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Trade Legislation Amendment Bill (No. 1) 2016



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BILLS DIGEST NO. 91, 2015-16 26 FEBRUARY 2016

Trade Legislation Amendment Bill (No. 1) 2016 Paul Davidson Economics Section

Contents

Purpose and structure of the Bill .......................................... 2

Background ......................................................................... 2

What is the EMDG scheme? .................................................... 2

Review of the EMDG scheme .................................................. 2

Removal of the sunset provisions ......................................... 3

Changes to Austrade’s budget .............................................. 3

Ongoing review of EMDG scheme ......................................... 3

Update of eligibility criteria ................................................... 4

Committee consideration .................................................... 4

Senate Standing Committee for the Scrutiny of Bills .............. 4

Policy position of non-government parties/independents ..... 4

Position of major interest groups ......................................... 4

Financial implications .......................................................... 4

Statement of Compatibility with Human Rights .................... 5

Parliamentary Joint Committee on Human Rights .................. 5

Key issues and provisions..................................................... 5

Schedule 1—Export Market Development Grants .................. 5

Amendments to Part 5 .......................................................... 5

Amendments to Part 6 .......................................................... 6

Amendments to Part 8 .......................................................... 6

Amendments to Part 9 .......................................................... 7

Other amendments ............................................................... 7

Schedule 2—Changing the name of the Australian Trade Commission ............................................................................. 7

Date introduced: 10 February 2016

House: House of Representatives

Portfolio: Trade and Investment

Commencement: Sections 1 to 3 commence on Royal Assent. Schedule 1 of the Bill will commence on 1 July 2016. Schedule 2 will commence on proclamation or six months after Royal Assent, whichever is earlier.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

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Purpose and structure of the Bill The purpose of the Trade Legislation Amendment Bill (No. 1) 2016 (the Bill) is to amend:

• the Export Market Development Grants Act 1997 (Cth) (the EMDG Act)1 so as to give effect to a number of key recommendations arising out of a review of the Export Market Development Grants scheme conducted in 20152 (Schedule 1) and

• the Australian Trade Commission Act 19853 to change the title of the Australian Trade Commission to the Australian Trade and Investment Commission. Consequential amendments are made to other Acts to reflect the name change (Schedule 2).

Background What is the EMDG scheme? The Export Market Development Grants (EMDG) scheme was established in 1974 and is administered by Austrade. Since that time the scheme has had a number of reviews resulting in adjustments to the scheme. Section 3 of the EMDG Act provides that the aim of the EMDG Act is to deliver benefits to Australia by

encouraging the creation, development and expansion of foreign markets for Australian goods, services, intellectual property and know-how. It does so by providing for an assistance scheme under which small and medium Australian exporters committed to and capable of seeking out and developing export business are repaid part of their expenses incurred in promoting those products.

The scheme, which is designed to help overcome information and knowledge/experience deficiencies4 by providing support in a wide range of industry sectors and products (including inbound tourism) to develop export markets includes:

• reimbursement of up to 50% of eligible export promotion expenses above $5,000 provided that the total expenses are at least $15,000

• up to eight (8) grants to each eligible applicant. 5

Exporters are also provided with a range of services such as ‘advice on prospective markets and opportunities, on the ground support in target countries, trade exhibitions and assistance in finding potential investors’.6

Review of the EMDG scheme Under section 106A of the EMDG Act the Minister for Trade and Investment was required to have the EMDG scheme reviewed in 2015 by a person or body (other than the person or body that administers the export market development grants scheme) for the purpose of making recommendations about the continuation of the scheme.

The terms of reference for the review focused on examining three key indicators to determine how effectively the EMDG scheme is:

• increasing the number of businesses that develop into new exporters

• increasing the number of businesses that achieve sustainability in export markets, and generate additional exports

• further developing an export culture in Australia. 7

1. Export Market Development Grants Act 1997, accessed 17 February 2016. 2. M Lee, Certainty and confidence—exports and jobs for a changing global economy: Review of the Export Market Development Grants scheme, report prepared for the Australian Trade Commission, Austrade, Canberra, June 2015, accessed 16 February 2016. 3. Australian Trade Commission Act 1985, accessed 25 February 2016. 4. M Lee, Certainty and confidence—exports and jobs for a changing global economy: Review of the Export Market Development Grants scheme,

op. cit., p. 11. 5. Australian Trade Commission, ‘Export Market Development Grants (EMDG)’, Australian Trade Commission website, accessed 18 February 2016. 6. J Prentice, ‘Second reading speech: Export Market Development Grants Amendment Bill 2014’, House of Representatives, Debates,

19 March 2014, p. 2486, accessed 17 February 2016. 7. Review of the Export Market Development Grants schemes, op. cit., p.21.

