Issues raised in evidence
This chapter considers the first and second amendments proposed by the Export
Finance and Insurance Corporation Amendment (Support for Commonwealth Entities)
Bill 2016 (the bill). It examines the main issues raised by submitters during
the committee's inquiry as well as arguments presented in favour of the bill.
The chapter concludes with the committee's view and recommendation.
The Export Finance and Insurance Corporation (Efic) was established
under the Export Finance and Insurance Corporation Act 1991 (Efic Act) to
assist the development of Australian export trade by providing financial
support to Australian businesses in their international operations when the
private market is unwilling or unable to help.
Under the Efic Act, Efic is mandated to:
facilitate and encourage Australian export trade;
encourage banks and other financial institutions to finance
provide information and advice on financing and insuring Australian
In March 2016, Parliament passed a specific amendment to enable Efic to
work outside its remit and assist the Northern Australia Infrastructure
Facility (the Facility) with financial arrangements for the construction of
economic infrastructure in northern Australia. The amendment ensured that the
Facility has the option to use Efic's services without placing Efic in conflict
with its primary duty, and allowed Efic to charge fees to the Facility for its
In order to allow other Commonwealth companies and entities to similarly
access Efic's services in the future, the government introduced the Export
Finance and Insurance Corporation Amendment (Support for Commonwealth Entities)
Bill 2016. The bill will enable Efic to assist in the operation and
administration of Commonwealth financing programs where there is no connection
to exports, subject to the approval of the Minister for Trade, Tourism and
Support for change
According to the Minister for Trade, Tourism and Investment, the bill's
proposed first amendment will reduce red tape that currently restricts Commonwealth
companies and entities from accessing Efic's specialist expertise when required.
The change will unlock the potential for Efic to share its financing expertise
with the Commonwealth and allow the Australian Public Service to access Efic's
The Minister emphasised that 'the amendment is in line with government policy
to reduce duplication across government and the implementation of our Smaller
Government agenda', and highlighted that access to Efic's services will be
subject to ministerial approval to ensure there are checks and balances.
In its submission to the inquiry, the Department of Foreign Affairs and Trade
(DFAT) strongly supported the bill and argued that the amendment would lower
government service delivery costs by leveraging existing resources from within
the Commonwealth. It noted that Efic would still not be able to provide loans
or guarantees to support Commonwealth financing programs, but it could advise
on the appropriate structure of a loan and manage the loan on behalf of the
Commonwealth entity. The department highlighted that the bill averts the need
to establish new institutions for each future government financing program, as
was the case for Efic's assistance to the Facility.
Issues raised by submitters
Efic's inability to assess the
impact of its investments
A number of submitters raised concerns that Efic has previously
demonstrated an inability to assess the impacts of its investments, in
particular the risk of human rights violations on projects which are not
located in Australia.
Submitters argued that Efic's accountability processes should be strengthened
before expanding its powers.
According to the joint submission from Jubilee Australia Research Centre
and The Australia Institute (Jubilee), Efic's track record demonstrates a failure
to conduct due diligence. It provided a range of examples where Efic failed to identify
economic, environmental and social risks related to its projects, including:
assistance to expand the Panguna mine and the resulting
exploitation which led to the Bougainville Civil War;
assistance to develop the Ok Tedi mine where irresponsible
dumping led to the environmental destruction of the Fly River; and
assistance to develop the Porgera Mine which resulted in human
rights abuses by security services associated with the mining company including
the rape of local women.
In particular, the submission drew attention to Efic's failure on the
ExxonMobil-led PNG LNG project which led to the PNG Government dispatching
military personnel to secure the project following low-level conflict as a
result of landowner discontent. Jubilee argued that Efic was 'grossly
incompetent at assessing social, economic and political risks related to this project
and must bear some responsibility for a downturn in the PNG economy and the
current conflict in Hela Province.'
Concerns with Efic's lack of transparency and accountability were
identified during the Productivity Commission's 2012 inquiry into Australia's
Export Credit Arrangements.
