EXPORT CREDITS GUARANTEE DEPARTMENT

HC Deb 01 February 1967 vol 740 cc715-25

1.50 a.m.

Mr. Martin Maddan (Hove)

I wish to raise the matter of the Export Credits Guarantee Department which is dealt with in Class IV, Vote 5 of the Supplementary Estimates. Although Scottish Members will, no doubt, be leaving the Chamber—[HON. MEMBERS: "No."] I am very glad to see that they are not. I am also glad to see that some English Members opposite, such as the hon. Member for Houghton-le-Spring (Mr. Urwin), are also interested in this question of the Export Credits Guarantee Department.

I should, first, like to betray some of my ignorance of the way in which the accounts for the Export Credits Guarantee Department are presented. In the accounts for 1965–66 we are told that there is a cumulative balance as at 31st March, 1966, to meet outstanding liabilities of £60 million. That is the balance sheet figure. In these Supplementary Estimates we are asking for a further £6 million, and there is another £1 million called back, making a total of £7 million—I am speaking in round millions—required to meet payments against liabilities which have arisen.

I should be grateful if the Minister of State, Board of Trade could tell us whether under the accounting system any balance which the Department has just made as a result of its trading operations is paid into the Treasury and whether the right hon. Gentleman has to come back to this House for authorisation to get that money out of the Treasury, despite the fact that the money has been accumulated as a result of the commercial operations of the Department. If that is so, does the right hon. Gentleman think that that is a sensible way of proceeding?

In the Supplementary Estimate we see that there was an original provision of £13 million for payments to be made under guarantees, and that this is to be increased by £7 million, making a total of £20 million. That is a very substantial increase of more than 50 per cent. The Supplementary Estimate states that the reason for this is: Payments arising from sterling transfer difficulties in several countries. It would be interesting to know which are these countries where the transfer difficulties have arisen and what are the reasons for these difficulties.

Then I come to another point concerning the policy of the Department which reflects itself in the liabilities which it assumes and those which it does not assume. It is, as I understand, the policy of the Department to give guarantees to exporters for credit facilities to customers which are as good as those given by other countries. The Department will first make a certain offer, and if the exporters says that his competitors in Germany, or America or elsewhere have given longer credit facilities, the Department will try to match those guarantees. But I do not think that is wholly good enough. Perhaps the hon. Gentleman could tell us whether the Export Credits Guarantee Department every makes the running on behalf of British exporters, or whether it is not always just playing a defensive game against moves made by similar departments of foreign Governments.

If one believes at all that Government planning can help to increase exports, I should have thought that some deliberate, calculated, selected cases could have been chosen in suitable circumstances in which the Export Credits Guarantee Department could make the running. There would be cases where it would help the national economy, and cases which would definitely establish long-term export connections in certain foreign markets. To cite an example, I think of the steelworks plant industry, which, if it were able to break into the South American markets at this time, could open up for many years in future a very valuable trade. I hope that we may hear from the hon. Gentleman that the Export Credits Guarantee Department will be encouraged by him—he is responsible for it—to develop its policy purposefully and not merely defensively.

I come to a further question which has a bearing upon the liabilities that the, Department enters into and the degree to which it can inform itself about the nature of the risks that it is assuming. I believe that the Department has only one representative abroad—in New York. It must, of course, have information about other countries, which it gathers from many sources. I should have thought that from time to time the Department should have representatives in certain key markets, particularly if it is deliberately to encourage exports of certain goods to certain markets in the way I described. So why do we have a representative only in New York? One might say that if no representatives are necessary in other markets, why in America? Are the Americans such bad risks that they have to suffer particularly special and close scrutiny from the Department? It seems to me that there are other markets where it would be far more valuable to have a representative. So, why only in New York?

The preamble to the Supplementary Estimate explains that this class of estimate includes a subscription to an international organisation. I hope that the hon. Gentleman will be able to tell us what that international organisation is. I suspect that it is the Berne Union. How much is our subscription, and is it worth it? I know that the Berne Union has been regarded as having done valuable work, but a subscription that one takes out for a club at one time of one's life is not necessarily something that one should continue without questioning in later years.