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In his report Mr Lee stated that the feedback obtained indicated that developing new exporting opportunities is important to individual firms. He also noted that very few submissions and persons spoken to dealt with the rationale for government supporting export market development and ‘most discussions focused on how the EMDG scheme operates rather than why it should.’8 This may be because the terms of reference did not seem to explicitly deal with the issue of whether assistance in the form provided by the EMDG scheme yields net benefits to the economy as a whole, rather than just to certain exporters.

The review made a number of recommendations and those relevant to the Bill include:

• that the sunset provisions in the EMDG Act be removed (recommendation 5.1)

• that the government augment Austrade’s budget with a new amount equivalent to five per cent of the EMDG administered funds, thus freeing up the entirety of the EMDG funding, currently $137.9 million, for export promotion grants (recommendation 6.1)

• that the EMDG scheme be reviewed every five years, following similar processes as previous independent reviews—in particular, updating the econometric studies of the scheme’s impact on the economy—to determine the ongoing effectiveness and efficiency of the scheme, including its administration (recommendation 7) and

• that Austrade continue to update other eligibility criteria to reflect businesses’ experience in overseas markets, including the daily expense rate (currently $300) (recommendation 7.6.2).9

It is unclear as to whether these amendments are also specifically aimed at improving the targeting of the scheme (that is, achieving greater increases in marketing expenditure and exports per dollar of assistance).

Removal of the sunset provisions The review stated that the EMDG scheme should continue, and that it should continue to be administered by Austrade.10 The review stated that the sunset provisions should be removed from the EMDG Act, though it did not provide any reasons in reaching this conclusion.

Changes to Austrade’s budget Section 105 of the EMDG Act provides that the costs of administering the Act are to be paid out of the appropriation made by Parliament for the purpose of meeting payments under the Act and must not exceed five per cent of that appropriation. That is, the cost of administering the EMDG Act must be met from program money. The review commented that ‘[m]ost agencies have their costs for administration of programme budgets provided outside programme funding, and linked to efficiency dividends that apply to agency expenditure.’11 The review considered that the current funding arrangements of Austrade to administer the EMDG Act could be improved by separating administration funding from program funding. The rationale for the recommendation was in part due to the fact that funding is appropriated annually and since 2008 has fluctuated from $125 million to $200 million. The level of change in funding dramatically changes Austrade’s funding envelope for its administration costs (which as set out above, must not exceed five per cent of total appropriation), from $6.25 million to $10 million on the above numbers. Given that there are many fixed or effectively fixed costs (such as property and staffing), such changes in funding may mean that Austrade cannot adequately service applicants from year to year.12

Ongoing review of EMDG scheme The review found that ‘[t]here is a need to continue monitoring changes to any programme’s accessibility and processes, as well as the outcomes of progressive changes.’13 The review did not explicitly state that such assessment should no longer consider whether the scheme should continue. The review recommended:

8. Ibid., p. 11.

9. Ibid., pp. 3-4. 10. Ibid., p. 54. 11. Ibid., p. 45. 12. Ibid., p. 46. 13. Ibid., p. 54.

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• that the EMDG Act be amended to include a requirement for independent external reviews of the effectiveness and efficiency of the scheme and

• that the reviews be presented to the Minister and tabled within 15 sitting days of being received, and that the government response be tabled within three months of the report being tabled.14

Update of eligibility criteria The review received a number of submissions that, among other things, advocated for changes to the daily expense rate of $300. The review did not assess the appropriateness of the current expense rate, although it did recommend that ‘Austrade continue to update other eligibility criteria to reflect businesses’ experience in overseas markets, for example … the daily expense rate (currently $300) …’15

Committee consideration Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills had no comment on the Bill.16

Policy position of non-government parties/independents At the time of writing, the policy position of non-government parties and independents had not been made publicly available.

Position of major interest groups Under current arrangements, the EMDG scheme is scheduled to cease at the end of June 2016. Submissions received as part of the review suggested that the EMDG scheme should be extended.17

A submission from AI Group recommended lifting the daily travel expense allowance.18 At least one submission explicitly stated that the grant of funds relating to travel were important:

These funds will assist us enormously with travel costs associated with building relationships with overseas partners as well and Trade Fair costs involved in attending and exhibiting at Trade Fairs. 19

Paspa Pharmaceuticals noted that the EMDG scheme ‘… has greatly assisted us in the substantial increase of our export sales, knowledge and expertise, as well as our ability to travel and promote our company’s products.’20 The submission notes that much of the eligible expenses were related to travel, and that the company recorded significant growth in sales after the travel.

