Australian Parliamentary Library Bills Digests Australian Parliamentary Library Bills Digests[Index] [Search] [Download] [Bill] [Help]
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:
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:
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:
Proposed Changes
The Bill proposes to alter the scheme as follows:
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.
Part 1 - Preliminary
This is the preliminary part which provides that the Act commences on 1 July 1997.
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:
The amount of the grant is calculated under Part 6.
Clearly Parts 3 to 7 contain the substantive provisions which 'fill out' the framework.
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:
In the case of an approved joint venture the following rules apply for eligibility:
In the case of an approved trading house, the following rules apply for eligibility:
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.
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:
'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:
Calculation of the amount of the grant is made in 2 stages.
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).
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)
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:
If Austrade's determination under Stage 1 is made after the balance distribution date the grant become payable:
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:
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.
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