RUMANIA ORDER (Hansard, 21 November 1938)

§ Mr. R. S. Hudson (Secretary, Overseas Trade Department)
I beg to move, That the Clearing Office (Rumania) Amendment No. 2 Order, 1938, dated the ninth day of September, nineteen hundred and thirty-eight, made by the Treasury under the Debts Clearing Offices and Import Restrictions Act, 1934, a copy of which was presented to this House on the twenty-eighth day of September, nineteen hundred thirty-eight, be approved. The history of this Order goes back to 1936, when owing to an accumulation of debts owing to this country by debtors in Rumania it was found necessary to impose a clearing. Owing to the fortuitous circumstances of a very good harvest in Rumania and the relative failure of harvests in the rest of the world, exports from Rumania in 1936–37 rose and the clearing worked exceedingly well. It worked so well that in May, 1937, it proved possible for certain amendments favourable to Rumania to be made, but the expectation that the favourable conditions of 1936–37 would continue, were falsified, and there has a gain come the grave risk of substantial arrears accumulating. In order to remedy this state of affairs the present Clearing Agreement was negotiated.
I do not think I need go into the very complicated details of the Payments Agreements. It will probably suffice if I say that the main object of this agreement is to encourage Rumanian exports to this country, and the method that we have adopted to encourage those exports is to enable the Rumanian exporter to obtain more lei for his exports. Hitherto, he has had to surrender his sterling to the clearing office in London and receive from the National Bank of Rumania the equivalent in lei at the rate of about 670 lei per pound sterling. Under the procedure set up by this agreement he will, in future, be able to sell 60 per cent. of his sterling in the open market and this obtain more lei, and only for 40 per cent. will he be compelled to take the official rate. As the open market rate for sterling is at the present time well over 1,000 lei to the pound, it will be realised the result of this new arrangement will be that the exporter in Rumania will obtain instead of 670 probably something 1485 in the neighbourhood of 900 lei. We hope that the new arrangement will result in increased exports from Rumania to this country, and that it will liquidate the debts that have been already incurred, and enable exporters from this country to increase their exports to Rumania, and to be paid without the delay from which they at present suffer.

§ Mr. Pethick-Lawrence
I was very glad that the right hon. Gentleman did not think it necessary to go into all the details of this somewhat long and complicated clearing arrangement, which are set out in the White Paper. I have had some experience in trying to understand clearing agreements, and I confess that, after going meticulously through this one from beginning to end, I was very much in doubt as to what was the main effect of this new plan. However, through the courtesy of the Minister I have had an explanation, which afforded to me an opportunity of gathering the principal change which he has enunciated. I understand that the main intention is contained in a few lines on page 7 of the White Paper, at the end of the first paragraph of Article it in these words: Subject to the provisions of paragraph (2) of this Article payment shall be made from the General United Kingdom Account At the sole request of such persons or banks in Roumania or of their nominees to the extent of the amounts standing to the credit of their respective Sub-Accounts. I am informed that the words "at the sole request of such persons" produce the very considerable change which we have been told is the purpose of the new agreement.
Getting away from the details to the substance of the change, I understand that the position is this. I understand that the clearing arrangement has worked with the exchange at a purely artificial rate of about boo lei to the £. That would appear to give our exporters a considerable advantage because it enabled them to get more pounds for the goods than they would normally get. But it is one thing to get an advantage on paper and quite another to get it in your own pocket, and if as a result of this artificial exchange they did not get any money at all and were unable to carry on the export business with any profit, then it is better to be paid less pounds than to get nothing at all. The effect of the new agreement is that although on paper British exporters 1486 will be worse off, the fact that they will be paid something instead of nothing is undoubtedly an advantage to them. And those who are exporting goods from Rumania will get the advantage of the change in the exchange rate. Therefore, although the effect on paper is deleterious to this country really it is a great advantage, a substantial advantage on a position which has not worked successfully for some time past.
The actual position is that debts have been piling up which have not been liquidated, and that our exporters have not been paid money. Therefore, on the broad principle of the agreement I think it is beneficial, and I desire to give it my support. But there is one point to which my attention has been directed and in regard to which I have one adverse criticism to make. There is a certain amount of latitude as to time in payment, and this works out unfairly in many cases between different exporters in this country. I should like to see a clause inserted in some of these future agreements establishing a strict chronological order of payment in place of the system which allows a spreadover credit, and which therefore enables certain exporters to get an advantage at the expense of others. I am informed by my correspondent to this effect: The effect of such a spreadover means preferential payments, and thus A may be supplying the same goods as B, but A will receive payment, it may be, weeks or even months earlier than B. The period of credit A gives will be less than that demanded from B, irrespective of the terms of his contract, since payment of his accounts depends upon validity of sterling credit, and, in the case of the smaller British exporters, the indetermined period of credit does create difficulties for them, which with a strict chronological order of payment would be eliminated. The effect of that, of course, is that influential and powerful houses are not only able to make better contracts on paper than are their less influential rivals, but they are able, by their general "pull" on the financial institutions, to get payment at a considerably earlier date than their rivals. I do not see why that should be so. When we are working through this official apparatus of the clearing house, I should have thought that it would be possible to effect a chronological sequence of payments, which would mean that all the different people would be treated alike, instead of there being preferential treatment, as there is at the present time.
1487 It has been pointed out to me—and I put this to the Minister as a very strong argument in favour of following some such course in future clearing agreements—that the only redress that is open to those who wish to get payment promptly, in countries where such methods are possible and work, is by "greasing the palm" of those who have the system to work. I do not say that that exists in any one country, but it is well known in this House that outside our own country, it is by no means an unusual method of securing preferential treatment. If that be the case, as I have no doubt it is, it certainly provides a very good reason why, in agreements that we make, we should take such steps to see whether that purely chronological sequence, with no favour for one person as against another, can be adopted. I hope the Minister will find it possible to say a few words in reply to these points, and that he will be able to assure me that certainly consideration, and perhaps a little more than consideration, will be given to this matter in future agreements, when they are made either between those countries which are the subject of the present clearing agreement, or between other countries with which clearing arrangements are made from time to time.