According to Jubilee, the Productivity Commission endorsed the essence of
Jubilee's concerns and agreed on a number of suggestions, including:
that Efic's exemption from the Freedom of Information Act should
be removed; and
that Efic should be required to release more information about
social and environmental impact assessments.
Efic's assistance to the Facility
Jubilee pointed out that evaluation of the success of Efic's services to
the Facility has not yet occurred, which may be due to the ongoing nature of
Efic's arrangement with the Facility. It argued that the bill's first amendment
will open up Efic's support to assist other programs even though Efic's ability
to provide assistance outside its core purpose remains unassessed.
Jubilee argued that Efic is unsuitable to provide support for programs
that are unrelated to exports, stating that:
Given Efic’s specialisation is supposed to be in assisting
exporters, it is unusual that its operations would be redirected to areas with
no connection to exports. Efic’s involvement in the NAIF is also surprising.
Assessing domestic infrastructure projects involves skills in economic,
environmental and social impact analysis. It is not clear that Efic has these
skills in any depth.
Jubilee also expressed concern with reports that suggest the Facility may
be considering a loan for the Adani coal project or its related infrastructure.
It argued that the government should be required to disclose which Commonwealth
agencies are interested in accessing Efic's services and for what purposes. It recommended
the bill not be passed until a regulatory impact statement had been conducted
to allow for informed debate of the bill's impacts.
Diversion of resources away from Efic's
Concerns were raised that allowing Efic to assist Commonwealth programs will
divert resources away from its core purpose of encouraging export trade.
The Export Council of Australia noted that Efic is a small organisation
that is not funded by the government. It suggested that the bill put measures
in place to ensure that Efic's core role will not be adversely affected by
taking on Commonwealth burdens unrelated to exports. It argued:
Time spent supporting Commonwealth entities is time Efic
cannot spend fulfilling its core mandate: facilitating and encouraging
Australian export trade. Resources Efic commits to supporting Commonwealth
entities, if not fully cost recovered, would effectively be subsidies from
exporters to these entities.
The Explanatory Memorandum to the Bill (page 2) states that
Efic may charge a fee for any assistance it provides. At a minimum, it
should be mandatory for Commonwealth entities to cover all Efic’s costs
(including management time) in relation to proposed financing programs, whether
they are implemented or not. (In the same way that businesses must pay an
application fee to cover the costs to Efic in assessing applications for loans
Jubilee pointed out that Efic has previously been criticised for not
focusing on Australian exporters. It highlighted that the Productivity
Commission was particularly critical of Efic's provision of finance to resource
projects in Australia such as rail lines, terminals and bus routes.
The Export Council of Australia suggested that Efic should only be able
to provide support to Commonwealth entities if there is no impact on its
capacity to support Australian export trade and all of Efic’s associated costs are
fully recovered from these entities.
The level of Australian content in an export contract currently
determines the amount of financial support Efic can provide to an SME. Efic can
only provide support for export contracts or purchase orders that have at least
one third Australian content, which means costs that are incurred in Australia.
This includes costs of raw materials, employees, and intellectual property.
Eligibility to access a loan from Efic is considered more restrictive
than that required to access a guarantee. Under the Efic Act, loans are subject
to the narrower 'eligible export transaction' definition, whereas the broader definition
of 'Australian export trade' is used for guarantees. The bill's second
amendment aims to remove the definition of 'eligible export transaction' and
replace it with 'Australia export trade' to apply consistency across the
Currently, under subsection 3(3) of the Efic Act, an 'eligible export
transaction' is a transaction related to the export of goods produced or
manufactured in Australia.
Under subsection 3(5) of the Efic Act 'Australian export trade' is defined as
any transaction that involves a benefit flowing from overseas back to a person
carrying on business in Australia.
The bill's Explanatory Memorandum noted that the broader 'Australian
export trade' definition 'more appropriately focuses on the actual benefits
flowing back to Australia, rather than the place of manufacture or purchase'.
