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Tuesday, 4 May 1971

Senator COTTON (New South Wales) (Minister for Civil Aviation) - I move:

That the Bill be now read a second time.

With the concurrence of honourable senators I incorporate in Hansard my second reading speech. This Bill proposes one simple, though vital, amendment to the Export Payments Insurance Corporation Act 1956- 1970, namely, that the maximum contingent liability which the Corporation may accept under contracts of export payments insurance and under guarantees be increased from $300m to $500m. Export payments insurance is an important competitive element in international trading. More than 30 overseas countries provide this facility to their exporters. In Australia export payments insurance has been provided since 1957 by the Export Payments Insurance Corporation (EPIC), thus enabling Australian exporters to be protected against the risk of non-payment of foreign accounts. Under another associated facility, agreed to by Parliament in 1964, the Corporation may give guarantees to commercial lending institutions as a means of assisting exporters seeking financial accommodation in respect of insured transactions involving deferred payment terms.

When the Corporation enters into a contract of payments insurance with an exporter, and when the Corporation gives a repayment guarantee to a lending institution, it accepts a commitment that, if certain things should happen, it will pay according to the terms of those instruments. In other words, it accepts a contingent liability. It follows that the greater the volume of export business that EPIC insures and the more often it helps the financing of exporters by providing its guarantees, the higher will its contingent liability become. There is a statutory limit, however, on the amount of contingent liability which the Corporation may accept. This limit is not imposed as if to put a brake on the Corporation's commercial operations.' It applies because the Commonwealth is ultimate guarantor of EPIC and Parliament should have the opportunity to determine, from time to time, the level of commitments which the Corporation may assume. The following table shows the growth in the amount of maximum contingent liability under payments insurance and guarantees as approved by Parliament since the Corporation was established in 1956:


When the Corporation's maximum contingent liability was last determined by Parliament in June 1970 it was estimated that the ceiling of $300m then approved would be adequate to cope with the expansion of business by the Corporation during at least the following 2 years. However, several largely unforeseen developments since June 1970 have increased business so substantially that, already, the Corporation's contingent liabilities have almost reached the S3 00m ceiling. Unless the ceiling is raised the Corporation will have no alternative to declining the support of its payments insurance and guarantee facilities for a large volume of export business.

The principal factor in this unexpectedly rapid build-up in contingent liability is the insurance of wheat export transactions. Up to the beginning of this year EPIC has been asked to insure only relatively minor quantities of wheat exports. However, because Australian wheat has had to face increasing international competition, particularly on credit terms, there has been a new demand on the payments insurance facility of EPIC. Already in 1971 the Corporation has assumed contingent liability on wheat export transactions of $30. 2m. In addition, the Corporation has agreed to insure wheat export sales in prospect which would involve contingent liability up to a further $37.7m.

Since June 1970 the Corporation has also insured, and given guarantees in respect of, a higher than expected value of capital goods exports sold on long term credit. In respect of these transactions it is the length of the credit term, as much as the value involved, which is of concern because the related contingent liability is run off very slowly. Honourable senators will be interested to know that most of this long term business consists of capital goods exports to the copper development on Bougainville. Had it not been for an amendment of the Exports Payments Insurance Corporation Act which Parliament agreed to last year these contracts could not have received the support of the Corporation's facilities and, in consequence, many valuable orders would not have been wen for Australia. Apart from these 2 major new elements there has been a higher than average rate of gain in the Corporation's operations generally. This reflects, in part, the increasing success of Australian industries, particularly manufacturing industry, in finding export markets for their products. It reflects, also, the worldwide trend towards more, and longer term, credit trading as a result of strong international competition for markets.

The importance of EPIC's facilities as support for the efforts of Australian exporters can hardly be overstated. Indeed, the Corporation's operations have become a vital competitive element in Australia's export trading. Since it commenced operations in 1957 EPIC has insured exports worth $ 1,400m and, at the end of March 1971, had policies current with a face value of $424m. The rate of increase in the Corporation's business is seen in the fact that, only 9 months earlier, that is, at the end of the 1969-70 financial year, the face value of policies then current was $343m.

The Corporation has discharged its responsibilities with both initiative and prudence. It has encouraged and expanded export business by making its facilities available to an ever-widening field of exporters and export transactions. It has at the same time ensured that the cost of its services to exporters has been kept to the lowest possible level. In fact, after some 14 years of operation, the Corporation's excess of premium income over claims and operating expenses has amounted to a bare $238,000. Australia, and Australian exporters in particular, are fortunate in having in the Export Payments Insurance Corporation a body which has made a real contribution to the country's growth. It is estimated that the Corporation could operate for about 2 years within the proposed new ceiling of $500m. However, this estimate provides no leeway for unforeseen occurrences such as new projects similar to Bougainville. Developments of this kind might create a need for Parliament to review further the Corporation's liability limit earlier than is now expected. I commend the Bill to honourable senators.

Debate (on motion by Senator Wilkinson) adjourned.

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