Bills Digest 120 1996-97 Export Finance and Insurance Corporation Amendment Bill 1997


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History

Export Finance and Insurance Corporation Amendment Bill 1997

Date Introduced: 26 February 1997
House: House of Representatives
Portfolio: Industry, Science and Tourism
Commencement: The Act commences on a day to be fixed by Proclamation. If the Act does not commence within 6 months of the date of Royal Assent, it commences on the first day after that 6 month period.

Purpose

The purpose of the Bill is to amend the Export Finance and Insurance Corporation Act 1991 (Principal Act) to remove from the Export Finance and Insurance Corporation (EFIC) liabilities associated with Development Import Finance Facility loans.

Background

The Development Import Finance Facility (DIFF) is a 'mixed credit' or 'associated financing' scheme which enables Australian companies to tender competitive contracts for the supply of Australian goods and services for projects in developing countries.The DIFF grant, usually equal to 35% of the value of a contract, is combined with export credit from the Export Finance Insurance Commission of Austrade to provide a concessional loan to the recipient country.

The decision to introduce DIFF was taken in 1980, with the first project being approved in 1982, as a response to the mixed credit programs of other OECD donors.These programs had been initiated by many countries in the late 1960's, and by 1982 they account for about 6 per cent of total OECD bilateral Overseas Development Assistance.The main objective was to match concessional financing being provided by other countries and thus help Australian firms compete for aid projects.

A secondary objective was to help develop new markets for Australian exporters.While the original intention was not to subsidise manufacturers benefits to Australian industry being seen as ancillary to this objective, there was a concern that Australian aid would be good for Australia.For example, where Australian goods and services could be used in Australian aid projects, they should be used for this purpose as long as the result was not to reduce their quality as good aid.Some questions about this remaining the case, however, emerged with the changes in the administration of DIFF which could be seen to have resulted in the commercial aspects rivalling the development intent.

The DIFF scheme was cancelled following the change of government in March 1996.

A full analysis of the DIFF scheme is set out in a Current Issues Brief no. 20 of 1995 96 entitled A DIFFerence of opinion: cancellation of the Development Import Finance Facilityby Ravi Tomar (available on the ISR).

It is claimed that EFIC is overexposed to risk because of its significant lending to countries in Asia and this has potentially restricted EFIC's ability to provide non-aid medium term credit for Australian exports in these countries, particularly Indonesia.This Bill proposes to remove the DIFF loans from EFIC's account to the Government's account.

Main Provisions

Item 4 of Schedule 1 inserts new section 66A into the Principal Act.That section:

  • transfers the risk associated with DIFF loans to the Commonwealth by requiring the Commonwealth to:
  • pay EFIC an amount equal to any default in payment under a DIFF loan, and
  • indemnify EFIC for any loss suffered by it because of default and any costs incurred by EFIC in attempting to recover the default amount.
  • allows the Commonwealth to direct EFIC to borrow an amount equal to the Commonwealth's liability to EFIC under the previous point.In those circumstances the Commonwealth becomes liable to EFIC for the cost of discharging the loan.
  • obliges EFIC to pay $40 million to the Commonwealth.The second reading speech recites that this amount reflects the liability that the Commonwealth will be assuming for the loans.
  • obliges the Commonwealth to pay a fee to EFIC in respect of EFIC's costs in administering the DIFF loans.
  • allows the Minister for Finance to direct EFIC to pay to the Commonwealth an amount representing part of the risk premium paid in relation to the DIFF loans.

Information and Research Services

Contact Officer and Copyright Details

Lee Jones
24 March 1997
Bills Digest Service
Information and Research Services

This Digest does not have any official legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.

ISSN 1323-9031
© Commonwealth of Australia 1996

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1997.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 9 April 1997


Back to top


Facebook LinkedIn Twitter Add | Email Print
Back to top