It also pointed out that the amendment does not change Efic's restriction of
operating only in the market gap where banks are unable to help, and any
support must still be attached to exports.
Support for the changes
Many submissions supported the bill's proposed second amendment.
The amendment is expected to enable Efic to better support SMEs in seizing
export opportunities abroad by reducing restrictions on the place of
manufacture. Submitters expected this will help businesses maximise e-commerce
opportunities, unlock assistance to expand offshore and ensure Australian
businesses can remain competitive in a global market.
Maximises e-commerce and growing
Asian middle class opportunities
Submitters argued that the bill will help businesses maximise
opportunities offered by improvements in technology, the rise of e-commerce and
a large and growing Asian middle class.
According to Minister Ciobo, the bill's second amendment will update the
Efic Act and enable Efic to better assist Australian businesses to make the
most of this changing environment. He noted that improvements in technology
have put Australian businesses in direct contact with customers from around the
This was simply not possible 25 years ago when the act was
drafted. We need to ensure the act responds to the modern-day reality of
Australian services companies selling directly to households in China, the
United States or indeed anywhere in the world. By extending Efic's lending
flexibility to cover this emerging opportunity, more Australian SME services
companies—such as providers of information technology, consulting, education
and tourism providers—will now be able to access finance to export and seize the
opportunities replete in the global marketplace.
According to the Export Council of Australia, the rise of the Asian
middle class presents a substantial and expanding market for Australian
products and services. Whether by selling directly to tourists who visit
Australia or via e-commerce, it argued:
This growing market is opening up major commercial
opportunities, particularly for small businesses. But small businesses often
need to invest to take advantage of these opportunities; and because they are
selling to consumers, not entering into business-to-business contracts, Efic
cannot lend to them. And it is these businesses that find it most difficult to
deal with the financial and administrative burden of entering a tripartite loan
between themselves, Efic and their bank.
Submitters argued that the bill will help ensure that SMEs are able to
capitalise on the growing numbers of foreign tourists by giving them access to
The importance of supporting the tourism sector was emphasised by Mr Graham
Poon's submission, which noted:
Australia is increasingly changing into a service economy with a
large portion of GDP now derived from the delivery of services instead of the
sale of physical goods or products; and
tourism is forming a larger proportion of income derived from
services. It has become one of the largest export earners for Australia and
Tourism Australia and Austrade project that this trend will continue.
Mr Poon argued that the amendment will help support the critical tourism
sector by giving it access to Efic's additional funding and valuable financial
The Department of Foreign Affairs and Trade also supported Efic's
ability to assist Australian tourism operators who provide services directly to
tourists. As an example, the department described a small charter company
operating whale-watching tours in Queensland. The company wanted to increase
its capacity to meet the growing number of Chinese visitors, however Efic could
not assist because under existing legislation Efic can only provide a loan if the
company is providing services to a business, not directly to retail customers.
The department argued the bill will enable Efic to assist companies regardless
of who they are providing services to, and has the potential to boost
Allows exporters to access
assistance to expand offshore
Submitters in favour of the bill argued that the amendments will enable Efic
to assist exporters set up foreign sales offices which are essential to engage
directly with international customers.
Research commissioned by the Export Council of Australia found that:
...indirect export channels were important for 55 per cent of
service exporters and 40 per cent of goods exporters. These ‘indirect export’
channels—overseas sales branches, subsidiaries or joint ventures—fit within the
definition of ‘export trade’ but not ‘export transaction’.
Setting up overseas is particularly important in the ICT, and
the professional, scientific and technical services sectors. AIBS2016 found
that one quarter and one fifth of exporters in these sectors (respectively)
used overseas sales branches, subsidiaries or joint ventures as their main
The Export Council of Australia also noted that 'in some markets,
businesses operating in certain service and technology sectors may be required
by regulation to set up an on‑the‑ground presence'.
