Under the Overseas Trade (Credits and Insurance) Act, 1920, the Overseas (Credits and Insurance) Amendment Act, 1921, and the Trade Facilities Act, 1921, the Government has done much to relieve unemployment by assisting the manufacturer to export his goods from the United Kingdom. The Government’s plan is known as the “Export Credits Scheme”; it is administered by the Department of Overseas Trade. Its main essential is that the Government will guarantee bills drawn by United Kingdom exporters on customers abroad as against shipment of goods exported from the United Kingdom, when such bills are submitted through the exporter’s banker with the banker’s recommendation for guarantee attached, and the circumstances are such as bring the case within the scheme. The goods must be commodities (other than arms and ammunition) wholly or partly produced or manufactured in the United Kingdom, and include coal; but the Government will not assist to finance goods to be shipped on consignment, or the carrying of stocks either in the United Kingdom or elsewhere. The sum of outstanding credits must not at any one time exceed twenty-six millions sterling. The sum now outstanding is sixteen millions.
A lucid statement of the history, nature and working of the scheme by Sir Philip Lloyd-Greame, M.P., the Parliamentary Secretary to the Department of Overseas Trade, appears in the Accountant for February 4, 1922. The scheme does not supplant, but supplements, the ordinary commercial machinery of finance by providing credit in cases where, although the trade involved is inherently sound, bankers and financial houses are not disposed, or in a position, to supply the necessary accommodation. The closest co-operation is maintained with the banks. By letter of October 14, 1921, from the Bankers’ Clearing House to the President of the Board of Trade, which appears in the Accountant, the Committee of London Clearing House Bankers expressed their willingness “to take all such steps as lay within their power to encourage the operation of the scheme, especially having regard to the object which the Government had in view, that of ameliorating the present conditions of unemployment.” The Department of Overseas Trade is assisted by an expert and experienced business committee representative of the Joint Stock Banks, the Eastern Banks, the Accepting and Discount Houses, and manufacturers and merchants.
The scheme now applies to all countries in the world, but not to British India, Ceylon and the Straits Settlements, where there are large unabsorbed stocks and in respect of which adequate banking facilities exist, nor to Russia. New credits may be granted up to September 8, 1923, but all credits must be liquidated by September 8, 1927. Credits of two kinds are granted—“specific credits,” and “general credits.” The former are given in respect of particular transactions, for example, the completion of a large engineering or constructional contract abroad; the latter are credits up to specified amounts for specified countries and for specified periods in respect of goods not necessarily sold at the time the credits are given, and are intended to meet the convenience of merchants doing business abroad on short term credits. A United Kingdom merchant selling small quantities of commodities abroad through some travelling representative finds it quite impossible to submit each transaction to the approval of the Export Credits Department. The merchant can thus enter into transactions abroad up to the amount of the general credit without any reference to the Department, while the latter undertakes to guarantee the bills drawn within the agreed period for the goods that are shipped. The bills carrying the Department’s guarantee are regarded in the discount market as “first-class bills.” The Department prefers that the bills should be of as short duration as possible, but permits renewals provided that the credit is not extended beyond twelve months. With the Government guarantee that the bill drawn by the foreign customer or his agent will be met, the United Kingdom exporting merchant can thus borrow on the security of the bill at the ordinary market rate in the customary way.
Specific Guarantees or Credits
In case of specific credits the Department will guarantee up to 100 per cent. of the bills drawn against the shipment where the credit does not exceed twelve months, and up to 85 per cent. in cases where the credit exceeds twelve months. Two bills, in the latter case, are usually drawn, one for 85 per cent. of the transaction which is guaranteed for the full amount of the draft, and the second for the balance of 15 per cent. which is not guaranteed. The Department does not require a bill to be accepted before guaranteeing it. If security is to be deposited by the importer, the Department requires a letter of guarantee from the importer’s bank, which must be an approved bank, that the bill will be accepted and that approved security will be deposited immediately upon the first presentation of the documents to the importer, and the Department assesses the value of the security so deposited. If no security is to be deposited, the Department requires a similar letter of guarantee, or some other satisfactory evidence that the bill will be accepted.
In case of default by the importer to accept or meet the bill when due, the Government has no recourse against the United Kingdom exporter where the importer, in the first instance, deposited security assessed as sufficient by the Department to cover the whole amount guaranteed. The importer may, however, have put up some security, but security not deemed enough by the Department to cover the whole amount guaranteed. In that event, the Department retains recourse against the United Kingdom exporter for 50 per cent. (when 85 per cent. or less of the bill has been guaranteed), or for 57½ per cent. (when 100 per cent. of the bill has been guaranteed) of the difference between the amount guaranteed, on the one hand, and, on the other, the total of the amount (if any) paid by the importer, plus the amount which the security was accepted as sufficient to cover or which the security, when realized, yields, whichever is the greater. When the importer puts up no security the Government retains recourse against the United Kingdom exporter for 50 per cent. of the difference between the amount guaranteed and the amount (if any) paid by the importer, where 85 per cent. or less of the amount of the bill has been guaranteed; where 100 per cent. has been guaranteed—for 57½ per cent. of that difference.
General Guarantees or Credits
In the case of general credits, when the Government accedes to an application made through a bank, say, to guarantee for six months bills up to a sum of £10,000 drawn by some particular United Kingdom exporter as against shipment of goods to Rumania, the Government would guarantee each bill up to its total value at such rate of commission as the Department may fix. At the end of the six months, if the amount of the guaranteed bills totals up to, say, £9,000, that represents the liability of the Government. When afterwards the bills fall due, and there is any loss, the Government has recourse on the United Kingdom exporter for 57½ per cent. of the ultimate loss. The Government does not require that any security shall be put up by the importer, but is prepared to consider the offering of special terms when security is put up.
The Government is also prepared to make arrangements with approved banks, banking houses, and credit associations under which, for an agreed premium, the Government will assume responsibility for a share not exceeding 70 per cent. of any loss incurred by such banks, etc., in respect of transactions carried through by them for United Kingdom exporters, which comply with the same conditions as to the nature of the goods as those prescribed under the Export Credits Scheme.