§ LORD STRABOLGI had given Notice that he would ask His Majesty's Government what steps are being taken to stimulate the export trade particularly with regard to better credit facilities and guarantees for British manufacturers selling their goods abroad; what credit facilities and guarantees are provided by other Governments for the assistance of their nationals; and move for Papers. The noble Lord said: My Lords, the Question which I have on the Paper deals with an unsheltered industry, the British export trade, which has to compete in the markets of the world with the merchants and exporters of all other countries. The object of the Question I will explain very briefly to your Lordships. Since the present Government came into office, with many brave words about restoring the balance of trade, and all that they were going to do for British exports, we have held our own with other countries, but exports have only increased 914 slowly, and we still have a heavy balance of trade against us. I believe that last year, when the full figures are out, will show a deterioration in the total balance of trade, in spite of the fact that exports increased last year by 13 per cent. I took those figures from the Report of the Manchester Chamber of Commerce, yesterday. Obviously we are all wishful to help British trade further. The situation is rather complicated by the fact that foreign lending is, generally speaking, prohibited, and I would like to ask the noble Lord who will reply for the Department whether there is any intention of removing the ban on foreign loans. Before the War we invested every year about £200,000,000, but that left the country not in the form of money but mainly in goods, and it was gradually paid off in the form of imports, thus becoming an invisible export. Nearly all that foreign lending has been prohibited. Another curious fact of the situation, indeed an alarming fact, is a statement recently made by the President of the Board of Trade, Mr. Runciman, who made the astounding assertion that in his opinion the absorbing capacity of the home market was reaching a limit. I think his words were: "The saturation point is being reached." I may say at once—and I am sure I speak for my noble friends on this side of the House—that I do not believe that that statement is justified at all. The trouble with the home market is that the consuming power of the people is kept artificially low by the "cuts" imposed by the present Government, and by the whole policy of reducing wages and forcing down the standard of living.
§ But I take the Government's own statement of the position. They pretend that there is a limit to the absorbing power of the home market for some time ahead, and they confess that they wish therefore to help the export trade. I venture to suggest to His Majesty's Government that they should do certain things to help the export trade, and particularly with regard to the improvement of the credit facilities for British manufacturers selling their goods abroad to certain markets, in order that they might be insured. The Department of Overseas Trade has, of course, the present machinery at its disposal. It has been very largely used, having been established many years ago, but the rates are very high, as I shall 915 endeavour to show. For example, let me take the Russian market. My remarks are not only directed to the Russian market, but that is a very good example, because I suppose the Russian market is the greatest potential market for engineering products in the world. First of all with regard to the position of trade between this country and Russia. Last year we bought from Russia £17,200,000 worth of goods and we sold to Russia in the same period £3,600,000 worth in round figures. That shows a very adverse balance of trade for this country. Since the beginning of this year the position has improved, because the Russian Government has taken to buying large quantities of steel goods—engineering products, railway material and so on—for cash, and at the end of January it placed orders for £1,500,000 worth of engineering goods and it paid cash on the nail for them. That was very satisfactory at the time, but obviously that is not going to continue if other countries offer better facilities.
§ The way the credit facilities committee work is this. The Export Credits Insurance Committee shoulder the risk of 75 per cent. of the value of the orders—supplies to Russia, Bulgaria or any other country which comes within the scope of the system—and for that they charge a guarantee fee of 7 per cent. On top of that the manufacturer, having obtained the credit, with a lot of red tape and filling up of forms, and the inevitable delays and troubles, which are outside his ordinary line of business, can then discount the guarantee, for which he is charged another 3 or 3½ per cent. That means that for the 75 per cent. guarantee of the goods he sells he has to pay a total rate of 10 or 10½ per cent. The manufacturers in practice reckon, in fixing their prices, that the balance of 25 per cent. of which they have to shoulder the risk themselves, has also to carry a discount rate of 10 or 10½ per cent. In view of the low money rates in the City of London, and, in view of the high credit standing of the Russian Government, which has not defaulted on any of its bills in any country—that has been admitted in official answers by the spokesmen of His Majesty's Government—that is a very high rate indeed.