The Australian Grape and Wine Authority provided an example of how the
bill would help Australian wine companies. It explained that while Efic can
already assist Australian wine companies involved in the supply chain of an
export contract, it cannot assist companies involved in the promotion of wine
unless they require funding for an export contract and their bank cannot
assist. Therefore, companies which promote export sales through investing in
wine tourism in Australia are not eligible for Efic support. It argued:
The change in legislation would enable Efic to support wine
companies looking to expand offshore, for example through a sales office, via a
direct loan. In addition the change would allow Efic to provide assistance to
companies involved in wine tourism which would help to drive wine exports.
Helps Australian businesses remain
Submitters argued that the bill's second amendment will help businesses
remain competitive by updating the Efic Act to reflect modern business tactics
employed by Australian businesses.
According to the Export Council of Australia, even small manufacturers
operate across global production networks with few products manufactured
entirely in Australia. It argued that 'making Efic loans conditional on where final
production takes place is based on an outdated view of manufacturing'.
Similarly, Austmine Ltd argued that the broader definition of
'Australian export trade' recognises the competitive nature of international
business in general and that sophisticated global business networks are
necessary in order to compete:
[M]any of our members are sourcing inputs offshore and/or
assembling their products or equipment in other countries. The driver for this
is not only to bring down costs, but can be required by customers to enable
quicker delivery, provide after sales servicing and foster strategic
The Export Council of Australia noted that in the manufacturing sector, the
highest value stage along the chain is ownership and management, followed by
research and design, and sales and servicing, while the lowest value stage is manufacturing.
It argued that the objective of the amendment is not to support businesses to
manufacture offshore but to help businesses establish international sales
offices or sell directly to customers.
According to the Advanced Manufacturing Growth Centre (AMGC), analysis
of the Australian manufacturing sector has demonstrated that customers buy from
Australian manufacturers as opposed to cheaper competitors because of their innovative
design or exceptional reputation.
The AMGC noted that it is therefore critical to lift Australia's manufacturing
competitiveness by focusing on value rather than cost. It argued that the bill
will enable Australian manufacturers to keep pace with global developments and
transition into a highly sophisticated industry.
The AMGC argued that Australia should not continue to use a system that
honours where manufacturing takes place over where the intellectual property
resides. It argued this is detrimental to Australian businesses that focus on
innovation, research and design, and intellectual property. It noted:
With this trend moving away from production and to strongly
embrace the full value chain of manufacturing, the industry and its associated
ecosystem of supporting partners, including financial systems and services,
must also adapt to the new way of operating.
Simplifies applications and
increases consistency of assessments
The DFAT submission argued that the bill will simplify applications for
Efic's support by making available a loan for the same purpose as a guarantee. It
will also increase the consistency in Efic’s approach to assessing whether an
SME is eligible to receive Efic support.
According to the department, simplifying the process will not only
improve Efic's efficiency and flexibility, the amendment could also
significantly reduce costs to businesses. It noted that 'SMEs that apply for
and receive a loan, rather than a guarantee, could save up to an estimated $12 000
per application, given the relative ease of providing a loan compared to a
In an example of how the bill will help simplify processes, the
department described a Western Australian company which installs geoscience
hardware. It explained that:
This SME was awarded a contract to install computer hardware
onto six vessels and onto one land-based location in the UAE. It needed
additional working capital to expand its offices in the UK, US and Malaysia.
Given the offshore challenges associated with its expansion, the company had to
approach both its bank and Efic for support. Efic was able to provide funding
support, via the provision of two separate guarantee facilities with the
company’s bank. However, this process could have been made simpler, quicker and
more efficient, had Efic been able to provide a single loan.
Issues raised by submitters
The bill's second amendment aims to expand the scope of Efic's loans to
businesses by changing the definition of an 'eligible export transaction'.
