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Thursday, 30 September 1971
Page: 1762

Mr CREAN (Melbourne Ports) - The Opposition supports this Bill which will enable that admirable institution, the Export Payments Insurance Corporation, to extend the nature of its activities. As the Minister said, a new export financing facility, to be known as buyers credit, is to be introduced. The Bill also authorises the Corporation to enter into reinsurance arrangements with its counterpart organisations in other countries where this would be useful for Australian exports. Australia increasingly is selling its capital goods overseas rather than relying, as in the past, on primary products and, more latterly, on minerals in various stages of process.

However, one of the difficulties confronting us is that the countries to which we wish to sell our capital goods are mainly developing countries and often the client is not in a position to pay quickly. He needs to have recourse to a credit transaction and, in the past, EPIC has helped in some of these transactions. However, certain difficulties exist which this Bill proposes to remedy. The Minister explained that, at present, Australian exports of capital goods sold on credit are financed under the suppliers credit system. It is proposed to change the transaction into what is called a buyers credit system. It has been explained that, in essence, this means that the seller of the product in

Australia is able to be paid in advance.. The credit side of the transaction is then assumed by an Australian finance organisation - principally, the trading banks - and the client at the other end pays by instalments, and EPIC guarantees the bank or the finance institution against any default in payment. This is a healthy kind of improvement on the previous arrangement.

A brochure has been produced by a similar organisation overseas, known as the Exports Credits Guarantee Department of the United Kingdom. This brochure explains that a system such as the one which is now proposed in this Bill has been in force in the United Kingdom since 1961 and has been most successful in its operation. I draw attention to some statistics that appear in this British publication. They show that about one-third of the United Kingdom's export trade is actually carried on under guarantees of one kind or another which are given by ECGD. Whilst our undertaking in Australia - the Exports Payments Insurance Corporation - has certainly expanded substantially in recent years, it is still a long way from reaching the stage where it assists something like one-third of our export trade. Australia's export trade is in the region of $4,000m; one-third of which is about$1,300m. According to the latest annual report of EPIC the face value of policies current at 30th June 1971 was $511m, which is still far short of one-third of our export trade.

I suppose one could observe that there certainly are differences between the export trade of a country such as Australia and that of the United Kingdom. The various export insurance authorities that operate under what is known as the Berne Convention have set their faces - I think, sensibly enough - against financing these sorts of insurance transactions unless payment is likely to extend over a longer period of time than is normal. Unless there is some special reason why this should be done, it certainly is silly to finance sales of consumer goods over the long term. The goods are consumed and, if the payment is to be made over several years, it is not a very satisfactory way of transacting business. By comparison with the United Kingdom, a far higher proportion of Australia's exports is still of the consumer goods type, namely, goods that are likely to be used in the same year or within a short period of purchase.

Nevertheless, these changes are taking place in Australia's trading patterns and at least EPIC has been useful in helping to bridge some of the difficulties which are caused when an overseas client is not in a position to pay for the transaction immediately. I believe that increasingly in the future this is the sort of trade that we must undertake. The various manufacturing industries have pointed out that, over the last several years, there has been an increase in the volume of manufactured goods exported. I think it is still true that a preponderance of these exports go to New Zealand in particular and, to some extent, to the Territory of Papua New Guinea, but Australia is still finding it difficult to secure sales on a scale which is relative to the potential that exists in places such as Indonesia and South East Asia. At least the facility which is proposed in this Bill will enable sales of capital goods, in particular, to those areas.

The Minister, in the course of explaining in detail the kind of transaction that would be eligible for this assistance, suggested, firstly, that the loan will be made only if the ultimate transaction is of a magnitude of $200,000. There will be certain exceptions. If it can be shown, when the sum is less than that amount, that there is some good reason why the person wanting to buy a product cannot pay, sufficient flexibility exists to allow insurance to be effected and that kind of transaction to be financed. Broadly, however, the transaction must be of a magnitude of $200,000. It is expected that in every case there should be a down payment of at least $20,000. This is a precautionary measure. If credit is too easily available, people sometimes become a little reckless in chasing it and may as a result default in repayment. It is interesting to note that the most recent report of EPIC, the fifteenth annual report and financial statements for the year ended 30th June 1971, tabled only a few days ago, indicated that there was quite a high figure this year for claims that had to be paid. It was a sum of $939,084, although fortunately most of it was subsequently recovered. The 2 places where the transactions took place involving that amount were South Korea and Turkey. The report explains clearly enough that in the case of the transaction in Turkey the claim arose largely as a result of a currency devaluation which took place. 1 do not know what the mechanisms for recovery in these circumstances. I do not know whether we use the facilities of the Australian Department of Trade and Industry in these areas or whether the seller of the goods has to do the chasing of the money himself. Fortunately, most of the money that was at risk subsequently was recovered. Nevertheless, this points to the need for caution in these sorts of transactions. The report also points to the fact that there have been quite a number of changes in the type of business handled by EPIC. I refer particularly to page 4 of the report where it states:

The success achieved by Australian capital and semi-capital goods manufacturers in gaining overseas contacts was notable, especially in view of disappointing results in earlier years. The Corporation supported 179 tenders for $129m.

On the average, that would represent approximately $700,000 in each case. The report continues:

Successful contracts resulted in the issue of 85 policies worth some $44m, spread over 25 countries. The extension of the Corporation's charter to insure business with the Australian External Territories gave our exporters the opportunity to tender for a wide range of equipment to the Bougainville project and secure contracts worth more than $26m. To win these orders against overseas suppliers, matching credit terms of up to 10 years were supported.