§ I ask in my Question whether the noble Lord who will reply will be good enough to give us information as to what other 916 manufacturing countries are doing. My own information, which I believe is correct, is that the Italians grant credits to their merchants and manufacturers for the Russian market at 1½ per cent. on a three-year basis; whereas the utmost limit allowed to our manufacturers under the present system is eighteen months. It is, I believe, impossible for manufacturers sending goods to Russia, or indeed to Bulgaria, or the Balkans, or Turkey, to obtain more than eighteen months' credit, or rather a guarantee for more than eighteen months' credit; whereas the Italians give twice as long at a rate of only 1½ per cent. The German Government is at present negotiating a very large loan, to be expended in Germany on engineering products and other German manufactures for the Russian market. This loan is practically an export credit of 200,000,000 marks, according to the statements that have appeared in the newspapers. Take that approximately in sterling as £16,000,000. It is proposed to guarantee the credit given by German engineering firms and so on up to a period of 5½ years, and the discount rate is to be 2 per cent. above the Reichsbank rate, with a maximum of 6 per cent. If this is correct, the Germans are going to provide this very large guarantee for their own manufacturers for 5½ years at a maximum of 6 per cent, interest, as compared to our 10 or 10½ per cent. with a limit of eighteen months.
§ I take the Russian market because of its tremendous potentialities, but the same thing applies to other countries, where I think we should encourage activity for our manufacturers at the present time. Turkey, for example, is making a great economic recovery, and Turkey needs great quantities of capital goods, such as we can supply, for harbours, railway materials, electrical equipment and so on. The same thing applies to the Balkans. I think it would be to the interest of everyone if a finance corporation, a semi-official body, could be established in the City of London to make easier and more favourable the credit guarantees to British manufacturers dealing with those countries. The sort of body I suggest would be formed of men of the highest business standing and integrity. The finance would obviously be substantial, and it would be provided by the financial houses in the City who 917 specialise in that kind of thing. There should be a Government guarantee. The money could be quickly raised. It only needs one word from the Treasury to the Governor of the Bank of England, and from the Governor of the Bank to the great merchant bankers in the City that this corporation would be in the interest of British export trade, and the thing would be done.
§ We have immense idle sums of money for which there is no profitable outlet at the present time. It is lying idle, and the money rate is still low, in spite of the recent set-back in gilt-edged values. Such a corporation would have certain great advantages for British manufacturers. It would mean that, when a British manufacturer has sold, for example, railway material, machinery or electric turbines to the Russian Government or the Turkish Government, the corporation would make itself responsible for ensuring the payment of the price of the manufactured goods, and a great deal of delay and trouble would be avoided, both to purchasers and sellers of our products. And the rate could profitably be a good deal less.
§ May I put this question to the noble Lord: Has the Overseas Trade Department through the working of the Export Credits Committee so far made a profit? My information is that it has—it has actually made a profit over the series of years since the Act was passed. If so, that was never the intention. They were supposed to guarantee British manufacturers against the inevitable risks of trade in certain markets in the confusion following the Great War, which confusion still remains in many parts of the world, and it was not intended they should make any profits for the Treasury. We have a great chance, particularly now with regard to Russia, of reverting once more to that market, because of the deadlock which has been reached at Washington between the American Government and the Russian Government over the old question of the pre-War Tsarist debts. That has meant that the Americans will give no Government assistance to their own manufacturers in exporting to the Russian market, and it places off the map one of our most formidable competitors in higher grade engineering products. Therefore, we have a very good opportunity, if we can provide better 918 credit facilities for our own manufacturers.
