Chapter Five - Conclusions and recommendations
5.1
The committee recognises that wheat growers contributing
to the national pools between 1987 and 1990 have suffered financial loss as a
consequence of the imposition of United Nations (UN) sanctions against Iraq.
For some, the extent of the loss would have been considerable. However, the
trade in wheat with Iraq
during that period was underwritten by insurance cover through the
government-funded Export Finance and Insurance Corporation (EFIC), which paid
out US$381.2 million (approximately 80 per cent of the debt owing) in 1991 and
1992. In October 1991, the federal government also made an ex-gratia payment of
$31 million to growers for losses directly attributed to the imposition of UN
sanctions on Iraq.
As noted in this report, these payments were accepted as full and final by the
growers' peak representative body, the Grains Council of Australia (GCA).
5.2
During this inquiry, both WAFarmers and the Wheat
Growers' Association (WGA) argued that the government owed a moral obligation
to compensate growers for their loss. This was on the basis that growers had disproportionately
borne the financial impact of governmental decisions, being:
- The imposition of UN sanctions on Iraq;
and
- Participation in the Paris Club's debt rescheduling
agreement.
5.3
The committee rejects these arguments. Firstly, Australia's
compliance with UN sanctions reflected a legal obligation under international
law; there was in fact no federal government 'decision' that caused Iraq's
default.
5.4
Secondly, the Paris Club represents the best, and
possibly only, hope of recovering any debt repayments from Iraq.
During the inquiry, WAFarmers and WGA informed the committee that Iraq
had 'promised' to repay their debt to Australian growers, implying that the Paris
Club agreement reflected an abandonment of a possible full recovery of the
debt. Aside from the fact that Iraq's parlous financial predicament precludes
this, the committee notes that any debt repayments Iraq is claimed to have
promised AWB or AWB Ltd are not relevant to this issue, given that the Iraq
wheat debt is legally owned by EFIC.
5.5
Woven into the justifications for federal government
compensation is the inference that EFIC could afford to forgo some of its debt
repayment entitlement because it is a taxpayer-funded entity. The committee
does not believe that this is a reasonable inference. Simply because the
funding for government compensation payments can be spread across a large taxpayer
base, it does not follow that taxpayers, through the government, should automatically
compensate the growers who have suffered a financial loss, albeit through no
fault of their own.
5.6
Accordingly, it is the committee's view that a
government compensation payment is not justified by the arguments presented by
WAFarmers and the WGA. Furthermore, such a measure would potentially create
uncertainty over EFIC's future viability.
5.7
In evidence, the Department of Foreign Affairs and
Trade (DFAT) argued that any scenario in which EFIC was to forgo its entitlement
to allow growers to be fully compensated would create a dangerous precedent:
If the Government or EFIC were to pay out the proportion of loss
required to be borne by individual exporters, this could undermine the
integrity and future operations of the NIA. It could, for example, encourage
individual policy holders to consider that 100 per cent of any loss could be
recovered by lobbying the Government; diminish the authority and standing of
contracts entered into with EFIC; and reduce incentives for insured parties to
make financially prudent decisions about high risk markets. Once a precedent
was established it would be difficult to prevent broadening and consequential
undermining of EFIC/NIA insurance arrangements.[89]
5.8
The committee agrees that growers should not receive an
amount greater than 20 per cent of the total sum paid by Iraq.
To do so would indeed undermine the future viability of NIA insurance
arrangements and reflect a short-sighted approach to export insurance
arrangements. Although EFIC is a government entity, the insurance policies they
provide to exporters represent commercial agreements that ought to be free from
governmental intervention; potential or retrospective.
5.9
However, the committee considers it reasonable for
growers to request that the payments they are scheduled to receive under the
Paris Club agreement be made as early as possible. In their submission, GCA
attached a letter to the Prime Minister in which they outlined a resolution
supported by all GCA members (except WAFarmers). This resolution included the
request that:
Any monies recovered ... be disbursed back to industry first.[90]
5.10
In evidence to the committee, the government ruled out
the prospect of AWB Ltd receiving their repayments before EFIC. DFAT officers
told the committee that:
The standing government policy is that any and all recoveries
will be divided on that 80-20 split from the first dollar received until the
last dollar recovered.
5.11
As to the timing of the distribution of Iraq's
debt repayments, the committee believes the government (through EFIC) should
allow some flexibility in this instance. In a farming context, the length of
time Iraq has owed
this debt renders the timing of the repayments a particularly salient issue.
The time span between Iraq's
default and their repayment schedule dictates that only payments in the early
stages of the repayment schedule will directly benefit affected growers, if at
all. Payments received in 2028 will arrive 38 years after UN sanctions were
imposed on Iraq,
a period over which few, if any, affected wheat growers will still be growing
wheat. It is likely a majority will be deceased. These considerations are not
as important to a government insurer, and ought to be taken into account if all
parties are to benefit meaningfully from the Paris Club agreement.
5.12
An arrangement between AWB Ltd and EFIC to alter the
timing of the distribution of these payments would not, in real terms, affect
the equitable 20-80 division of recovered money between growers and taxpayers.
Therefore, due to the long period of time involved in the recovery of these
repayments, the committee considers it appropriate that affected growers
receive the first 20 per cent of payments made and makes the following
recommendation.
Recommendation 1
5.13 The committee recommends that the Export Finance and Insurance
Corporation and AWB Ltd agree to a distribution of Paris Club scheduled repayments
that enables growers, through AWB Ltd, to receive the first 20 per cent of
repayments from Iraq, beginning in 2011.
5.14
Whether or not growers recover their debt repayments in
advance of EFIC's own entitlements, the committee recognises that identifying
every grower affected by Iraq's
default will be potentially time consuming and expensive. Although the majority
of growers will volunteer their entitlement to payments, many others will need
to be individually located and contacted. It is the committee's view that this
process should begin immediately, as the more time passes the more difficult
the task will become.
5.15
Moreover, the distribution of costs associated with
this process should also be resolved. The committee recognises that while AWB
Ltd will incur these administrative costs before a proportion of affected
growers are identified and located, these expenses should not ultimately be
borne by growers unaffected by Iraq's
debt, and consequently not entitled to any repayments.
Recommendation 2
5.16 AWB Ltd immediately commences the process of
identifying and locating every grower entitled to receive payments made by Iraq
under the Paris
Club agreement. Further, prior to the commencement of Iraq's scheduled debt repayments
in 2011, AWB Ltd undertakes to establish a payment mechanism whereby those
receiving Iraqi payments are responsible for meeting the costs of their
distribution.
5.17
Finally, the committee is of the view that AWB Ltd and
GCA need to improve the clarity of their communication with wheat growers.
Further, AWB's Pool Realisation Statements should clearly identify, and
preferably elaborate on by way of narrative comment, extraordinary payments made
to growers through AWB's pool payments.
Senator Aden Ridgeway
Chair
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