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Senate Estimates: FADT Committee

Estimates & Committees
Lee Rhiannon 18 Oct 2012

Foreign Affairs, Defence and Trade Committee

Estimates hearings 18 October 2012

  • Senator RHIANNON
  • Mr Gosper 
  • Mr Armour
  • Mr Parsons

 Full transcript available here


Senator RHIANNON: In light of the government's strong support for the World Trade Organisation and for lowering trade barriers around the world, what is the government doing or what does the government intend to do with respect to tariffs, subsidies and other market distortions applied by the governments of the gulf cooperation states and Indonesia which have the effect of encouraging the live animal trade at the expense of frozen and chilled meat exports?

Mr Gosper : Perhaps I can answer if I can better understand your question. You are asking us whether we are putting pressure on or seeking in countries which accept live animal exports a reduction in tariffs on live animal exports and processed meat products?

Senator RHIANNON: Yes.

Mr Gosper : Yes, indeed. We have been seeking to negotiate with, for instance, the Gulf Cooperation Council, which is six markets within the Middle East region, for some time. But that negotiation has been in suspension for a couple of years now, at the decision of the Gulf Cooperation Council itself. Equally, of course, we have negotiated with Indonesia in the context of the ASEAN FTA and in a bilateral negotiation we have just commenced in the last few weeks—the Indonesia-Australia closer economic partnership. Reducing tariffs for agricultural products is a key part of both of those negotiations.

Senator RHIANNON: Could you go back to the comment you made about the gulf cooperation states? What did you say has been suspended for a few years?

Mr Gosper : The negotiations. The Gulf Cooperation Council has been negotiating with various countries. It has been negotiating with the European Union, with Japan and with Australia for free trade agreements. But the Gulf Cooperation Council itself made a decision a couple of years ago to suspend all negotiations while it reviewed its internal position on those negotiations, which essentially relates to industry policy of one of the particular members.

Senator RHIANNON: So you understand it is internal differences or maybe policy differences between the member states that is holding it up?

Mr Gosper : Indeed. We continue from time to time, as opportunity comes, to encourage them to resume negotiations. Ministers raise it with their counterparts periodically. But this is a decision they have taken with respect to all trading partners and that process has not yet concluded.

Senator RHIANNON: Which country is at variance on these issues of negotiations?

Mr Gosper : I think Saudi Arabia has some particular issues with respect to some of the industry sectors.

Senator RHIANNON: Was it your understanding that that was the country that placed more emphasis on retaining tariffs and subsidies?

Mr Gosper : I would not characterise them too far. We do not understand that much about their internal discussions, but Saudi Arabia has a particular interest in the automotive sector.

Senator RHIANNON: I think you just said that some of our representatives have raised it in country-to-country discussions.

Mr Gosper : Yes.

Senator RHIANNON: Is there a possibility that the negotiations could occur on a country-to-country basis or a country to the European Union basis, or do you think it has to be in the context of the GCS?

Mr Gosper : They have a customs union, so they will negotiate together.

Senator RHIANNON: Right, so that has to happen. The demand for meat in China, I see, has been rising quite rapidly, and also across much of Asia. Are the government and industry working together to grow Australia's share of this market?

Mr Gosper : The demand for that product is growing. One of the things we have been doing in the context of our FTA negotiations with China has been to seek much greater access, in particular for our sheepmeat sector but also for beef and other livestock products. Those negotiations are continuing.

I cannot talk with any detail about industry promotion activities in that market, but I know it is an important market and I would be confident that there is a good deal of consultation. I would think that our posts assist exporters where they are looking to develop markets, and I am sure Austrade would be involved similarly.

Senator RHIANNON: I was interested in more detail about how you are working with industry and how it is being promoted across Asia. Do you need to take that on notice?

Mr Gosper : I think we will take that on notice.

Senator RHIANNON: I would also be interested in the figures that show the growth in trade, as well as your tactics to help grow that trade.

Mr Gosper : The growth in the meat trade?