§ We have improved our exports in the last three years, not, I venture to say, because of the virtues of the present Government, but because we went off the gold standard; but I suggest most seriously to your Lordships that that advantage may be fleeting. It may be only a temporary advantage. The other countries which have gone off the gold standard, particularly the Japanese, have also gone ahead very fast in their export trade, but that again may be fleeting. Already in Japan there are signs that the advantages of the depreciated yen are becoming less favourable for Japanese manufactures. The same thing may happen here, and I would draw the attention of your Lordships to the speeches made by the leaders of the great banks recently, particularly the speech made by Mr. Beckett, Chairman of the Westminster Bank, in which he referred to the slowness of our export trade to revive and the danger of the adverse balance of trade becoming more adverse still, with serious results. I hope these questions, with these explanations, will receive attention.
§ I am not putting forward what I suggest our Party remedy would be. This is not the time nor the occasion to put that forward. I am trying to help our manufacturers in a very difficult situation at the present time, with a Government in office that wishes only to manœuvre and act within the confines of the present capitalist system. I accept that, and I suggest that His Majesty's Government can still do more within the confines of the capitalist system to help our manufacturers in the very difficult situation in which they find themselves in the world's markets. I have made two suggestions—first, that there should be cheaper credits, and secondly, that there should be this financial corporation for the special purpose of helping British export trade—and I have made the additional suggestion that the time has come when we should loosen the prohibition on foreign lendings. For these reasons I beg to ask the Question that stands in my name.
§ LORD TEMPLEMORE
My Lords, the noble Lord opposite was good enough to write to my noble friend Lord Lucan and tell him that the principal matters with which he would deal to-day would be the 919 question of special terms for British merchants in the Russian market and also the question of the embargo on foreign lending and its bearing on the export trade. I should like to deal with the question of foreign loans first. The Government's policy in this matter of foreign loans has to take into account a number of factors, including the need of capital for home development, the effect of foreign lending on our balance of payment, the position of the exchanges, and the relation between foreign lending and the encouragement of our export trade. The embargo on foreign loans has been relaxed from time to time so far as circumstances permitted, and the present position, as stated by my right honourable friend the Chancellor of the Exchequer on July 19 last year, is that the Chancellor is ready to consider particular cases, especially those falling under the following heads:—(1) Sterling issues by a country within the sterling bloc where the loan is required to increase the sterling assets of that country and so to minimise fluctuations of the exchanges; and (2) sterling issues on behalf of any borrower where the proceeds are calculated mainly to provide direct benefit to British industry.
It may be mentioned that under the second head loans have been permitted which, while not involving immediate expenditure on British goods for export, have had as their object the removal of undertakings from foreign control in the expectation that they would thereby increase their freedom to compete in foreign markets. Thus the present policy aims at securing the maximum advantages from foreign lending for British trade while, at the same time, avoiding financial operations which, without producing direct benefit to our trade, would throw an undue strain on the exchanges, and thus cause undesirable and disturbing fluctuations in the relation between sterling and foreign currencies. It is sometimes suggested that the complete removal of the embargo would give a further stimulus to our export trade, but as my right honourable friend pointed out in the statement to which I have referred in July of last year, "the actual amount of foreign lending at the present time would in no circumstances be great, and it is easy to form exaggerated views of the effect of the embargo." Where, however, a foreign borrower has sufficient credit here and desires to put forward a 920 scheme not only acceptable to the prospective lenders, but also mainly directed to taking industrial goods from this country, then such a scheme can be favourably considered. In fact, a considerable number of such schemes, including proposals by British companies for developing an enterprise in a foreign country, have been allowed by the Treasury within recent months.
I now turn to what I may call the second part of the noble Lord's Notice regarding the Export Credits Guarantee Department, particularly with regard to Russia, because as I knew he was going to insist especially on Russia. I have taken pains to find out about this Department's trading with that country. May I say first that since the Export Credits Guarantee Department was created nine years ago goods to the value of £60,000,000 have been exported under its guarantee. These goods are the products of practically every industry, and they have been sent to practically every market. During the current financial year there has been a substantial increase in every sphere of the Department's activities over the previous year. I mention these facts only because there has been a certain amount of doubt and a good deal of discussion about the guarantees provided by the Department for facilitating exports to Russia, and the work done by this Department in encouraging exports to other markets tends to be overlooked, although it is certainly no less important.
