: And I think the Downer Round is fraught with difficulties for Australia, and rather than solve the problem as it appeared to be a compromise that was hoped to resolve it, it appears to me it will exacerbate it. We have had evidence before the committee, for example, that in the case of Indonesia, they'll be asked to nominate two out of eight projects, but the advice we've had from our witnesses is they'll decline to do that and say Australia should select. If Australia selects two out of eight, then the six Indonesian projects that miss out will blame Australia directly for not following through.

If the same applies in the case of China where, bear in mind, Madam Wu Yi, the Chinese Trade Minister, signed off an indicative list of projects with the then Trade Minister, Bob McMullan, if they take the same view, it could well be that the Downer Round will create more enmity within the region because of the companies and projects which miss out and the governments which are offended by that. It doesn't solve anything at all.

ANDREW DODD: And while the Downer Round is being played out, there's another small glimmer of hope for Australian business but it's very small indeed. The Government has appointed the former chairman of Woolworths, Paul Simons, to conduct a far-reaching review of Australia's aid program. He has to report within six months and it's just possible he could conclude that Australia needs a mixed credit scheme along the lines of DIFF.

You'd think that would be a ludicrous proposition given they've just scrapped it, but the Government has itself alluded to the possibility. Andrew Thomson told Federal Parliament on 18 June: 'If there's room and if budgetary circumstances permit, down the track, in the financial year after next, we may be able to reintroduce a form of mixed credit scheme and resume some of the old projects that were in the pipeline'.

So what does this mean? Does it mean that Ian Berckelman from Labax Environmental should just sit around and wait for 12 months on the off chance the Government reintroduces a scheme like DIFF?

ANDREW THOMSON: Well, it's up to them; some will, some won't.

ANDREW DODD: So Labax Environmental, a company that spent $1.2million so far, has worked for three and a half years; the Australian Government has told the Indonesian Government to refit all of these laboratories across the Indonesian Archipelago at a cost of half a million dollars. Now, we're expected to ask the Indonesian Government to sit around and wait for 12 months until you possibly make up a decision to fund a mixed credit scheme.

ANDREW THOMSON: Well, it's a sorry thing, isn't it, that the Commonwealth suffers from such a terrible financial deficit. If the Treasury's coffers had been full, this project, like all the other ones, would have been funded, I'm sure, in this financial year, but we don't have the money to do it so we can't. We've no choice.

ANDREW DODD: But by allowing that project to go ahead, you prevented the Japanese competitor getting access to those 21laboratories so an Australian company picks up the business, and the spin-off effects could be as much as five times the size of the grant.

ANDREW THOMSON: So what you're pointing to is the tragedy of the previous government's fiscal behaviour in emptying the Treasury.

ANDREW DODD: The Coalition says that if the former Labor Government hadn't run down the Treasury, they'd be able to fund these DIFF projects, but Labor points out the Coalition actually announced their decision to abolish DIFF long before they claim they knew about the so-called Beazley black hole. For Ian Berckelman, the Downer Round gives him a slim chance his project will get funding, but what about Ron Tripp? His project isn't eligible for the Downer Round because it's not quite as advanced.

Remember Ron? He's the one we saw off at the airport at the beginning of the program. He's in Indonesia attempting to salvage his $31 million project delivering special education for handicapped children.

RON TRIPP: Hello.

ANDREW DODD: Good morning, Ron.

RON TRIPP: Good morning, Andrew. How are you this morning?

ANDREW DODD: Very well, thank you. How is it all going?

RON TRIPP: Well, I think I've shored up my company's position temporarily in that I advised the Indonesian people that I work with, the Senate inquiry and the Simons review, in the hope that out of the Simons review a new concessional loan scheme will be introduced that will assist us to get the second phase of our project.

ANDREW DODD: And what were their reactions to the news that DIFF had been abolished?

RON TRIPP: Disappointed, puzzled. In fact, one reaction which quite surprised me was: Is Australia really in such financial difficulty that it has to take such drastic action? I'd never considered that that might be a concern but that certainly has been expressed to me.