Senator RHIANNON: Yes.

Mr Gosper : Yes, we can do that.




[ . . . ]




Senator RHIANNON: I have questions about EFIC. I understand that EFIC is required to abide by the OECD working party on export credit and credit guarantees. Under these rules, the applicant is responsible for providing the appropriate information on the project to EFIC, including information on mitigating and monitoring measures of the social and environmental impacts of the project. Are there mechanisms in place for EFIC to monitor that the mitigating and monitoring measures are actually implemented after the approval of the application?

Mr Armour : Yes, those procedures are in place. They are a matter of public record. They are on our website.

Senator RHIANNON: So you have the measures in place. Does EFIC do it itself, or do you rely on what comes from the applicant?

Mr Armour : That would depend on the complexity of the project. There are projects where we feel that we have sufficient technical capability to review the materials ourselves. There are larger and more complex projects where we may engage an independent consultant.

Senator RHIANNON: Do I take it from your answer there that either EFIC or a company that you engage, independent from the applicant, undertakes that work?

Mr Armour : We review their compliance with their obligations, yes.

Senator RHIANNON: So you do not rely just on the report that they hand in; you actually do look at it or you bring in a consultant to do that?

Mr Armour : That is correct.

Senator RHIANNON: Does EFIC, when appropriate, instruct the borrowers to amend their mitigating and monitoring measures when the environmental and social impact of the program is different from what was anticipated when the borrower submitted their impact assessment?

Mr Armour : Just to clarify: you are asking, if a project is underway—once we have approved a project—whether during the execution phase we determine something should be amended. Is that the nature of the question?

Senator RHIANNON: Yes—at some stage you determine that something needs to change. Have you done that?

Mr Armour : To the extent that we have the right to do that, we certainly do.

Senator RHIANNON: So you have the right to do it. Have you done it?

Mr Armour : I am not aware of any time where we have had to make a material change to the agreements we have had with companies in the past. Obviously, for a large project that is executed over three or four years, we would expect to see some changes as the project evolves and as the construction take place. But I am inferring from your remark that you are thinking of larger-scale changes, and I am not aware of any.

Senator RHIANNON: I am just thinking of any changes at all. The nature of most projects, particularly of some of the big projects that you are funded for, is that they change. It seems surprising, therefore that at some stage—even if it is just now and then—you have not required that the mitigating and monitoring measures be amended. So that has not happened? There are no examples?

Mr Armour : Yes, I am agreeing with you. I think that, over the course of a project which lasts for many years, there are times when you will need to have a dialogue with your counterparts and say, 'Obviously this has evolved in a direction that requires us to change our procedure or change the way we are approaching something, and we will have that discussion.' My comment was that I am not conscious of any major material shifts and that these are all in the nature of evolutionary changes rather than fundamental changes.

Senator RHIANNON: You have talked about evolutionary changes—it is in some ways semantics and over time—but my question was: have you required the borrowers to amend their mitigating and monitoring measures? Have you ever required that to happen?

Mr Armour : I believe so, but I would prefer to take that on notice if you are looking for specifics.

Senator RHIANNON: Okay. I am interested in any examples where that has been done. Does EFIC have enough resources to keep a close watch on borrowers to ensure that the possible environmental and social impacts are adequately mitigated by the borrowers? It is a big job.

Mr Armour : Yes, we believe that we do. We take this responsibility very seriously and, as I indicated earlier, if we not comfortable that we have the resources or the skill, then we will seek to have an independent engineer give us advice.

Senator RHIANNON: I want to move on to the OECD guidelines in paragraph 38 of the OECD recommendation. In summary it states:

Members should make available to the public at least annually environmental and social information on projects classified in Category A and Category B …

I had a look on your website, and I could not find any of that information.

Mr Armour : That information is available. We more than comply with what the OECD requires under its guidelines. I am happy to provide a direct reference.

Senator RHIANNON: Where is that information available?

Mr Armour : On the website.