Financial implications As noted in the Explanatory Memorandum, expenditure under the EMDG Act is set annually via Appropriation Acts. A capping mechanism ensures that expenditure under the scheme is limited to the amount appropriated.21

The Schedule 1 amendments have relatively minor financial implications. There are anticipated savings associated with the removal of communication expenses and domestic travel as eligible expenses; and capping the amount of eligible expenses for free samples to $15,000 in a grant year. There are also anticipated savings

14. Ibid., pp. 54-55. 15. Ibid., p. 55. 16. Senate Standing Committee for the Scrutiny of Bills, Alert digest, 2, 2016, The Senate, Canberra, 24 February 2016, p. 85, accessed 25 February 2016.

17. See, for example, Activ International Pty Ltd, Submission to Australian Trade Commission, Certainty and confidence—exports and jobs for a changing global economy: Review of the Export Market Development Grants scheme, March 2015, p. 1, and Affinity Bio, Submission to Certainty and confidence—exports and jobs for a changing global economy: Review of the Export Market Development Grants scheme, February 2015, p. 1, both accessed 16 February 2016.

18. AI Group, Submission to Australian Trade Commission, Certainty and confidence—exports and jobs for a changing global economy: Review of the Export Market Development Grants scheme, February 2015, p. 16, accessed 16 February 2016. 19. Micador Group, Submission to Australian Trade Commission, Certainty and confidence—exports and jobs for a changing global economy: Review of the Export Market Development Grants scheme, February 2015, p. 1, accessed 16 February 2016. 20. Paspa Pharmaceuticals, Submission to Australian Trade Commission, Certainty and confidence—exports and jobs for a changing global

economy: Review of the Export Market Development Grants scheme, February 2015, p. 1, accessed 16 February 2016. 21. Explanatory Memorandum, Trade Legislation Amendment Bill (No. 1) 2016, p. 2, accessed 16 February 2016.

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from the change to the structure of the daily allowance. The amendments will also reduce some administration costs associated with processing transport expenses.

The administration costs which amount to five per cent of the total appropriation will still be paid out of the appropriation for the EMDG Act. It is unclear whether additional funding (to the extent that any is required) is to be separately appropriated. Additional administration costs could potentially be funded by a new appropriation, from anticipated savings associated with the Bill, from other departmental funding resources or a combination of these measures. Alternatively, or additionally, the excess administration costs may be recovered from applicants under the EMDG scheme.

The Schedule 2 amendments are unlikely to have a significant financial impact. As noted in the Explanatory Memorandum, financial impacts ‘… are limited to rebranding stationery, official documents and events, the great majority of which can be changed on line.’22

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.23

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considers that the Bill does not raise human rights concerns.24

Key issues and provisions Schedule 1—Export Market Development Grants Schedule 1 of the Bill proposes to make a number of amendments to the EMDG Act. Items 1 to 8 amend Part 5 (eligible expenses), items 9 to 11 amend Part 6 (amount of the grant payable to an applicant that is entitled to a grant in respect of a grant year), items 12 to 14 amend Part 8 (miscellaneous), and items 15 and 16 amend Part 9 (interpretation - definitions). Item 17 provides that items 1 to 11 apply to grants on or after a grant year commencing on 1 July 2016.

Amendments to Part 5 Part 5 covers eligible expenses under the EMDG Act. The object of the Part provides that ‘[t]he underlying principle is that only expenses relating to specific promotional activities genuinely incurred by applicants for the purpose of marketing eligible products in foreign countries should qualify.’25

Items 1 to 3 of the Bill amend the current table in section 33 of the EMDG Act, which sets out claimable expenses in relation to promotional activities. Item 1 of the Bill repeals table item 3. Table item 3 currently provides that ‘any communication by the applicant or its agent with a potential buyer or a distributor, representative or consultant to the extent to which the communication is made for an approved promotional purpose’ is an eligible promotional activity. The expenses currently permitted are ‘all reasonable expenses incurred by the applicant in payments to persons that, in the opinion of the CEO of Austrade, were not closely related to the applicant’. Item 1 of the Bill proposes to remove communication from the list of eligible promotional activities.

Item 2 of the Bill amends table item 4, which relates to the provision of samples. Currently there is no limit on the value of free samples which may be provided for an approved promotional purpose to a person who is not a resident of Australia. The consequence of this has been that some free samples claimed have had a very high value.26 Item 2 amends the amount of claimable expenses, by clarifying that claimable expenses for free samples are only eligible ‘up to any applicable limit’ for the applicant in relation to a grant year.

22. Ibid.

23. The Statement of Compatibility with Human Rights can be found at page 2 of the Explanatory Memorandum to the Bill. 24. Parliamentary Joint Committee on Human Rights, Thirty-fourth report of the 44th Parliament, The Senate, Canberra, 23 February 2016, p. 2, accessed 25 February 2016. 25. Export Market Development Grants Act 1997, section 28(2), accessed 16 February 2016. 26. Explanatory Memorandum, op. cit., p.4.