ANDREW DODD: You've put yourself out on a limb a bit, haven't you, because you've said: 'Hang on, wait, stay with us for 12 more months, but this all depends upon the Simons review coming up with another mixed credit scheme'?

RON TRIPP: Yes, that's true. I have, I guess, done that, but I suppose there is really no alternative that I have because it's either walk away from it and let the project go to another country. In fact, I visited the school for the blind, the centre for the blind in Jakarta, and saw, written up in texta on a whiteboard some alternative Brailleing equipment and the word 'Norway' written up there which is a competitor in this area, so we don't have it all to ourselves but I don't think I have any other choice. It's either abandon the project or take the action I'm taking and hope that some sense prevails through the Simons review.

ANDREW DODD: And while the Simons review is gearing up, the Labor-dominated Senate committee is due to hand down its findings in a couple of weeks, on 17 September. And Senator Peter Cook says one of the findings will be that the Government hasn't looked after Australian companies.

PETER COOK: We've instructed the secretariat to draft a set of findings so that we can debate them between ourselves, but it seems obvious to me that there's a block of findings that relate to those programs that were in the system and cut off in mid-stride by the Government's unilateral termination of DIFF. Whether justice has been done to them, whether the Government should go the extra yard and dispense justice to them-my view is justice hasn't been done; it should go that extra yard.

There is then the question of what is the status of Australia's international relations and have we, by doing what we've done so unilaterally, damaged irreparably relations with other countries or, if not irreparably, seriously? I think that the evidence suggests that we may have done and that it's not clear to me whether we've repaired it yet, but there may well be a series of recommendations focusing on that.

And then, finally, I think, there is the other two issues: what the future holds, what will replace DIFF and how the Downer Round will be played out and implications about that, and the Minister's own conduct in this.

ANDREW DODD: What do you think the Coalition has learnt from this whole exercise of DIFF?

PETER COOK: I would hope that they would learn that when you've got on-foot arrangements with foreign countries which involve sensitive commercial and aid issues, that before you jump in and unilaterally cut things off, you look at how you manage that if you're determined to cut them off, and that you consult properly, you grandfather all of those things that are in the system and you put a prospective date on termination, not do it instantly.

JANET HUNT: I don't think it's been the finest hour for aid, certainly, and I think one thing that they, I hope, may have learned out of this is that cutting aid is not a very wise thing to do. Ithink what they have also discovered is that there is actually a lot of domestic interest in the aid program. As we have known for a long time, 90 per cent of bilateral aid is provided by Australian companies and they provide Australian goods and services, so the aid program is not a cheque in the mail. It's actually services, goods and people from Australia, so cutting aid is actually cutting jobs and cutting suppliers and so on in Australia, and that would apply whatever part of the aid program got cut.

IAN BERCKELMAN: They have apparently not used any diplomatic skill with their Asian neighbours. As a supplier of goods, we feel that they've been extremely rude and high-handed. There was no consultation called by AusAID or any other agency, and it came out of the blue like an Exocet through the window. The DIFF scheme is finished; that's it; 'bye, 'bye.

ANDREW DODD: But then there's part of it back.

IAN BERCKELMAN: But maybe. Not yes; maybe.

ANDREW DODD: But there's the possibility of an alternative down the track.

IAN BERCKELMAN: Sure, but there's no promises from the Government. We've been given a thought that something may happen but are the budgets there? Are they not? Downer's letter, which I happen to have read, is inconclusive. It asks the governments to tell Australia which are their highest priority projects. But how many of those are they going to fund-one, two, 15? Nobody knows whether they'll fund any of them. It's all up in the air, a typical Downer letter.

ANDREW DODD: Has the Coalition learnt anything from the handling of the whole DIFF matter?

ANDREW THOMSON: Well, I think we've learnt that, in some cases, with recipient governments, I think some of our aid had begun to be taken for granted in some sections of these governments and that what the taxpayers of Australia regard as really little more than charity and generous gifts of funds and such from the aid budget-some parts of these foreign governments regarded it as somehow an obligation of Australia to provide this sort of money and that this difference of expectations has led to some of the friction with parts of these governments-yes. That's my impression.