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Tuesday, 26 November 1974
Page: 2735

The PRESIDENT -Is leave granted?

Senator Wood - No.

The PRESIDENT - There being dissent, leave is not granted.

Senator Douglas McClelland (NEW SOUTH WALES) (Minister for the Media) -This Bill is a major step forward in the development of facilities for Australian exporters and the strengthening of our commercial relations with overseas countries, particularly developing countries and the centrally planned economies. Under this Bill, the Export Payments Insurance Corporation known as EPIC, and established under the Export Payments Insurance Corporation Act 1956-1973, will be reconstituted as the Export Finance and Insurance Corporation to operate as an export financing institution as well as a credit and investment insurer and guarantor. EPIC has acquired an enormous range of experience in this field and it is most logical that the development of a financing institution be in close association with it. In particular, the new export bank function will facilitate the provision of export finance for medium and long term credit sales of machinery and capital equipment, and the establishment of lines of credit, especially to developing countries and state trading organisations. In performing this function, the Export Finance and Insurance Corporation will supplement, not supplant, the medium and long term export financing facilities provided by existing Australian financial institutions, principally in the trading banks. In addition, the Bill proposes to broaden the eligibility criteria of the overseas investment insurance scheme and to bring Papua New Guinea within the scope of the scheme.

The Government's decision to amend the charter of EPIC to enable it to function as an export financing institution was announced in August 1973. It is a logical extension of the successive amendments which have been made over the years to the charter of EPIC to extend and improve the range and operation of its facilities for the benefit of Australian exporters. EPIC is already combining to some extent the functions of insurer and banker in its buyer credit and guarantee operations and has considerable experience, expertise and standing in the field of international trade and finance. The ability of exporters to obtain finance for credit sales to overseas buyers, and the nature of the credit arrangements they can offer, have assumed an increasing significance in world trading in recent years, particularly in respect of machinery and capital equipment. Most industrialised countries with which Australia competes in the export of machinery and capital equipment have special government supported export finance facilities designed to ensure that their exporters have access to medium and long term credit on internationally competitive terms and conditions. There is clear evidence that significant export opportunities are being lost in this field because of the absence in Australia of export financing facilities similar to those provided in such countries as the United States of America, Canada, Japan and Britain. For some time, Australian manufacturers have emphasised that with competition in world markets becoming more intense, facilities of this kind have become essential to enable them successfully to compete in overseas markets, particularly in developing countries and centrally planned economies. These representations have been supported by EPIC, the Trade Development Council, the Heavy Engineering Manufacturers Association and other national industry organisations.

Following a detailed review of export finance facilities in Australia and overseas, it is proposed that the export finance functions of the new Export Finance and Insurance Corporation will be as follows: (i) the provision of finance to facilitate the export of machinery and capital equipment- wholly or mainly manufactured in Australia- and associated services involving credit terms especially, but not only, in excess of 5 years; (ii) in fulfilling (i) above, lend to exporters or to overseas buyers-borrowers, particularly for business with developing countries and state trading organisations; (iii) act as agent for the Government in cases involving the 'national interest'; and (iv) in setting its lending terms and conditions, the Corporation will seek to match, but not lead, competition from overseas government supported export finance institutions. For the purpose of the Corporation's export finance operations, machinery and capital equipment will mean those goods and equipment which are customarily regarded as capital goods and equipment in international trade, and will include, where applicable, costs incurred and services rendered in the buyer's country in connection with a capital project. The main provisions relating to the export finance business of the Corporation are set out in clauses 36 to 41 of the Bill.

I should emphasise that the new Corporation has been designed to take its place alongside and supplement the existing facilities provided by

Australian financial institutions. In fulfilling the functions set out above, the Export Finance and Insurance Corporation will not engage in the wide range of services normally carried out by the trading banks, such as the provision of short term export finance which constitutes the great bulk of demand for export finance. Accordingly, it is provided in the charter of the Corporation that it should only provide finance where, in its opinion, this is desirable and the finance would not otherwise be available on reasonable terms and conditions. It is also considered that the Corporation should, wherever practicable, endeavour to seek the participation by existing financial institutions as much as possible in providing export finance on appropriate terms and conditions. The safeguards written into the Bill, to ensure that the Corporation does not compete with the trading banks in their normal and traditional fields of banking services for exporters, fulfil assurances given by the Government to the trading banks on this matter. Quite extensive discussions have taken place with trading bank representatives as well as with representatives of the normal export trading organisations. I emphasise that the operations of the Corporation can be expected to create additional export business for the trading banks

