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 Market Development Grants Bill 1997
Date Introduced: 27 February 1997
House: House of Representatives
Portfolio: Trade
Commencement: The Act commences on 1 July 1997
The purpose of this bill is to:
- place a cap on total grants paid under the Export Market
Development Grants Scheme (EMDG Scheme)
- make a number of changes to the criteria for eligibility for a
grant and the determination of the amount of the grant (the latter
being a consequence of the funding cap)
- simplify the legislation.
Introduction
The EMDG Scheme was established in 1974 by the Export Market
Development Grants Act 1974 (Act).The scheme
is administered by the Australian Trade Commission
(Austrade) and provides a financial incentive in
the form of a taxable grant which represents a partial
reimbursement of promotional expenditure incurred in pursuit of
exports.Grants are based primarily on expenditure incurred by
Australian persons or companies seeking to create or expand exports
of their products in overseas markets. An entitlement to a grant
arises where the applicant:
- has incurred at least $30 000 of eligible revenue (reduced to
$20 000 under this Bill)
- has export revenue of less than $25 million (this limit remains
the same under this Bill), and
- is not the grantee in respect of 8 or more previous
grants.
A grant is calculated at 50% of eligible expenditure after the
first $15 000.Applicants who have received at least 2 prior grants
are subject to a performance test which is assessed against costs
such as travel expenses, special promotional literature and
overseas representation.Grants are limited to $200 000 for
individuals and $500 000 for approved trading houses. The
significant statistics in respect of the scheme are set out
below(1).
1992-93 1993-94 1994-95 1995-96
Claimants 2,473 3,277 3,497 3,712
Total of $181 $195 $197.6 $202.4
Grants million million million million
Exports $3.74 $5.2 $5.1 $5.7
generated by billion billion billion billion
claimants (approx)
Ratio of
Exports to 21:1 27:1 26:1 28:1
Grants
In 1994, Austrade conducted an internal evaluation of the EMDG
Scheme.Key findings and recommendations of the evaluation
included:
- the EMDG Scheme is achieving its objective of encouraging firms
to seek out and develop export markets
- revenues from taxes on grant receipts and profits on additional
exports were estimated to return 42% of the cost of the scheme to
the Commonwealth
- most of the growth in the EMDG Scheme has come from the
services sector
- the minimum level of qualifying expenditure, the grant rate,
number of grants and performance test were largely appropriate
- the number of firms claiming grants and then dropping out of
the EMDG Scheme was not ideal
- the EMDG Scheme should be extended to all claimants in the
tourism sector
- the EMDG Scheme should be extended for a further 5
years(2).
Proposed Changes
The Bill proposes to alter the scheme as follows:
- A funding cap of $150 million will be placed on the scheme
(although this is not contained in the legislation but was
announced in the Budget).That amount includes costs of
administering the scheme which the Bill caps at 5%, i.e. $7.5
million.
- The funding cap is managed by paying grants in full where the
amount of the grant (i.e. 50% of eligible expenditure less $7 500)
does not exceed an amount determined by the Minister (called the
initial payment ceiling amount).Where the amount of the grant
exceeds that amount, 2 consequence flow:
- the excess is reduced by applying a payout factor, and
- an advance is made on account of the grant, to the extent of
the initial payment ceiling amount, and the balance (i.e. the
reduced excess) is paid after a balance distribution date (to be
determined by the Minister).
- an additional eligibility criterion is imposed, namely that the
applicant's income must not be more than $50 million.
- the number of types of activities in respect of which expenses
are claimable has been reduced.The following expenses are no longer
claimable:
- expenses for preparation of tenders and quotations
- expenses for packaging and labelling eligible goods
- expenses for educational courses on international business
development and foreign language training
- expenses for foreign registration of eligible industrial
property rights
- expenses for insurance to protect eligible industrial property
rights
- air fares in respect of marketing visits are claimable during
the first 2 grant years only.
- tourism service providers are now eligible for the full amount
of the grant, i.e. 50% of expenditure rather than 25%.
- trusts are excluded from the scheme.
It is interesting to note that whilst the legislation does not
commence until 1 July 1997, it is 'effectively' retrospective
because the changes apply to all EMDG claims for the 1996-97
year.
This Bill comprises 9 Parts.The eligibility for and amount of
the grant are contained in Parts 2 to 6 (inclusive).Part 7 deals
with applications for and payment of grants.Part 8 contains a
number of miscellaneous provisions and Part 9 is
interpretation.