I particularly question this at present because the Board of Trade Export Handbook, No. 2, 1967—it could hardly be more up-to-date—says on page 5: E C.G.D. co-operates with overseas credit insurers in following certain principles on credit terms, but although a 'credit race' has thus been avoided there has been a general drift, and principles laid down a year ago may be out of date today. What does that mean? Does it mean—since it obviously refers to the Berne Union—that we are playing cricket according to the Berne Union rules which were decided in the past? Does it mean that we have been left behind while others are playing according to new and better rules for their exporters? Or does it mean that we are ignoring the rules anyway? If the latter is the case, why do we bother to remain a member of the union? The phrase I quoted is written in such a way that a back bencher is bound to seek a clear explanation from the Minister.

I return to the point at which I started; the case of the two sterling countries in which transfer difficulties arose, which is the main cause of this Supplementary Estimate. On 24th January last the World Bank reported to the United Nations Conference on Trade and Development about suppliers' credits. It reported at the request of U.N.C.T.A.D. According to the Press release from the World Bank, it was stated: As of the end of 1965, it was estimated that the developing countries owed about $7,000 million on suppliers' credits. This represented more than one-sixth of their total external debt and a much higher proportion of their annual debt charges; they were paying more than $1,400 million a year in service charges on suppliers' credits, out of total debt payments of some $4,300 million". The World Bank there drew attention to the heavy indebtedness of some countries, and stated: The Organisation for Economic Co-operation and Development…is suggested as the appropriate forum for reaching agreement among the creditor countries on common principles to guide their policies and actions in guaranteeing, insuring and otherwise supporting suppliers' credits". If O.E.C.D. is to be the body to co-ordinate the policies of creditor countries, need we worry unduly about the Berne Union? The World Bank stated: The Bank staff's recommendations would build upon efforts towards co-operation in this field already made by governments and various international institutions both public and private". It went on to name them, and included the Berne Union. Perhaps the O.E.C.D. is the proper instrument to protect these interests and help to avoid the credit race.

The House has been in session for 14½hours today. There are many equally important points I could raise, but I will curtail my remarks in the hope that many other hon. Members will wish to make their views clear. I equally hope that we shall be given a clear reply by the Minister.

2.4 a.m.

Mr. Gordon A. T. Bagier (Sunderland, South)

I will, because of the lateness of the hour, not speak for more than a few minutes. I thank the hon. Member for Hove (Mr. Maddan) for calling attention to this important subject, and I join with him in welcoming the increase in the provision of guarantees for export credit and the help being offered by the Department. Instead of covering the whole subject broadly, as the hon. Gentleman did, I shall direct attention to one aspect of the Department's activities.

I am concerned about the speed with which the E.C.G.D. deals with applications for credit on the shipping side. I am sure that the shipping side of the Department is understaffed for the inquiries now having to be made with the growing number of export orders requiring its attention. It is essential that it moves as quickly as possible in its inquiries to keep up with the speed with which business is being done in this important and lucrative export trade.

I put this point strongly to my right hon. Friend because there is a grave danger—there is evidence of it only this week—that we are losing important export shipping orders because of the long delay in giving a decision on E.C.G. approval. We compare badly with the Japanese in this respect. I have been told recently by a shipbuilder—these are his words, not mine—that the E.C.G.D. is in general slow, cumbersome and often niggling in its requirements, and no shipbuilder can tell in advance what the Department's reaction will be. Negotiations, he says, are all too often long drawn out and frustrating for owner and shipbuilder alike.

Those are strong words, but he went on to say that the Japanese are swift and precise so that the shipbuilder quickly knows what credit he is required to provide in the form of a collateral.

I want my right hon. Friend to look into this because it is largely a question of staff and, to some extent also, of standardisation so far as it can be achieved in the Department. I understand that the E.C.G.D. has at present no set formula as to the value of the first mortgage on a ship in relation to its total cost. This makes it impossible to inform potential customers how much collateral they will be required to put up. In each case, the shipbuilder puts forward a different formula. Again to compare ourselves with the Japanese, they are specific about this initial inquiry. Why cannot we do the same as the Japanese? The ship is taken as 55 per cent. of the total cost, so that with an 80 per cent. mortgage the owner is expected to show 25 per cent. of the cost as collateral security, whereas E.C.G.D. have no set formula as to the value of the first mortgage on the ship in relation to the total cost, thus making it impossible to inform potential customers how much collateral they will be required to put up.