Before dealing with the question of Russia I should like to remind your Lordships of one or two facts in connection with the export credits guarantee scheme. First of all, I should like to say what it is not, and secondly what it is. First of all, it is not a scheme for the relief of unemployment by encouraging what I may call abnormal trade, but it is a scheme of insurance against the risks of normal business conducted on normal credit terms. The guarantees are given on the recommendation of an Advisory Committee of business men whom the Export Credits Guarantee Department is required by Statute to consult. It is this Committee which fixes the terms and conditions on which guarantees are given for trade with Russia as for trade with other countries. Trade with Russia was brought within the scope of the export credits guarantee scheme towards the end of 1929. Since that date guaran- 921 tees have been given covering nearly £22,000,000 worth of United Kingdom goods exported to Russia, and those guarantees produced a very marked expansion in the volume of our exports to Russia during the years 1930, 1931 and 1932. In 1933 there was, I know, a falling off, and I think that was largely due, as the noble Lord will remember, to the unfortunate arrest and the trial of British engineers in Russia during the spring of that year, and partly due to the reduction in the total volume of Russian imports from all countries. During 1933 and 1934 the Russian Government have greatly reduced the amount of their purchases abroad, particularly in manufactured goods, with which alone the Export Credits Department is concerned, but, according to Soviet statistics, for the first nine months of 1934 imports into Russia from this country exceeded imports from any other country.
A good deal has been said—and the noble Lord mentioned it just now—about the rates charged by the Department for guaranteeing Russian bills and about the period of credit covered by the Department's guarantees. The charges and the length of credit are fixed by the Advisory Committee in exactly the same way as for trade with all alter countries—that is to say, the Committee have regard to financial and commercial considerations. It is expressly provided in the Anglo-Soviet Temporary Commercial Agreement of the 16th February last year, as it was in the previous Agreement, that export credit facilities for trade with Russia would be available on that basis, and on that basis alone. The noble Lord was quite right, I think, in what he said just now, that other countries, notably Germany and Italy, which he mentioned, have charged less for guaranteeing Russian credits. Those differences are, however, offset very largely by the higher rates of interest which Russia has to pay in those markets over and above the premium for guarantees; but even though that were not the case, I am afraid that the Export Credits Guarantee Department's Advisory Committee would not recommend, and I do not think that Parliament would agree, that in this country guarantees for trade with Russia should be given on more favourable terms than guarantees for trade with other countries.
May I ask the noble Lord, is that because of the different credit standing of the Russian Government or because we do not wish to favour them against other countries?
§ LORD TEMPLEMORE
I think entirely because we do not wish to favour them as against other countries. We treat all countries alike.
This is an important point. Does that mean that the speed of the fleet is the speed of the slowest ship? If some Baltic countries require a high discount rate is that to be the rate for the whole world?
§ LORD TEMPLEMORE
I do not think that is so. I think the sole reason is that we wish to treat all countries alike.
§ LORD TEMPLEMORE
I now pass to the next point which was mentioned by the noble Lord, that is the guarantees which are offered by other countries for trade with Russia. The noble Lord mentioned two countries, Germany and Italy, and I happen to have details of those two countries here. The guarantees provided by the German and Italian Governments for trade with Russia fall outside the scope of their export credit facilities for other countries. In the case of both Germany and Italy, trade with Russia has during recent years been governed by special agreements of quite a different character from the Anglo-Soviet Commercial Agreement. Both the German and Italian Governments have undertaken during the periods covered by the agreements to guarantee Russian bills up to a specified maximum amount for stipulated periods of credit and for stipulated charges both of interest and premium. The terms of payment specified in the last published agreement between Germany and Russia varied between a maximum of sixteen months from the date of delivery of the goods to a maximum of twenty-five months from delivery, but it was provided that in the case of particularly large orders longer periods of credit might be fixed.