Under the proposed amendments, Efic will be able to provide loans to
businesses, when their banks are unable to help, for 'any transaction that
involves a benefit flowing from overseas back to a person carrying on business
in Australia'. This is in contrast to the previous definition of 'eligible
export transaction' which specified that loans could only be given if the
transaction was 'related to the export of goods produced or manufactured in
The department provided assurance that Efic will only provide support
where it has been determined that the transaction will not result in any net
job losses for Australia and that the implementation of a 'benefits test' for
loans will ensure that the export results in a benefit flowing back to
A 'benefit' can extend beyond the flow of profits back to
Australia from the overseas sales to include the benefits of opening up new
export markets or requiring additional Australian goods or services in order to
deliver on the export.
However, the department did not address whether Efic should be required
to determine if there are concerns which might outweigh the project's benefits to
Removal of local content
Submitters raised concerns that removal of the local content requirement
will cause a number of negative consequences, including:
offshoring of Australian jobs;
removal of incentives to produce or manufacture in Australia;
deprive companies who produce in Australia of financial
provide advantages to overseas competitors of Australian
allow companies that are only nominally Australian to access
financial assistance from the Australian Government.
Submitters expressed concerns that the bill will enable businesses that
provide no local employment to have access to Efic support. This could mean that
Efic's loans to businesses will be used to move jobs that could be done in
Submitters pointed out that in theory, a business could conduct all of
its production, design, manufacturing and development overseas but still be
eligible for a loan from the Australian Government. Potentially, this could reduce
local jobs by removing the focus on products produced in Australia and move
more Australian manufacturing offshore.
The Australian Fair Trade and Investment Network argued that the Efic
Act currently provides a 'reasonable and modest requirement' that businesses
receiving support from the Australian Government actually produce goods or
services in Australia and employ Australians. It argued that the legislation
already provides flexibility for businesses to conduct offshore operations
Similarly, the Australian Council of Trade Unions argued:
It is in the national interest that companies which receive
government loans are required to use that money in a way which benefits
Australian employment. The removal of these provisions will be yet another blow
to the Australian manufacturing and services sectors.
Concerns were raised that the change would mean that 'export earnings
flowing to Australia could be the sole criteria for Efic support, without the
current requirements for production of goods or services in Australia and other
It was highlighted that the bill removes incentives for businesses to produce
or manufacture in Australia and has the potential to deprive finance to
companies which produce or manufacture in Australia.
According to Jubilee, the amendment also has the potential to have the
perverse effect of advantaging foreign competitors.
As an example, it pointed to Efic's current proposal to fund a coal mine in
South Africa which will be in direct competition to Australian thermal coal
mines, particularly in the Indian market. Jubilee highlighted that Efic had not
conducted any public analysis of how the South African mine project could
affect Australian exports of coal.
Efic's inadequate due diligence
A number of submitters raised concerns that, based on Efic's track
record, there is a high risk of unintended negative consequences if Efic
provides loans to projects which are not located in Australia. Many expressed unease
that the bill will expand Efic's powers to provide financial support to a wider
range of businesses but do nothing to strengthen Efic's due diligence,
accountability, and disclosure processes.
In light of Efic's history with PNG LNG and other projects, submitters
argued there is a high risk of Efic providing loans to businesses that support
human rights abuses along global supply chains or engage in poor environmental practices.
It was pointed out that the risk-assessments conducted by Efic do not
adequately capture the extent to which projects could negatively affect workers
and their communities as they have previously resulted in human rights
Submitters were concerned that the bill will increase the risk of Efic's
involvement in human rights abuses as it expands Efic's role in the global
supply chain. They noted that offshore manufacturing reduces transparency and
standards in supply chains as production moves into jurisdictions with lower
environmental and labour standards.
The Australian Council of Trade Unions highlighted that, as a government
entity, Efic should be even more compliant with relevant standards such as the
UN Guiding Principles on Business and Human Rights. It argued that:
As a Federal Government taxpayer-funded agency Efic has
responsibility to ensure that the support that it provides does not result in
human rights abuses and hence that adequate steps are taken to evaluate the
risks before funding is granted.
Submitters were also concerned that Efic's recently adopted Human Rights
Statement is insufficient to ensure compliance with Australia's human rights
obligations. It was noted that the existing policy is weak, benchmarking is not
disclosed, and major issues with Efic's transparency remain.
