Federal Register of Legislation - Australian Government

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A Bill for an Act to amend the Export Finance and Insurance Corporation Act 1991, and for related purposes
Administered by: Foreign Affairs and Trade
For authoritative information on the progress of bills and on amendments proposed to them, please see the House of Representatives Votes and Proceedings, and the Journals of the Senate as available on the Parliament House website.
Registered 26 Mar 2013
Introduced HR 20 Mar 2013

 

2010‑2011‑2012-2013

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPORT FINANCE AND INSURANCE CORPORATION AMENDMENT (NEW MANDATE AND OTHER MEASURES) BILL

2013

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Circulated by authority of the Minister for Trade and Competiveness,

the Honourable Dr Craig Emerson MP)


 

EXPORT FINANCE AND INSURANCE CORPORATION (‘EFIC’) AMENDMENT (NEW MANDATE AND OTHER MEASURES) BILL 2013

 

 

OUTLINE

 

Purpose/Objective

 

The Export Finance and Insurance Corporation Amendment (New Mandate and Other Measures) Bill 2013 (referred to in this Explanatory Memorandum as the “Bill”) implements the Government’s response to the Productivity Commission Inquiry Report on Australia’s Export Credit Arrangements, released in May 2012. 

 

The Bill will also give new powers to the Export Finance and Insurance Corporation (EFIC) so it can better support Australian small and medium sized businesses participating in global and regional value chains.

 

Why the Bill is required

 

This Bill is required to give legislative effect, through the Export Finance and Insurance Corporation Act 1991 (the Act), to EFIC’s new mandate and other measures agreed in the Government’s response to the Productivity Commission, as well as a limited expansion of EFIC’s guarantee powers.

 

The market failure test and the requirement to focus on small and medium sized enterprises (SMEs) will reorient EFIC’s operations on its Commercial Account towards supporting commercially viable export-focused SMEs seeking to access export finance.  SMEs are defined in the Bill as Australian incorporated entities with annual consolidated revenue and full-time equivalent employees below the thresholds specified by the Minister through a legislative instrument.  The amendments in the Bill do not preclude EFIC supporting non-SMEs, provided the market failure test is met.  The amendments also do not preclude EFIC supporting projects receiving private sector support, where this support falls short of the total required. 

 

The Government decided in its response to the Productivity Commission to accept the recommendation to exclude Public Service personnel from the EFIC Board, consistent with the 2003 Uhrig Review.  The Bill is required to delete the current references in the EFIC Act to a ‘Government Member’ to give effect to this recommendation.

 

The Government also accepted that Competitive Neutrality principles should apply to EFIC to ensure it does not have a net competitive advantage over other businesses (or potential competitors) simply by virtue of its Government ownership.  To achieve this, the Bill is required to provide for EFIC to pay a debt neutrality charge or guarantee fee, and a tax equivalent payment.  The Minister would determine appropriate arrangements that are to apply in respect of those payments and inform EFIC in writing.

 

The Bill is required to ensure EFIC support in domestic supply chains can only be provided when it involves a contract that is integral to final exports of capital and non-capital goods and services.

 

Finally, the Bill is required to broaden EFIC’s guarantee powers to enable EFIC to guarantee loans of foreign-based subsidiaries of Australian-based SMEs where the purpose of the guarantee is to support ‘Australian export trade’, and where the SME certifies that the guarantee will not result in a net reduction in the number of its employees in Australia during the term of EFIC’s guarantee.  This also requires a new definition of ‘Australian export trade’ in the Bill to ensure that EFIC’s support is linked to benefits to Australia, including through increased exports, access to new markets or increased dividend flows to Australia.

 

 

 

FINANCIAL IMPACT STATEMENT

 

The Bill will have no direct financial impact.

 

 

 

ABBREVIATIONS

 

The following abbreviations are used in this explanatory memorandum:

 

The Bill means the Export Finance and Insurance Corporation Amendment (Finance) Bill 2013;

The Act, unless the context indicates otherwise, means the Export Finance and Insurance Corporation Act 1991;

Board means the board of the Export Finance and Insurance Corporation;

EFIC means the Export Finance and Insurance Corporation;

PC Review means the Productivity Commission Inquiry into Australia’s Export Credit Arrangements; and

SME means small and medium-sized enterprise.

 


NOTES ON CLAUSES

 

 

Clause 1―Short title

 

Clause 1 is a formal provision specifying the short title.

 

Clause 2―Commencement

 

Clause 2 provides that the Bill will commence on the day the Bill receives Royal Assent and that the amendments in Schedule 1 of the Bill will commence on a date to be fixed by Proclamation, but no later than 6 months after Royal Assent.

 

Clause 3―Schedule(s)

 

Clause 3 provides that each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in the Schedule to this Act has effect according to its terms.

 

Schedule 1 relates to amendments to the Act that are required to enact the changes to EFIC’s financial arrangements and consequential amendments to the Corporations Law 2001 and the Insurance Contracts Act 1984.

 

 

Schedule 1―Amendments

 

Part 1 – Main amendments

 

Export Finance and Insurance Corporation Act 1991

 

Item 1―Subsection 3(1)

 

This item defines accounting standard by referring to the definition in the Corporations Act 2001.  The definition is relevant to the definition of an SME in section 3A.

 

Item 2―Subsection 3(1)

 

This item provides for the term market failure to be defined through a legislative instrument to be made by the Minister.  The use of a legislative instrument is to facilitate adjustment of the test over time in response to the evolution of international financial practices and market characteristics.