No information is published by the German Government as to the amount of guarantees actually given for trade with Russia, but statistics show that their exports to Russia have fallen off to a 923 very remarkable degree, the figures being as follows: 1931, 762,000,000 Reichsmarks; 1932, 626,000,000 Reichsmarks; 1933, 282,000,000 Reichsmarks; for the first nine months of 1934, 49,000,000 Reichsmarks. The cost of the German Government's guarantee, which covers only 60 per cent. of the selling price, is understood to be 2 per cent. per annum, in addition to which the Russians have undertaken to pay interest at 2 per cent. above the Reichsbank rate, so that the total cost of premium and interest in Germany comes to about 8 per cent. per annum. There may be also certain commissions, but on this point I have no definite information.
Now I come to Italian trade with Russia. That is also governed by an agreement signed in 1933, which has been extended to the 31st December, 1934, and is now, I understand, to remain in force pending the conclusion of the commercial negotiations now proceeding between the Italian and Soviet Governments. Under that agreement the Italian Government undertook to guarantee 75 per cent. of the purchase price of Italian goods up to a total of 200,000,000 lire, or about £3,500,000. The terms of payment are set out in a schedule and vary according to the nature of the goods from a maximum of twenty-seven months to a maximum of nine months. Special terms may be arranged for complete plants for certain industries. The premium payable for these guarantees is also specified and varies from 1 per cent. to 1.4 per cent. Notwithstanding these arrangements, Italian exports to Russia have also declined—from 275,000,000 lire in 931 to 93,000,000 lire for the first nine months of 1934, and I may say that both in the German and the Italian Press there is evident dissatisfaction with the results of trading with Russia.
I should like to quote the following extract from an article in the Frankfurter Zeitung of the 27th of last month:That the Russians try a policy of withholding purchases which they have practised during the last few years and is now systematically used to depress prices and obtain more favourable credit conditions, is the experience which all countries who have sought to participate in Russian business have had.That is the opinion apparently held by a section of the people in Germany. In this country we have quite a different 924 form of commercial agreement with Russia, which provides for a progressive improvement in the ratio between the proceeds of Russian exports to this country and the amount which Russia spends in this country. The first year of that agreement has just been completed, but it is perhaps rather too soon to judge of its results, especially as figures are not yet available. The conclusion of the Government is that the conduct of our credit arrangement with Russia is in very good hands. The more favourable terms which I admit the German and Italian Governments have offered the Russian Government have not, as the figures show, enabled those countries to maintain their flow of orders from Russia, much less to increase them. If the Russian Government in dealing with this country prefers to pay cash for its goods I am sure His Majesty's Government would have no objection.
The noble Lord asked me a specific question as to whether the Export Credits Guarantee Department made a profit. It is a fact that the operations of the Department have cost the taxpayer nothing. The annual volume of trading accounts contains each year the commercial accounts of the Export Credits Guarantee Department. These commercial accounts show that up to March 31, 1933, the Department, after meeting all claims and paying all administrative expenses, had a surplus of over £1,000,000. I cannot anticipate the publication, shortly due, of accounts for the year ended March 31, 1934, but when they appear your Lordships will be able to see for yourselves the results of a further year's working. It has been freely said—and the noble Lord either said or implied it just now—that it is not the business of the Department to make a profit. The Department does not aim at making profits but at helping the trade of the country, and I would draw the attention of any of your Lordships who may be sufficiently interested to turn up the commercial accounts to which I have referred, to the fact that on March 31, 1933, the Department had contingent liabilities for some £8,000,000 outstanding. That figure represented the maximum amount of the Department's liability on its guarantees at that date, and whilst the Advisory Committee have no reason to anticipate any abnormal claims upon the Department under those 925 guarantees, I think your Lordships will agree that it is only right that the Department should have amassed some surplus from which it could meet any claims which might result from the guarantees outstanding.
In an earlier part of his speech the noble Lord asked me if I had any information about a German loan to Russia. I think he stated that there was going to be a loan.
