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Thursday, 5 December 1985
Page: 3085


Senator VIGOR(9.59) —The Australian Democrats will be supporting the Australian Trade Commission Bill and the Australian Trade Commission (Transitional Provisions and Consequential Amendment Bill. The Australian Trade Commission is being established to improve the efficiency both of the Department of Trade in its support of the Government and of the services offered by the Government to promote Australian trade overseas. I applaud the Government's initiative in this restructuring of the Department which hopefully-I emphasise hopefully-will mark a new era in efficient and cost-effective services to exporters.

Communication between public servants and business people is always a problem. Public servants are loath to make a decision until all relevant facts have been checked. Businessmen depend on quick reactions to current market conditions. This problem was brought up by Senator Durack as one of the major problems that we face when government tries to work with businessmen in promoting our trade. I hope that the Trade Commission will solve some of those problems.


Senator Durack —Why should it?


Senator VIGOR —It should because the businessmen being appointed to the Trade Commission will direct its actions independently from government. It is to be hoped that the Australian Trade Commission will have sufficient independence from the Department of Trade so that we will not have a repetition of the Australian Bicentennial Authority's clash with the Department of the Prime Minister and Cabinet. I envisage a difficult period for the Commission at the outset as I understand that most of its staff will be public servants transferred from the present Department of Trade. These public servants will actually have to learn some of the methods of business if we are going to be effective and competitive in foreign markets. While I acknowledge their great experience in trade matters, I question the advisability of that personnel decision. I would much prefer to see the Commission staffed by people directly from industry. I am pleased to hear, however, that the top appointments to the Commission are from the business sector. I congratulate Dr Brian Scott, Chairman of Management Frontiers Pty Ltd and formerly Chairman of W. D. Scott and Co. Pty Ltd, on his appointment as Chairman of the Interim Board, together with the other outstanding members of the Board. I also commend Mr Exell for the tremendous work which he has put into this project. I have been quite impressed with it.

What Australia needs at this time is a courageous and dynamic approach to trade promotion and a dynamic approach to the protection of Australian industry. The major problem that we have currently is that in foreign trade we are fairly stick in the mud and we are sliding downhill. I question the capacity of people trained in the Public Service to adjust quickly enough to their new role in the Australian Trade Commission, and we will be watching this very closely. As most people are aware, Australia's trade position is now critical, and that has been canvassed by both the previous speakers. Our trade deficit is increasing exponentially. Our overseas markets are being eroded by our `closest allies' who are flagrantly breaching the General Agreement on Tariffs and Trade on trade practices and protectionism. We are refugees, in fact, from an economic war between the United States of America, Japan and the European Economic Community. The EEC and the United States of America are subsidising more and more of their commodity exports, thus reducing Australia's share of traditional markets for our minerals and primary produce. Japan and the United States of America are engaged in an economic war which crushes Australian manufacturing industry in the middle. Australia needs to look towards a common market arrangement with its nearest neighbours to provide a buffer against such powerful economic forces.

The major area of deficit in Australia's trade is that of the invisibles. Interest on our exploding foreign debt, our shipping costs and our costs of insurance are factors which contribute to this major deficit. I welcome the incorporation of the Export Finance and Insurance Corporation into the Australian Trade Commission. I hope that the Australian Government will undertake more of this type of financing in the national interest. I hope also that the Government will expand EFIC and its insurance capacity into general average and cargo insurances. I have had a number of discussions with the Department of Trade and the Minister for Trade, Mr Dawkins, and, because of time constraints, I seek leave to have incorporated in Hansard a letter from the Minister and the section of the Minister's second reading speech which came out of those very fruitful and constructive discussions.

Leave granted.

The documents read as follows-

Office of the Minister for Trade

and

Minister Assisting the Prime Minister

for Youth Affairs

Parliament House

Canberra ACT 2600

29 Nov. 1985

Senator D. Vigor

Senator for South Australia

Parliament House

CANBERRA ACT 2600

Dear Senator Vigor

Further to our very helpful discussions on Wednesday, I have included some additional paragraphs in the Senate Second Reading Speech to cover the points that you raised. These have been highlighted in the attached copy.

On the matter of an export market development scheme for small new exporters and exporters of high technology products, it will be for the Trade Commission to come up with early proposals so that we can get something off the ground in 1986/87. I have asked the Interim Board to include it on their agenda for their final meeting on 17 December.