According to the Australian Council of Trade Unions:
...the current EFIC Act which requires EFIC to 'have regard to'
Australia’s international human rights obligations should be changed to 'comply'.
This will send a clear message to investors and companies that Australia
intends to honour its commitments.
According to ActionAid Australia, Efic also lacks policy guidance with
regards to climate change and fossil fuel subsidies. It argued that Efic does
not adequately consider whether its investments engage in intensive carbon
emission practices and noted that Efic has a unique opportunity to 'move beyond
its past role in financing large fossil fuel companies, to instead invest in
renewable energy and non-carbon industries'.
ActionAid suggested that the bill be amended to require Efic to:
reject subsidising fossil fuel projects; and
conduct due diligence on carbon emissions associated with
Submitters argued that Efic's functions should not be expanded until
Efic is required to conduct due diligence of potential projects for
environmental and social violations.
ActionAid Australia suggested that Efic should be required to:
meet regularly with the National Contact Point to review human
rights concerns relevant to Efic's investments;
conduct due diligence to ensure promotion of gender equality in
proactively inform businesses applying for loans and guarantees
of OECD Guidelines; and
conduct due diligence in line with the Environment Protection
and Biodiversity Conservation Act 1999.
Submitters also noted that Efic has a blanket exemption from the Freedom
of Information Act 1982 which prevents proper public scrutiny as well as
limiting its accountability to Australian taxpayers. It was suggested that Efic
should be required to publish its due diligence assessments and be bound by the
Freedom of Information Act 1982.
The committee has considered whether there are any unintended negative
consequences of allowing Efic to provide loans to projects which are not
located in Australia or whether additional checks and balances should be
legislated. The committee is satisfied that Efic has adequate arrangements in
place to ensure that it upholds operational, social and environmental
obligations in its transactions.
With regards to the bill's first amendment, the committee acknowledges
concerns raised in evidence that Efic, as an organisation with finite
resources, may potentially be diverted from its core role to facilitate and
encourage Australian export trade. The committee however, is satisfied that
Efic is aware of its primary purpose and will take steps to minimise the impact
of work it performs for the Commonwealth on its capacity to assist exporters.
The committee endorses the view of the Export Council of Australia that
it should be mandatory for Commonwealth entities to cover Efic's costs in
relation to assistance and support, consistent with the obligations on industry
and business which pay an application fee to cover Efic's costs in assessing
applications for loans or guarantees. The committee therefore encourages the
Minister for Trade, Tourism and Investment to give consideration to this
proposal for possible inclusion in the bill.
The committee is satisfied that approval for entities to access Efic's
support will be determined by the Minister for Trade, Tourism and Investment and
that this safeguard provides an additional balance to protect Efic's commitment
to its primary duties. The committee anticipates the bill will help reduce
duplication across government by allowing the Commonwealth to leverage existing
expertise and resources, and have the added benefit of reducing service
The committee acknowledges concerns regarding Efic's due diligence on
previous overseas projects, in particular where human rights violations have
been reported. However, the committee is satisfied that Efic has a sound
framework in place to ensure it upholds best-practice environmental and social
standards in its transactions, which is discussed more fully in the Government
Response to the Productivity Commission's inquiry.
The committee acknowledges concerns that the bill's second amendment
will remove the current local content requirement. However, the committee considers
that the Efic Act currently reflects an outdated view of manufacturing and
supports bringing the government's export credit agency into the modern age.
The committee notes that many Australian companies already operate global
networks in order to remain competitive. The committee agrees with submitters
that keeping high value components of the network in Australia —such as
intellectual property and research and design—is of greater importance than
controlling low value components.
The committee believes the bill will greatly increase Efic's scope to
assist Australian businesses, as well as capture those who currently and
unnecessarily fall through the gaps. The committee expects that the bill will
also reduce costs to Australian businesses by improving Efic's efficiency and
The committee commends the bill to the Senate.
The committee recommends that the bill be passed.
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