Senator RHIANNON: So you can send some links?

Mr Armour : Yes.

Senator RHIANNON: I had a really good look. Do you think it is readily available? Are you satisfied? We really looked.

Mr Armour : Obviously we feel that it is, but—

Senator RHIANNON: It might be worth checking that out, because it is obviously important. 'Available to the public' really means that you can find it. That is one that would be interesting to come back to, but I look forward to looking at the links.

I want to move on to the Equator Principles. We know that EFIC voluntarily applies the Equator Principles to its operations, and principle 6 requires borrowers to establish a grievance mechanism. Does EFIC require this of category A projects?

Mr Armour : Yes, Senator. We will comply with whatever is required under the Equator Principles, I believe. But I will ask Mr Parsons to join me, on that specific point.

Senator RHIANNON: Okay. What I am after is: does EFIC require the establishment of grievance mechanisms for your projects?

Mr Parsons : Yes, we do. The Equator Principles apply to project finance, and all project finance is benchmarked against IFC performance standards. One of the requirements of the performance standards is that the project have a grievance mechanism in place.

Senator RHIANNON: For this grievance mechanism, do you have a template that you supply to your borrowers, saying, 'This is how you do it'? Or do you just rely on them coming up with their own grievance mechanism?

Mr Parsons : There are various templates that people can use. The IFC has a good practice note, I think, on grievance mechanisms. The mining industry, through the ICMM, has some guidance on grievance mechanisms. There is quite a bit of industry guidance on grievance mechanisms.

Senator RHIANNON: So you are able to supply that to them?

Mr Parsons : Yes.

Senator RHIANNON: Considering that, how do you ensure that the grievance mechanism is independent and that local people can engage with that grievance mechanism?

Mr Parsons : It is probably best illustrated by an example. If I use the PNG LNG project, on their website there are details of their grievance mechanism, and our independent advisers on environmental social issues monitor the application and the use of the grievance mechanism. So we get pre-audit reports from the independent advisers on the issues—whether people have been able to use it, whether it is culturally available, whether it is available to people who cannot read, for example. So we get advice from our advisers on PNG, and that would be typical for a project finance project.

Senator RHIANNON: In what you outlined there, you mentioned people who might not be able to read and whether it is culturally sensitive et cetera. Apart from websites, how are companies alerting communities to their grievance mechanisms?

Mr Parsons : That can be very project specific. It can range from having actors who go out into the field and enact scenarios for people through to just talking to people and advising them. There are a whole variety of different mechanisms people can use to get the information out there.

Senator RHIANNON: You said that there were a number of templates covering grievance mechanisms. Could you also take it on notice to supply those, please?

Mr Parsons : Sure.

Senator RHIANNON: I have read that one of the concerns about these grievance mechanisms is that sometimes it might appear that they are working but, when you look at who they have engaged with, it is the peak organisations within a country, who are part of civil society, and often the local people who are impacted are not engaging with the grievance mechanism. Is that something you are conscious of—the need to ensure that we get past just the peak organisations within civil society and that people who are immediately impacted have access to such a mechanism?

Mr Parsons : Yes, that is a basic requirement for a project's grievance mechanism, that it be available to anyone, not just to the peak organisations but to the actual community people affected by the project. That is a fundamental requirement of the mechanism.

Senator RHIANNON: So how do you test that that is achieved within these grievance mechanisms? How do you check that that is real?

Mr Parsons : We do check that it is real. It is how it is established in the first place, how its potential use is communicated to people, and then the records of how many grievances are recorded during the course of the project and where they are coming from. Initially the establishment of the grievance mechanism is reviewed and then, through the progress of the project, how it is being used. If it is never used by anyone, obviously there may be some problems with it, in which case we would ask the project to look at it.

Senator RHIANNON: Do you rely again on reports from the company about the grievance mechanism, or are you on the ground actually investigating for yourself?