As to meeting the new Board of the Commission, I would suggest one of the early meetings would be appropriate, probably late January or early February. I have asked officers of the Interim Commission to keep in contact with your office on this matter.

Yours sincerely

J. S. Dawkins

SECTION OF SECOND READING SPEECH

In this context the Minister for Trade will be requesting the Australian Trade Commission to develop proposals for export market development schemes tailored specifically to assisting small new exporters and exporters of high technology products. The Government will consider sympathetically schemes which are cost effective and offer real assistance. Whilst it will not be possible to implement any schemes in this financial year, depending upon the advice I receive from the Commission. It may be possible to have new arrangements in place in the 1986-87 financial year.

. . .

The Government is conscious of the low level of export orientation of Australia's service industries, particularly in the light of the large invisibles deficit in the balance of payments. In this respect, it is the Government's intention to develop services as an important export earner and significant steps have already been taken in areas such as tourism and education.

The Commission will continue to develop marketing strategies aimed at improving the performance of the services sector in the broadest sense. Apart from reinforcing the activity which assists the export of professional consulting and contracting services, particular attention will be given to finance, insurance, entertainment and information industries. These initiatives will have a positive impact on our invisibles account.

The budgeted revenue from the sale of the Commission's services has been set at $2.5m for the period ending 30 June 1986. Monies so recovered will be credited to the Commission's account. Future options for cost recovery are being assessed. Without previous experience in this area it is difficult to forecast what these levels will be, and the extent to which cost recovery will be an effective market test of the quality of the Commission's services to exporters. The Government is not seeking, through cost recovery, to reduce its commitment to the exporting community.


Senator VIGOR —I thank the Senate. I note that the Minister had incorporated in his second reading speech my suggestions to improve Australia's invisibles trade and has promised to improve Australia's export services to achieve this. However, I note cynically the Government's failure to protect our tourist industry by today disallowing entertainment as an income tax deduction. Apart from the extra cost in marketing our export, the detrimental effect on our tourist industry seems suicidal.

I appreciate also the Minister's support for our proposals for an export market development scheme tailored specifically to assist small new exporters and exporters of high technology products.

However, I am most unhappy to hear that nothing will be done in this regard until the 1986-87 financial year. This shows the types of delays and lags that exist within the Public Service system. Given our current trading situation, action is needed now. It is needed immediately because we have to turn the corner.

Another area of concern to the Australian Democrats and to many exporters is the impact of cost recovery measures on exporters. I welcome the Minister's incorporation into his second reading speech of assurances that the recoveries will be no more than $2.5m for the rest of this financial year. However, while applauding the concept of introducing full program budgeting in the Australian Trade Commission, I warn that Australian exporters are probably the most undersubsidised in the world and cannot efficiently or effectively absorb any further costs in this area, apart, that is, from those corporations indulging in transfer pricing and other tax rorts at the expense of all Australian businesses and all Australians. This practice needs to be stopped. I hope that a tightening up of Australia's trade situation will include the provision of controls over such pernicious practices.

Transfer pricing has been raised as a problem in every annual report of the Australian Commissioner for Taxation since 1982. Amendments were introduced to the Income Tax Assessment Act in an attempt to control transfer pricing, and these were to take effect immediately in May 1982. In the 1982-83 annual report of the Australian Taxation Office mention was made of the growth in the international economic activity and the increased use of tax havens to shift profits artificially. Mention was made also of the fact that Australia was arranging to exchange information with overseas taxation authorities. We still have not seen the results of this. The latest report states that more than 90 cases of transfer pricing practices were examined last year and an extra $80m tax was collected. But that is just the tip of the iceberg. Mr Risstrom estimates that total tax evasion in this area is of the order of $2 billion to $3 billion. The audit process is highly complex and requires increased computer resources. It may be possible to stop these types of rorts if there is co-operation between the Department of Trade, the new Trade Commission and the Taxation Office. I take, for example, the Alusuisse case. A couple of days after I discussed these matters with Mr Dawkins, he attacked Austraswiss and Gove Aluminium Ltd. I seek leave to incorporate in Hansard an article from the Australian Financial Review of Friday, 29 November, which describes Mr Dawkins's attitude towards these types of processes.