Part 1 - Preliminary
This is the preliminary part which provides that the Act
commences on 1 July 1997.
Part 2 - Entitlement to Grant
This Part contains only clause 4 and sets up
the overall framework for entitlement to a grant.It provides a
person is entitled to a grant where the person:
- is eligible (under Part 3)
- has incurred eligible expenses (under Part 5) in relation to
eligible products (under Part 4), and
- has applied for a grant (under Part 7).
The amount of the grant is calculated under Part 6.
Clearly Parts 3 to 7 contain the substantive provisions which
'fill out' the framework.
Part 3 - Persons Eligible for a Grant
The underlying principle is that only small or medium Australian
businesses that are developing export markets and have a prospect
of success should be eligible (clause 5).
Clause 6 and 7 provide the
criteria for eligibility for grants. The scheme is only open to
Australian resident individuals, corporations and associations
established under Australian law, and joint ventures and trading
houses approved by Austrade.
In the case of persons other than approved joint ventures and
approved trading houses the following rules apply for
eligibility:
- the person must genuinely carry on business in Australia
- in the case of an individual, the person must have been a
resident at the time of carrying on the business in Australia
- the person must not have received a grant in respect of 8 or
more previous years.Certain grants made before 20 May 1985 and
grants in respect of tourism before 1 July 1990 are to be
disregarded.This limitation does not apply where the grant will be
in respect of a new market (see clause 8).
- the person's income for the grant year must not exceed $50 000
000
- the person's export earnings for the grant year must not exceed
$25 000 000 (export earnings which result from trade with New
Zealand or trade with foreign countries which are the subject of
trade sanctions are disregarded)
- the person must not be under insolvency administration and must
not have any outstanding disqualifying convictions (i.e. conviction
for an offence that disqualifies a person from managing a
corporation, false pretences or fraud relating to an application
for a grant.A conviction is outstanding until 5 years after the
conviction was recorded or the person was released from
prison)
- where a person is applying for a grant for the first time, the
person must have registered with Austrade and have taken a grants
entry test (to determine the prospect of success of the export
enterprise) (in accordance with clauses 18 to
22)
In the case of an approved joint venture the following rules
apply for eligibility:
- the joint venture cannot have been a grantee in respect of 5 or
more previous grant years. Certain grants made before 20 May 1985
and grants in respect of tourism before 1 July 1990 are to be
disregarded (under clause 8).
- the joint venture's export earning for the grant year must not
exceed $25 000 000.
- it must be the case that no associate of the joint venture is
under insolvency administration when application is made for the
grant
- there cannot be any disqualifying convictions outstanding
against the joint venture.
In the case of an approved trading house, the following rules
apply for eligibility:
- it must be the case that neither the trading house nor any
associate of it is under insolvency administration when application
is made for the grant
- there cannot be any disqualifying convictions outstanding
against the trading house.
Part 4 - Eligible Products
The underlying principle is that a product should be eligible
only if it is substantially of Australian origin (clause
23).
Clause 24 deals with eligible goods.A
distinction is drawn between goods made in Australia and those made
outside Australia.
Goods made in Australia are eligible goods if at least 50% of
the free on board value of the goods is attributable to components
produced in Australia, the cost of labour performed on the goods in
Australia, the overheads incurred in Australia in connection with
the making of the goods and any mark-up included in the free on
board value of the goods (referred to as the 50% Australian content
rule).
Goods made outside Australia are eligible goods if at least 75%
of the value of the components use in the making of the goods is
attributable to goods that meet the 50% Australian content rule
(referred to as the 75% Australian content rule).
Austrade may determine that goods, which would otherwise qualify
as eligible goods, are not eligible goods if it is of the view that
the Australian input in those goods is not sufficient to ensure
that Australia will derive a significant net benefit from their
export.Conversely, Austrade may determine that goods that would not
otherwise qualify as eligible goods are eligible goods if Australia
will derive a significant net benefit from their export.
Clause 25 deals with eligible services.
An internal service (i.e. supplied within Australia) is an
eligible internal service if it is supplied to a person that is not
a resident of Australia.
A tourism service is an eligible tourism service if it is
supplied in Australia to a person that is not a resident of
Australia or the service is supplied in Australia to a resident of
Australia for supply by that person, in the course of trade, to a
person that is not a resident of Australia.