 

Item 3―Subsection 3(1)

 

This item repeals the definition of short-term insurance as the Bill will remove all references to short-term insurance currently in the Act.  EFIC ceased to provide short-term insurance in 2003.

 

Item 4―Subsection 3(1)

 

This item provides for the term SME to be defined in section 3A.

 

Item 5―Subsection 3(5)

 

This item provides a new definition for Australian export trade.  The new definition provides a non-exhaustive list of tangible benefits for Australia that would be expected to result from a transaction in order for it to be considered Australian export trade.  The list includes ‘an increase in dividend flows’ in order to allow EFIC to better assist SMEs in their efforts to participate in, and establish, global value chains.  This new definition is also linked to EFIC’s expanded guarantee powers under section 16, whereby EFIC will be able to guarantee loans for foreign subsidiaries of SMEs carrying on business in Australia where the purpose of the loans is the financing of Australian export trade. 

 

Item 6―After section 3

 

This item inserts a new section 3A to define the term SME for the purposes of the Act.  It defines an SME as a company under the Corporations Act 2001 with annual consolidated revenue for the most recently completed financial year and an average number of employees less than the amounts specified in the relevant legislative instruments. The use of a legislative instrument is to facilitate adjustment of the definition so that it continues to capture companies most likely to face information-related market failures.

 

Item 7―Before section 14

 

This item inserts a new section 13A to provide EFIC with a new market failure mandate.  The new section sets out the circumstances in which EFIC can provide insurance or another financial service or product on its Commercial Account.  The new mandate only allows EFIC to provide insurance or another financial service or product where a market failure exists, which would make it unlikely that those products or services would be provided by any private sector provider.  Subsection 13A(2) makes it clear that this limitation does not apply to EFIC’s National Interest Account.

 

Item 8―Section 16 (heading)

 

This item replaces the heading for section 16 with a new heading to better reflect its content.

 

Item 9―Paragraph 16(1)(a)

 

This item expands the scope of EFIC’s guarantee powers under section 16 so that it can provide a guarantee not only for a loan to a company carrying on business in Australia, but also to a foreign subsidiary of that company, where the company is an SME.  This expansion will allow EFIC to better assist SMEs in their efforts to participate in, and establish, global value chains, particularly where participation in a global value chain requires the SME to establish a subsidiary outside Australia.  EFIC will now be able to work directly with the eligible foreign subsidiary.

 

Item 10―At the end of section 16

 

This item adds a new paragraph to section 16 limiting EFIC’s ability to support an eligible foreign subsidiary.  In particular, EFIC can only provide a guarantee in relation to an eligible foreign subsidiary if the SME parent certifies to EFIC that there will not be a net reduction in the number of employees of the SME in Australia in connection with the guarantee and during the term of the guarantee.  The purpose of the guarantee should be to support Australian export trade not reduce the number of employees in Australia.  The intention is that this will allow for an expansion of an Australian business beyond Australia, but not a contraction of business within Australia.

 

This item also provides a new paragraph to define the term eligible foreign subsidiary.

 

Item 11―Section 17 (heading)

 

This item amends the section 17 heading to better reflect its content.

 

Item 12―Paragraph 19(1)(c)

 

This item amends section 19 to require a stronger link between a contract supported by EFIC in a domestic supply chain and exports.  It replaces “associated with such a transaction” with “integral to an export contract or an eligible export transaction” to ensure EFIC support is only provided to domestic suppliers where their product or service is integral to exports of goods and services from Australia.

 

Item 13―At the end of Part 4

 

This item inserts a new section 23A to require EFIC to focus on providing insurance and other financial services and products on its Commercial Account to SMEs.  This complements the new market failure mandate in that market failures are more likely to affect SMEs, particularly those seeking to do business in new and emerging markets.  This requirement does not apply to EFIC’s National Interest Account.

 

Items 14-21―Paragraph 34(1)(e) and (f), Subsections 34(4), 35(1), 35(1A), 35(2), 37(1), 39(1) and 39(2)

 

These items all relate to the Government’s decision to remove public service personnel from the EFIC Board.  They remove all references to a government member and adjust the minimum and maximum Board member numbers in subsection 34(1)(f) and 34(4) to ensure the overall maximum number of members on the EFIC Board will be unchanged once there is no government member.

 

Items 22-24―Subsections 61A91), 62A(1), 63A(2) and 63A(3)

 

These items all relate to the Government’s decision to apply competitive neutrality principles to EFIC.  While the Government did apply competitive neutrality to EFIC’s short-term insurance business before that business was divested, the Government now intends to apply the principles to EFIC’s Commercial Account operations.  The amendments provide for EFIC to be required to pay a debt neutrality charge or guarantee fees, and a tax equivalent payment.  The arrangements that are to apply in respect of the payments, including the amount, are to be determined by the Minister.  EFIC will be informed in writing.

 

Item 25―Paragraph 87(1)(e)

 

This item amends a reference to a paragraph to reflect that the paragraph has been deleted.

 

Item 26―Application of amendments

 

This item makes it clear that EFIC’s new mandate involving a market failure test and a focus on SMEs will only apply to contracts entered into, guarantees given and loans made on or after the date of commencement.

 

 

Part 2 – Consequential amendments

 

Corporations Act 2001

 

Item 27―Paragraph 765A(1)(f)

 

This item deletes a reference to short-term insurance contract in the Act as EFIC no longer provides short-term insurance.

 

Insurance Contracts ct 1984

 

Item 28―Paragraph 9(1)(ca)

 

This item deletes a reference to short-term insurance contract in the Act as EFIC no longer provides short-term insurance.