The inference is clear enough: The magnitude of the contracts is quite large and is increasing because the types of clients with whom we deal are seeking longer terms of payment, up to about 10 years. In the past, EPIC had been reluctant to extend its terms of credit for much more than 5 years. It is obvious that account has been taken of longer terms, and there is a new depth, as it were, to the kinds of transactions that can be encompassed. The Minister for Trade and Industry (Mr Anthony) in his second reading speech referred to projects on quite a substantial scale that might be undertaken. He describes what is referred to as a turnkey project. The Minister said:

Capital goods transactions encompass, of course, a wide range of possible arrangements between an Australian exporter and an overseas buyer. At one end of the spectrum there is the contract involving merely the supply, of a single piece of capital equipment. At the other end, there is the contract for a turnkey project, that is, the supply, erection and commissioning of a complete production plant. In view of this a definition of capital goods has not been specified in the Bill.

It might include a whole vast procedure of carrying out work in another country of the magnitude of the Snowy Mountains scheme in this country, or the building of a domestic water project where labour and earth moving equipment, as well as capital goods, might be involved. We need to take a kind of venturesome approach if we in Australia are to diversify our trade and at the same time help in development of other parts of the world. If the people of those countries are to attain higher standards of living it is necessary for them to develop new infrastructure and new industries. Australia is in a special position to help them.

If we look forward, as we should, from, the period of the 1970s to a period between 1980 to 1985, it is likely enough that substantial changes will have occurred in our internal economy and our external trade, which is based upon our internal economy. I think one of the disappointments in Australia in recent years has been the failure to see far enough ahead to grasp the significance of technical and other changes and to realise the possibility that we have to assist the development of the under-developed parts of the world. In the course of his speech, the Minister referred to the need to increase trade in such places as the Pacific islands as well as South East Asia. Some of these Pacific islands will have difficulty in finding employment for their surplus populations. Many of these islands are more like separate nations than merely neighbouring islands. I instance such places as Fiji, the New Hebrides and Tonga, all of which regard themselves as separate nations and therefore experience considerable difficulty if their population increases in relation to the resources which are available. Already, some islands such as Tonga are facing the prospect of serious over-population if their, economies continue in the same kind of subsistence form in which they have developed over recent years. At least Australia is in a position to allow them to develop some basic industries and to provide the equipment. With the economies of such nations being so small they are not in a position to pay for the foods except over a long period of time. Many of the works undertaken do not become productive for quite a number of years. Therefore, one cannot expect the Australian entrepreneur to have to wait 10 or 12 years to receive payment. That limits his ability to carry out other works with his own resources. This seems to me to be the great virtue of this scheme that is before us. It allows the Australian provider of these facilities to be paid off in order to enable him to provide the same sort of services in other countries or to diversify his activity, to manufacture something else he has both the materials and the manpower to encompass. Whether the foreign country finally makes the payment, becomes a risk accepted by a local financial institution backed by the resources of EPIC.

Again, I would like to pay tribute to EPIC for the successful nature of its undertakings. It has been in operation now for approximately 15 years. It was established in about 1956. 1 have always applauded its establishment because it is a socialist undertaking, a State owned enterprise stepping in to assume those sorts of risks that private enterprise is sometimes very reluctant to take. Its operations have been highly successful. EPIC aims over a period of years to cover its costs. It is not a profit-making undertaking, except in the sense that it aims to cover all costs associated with its transactions. But it does not aim to pay dividends to shareholders or tax to the Australian Government. It is there to promote Australia's export trade. It has been most successful in doing so, as the annual reports indicate.

I notice that even last year the Corporation was quite successful as far as wool sales were concerned. One need not speculate upon the difficulties facing that industry at the moment but at least EPIC was able last year to finance transactions of about $50m. The total value of wool policies remained fairly static throughout the year despite the depressed conditions of the industry. There was, however, a shift in the composition of policies with greasy wools share of the total falling by $ 16.7m to $63.4m while the value of processed wool policies rose by $13. 3m to $49. lm. In other words, this facility is enabling Australia to do what many people suggest it should have been doing for a good number of years not just relying on exports of greasy wool but selling more processed wool.

Mr Grassby - But not under this Bill. Buyers credit will not apply in that case.

Mr CREAN - All I am saying is that EPIC has been successful in the past. How the new function of the Corporation outlined in the Bill develops has yet to be seen. But at least the effect of EPIC has been to allow processing to be done in Australia. It has also been able, by arranging terms of something like 180 days, to sell this product in a market that formerly was not within our reach. I know that my colleague the honourable member for Riverina (Mr Grassby) wants to say something about this buyers' facility. All I suggest is that we will watch with interest how this function works out. I refer to the fact that it has been highly successful in respect of the United Kingdom. I draw attention to the fact that in that country it has been extended not only to cover what might be described as the physical side of things but also to encourage financial transactions between developed countries, such as the United Kingdom, and underdeveloped areas in South East Asia or wherever they may be. I commend that policy to the Government. I suggest that the Government should have a look at it.

I refer again to the fact that the business of buyers' policy has been operative in the United Kingdom since 1961. We are adopting it in 1971. Perhaps it is a bit belated; nevertheless we have begun this function. I hope that the Corporation will look a little further and see whether the finance type of transaction of a longer term might also be considered. I commend the Bill to the House and I hope that in another 12 months time we will be able to observe from the annual report of EPIC that this new function has been responsible for encouraging even more Australian export trade in the capital goods industries which are so significant to our future economic development.

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