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