Mr Parsons : In the example of PNG, which is one of the larger projects we have, our independent advisers, on each site visit, specifically look at the grievance mechanism and how it has been used.

Senator RHIANNON: They go to the site and they talk to people?

Mr Parsons : They go to the site and talk to people. They talk to the company people who are in charge of running the mechanism and then also to people in the field like community members.

Senator RHIANNON: These visits are documented?

Mr Parsons : This is documented in the PNG independent advisers reports, which are publicly available.

Senator RHIANNON: We have established that the applications that have the potential to affect the environment and social conditions of the place of the proposed project are required to submit an environmental and social impact assessment. I also understand that, in the assessment and application, borrowers need to put in place a mitigation and monitoring measure. Then I came up against a contradiction. In the EFIC procedures—and I will read it out to you—this is on page 7. This is the procedure for environmental and social review of transactions. It states:

If EFIC’s client has no ability or authority to directly manage the environmental and social impact of a project … EFIC is generally not in a position to impose conditions on the project.

I found that really surprising to come across. It just seems an enormous contradiction about what we have just talked about, because you get to a point where it sounds like it does not have to happen.

Mr Parsons : This just reflects the broad range of facilities that EFIC can provide. What we are trying to explain in that section is that for some types of transactions such as project finance we have direct recourse and direct ability to influence the project, down to something such as performance bonds, where all we are doing is guaranteeing an exporter's ability to do something, where we do not have any role with the projects and we do not necessarily have any contact with the project. So it is that type of project where we cannot influence the project, if you like, and we cannot impose conditions, because all we are doing is providing a performance bond.

Senator RHIANNON: Can you acknowledge that it appears on reading—for somebody like me, a member of the public—to contradict so many of what appear to be reasonable social and environmental standards?

Mr Parsons : No, I do not think so, because our policy and procedure cover every type of transaction EFIC does, which is different to most other ECAs, and it is different to the 'common approaches', which only apply to export credits, and the Equator Principles, which only apply to project finance. Our policy and procedure apply to every type of facility we provide. We have different ways of reviewing transactions. That acknowledgement in section 7 is an acknowledgement that sometimes we have no ability to influence the project, so our choice, our decision making then, if we have concerns about the environmental and social impacts of the end project, is maybe a yes or a no, whereas there are other types of transactions where we can actually impose covenants on projects. We are just acknowledging what we can do in reality in the field and practically.

Senator RHIANNON: I will come back to that another time. I will just finish on the Productivity Commission. The Productivity Commission's report on the Inquiry into the Australia's Export Credit Arrangements was released in June this year. I noticed that it was mentioned in its overview that EFIC should target transactions in a way that generates a net benefit to the economy.

Is this what guides the EFIC's targeting of transactions, or is it merely encouraging export trade without assessing its economic benefits to the Australian economy?

Mr Armour : Our mandate as it currently stands has a number of elements. Obviously, exports are integral to what we do. That is the basis on which we would provide our support. However, beyond that we have to operate profitably—that is, we must be very careful in the risks that we take. The third critical element is that we must not compete with the private market, so, if there is an opportunity for a commercial market to provide the support that is required, we should stand back. The benefit under our current mandate, if I can summarise, is to help exporters but to do it responsibly.

Senator RHIANNON: Do you measure what percentage of GDP growth is brought about by EFIC transactions?

Mr Armour : No, we have not calculated that.

Senator RHIANNON: Maybe you can take on notice to demonstrate the returns there are for the Australian economy, because, from what I am hearing, you are not offering ways that you actually measure that.

Mr Armour : We measure precisely and publicly EFIC's performance from the perspective of the elements that I have described—that is, we measure the exports that we have supported, and we measure our profitability and the return to Australian taxpayers from their investment in EFIC. I took your question to be quite a broad macroeconomic question involving multiplier effects et cetera, which is a little beyond our scope, but the amount of exports that we support and our profitability and our return on equity that Australian taxpayers have invested in EFIC are a matter of public record.

Senator RHIANNON: Thank you.



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