The ability of the Corporation to provide export finance facilities comparable with those overseas will depend- when, as at present, domestic commercial rates are higher than the concessional rates offered by overseas government supported export banking institutions- on funds being provided at an effective cost which is less than domestic commercial rates. Accordingly, the Government considers that the Corporation should be provided with funds from the Budget at a rate of interest that will enable it to compete with overseas export finance institutions. A clear indicatation of the subsidy element involved will be shown in the annual Budget Papers. No additional capital is required to enable the Corporation to perform the functions of an export financing institution. The new Corporation will be able to use within limits the existing capital and reserves of EPIC to assist in financing exports. However, the primary source of funds will be borrowings from the Budget. lt is not possible to predict accurately the funding requirements for the export bank functions of the Corporation. However, on the basis of the functions outlined above, approximately $50m could be required progressively during the first 3 years of operation. An amount of $5m has been allocated in the 1974-75 Budget. Within the framework of the above, once possessed of its funds, the Corporation will conduct its business on sound commercial principles, that is, it will exercise normal business skill and prudence in the performance of its operations. The Corporation will determine the terms and conditions, including rates of interest, upon which loans from its funds shall be made. It will also seek to charge the highest rates of interest as are practicable, with due regard to the need to provide finance on terms and conditions comparable with those available to foreign competitors for the business involved.

The Government considers that in the initial stages of its operations, the Corporation should be required to submit concessional loan transactions to the Government for consideration. In the case of transactions with developed countries at concessional interest rates, approval to the provision of the necessary finance will only be given where the Government is satisfied that the financing of a particular transaction would be of material assistance to the establishment or maintenance of an export market, to the development of an Australian industry or to the maintenance of employment in a particular industry or area in Australia. As with the existing 'national interest' provisions of the EPIC Act, the Bill provides for the referral of applications for export finance to the Government for consideration in the national interest 'in cases where the Corporation is either not authorised to accept the business on its own account or in the exercise of its commercial judgment would not do so. All propositions approved in the 'national interest' will be financed out of funds to be provided by the Government to the Corporation for this purpose as and when required. Such transactions will be segregated in the Corporation's accounts from its normal commercial transactions.

I turn now to the proposed legislative amendments to the overseas investment insurance scheme. These amendments were foreshadowed by the Prime Minister (Mr Whitlam) on 22 January 1974 in announcing a new Australian Government policy on private Australian overseas direct investment, especially in developing countries. The relevant provisions are set out in clauses 27 to 33 of the Bill. The overseas investment insurance scheme was established by amendment to the Export Payments Insurance Corporation Act in 1965. The present eligibility criteria of the scheme restrict insurance cover to those investments which provide export benefits to Australia and which assist in the production or marketing of goods in the overseas country. In addition, as the scheme now stands, investments in Papua New Guinea are specifically excluded from the scope of the scheme.

In accordance with the Government's policy of strengthening its economic relations with developing countries, particularly in its neighbouring regions, the Bill proposes that the eligibility criteria of the overseas investment insurance scheme be broadened to cover all new worthwhile direct investments which can assist in the economic and social development of an overseas country and where it is in Australia's national interest that insurance be given. Also, in recognition of Papua New Guinea's expressed desire for increased Australian investment to further its social and economic development plans, it is proposed to extend the scope of the overseas investment insurance scheme to cover new eligible investments in Papua New Guinea. All new investments made on or after the 22 January 1974 will be eligible for consideration under the expanded scheme.

The Bill also provides that the Export Finance and Insurance Corporation may participate in this class of business where it is prepared to do so and subject to Ministerial approval. At present, while the overseas investment insurance scheme is administered by EPIC the decision to cover a particular investment and any contingent liability arising therefrom are the responsibility of the Government. The power to issue ministerial directions, which already exists under the present legislation, will enable Government policies, for example, on economic relations with particular countries, to be reflected in investment insurance decisions undertaken by the Corporation. In view of the responsibilities of the Export Finance and Insurance Corporation embodied in this Bill, it is considered that the Corporation should be a body corporate under the control and management of a board. As indicated in the Bill, the board will comprise a chairman, a deputy chairman, the managing director, the deputy managing director and not more than 7 other members. The members of the board will be appointed on the basis of their knowledge and experience in the fields of export, manufacture, commerce and finance.

The Bill provides for the staff of EPIC to be transferred to the new Corporation without loss of their existing rights or privileges. The Bill makes it clear that the Minister is removed from matters of day to day administration of the Corporation. The relationship between the Minister and the Corporation is clearly defined in the Bill. The relevant clauses parallel the existing provisions of the Export Payments Insurance Corporation Act. In framing the Bill the opportunity has also been taken to re-draft some of the provisions of the Export Payments Insurance Corporation Act in accordance with comparable recent statutory authority legislation. As with EPIC, the Government has been concerned to provide maximum autonomy for the Export Finance and Insurance Corporation consistent with the necessary measure of Government control over broad policy.

The measures proposed in the Bill demonstrate the Government's positive and constructive approach to export policy and its commitment to adopting a co-operative and creative role in encouraging Australian investment overseas, particularly in developing countries. I commend the Bill to honourable senators.

Debate (on motion by Senator Durack) adjourned.

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