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Item 4 of the Bill inserts proposed subsections 33(4) and (5) of the EMDG Act. Proposed subsection 33(4) provides that the ‘applicable limit’ is $15,000 for a grant year for any applicant who has previously been the recipient of a grant. Proposed subsection 33(5) provides that if an applicant has not previously received a grant and the immediately preceding financial year is not the one commencing 1 July 2015, then the applicable limit is $15,000 for that grant year. The purpose of item 4 is twofold:

1. to insert a cap of $15,000 for eligible expenses relating to the provision of free samples

2. to ensure that those applicants who undertook eligible expenses involving free samples in the 2015-16 financial year—and who were not previous grant recipients—are not unduly penalised by being subject to a $15,000 cap that they (at the time that the eligible expenses were made) were unaware of.

Item 3 of the Bill amends table item 6 to clarify that spending on promotional literature or advertising material is a claimable expense, whether the material is in electronic or any other form.

Items 5 and 6 of the Bill amend section 34 of the EMDG Act which relates to expenses relating to a marketing visit. Item 5 removes transport expenses (other than air fares) as an eligible expense. Therefore the effect of the amendment is to stop domestic travel expenses from being an eligible expense. Item 6 amends the assumed general expenses figure of $300 to $350 for each working day of the marketing visit, and could be seen as partially compensating for the removal of domestic travel as an eligible expense.

Items 7 and 8 of the Bill insert a new category of excluded expense, namely those expenses relating to things that, in the opinion of the CEO of Austrade, may have, or have had, a detrimental impact on Australia’s trade reputation.

Amendments to Part 6 Items 9 to 11 of the Bill amend section 63 of the EMDG Act which relates to the method used to calculate an applicant’s provisional grant amount. Currently, if an applicant’s eligible expenses do not include expenses associated with communication, then the applicant is granted an allowance. The allowance is generally calculated from half the amount of eligible expenses for the grant year, less $2,500. The allowance is three per cent of that figure. Pursuant to item 1 of the Bill, communication expenses are to no longer be considered eligible expenses and hence items 9 to 11 of the Bill remove references to communication in calculating the final amount of an applicant’s grant for a grant year.

Amendments to Part 8 Item 12 of the Bill amends section 105 of the EMDG Act. Section 105 currently provides that the costs of administration of the EMDG Act are to be paid out of the appropriated funds for the purpose of meeting payments, and that those costs must not exceed five per cent of the appropriated amount. Item 12 maintains the original intent of section 105 (namely that 95 per cent of the appropriated amount is to be used as grants to applicants), and potentially allows Austrade to fund the costs of the administration of the EMDG Act that exceed five per cent of the appropriation amount from sources other than the appropriated funds (such as funds allocated to Austrade as departmental funding). The amendment has the effect of reducing some of the fiscal discipline that is currently imposed on Austrade where administration costs cannot exceed five per cent of the total appropriation.

Items 13 and 14 of the Bill amend section 106A of the EMDG Act which relates to reviewing the EMDG scheme. Item 13 repeals subsection 106A(1) which requires the Minister to cause a review of the EMDG scheme to be conducted not later than 1 January 2015. As discussed above, that review has been conducted and some of the recommendations it made are addressed in the Bill.27

Currently, the purpose of the review under section 106A is to make recommendations about the continuation of the scheme, but this purpose is not maintained under the proposed amendment. Item 13 provides that an independent review of the EMDG scheme must be conducted, and that:

• the next review must be completed and given to the Minister by 31 December 2021 and

• each later review must be completed and a written report given to the Minister, by a date to be determined by the Minister.

27. Review of the Export Market Development Grants scheme, op. cit.

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Item 14 repeals the date for completion of the last review, which was 30 June 2015.

Amendments to Part 9 Items 15 and 16 amend the definitions section of the EMDG Act. Item 15 inserts a signpost definition of ‘applicable limit’, which refers to the substantive definition in proposed subsections 34(4)-(5) (item 4). The definition of ‘grant year’ currently generally applies to financial years from 1 July 1996 to 30 June 2016. Item 16 repeals that definition and provides that a grant year means a financial year commencing on 1 July 1996 or a later financial year. Under the current definition, there was in effect, a sunset clause applying to the permissible grant years (that is, no later than 30 June 2016), whereas the proposed amendment will allow the scheme to continue indefinitely.

Other amendments Item 17 of the Bill provides that items 1 to 11 apply to grants in respect of a grant year commencing on or after 1 July 2016.

Schedule 2—Changing the name of the Australian Trade Commission Items 1 to 10 of the Bill propose to amend the Australian Trade Commission Act 1985 (Cth)28 to change the name of the Australian Trade Commission to the Australian Trade and Investment Commission.

Items 11 to 21 of the Bill propose to make the same name change to a series of other Acts which refer to the current Australian Trade Commission.

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28. Australian Trade Commission Act 1985 (Cth), accessed 16 February 2016.