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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)
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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 Governments response to the Productivity Commission Inquiry
Report on Australias 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 EFICs new mandate and other
measures agreed in the Governments response to the Productivity Commission, as
well as a limited expansion of EFICs guarantee powers.
The market failure test and the requirement to focus on small and medium sized
enterprises (SMEs) will reorient EFICs 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.
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Finally, the Bill is required to broaden EFICs 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 EFICs guarantee. This also requires a new
definition of ,,Australian export trade in the Bill to ensure that EFICs 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 Australias Export
Credit Arrangements; and
SME means small and medium-sized enterprise.
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NOTES ON CLAUSES
Clause 1Short title
Clause 1 is a formal provision specifying the short title.
Clause 2Commencement
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 3Schedule(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
EFICs financial arrangements and consequential amendments to the Corporations
Law 2001 and the Insurance Contracts Act 1984.
Schedule 1Amendments
Part 1 - Main amendments
Export Finance and Insurance Corporation Act 1991
Item 1Subsection 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 2Subsection 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 3Subsection 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 4Subsection 3(1)
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This item provides for the term SME to be defined in section 3A.
Item 5Subsection 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 EFICs 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 6After 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 7Before 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 EFICs National Interest
Account.
Item 8Section 16 (heading)
This item replaces the heading for section 16 with a new heading to better reflect its
content.
Item 9Paragraph 16(1)(a)
This item expands the scope of EFICs 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.
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Item 10At the end of section 16
This item adds a new paragraph to section 16 limiting EFICs 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 11Section 17 (heading)
This item amends the section 17 heading to better reflect its content.
Item 12Paragraph 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 13At 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 EFICs National Interest Account.
Items 14-21Paragraph 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 Governments 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 22-24Subsections 61A91), 62A(1), 63A(2) and 63A(3)
These items all relate to the Governments decision to apply competitive neutrality
principles to EFIC. While the Government did apply competitive neutrality to EFICs
short-term insurance business before that business was divested, the Government now
intends to apply the principles to EFICs Commercial Account operations. The
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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 25Paragraph 87(1)(e)
This item amends a reference to a paragraph to reflect that the paragraph has been
deleted.
Item 26Application of amendments
This item makes it clear that EFICs 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 27Paragraph 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 28Paragraph 9(1)(ca)
This item deletes a reference to short-term insurance contract in the Act as EFIC no
longer provides short-term insurance.