An external service is an eligible external service if the
service is supplied outside Australia to a person that is not a
resident of Australia.
Austrade may determine that an eligible service is not eligible
if the Australian input in the service is not sufficient to ensure
that Australia will derive a significant net benefit from the
supply of the service.
Clauses 26 and 27 deal with
intellectual property and know-how.These will qualify as eligible
intellectual property and eligible know-how if they resulted to a
substantial extent from research or work done in Australia.
Part 5 - Eligible Expenses
The 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 (clause 28).
Expenses are eligible expenses upon satisfaction of the
following:
- the expenses must be claimable expenses in respect of an
eligible promotional activity (see below)
- if the applicant is an approved trading house or approved joint
venture, the expenses must relate to the approved activity, project
or purpose of the trading house or joint venture
- the expenses must be incurred by the grantee during the grant
year (or the immediately preceding year where the applicant has not
previously received a grant)
- t he total of expenses satisfying these conditions must be at
least $20 000.
'Eligible promotional activity' and 'claimable expenses' in
respect of those activities are defined in section 33.There are six
types of eligible promotional activities and the corresponding
claimable expenses are:
Item No. Activity Expenses
1 maintaining an overseas so much of the expenses
representative on a long term incurred by the applicant in
basis in a foreign country the grant year in maintaining
the representative and
meeting the expenses incurred
by the representative in
soliciting business for the
applicant that together with
the expenses of other
representatives does not
exceed $200 000
2 any visit (referred to as a all expenses incurred by the
'marketing visit') made by applicant in payments to
the applicant or its agent to person not closely related to
any place in or outside the applicant and that are
Australia allowable expenses, i.e. $200
per working day up to 21
days, all transport expenses
(except airfares), air fares
if the applicant is not the
grantee in respect of more
than one previous year (only
65% if first class) (see
clause 34)
3 any communication by the all reasonable expenses
applicant or its agent with a incurred by the applicant in
potential buyer or a payments to persons that were
distributor, representative not closely related to the
or consultant applicant
4 the provision, of free all reasonable expenses
samples to a person that is incurred by the applicant
not a resident of Australia, that are attributable to the
as follows: actual cost of providing the
- provision outside samples
Australia of samples relating
to any eligible product of
the applicant;
- provision in Australia of
samples relating to eligible
tourism services supplied by
the applicant
5 participation by the all reasonable expenses
applicant or its agent in a incurred by the applicant in
trade fair, or the provision payments to persons that were
by the applicant or its agent not closely related to the
of promotional literature or applicant
other advertising material
6 engaging as a consultant on a all reasonable expenses
short term basis (either in incurred by the applicant
or outside Australia) a
person that, in Austrade's
opinion, is not closely
related to the applicant
Note that each activity is only eligible to the extent to which
it is carried out for an 'approved promotional purpose'.An activity
is carried out for an approved promotional purpose if it is carried
out for the purpose of creating, seeking or increasing demand or
opportunity in a foreign country for eligible goods or services or
eligible intellectual property or know-how (clause
37).In the case of eligible intellectual property or
intellectual know how an activity is carried out for an approved
promotional purpose if it is carried out for the purpose of
increasing the applicant's return on the disposal of the
intellectual property or know-how (the return must be by way of a
royalty or licence fee) (clause 38).
There are 17 types of expenses which are specifically excluded
from being a claimable expense (clause 40).The
significant exclusions are:
- expenses of a capital nature (clause 41)
- expenses incurred in respect of an eligible promotional
activity related to trade with New Zealand, or trade with a country
that has been declared subject to trade sanctions (clauses
43 and 44)
- expenses of an applicant that is a grantee in respect of 8 or
more previous years where those expenses do not relate to a new
market (clause 50)
- expenses to the extent to which they were incurred by the
applicant in its capacity as trustee of a trust estate
(clause 54)
Part 6 - Amount of Grant
Calculation of the amount of the grant is made in 2 stages.
- the maximum amount that each applicant is entitled to is
calculated (called the 'provisional amount')
- then, because the amount available for payment of grants is
fixed, a capping mechanism is applied to ensure that all applicants
entitled to a grant receive a share of the amount available for
distribution (clause 61).
Provisional Amount
An applicant's provisional amount is 50% of the applicant's
eligible expenses for the grant year less $7 500.An additional 3%
of the amount calculated is payable if the applicant's eligible
expenses do not include communication expenses (see item 3 in the
table above) (clause 62).
