A study of officially supported export insurance and finance systems
The main objectives of this study were to determine: the features of
export insurance and finance, together with the historical perspective
on fixed-rate finance and insurance, with a view to providing answers
leading to the present-day situation; the make-up of each country's
system in mobilisat:i.on methodology and growth trends with a view to
finding if one system has definite advantages over another; the nature,
effects and efficiency of subsidisation in the support of fixed-rate
exports to developing countries; country attitudes to the development
and relevance of international control of interest rates and maturities
including the prospects and consequences of change.
Official support for fixed-rate finance and insurance methods developed
after World War 2 as markets developed from being "supplier" to "buyer"
oriented and the competition.for the exports of capital goods between
exporter countries increased.
Official organisational arrangements and methodology of operation which
developed to meet these requirements are all different for all the
countries .studied, but there appears to be no specific advantage in this
execpt that operating costs for the Japanese are lower because the
Japanese trading companies (the Sogoshasha) take a lot of the cost element
away from EID/MITI.
Main programme comparisons show that in terms of depth of programmes
available, the UK stands out well. We have the most comprehensive
programme in the short-term being.the only country to offer concessionary
(though not fixed-rate) financing. For medium and long-term programmes,
however, the differences are less pronounced. France has the most
comprehensive medium and long-term supplier credit programme, and in the
buyer credit field (where most of the growth has occured) only West
Germany does not provide unconditional financial guarantees.
From the results point of view, however, and considering that fixed-rate
finance and insurance developed to promote the export of capital goods
and industrial projects, the effects of the UK system in the past appear
to have been mis-directed. Indeed, in terms of total business covered
the proportion of medium and long-term business written over the past
decade has been, on an annual average basis, two to three times greater
in each of the other four countries. To a certain extent this is a
reflection of the direction of trade,for the ECGD conducts about 60% of
its business in developed countries, whereas for the other countries most
of the business is written in developing and centrally planned countries,
which are really the nations for which fixed-rate financing developed.
However, whereas all the other four countries appear to have reached
maturity in their proportion of medium and long-term business to total
business written, that proportion for the UK is growing and is being
re-directed toward LDCs: this growth can be maintained by the introductic
of exchange risk insurance and low-rate Yen financing to the special
Over a 15 year period to 1980, apparent price subsidies to overseas buyerr
have moved from a mainly negative position (no subsidy) to a total
positive position (subsidy), ie in 1965 only the UK experienced a positivE
subsidy to overseas buyers. Thus on the face of it, the transfer of
resources to buyer countries has taken place at less than market value.
From 1980, for estimated deals over the medium and long-term, this
situation is expected to be maintained for all classes of buyer countriesmovement in common fixed-rates set to Consensus Guidelines.
Estimates on the subsidy cost to the five governments show that France
has the greatest subsidy element - in US dollars - with the UK second.
The position of the USA is forecast to deteriorate to a subsidy element
of US~.260m by 1983, so long as US Government borrowing rates remain
high. This fact is a prime reason why the USA is lobbying for continued
and substantial increases in the Consensus Guidelines fixed-rates.
Methods used in the control of subsidies have centred mainly on the
exchange of information through the Berne Union and, since July 1976,
at government level through a series of "Gentlemen's Agreements" known
as the Consensus Guidelines: the GATT is not involved. Upward
movements in the fixed Consensus rates have occured, though not as fast
as the continual upward movement in government borrowing rates in some
countries in recent years, notably the USA; this has given rise to the
subsidy simplifications. This semi-inflexible nature has led governments
to lower fixed-rates and increase maturities through the use of mixedcredits
(the Consensus allows a great element of up to 25% for the
financed portion) and local cost support. The continual use of mixed
credits and other methods outside the Consensus framework, plus the
increasing use of sight Letters of Credit for short-term business, are
the prime reasons why, for all countries, the proportion of total
business covered to exports, has been falling over the past decade.
These factors have given rise to suggestions for the Consensus' abolition.
This is unlikely to arise as it would lead to a trade war in longer
maturities and lower fixed-rates, thus increasing the subsidy elements
for exporter governments, ie the opposite effect to what the USA is
trying to achieve. More flexibility, however, is likely to be built
into the Consensus in the future