There is also the question of the E.C.G.D. insisting that the insurance of the vessel must be placed directly in the London market. With foreign orders coming into this country, large owners very often have their insurance companies in places abroad. This is a further cause of unnecessary delay and difficulty because most marine policies are ultimately reinsured at Lloyd's in any case.

We have the best export credit facilities available anywhere. We can beat the Japanese at it, but our difficulty is getting it through the machine. In some cases which have been brought to my notice, it has taken as long as 14 to 18 months from the initial order being placed before a contract could be signed. At any time between the placing of the initial order and signature of the contract, a ship owner can pull out of the deal and the shipbuilder will be left high and dry with a gap in his programme.

It is essential to help shipbuilders to maintain continuity of programme so that they can plan for a work force which will be kept in employment. There must be no gaps. In other words, for the sake of security in the industry and long-term planning, any help which the E.C.G.D. can give is most valuable. But for this purpose the Department must have more staff and more facilities so that quick decisions can be given on whether a potential customer is credit-worthy or not. Any improvement in this direction will be most welcome.

Although I was not able to give my right hon. Friend too much advance notice of the points I intended to raise tonight, I hope that he will take my remarks in the spirit in which they are made. I believe that the Department can he made more efficient, and that that would be beneficial to the shipbuilding industry as a whole.

2.10 a.m.

The Minister of State, Board of Trade (Mr. George Darling)

We had a debate on the whole work of the Export Credits Guarantee Department a week last Friday, and some of the points raised tonight were answered then. As this Supplementary Estimate is very narrow, I. do not think that I need to go into a great deal of detail again about the matters covered in the previous debate.

But I should clear up what appears to be a confusion about the notional surplus the Department appears to possess. It has two types of credit insurance operating. The first is called "Section 1", because that is where that business appears in the appropriate Act. "Section 1" credit insurance is ordinary commercial credit insurance based on ordinary commercial practices, and the credit cover provided by E.C.G.D. is recommended by the Advisory Committee that deals with that commercial side.

The Bill I introduced a week last Friday was to increase to £2,400 million the total amount of credits that could be covered by E.C.G.D. insurance. If I had not introduced the Bill the previous figure, which is about £900 million less, would have been reached by April this year. It is true that, taking one year with another since the Department was set up about 35 years ago, there has apparently been an accumulated surplus of £60 million. But as the Department is supposed not to make profits or losses, taking one year with another, that surplus never appears anywhere, except in the hands of the Treasury if the Department makes a profit in one year. Therefore, because the money is in the Treasury, it is proper that Parliament should agree to vote the money when, as in this case, it looks as if the Department will make a loss on these activities.

The surplus exists only in the Treasury—and I am not sure that it exists there, the way things are operated. It is a notional surplus, and it is certainly not in the coffers of the Department. In fact, the Department has no coffers. It is insuring day by day an enormous range of export credit arrangements against loss.

The second Section of the Act deals with credit insurance which, although on a commercial basis, is much more risky, where, in the Government's view, the arrangement should be made in the national interest. The credit cover there will go up to £1,500 million under the Bill I have introduced. We are asked about certain cases where it looks as though British firms with more help could get more trade. Operations in certain countries which I shall not mention involve a greater element of risk because of all kinds of circumstances, with the result that they are not absolutely commercially sound. This is where the Treasury comes in. Although the arrangements are made through the E.C.G.D., because that is the way it should be done, in effect the decision is taken by the Government. But, of course, the E.C.G.D. is involved and its advice is important.

One cannot really say to the E.C.G.D., "You go ahead and cover the riskier projects". Where risk is involved, the Government may play their part. If the hon. Member thinks that the steel works people are not being helped sufficiently in South America, it is not so much to the E.C.G.D. that he should make his representations but to the Treasury and the Government.

