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
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.
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.
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.
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
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
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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
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