Export Credits (Hansard, 18 December 1975)

§ Mr. Shore

The following improvements are being introduced by ECGD.

We have worked out a new scheme to insure members of a consortium contracting overseas against losses they may sustain as a consequence of the insolvency of a fellow consortium member. ECGD will be introducing this facility after discussion with industry. British industry has found it increasingly difficult to form consortia to tender for major projects where, because of such risks, they would be exposed to heavy losses which they are unable to bear. The commerrial insurance market does provide some cover, but is unable to meet the demand on the scale involved. This new facility will, I hope, encourage exporters to go after these large projects.

The second facility to which I would refer is that to provide pre-shipment finance for exports. I reported the introduction of this scheme in August last, and can now tell the House that the facility is generally available. The scheme applies to desirable overseas contracts for capital goods or projects insured by ECGD and valued at £1 million or more and involving a manufacturing period of at least one year. Finance made available under this facility will be at the appropriate market borrowing rate. Each case will need to be negotiated individually between the exporter, his bank and ECGD.

Thirdly, in February I announced a new scheme to provide cost escalation cover for capital goods exports. It has helped to win several useful contracts but, as I told the House in August, I have been keeping it under close review in consultation with industry. I have now authorised the Department to make some 781W changes in the light of our experience. To achieve more flexibility in operation, ECGD may now reduce somewhat the minimum first proportion of annual cost increases which the buyer or the exporter has to bear—the so-called "threshold". Where exporters choose higher thresholds, ECGD may now widen the present bands of cover, and enhance the incentive for cash contracts. My officials are ready to discuss with individual exporters, whose requirements vary widely, how best to make use of these changes.

In addition, in order to help exporters with possible cash flow problems, part of any claims which arise may in future be paid by stages as the contract proceeds, though no payment will be made before April 1977.

The scheme is designed to meet the temporary and abnormal difficulties of cost inflation. I believe that while our inflation is being steadily brought down to the rates in other major exporting countries, these improvements will enable exporters more effectively to overcome these transitional problems.

It is frequently suggested to me that ECGD should do more to assist exports of consumer and light engineering goods which are generally made on short credit not exceeding six months. More than 80 per cent. of the exports insured annually by ECGD are made on short credit under the Comprehensive Short-Term Guarantee. To facilitate the establishment of credit limits on buyers under their comprehensive guarantees ECGD is now doubling the maximum amounts up to which the insured can fix these limits without reference to ECGD. In addition ECGD will give priority to credit limit applications from exporters who themselves provide an up-to-date report on their buyers from a bank or credit information agency.

These measures, which will be explained in detail in a letter to policyholders, will assist exporters to take prompt advantage of an upturn in world trade by providing a quicker access to credit insurance cover. They will also assist ECGD in containing the mounting costs of the credit limit service.

With these new and improved facilities available to them from ECGD, firms should be in a much better position to take full advantage of the expected 782W upturn in demand. The Government look to the capital goods industries in particular to ensure that they have the capacity to meet this demand, both overseas and at home.