The hon. Member asked me which were the sterling countries which were being "troublesome", as he called it. They are not exactly troublesome but the countries concerned are going to involve the E.C.G.D. in some loss. With two minor exceptions, the payments giving rise to these Supplementary Estimates are wholly in respect of commercial debts to British exporters who have not been paid because of political or economic factors—in Ghana, the United Arab Republic and Indonesia, and I do not think I need elaborate. Because of the circumstances in those countries, the transference of payments to Britain has been prevented and consequently the insurance covers on these commercial transactions now fall to the E.C.G.D. to be paid.

Mr. Maddan

The Supplementary Estimates specifically refer to sterling transfer difficulties in two countries. The hon. Gentleman has referred to three countries.

Mr. Darling

I did say "with two exceptions". I was trying to be as brief as I could. If the hon. Gentleman looks again at the two Supplementary Estimates he will see that one refers to …transfer difficulties in two countries while the other refers to …transfer difficulties in several countries. There are four altogether, with one country appearing twice, so five items are concerned. I have mentioned three countries. The two exceptions are the result of failure by Rhodesia and Ghana to meet their obligations under inter-Governmental loans. The first three cases I mentioned involved commercial activities.

Inter-governmental loans are administered by the E.C.G.D. under the old Section 3 arrangements. Loans-in-aid provided by the Government come about under the Export Guarantees Act and are accounted, for technical reasons, under Vote 5. This is because, although all this activity has now gone over to the Ministry of Overseas Development, until the loans are paid back they stand in the books of the E.C.G.D.

Here again, when there is failure to meet obligations under these inter-Governmental loans, the E.C.G.D. has to pay out the insurance covers, and for the time being at any rate these appear as claims on the E.C.G.D. The Department, of course, has no profit or loss account and, in effect, the Treasury has to come to Parliament to get the money to cover these claims. That is why these Supplementary Estimates have been brought forward.

Although the Estimates are rather narrow, I will try briefly to answer the points which have been raised. I think that I have made it clear that the E.C.G.D. is providing insurance credit and it is therefore unnecessary as all the insurance activities for all exporting arrangements for this country operate in the City of London, for the Department to have agencies all over the world. I will try to find out why there is an agency in the United States, but London is the insurance centre of the world and this is where these insurance activities should be concentrated.

The international organisation is the Berne Union. I was asked whether there was anything to be gained from our belonging to it. In fact there is, because all exporting countries provide credits and credit insurance for their exporters, and unless it was kept under control there would be a tendency for all countries to go into what might be called an export credit competition until we reached the point where Governments were subsidising export credits beyond what anybody would consider to be proper commercial risks and proper commercial activities. The Berne Union tries to get what might be called limits to a credit war and the countries concerned agree not to go beyond certain commercial limits which are accepted among them in commercial discussions. This is extremely useful, and, generally speaking, the arrangement works and the countries concerned try to avoid going in for this kind of international credit war which might be very damaging.

There are one or two other activities of this kind which I would be willing to explain to the hon. Gentleman by letter. I shall certainly not try tonight to explain how the Berne Union works, although I have it in the brief—the hon. Gentleman can look at the brief if he likes. He spoke about the principles laid down by the Berne Union a year ago now being out of date. This is a matter of the term of years which should properly be provided by the various export credits guarantee departments of the world—they all have different names, of course, but that is what they amount to. The hon. Gentleman mentioned the report of the World Bank which was published on 24th January. I shall certainly not try to give him the Government's reaction to what was there said about the extent of credit arrangements. I will try to answer his question about that at a more convenient time.

My hon. Friend the Member for Sunderland, South (Mr. Bagier) raised issues about shipping and shipbuilding which rather surprised me, because the special arrangements now in force to provide credit and credit cover are comparable with those which are available from other countries, including Japan. I cannot understand why there should be the kind of delay in coming to arrangements about ships, even those with mortgage arrangements, such as my hon. Friend mentioned. I understand that during the 12 months which followed the introduction of what is called the 5½per cent. scheme for all credits, British shipbuilders secured export orders totalling an estimated £88 million. This is a very good step forward. However, I shall certainly consider what my hon. Friend has said and get in touch with him to explain our reactions.