§ LORD TEMPLEMORE
I have a certain amount of information, and as far as I am aware this report is not correct. At least we do not know anything about such a loan. There is some reason, however, for believing that Germany proposes to guarantee fresh credits for Russia to the extent of 200,000,000 marks. She has in the past guaranteed very large credits in connection with her exports to Russia. Indeed, they were so large that at one time Russia was commonly supposed to owe more money to Germany than to all her other creditors put together. I understand, however, that during the last eighteen months German credits to Russia have been on a very much smaller scale and that Russia's indebtedness has consequently been decreased to a very much smaller figure. In those circumstances it would not be altogether surprising if fresh credits were now forthcoming, but it remains to be seen on what terms they will be given. On that point I am afraid I have no information. I think I have dealt with all the points and all the questions which the noble Lord asked so far as I am able. I am sure the Government ace very grateful to the noble Lord for his very helpful tone. As regards the formation of a finance corporation, that is a very large question on which I cannot venture to give an opinion. I can only say that this suggestion and others will be passed to the proper quarter for what use His Majesty's Government like to make of them. I have no Papers to lay, and perhaps the noble Lord, having raised the subject in the very interesting way he has done, will see his way to withdraw his Motion for Papers.
My Lords, I do not press my Motion for Papers, especially in view of the very full information which the noble Lord has been good 926 enough to give your Lordships' House and the very complete picture he has given of the situation. May I, however, venture to deal with two points before I withdraw my Motion? With regard to foreign lendings, I understood the noble Lord to reiterate what the Chancellor of the Exchequer said a little time ago, that that is affected by the need of keeping capital here for home development. I understand, however, that the Government set their face against capital expenditure on home development, unless they have had their minds altered by the programme brought out by the right, honourable gentleman Mr. Lloyd George, the so-called "New Deal." I do not know, but the last I heard—if the report is true—is that the Chancellor of the Exchequer still is determined that there shall be no capital expenditure in the house market for the relief of unemployment. Therefore I cannot see why there should be such severe restriction on foreign lendings.
As to the foreign exchange position, I would beg your Lordships to agree with me that if we cannot improve our export trade, and if our adverse balance continues to get worse, the foreign exchanges will automatically go against us. In that I have the agreement of the noble Marquess, Lord Reading, who has tremendous experience of this difficult question of foreign exchange. We seem to be, therefore, between two grave difficulties. We refuse to allow foreign lendings which would help the export trade admittedly, and at the same time by not helping our export trade we risk our foreign exchange position. However, these are very large questions and I can only hope that the Government's solution will be satisfactory and helpful to the country.
With regard to the Russian market, I was rather astonished to hear what the noble Lord said about treating all countries alike. Their conditions and situation are not all alike, as my noble friend Lord Marley interjected. I apologise to the noble Lord for pressing him on that point, but it is very important. Countries are not all alike in this matter. A British manufacturer selling his goods to a merchant, however credit worthy, in—where shall we say?—Bulgaria, is incurring obviously a greater risk than a British manufacturer selling his goods to a Government, as in the case 927 of Russia, or to the All-Russia Co-Operatives, which is practically a Government Department. There can be no comparison of the risk. If we can help the export trade in engineering material to Russia by giving more favourable credit terms—as indeed the Italians and Germans are doings—surely we can do it without standing on some punctilio that we might give offence to merchants in Greece or Turkey by charging rather higher discount rates to guarantee manufacturers trading with them. I hope this matter will be reconsidered.
May I inform the noble Lord that one of the greatest experts on Russia was that very great man the late Dr. Nansen, who had explored practically the whole of Siberia himself and had great knowledge of that vast country. He told me here in London that in his opinion the natural resources—minerals, food-producing resources and timber—of Siberia only were as great as the natural resources of the United States and Canada put together. The opening out of that country has only begun. They need immense quantities of machinery of all kinds, railway rolling stock and so on. If by giving better credits we can help the special areas where unemployment is worst surely it is worth doing without standing on any kind of punctilio. I am much obliged to the noble Lord—he is, if 928 I may be allowed to say so, a most able spokesman of the Department—but of course it is the Cabinet who decide these things, and I hope that my remarks have been listened to by the two eminent members of that august body sitting on the Front Bench opposite. I beg leave to withdraw.
§ Motion for Papers, by leave, withdrawn.