§ Mr. Petherick
I am a little uncertain as to what the right hon. Gentleman meant by the expression "spread-over," but I entirely agree with him that payments under these agreements should be made in chronological order. There are one or two points that I would like to make. In the first place, my right hon. Friend the President of the Board of Trade, in the early summer, in relation to the clearing agreement with Italy—this is a similar agreement—gave a warning to British exporters that the clearing agreement was so formal, so tight, as it were, that British exporters could not get their money quickly enough, and consequently it was rather inadvisable for them to undertake heavier forward contracts. A number of firms in this country, particularly in my own constituency, became rather nervous, and unwilling to sell to Italy in consequence of that statement.
In the case of Rumania, do I understand that the difficulties in the clearing 1488 agreement make it rather inadvisable, for the present, to make further considerable contracts to Rumania, or is it perfectly open and safe for British exporters to go on selling to that country in the immediate future? I think it would reassure a good many exporters to Rumania if they could have some guidance on that point. The other question I would like to ask is this. Can my right hon. Friend say how long will be the delay between the time when the money is paid by Rumania into the clearing house and the time when the British exporters will receive their money? In the case of Italy, it is about four months, which is a considerable period. It would be interesting to know how long one may expect it to be in the case of Rumania.

§ Mr. R. S. Hudson
I am much obliged to the right hon. Gentleman for what he has said about this Agreement. He said that one of the results of increasing the cost of the pound sterling might be a disadvantage to the British exporter. I think I can reassure him on that point because the fact that the compensation rate is at present very much higher in the open market than the official rate of exchange-shows that United Kingdom goods are still competitive and that there is still a demand for United Kingdom goods in Rumania, even at the higher rate of exchange. We hope that one of the results will be an increase in the total sales of Rumanian produce to this country arid therefore it will be an advantage to the exporter. He also asked about the question of chronological order. I agree that in the past there has been definite ground for complaint but if he will be kind enough to look at Article 7 he will see that it says: Payments under this Article shall he made in respect of the whole or part of a debt to the extent to which the debtor provides lei for the purpose, so far as possible in chronological order of due date. I hope we have succeeded in getting over the difficulty mentioned. The right hon. Gentleman also talked about the practice in certain countries of "greasing palms." We all know cases, and I believe it was very prevalent in Rumania, but 1 am sure he will be glad to know that, as far as our information goes, King Carol has succeeded in making a very drastic improvement in that country in the last few months in the way of stopping abuses 1489 of this kind. I believe that M. Constantinescu, who is at present the Governor of the National Bank, has sacked a very considerable number of his employés for that very reason, and that it is at present well known in the Bank that any employé found guilty of that practice will also be immediately dismissed. I hope, as far as that is concerned, that we may see a definite improvement.
My hon. Friend the Member for Penryn and Falmouth (Mr. Petherick) asked what was the delay at the present moment. Of course, the object of this agreement is to try to avoid delays accumulating. I am told that, if the Rumanian importer arranges for sterling to be bought at once, there should be no delay; but clearly, if our expectation is carried out, and if Rumanian exports to this country increase, there should be no more of the delays that have occurred in the past.