Leave granted.

The article read as follows-

Dawkins attacks Austraswiss, and GAL for low export prices

By David Shires

The Federal Minister for Trade, Mr Dawkins, in Parliament yesterday launched a second attack on the companies involved in the Gove bauxite and alumina project for negotiating export prices below those considered by the Federal Government to be a fair market price.

The two companies, Alusuisse subsidiary Austraswiss and the majority CSR-owned Gove Aluminium Ltd (GAL), attracted the minister's wrath in the House on Tuesday on the basis of low prices negotiated with Austraswiss's Swiss parent Alusuisse, which contracted in 1968 to buy all alumina produced by the Gove project until 1992.

The minister outlined his position on the matter to the companies last Thursday, threatening to bring export controls into play if they did not negotiate a better price with the Swiss-based buyer.

``There have been some responses from the companies involved, but neither of them have attempted to address the central issues,'' he said in the House yesterday.

``In the case of Austraswiss, we have the need for the company to obtain a freely negotiated fair market price for its alumina as was negotiated for in the agreement that it signed at the time when the project was established.

``Secondly, in the case of Gove Aluminium Ltd, the fact is that the company wishes now to have approval for export prices for bauxite below any prices which have been obtained at any time since 1978.''

He would not reveal the nature of the prices concerned, describing them as confidential within the Government.

But the minister lashed Austraswiss in particular for its response to his attack earlier in the week, describing a claim by the company denying it had sought information under the Freedom of Information Act relating to other companies as ``frankly false.''

``It has sought all reports, all memoranda and all documents relating to the international transactions between Australia and other countries in relation to alumina and bauxite,'' he said.

``The Government, of course, has resisted the release of the information relating to the other companies in this trade.''

Mr Dawkins denied the Government was attempting to renege on its contractual obligations, adding that as far as he was concerned the contract was not even at issue.

He described a press statement released by Austraswiss as ``very misleading'' and avoiding the central issue. He said while GAL had responded, it had not provided the information sought.

Mr Dawkins also assured the people of Nhulunbuy manning the Gove project that the Government had no intention of seeing the issue close the operation.

Austraswiss did not respond to the minister's statement last night, but it is believed a response will be made this morning.

The major problem lies in the ``cost-plus'' basis of the original contract signed in 1968-a time when there was very little international trade in international bauxite making the determination of price difficult.

While Mr Dawkins may be right in accusing the companies of selling well below current market prices, it is worth noting that the only comprehensive paper on the subject produced earlier this year by a former Trade Minister staffer, Mr Greg Crough, acknowledges that Alusuisse may have lost considerable amounts of money in the early years of the deal.

According to Mr Crough, in 1975 the total group of Alusuisse ran at a loss, one reason was that the company had 1 million tonnes of Gove alumina for which it had paid $30 to $40 above the then market price.

In fact, he said, the price paid by Alusuisse had exceeded the market price from 1972 to 1977.

``Subsequently, the so-called market price exceeded the formula price and at that stage some people started to criticise the formula and said it was unfair on Australia, but I suggest that the formula, if it was unfair on Australia in 1979, was grossly unfair on Alusuisse in 1972 to 1976,'' he said.

Mr Crough echoed the sentiments expressed earlier this week by the managing director of Austraswiss, Mr Andrew Parker, that Australia would have been in a very difficult situation if in 1976 Alusuisse had wanted to renegotiate the contract.

``We would have been in a very difficult position in our financing because if we had to accept the market price, we would not have covered costs.''

``Were the export control mechanisms to be significantly weakened, the ability of the Government to ensure that the country's resources are sold at fair and reasonable prices would undoubtedly be undermined, which should be a matter of concern to all Australians.''


Senator VIGOR —I thank the Senate. My colleague Senator Mason asked a question of the Minister for Trade on 16 October on this matter and it seems that it has now been taken up. The Department of Trade estimates that the price of Alusuisse's exports in 1984 was $34m, under the lowest range of fair and reasonable export contracts. As much as $550m might have been shaved by that one company from export values since 1972 by use of various transfer pricing techniques. I believe that the Taxation Office has failed in this area. Maybe some statutory specification and control within the ambit of the Trade Commission might be able to give more information on this and indicate a better way of handling this problem. I commend the Bills to the Senate.