If the applicant has received grants for 3 or more grant years
(including the year in respect of which the calculation is being
made) the provisional amount is subject to being reduced to a
percentage of the applicant's export earnings for the grant
year.The amounts to which the grant will be reduced are set out in
clause 63 of the Bill.
The provisional grant amount is limited to $500 000 if the
applicant is an approved trading house and $200 000 in any other
case.
If the applicant has been a party to a transaction or
arrangement that is likely to result in the applicant obtaining a
grant or an increase in the amount of a grant, Austrade may adjust
the applicant's provisional amount (clauses 64 and
96).
The total of the provisional grant amounts to all companies in a
related company group is limited to $250 000 (clause
65).
Capping Mechanism
If the applicant's provisional grant amount does not exceed the
initial payment ceiling amount (determined by the Minister under
clause 68), the amount of the grant is the
provisional grant amount.
If the applicant's provisional grant amount exceeds the initial
payment ceiling amount the amount of the grant equals:
initial payment ceiling amount + (excess x payout factor)
- the payout factor is an amount determined by Austrade under
clause 69
Part 7 - Application for, and Payment of Grant
An application for a grant must be made within 5 months of the
end of the grant year (clause 70).
Clauses 74 to 79 deal with
disqualified individuals helping in the preparation of applications
for grants.If a disqualified individual helps to prepare an
application, the application is taken not to have been made.The
applicant may make a fresh application in certain circumstances
(clause 77).
Determining the time at which an applicant is to receive a grant
is relatively complex and is best described as follows:
The determination as to an entitlement is a 2 stage process:
Stage 1- determine whether the applicant is entitled to a grant
(clause 80(1)(b))
Stage 2- determine the amount of the grant (clause
80(1)(c)).
If Austrade's determination under Stage 1 is made
before the balance distribution date (determined
by the Minister under clause 68) and:
- the applicant's provisional grant amount does not exceed the
initial payment ceiling amount - the grant becomes payable when
Austrade determines the amount payable under Stage 2
- the applicant's provisional grant amount exceeds the initial
payment ceiling amount - the applicant is entitled to an advance
equal to the initial payment ceiling amount at the time of making
the determination under stage 1 and the balance of the grant is
payable after the balance distribution date for the year following
the grant year (clause 81).
If Austrade's determination under Stage 1 is made
after the balance distribution date the grant
become payable:
- if the determination is made before 1 July next following the
balance distribution date - on that 1 July; or
- in any other case - on the day on which the amount of the grant
is determined under stage 2 (clause 82).
Part 8 - Miscellaneous
The most significant and potentially controversial aspect of
this Part is clause 105.This clause provides that
the costs of the administration of the Act are to be paid out of
the money appropriated by the Parliament for the purpose of meeting
payments under the Act.The costs of administration must not exceed
5% of the appropriation amount.
This Part deals with a number of additional matters
including:
- the mechanism for approval of joint ventures and trading
houses
- the effect of a change in ownership and the circumstances in
which there will be deemed to be a continuity of the ownership for
the purpose of determining eligible expenses, export earnings and
whether a grant has previously been paid to the owner of the
business
- the decisions of Austrade which are reviewable by the AAT
- accreditation of export market development grants
consultants
It has been suggested that(3) the initial payment ceiling amount
will be $50 000. The determination of the payout factor (which
determines the amount that the applicant is entitled to received in
excess of $50 000) cannot be calculated by Austrade until after the
grant year. Concern has been expressed that medium size companies
will be discouraged from spending more than $110 000 on promoting
exports because of the uncertainty of what they will receive
back(4).
The effect of clause 105 is that the amount
available for the payment of grants is potentially reduced to
$142.5 million which amounts to a 30% reduction on the 1995-96
year.
It is worthy of note the Bill achieves its goal of simplifying
the current EMDG legislation.In stark contrast to the existing Act,
the Bill is systematic, logical and relatively easy to read.
- Australian Trade Commission, Annual Report: 1992 93, 1993 94,
1994 95, 1995 96
- Australian Trade Commission, Helping to Meet the Export
Challenge - An evaluation of the Export Market Development Grants
Scheme and the International Trade Enhancement Scheme, April
1994
- Tightening of EMDG will damage SMEs, 27 August 1996, The
Australian Financial Review, Mark Abernethy
- Ibid.
Lee Jones
18 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