to say that the United Kingdom would exercise such power while still a nation of free men, but the threat is always there.'

Even though Export Credit Insurance has received its impetus during times of world economic stress it has come to be recognized as more than an emergency device. Based on the acceptance it has received it is evident that it would have developed in any case and indications are that it will continue to develop.

In the early days credit insurance attempts suffered numerous financial rebuffs. In his book International Trade Principles and Practices, third edition published in 1951, Mr. Horn makes the following statement on page 598:

"Although considerable net losses have been incurred generally by governments under their foreign credit insurance transactions, in Great Britain this service has been self-supporting."

Recently the British Export Credits Guarantee Department has received a very heavy blow owing to losses on exports to Brazil. With net earnings of £11% million the Department has built up a reserve of approximately £13 million. This reserve has been more than wiped out by claims during the year ending March 31, 1953, of more than £15 million and there is no indication that losses during the current year will be much less. Total claim payments in this connection have been estimated at £32 million or more and may be recoverable in whole or part in time. Additional losses had to be made good by the British Government during the war years but the details were not made públic and the amounts were small in comparison with those in Brazil.

The Canadians seem to like their foreign credit system. It is estimated that about 40 percent of Canada's total insurable export trade is covered by the Government Corporation. Competition with private credit insurers is avoided. It is of interest to note that of the current Government insurance policy holders 4 percent only have been in business less than 5 years, over 65 percent have been in business since 1939 and a substantial number have been in business over 100 years. The corporation has operated without cost to the Canadian taxpayer. In reviewing the export credit insurance plans of foreign governments it will be observed that the emphasis is placed on the experience and knowledge of the exporter. If there is any endeavor to stimulate small or inexperienced firms to enter the export field it is not in evidence. Available statistics do not show a breakdown of insurance coverage in various foreign countries by length of credit terms. It appears however, from such information as has been obtained that a large majority of the transactions are short term. Separation of the amounts of capital goods and consumer goods covered would also be illuminating.

Behind all these trade-promotion schemes is the fear that other nations are giving their nationals better competitive advantages. Germany, for instance, complains of the assistance Britain is furnishing her exporters and vice versa. The British Credit Insurance Association has made a survey of German competition and another on the outlook for British exports to Latin America. The latter cites advantages offered United States exporters by the Mutual Security Agency and the benefits of tax concessions in the United States for firms establishing subsidiaries in Latin America and Canada. This report recommends that a new finance corporation should be established by the Government along the lines of the German Ausfuhrkredit A. G. since the British banking system does not include facilities for financing on a long-term basis.

A British viewpoint of foreign competition is typified by the following excerpt from the British Trade Journal and Export World of December 1952:

** * * Most of the European countries and Japan, for example, are offering ever-lengthening credit. Germany is the chief competitor in the field. Although normally the German exporter expects to get payment over a period of 4 years from delivery, there have been numerous cases where up to 7 years have been offered. There have also been reports that in some cases in Latin America the Italians have been willing to accept contracts where payment will be spread over 10 years.

"The United States presents a special problem because of the large-scale activities of the Export-Import Bank."

POSITION RESPECTING EXPORT CREDIT INSURANCE IN THE UNITED STATES The United States is the only major trading country of the present day that does not have a foreign credit insurance scheme provided either by private resources, by the Government or a combination of the two.

1 A. W. Thomas, Export Credit Insurance Corp., Ottawa, as quoted by Stanley E. Hollis, Exporters Digest, August 1953.

Formerly, one private organization, operating on a mutual basis wrote insurance on United State. exports. This organization known as the American Manufacturers Foreign Credit Insurance Exchange, was formed following World War I by a group of manufacturers who had entered the export business during the war period and were anxious to create credit facilities as one of the means to continue in foreign trade activities. It started its operations in January 1921 to provide export credit insurance for its member exporters.

In general, the exchange covered risks against nonpayment by reason of the insolvency of the buyer. No attempt was made to insure transfer or exchange risks. The procedure followed was for members to offer individual export accounts for insurance. If approved, the member paid a premium of about 1 percent of the value of the shipment. If rejected, the exchange gave the applicant a confidential report on the foreign buyer as a guide as to whether the member should ship on credit terms or demand cash or secured terms.

Following the departure of Great Britain and other countries from the gold standard in 1931, it became extremely difficult to effect transfer of foreign exchange to make payments for United States exports. Consequently, the exchange suspended insurance operations in December 1932. Operations were resumed in 1935 and continued until 1942 by the same group on a restricted basis under the name of the "Export Credit Indemnity Exchange."

As early as April 1933, the National Foreign Trade Council presented to its membership for consideration a proposition for adoption of an export credit insurance system modeled after the British system as a means of stimulating employment in the United States. It was suggested that consideration be given specifically to a proposal that Congress amend the act creating the Reconstruction Finance Corporation whereby that organization would have been authorized to guarantee without recourse to the exporter, up to 75 percent of bills of exchange drawn against export shipments. It was reported at that time that in response to letters sent out to some 700 firms selected to represent a cross-section of various lines of industry and commerce in the country, 75 percent replied, endorsing the proposal.

In 1934 under the auspices of the Reconstruction Finance Corporation a definitive study was made of the European export credit insurance systems as a possible basis for formulating a pattern for a Government-operated or partially Government-controlled plan of export credit insurance in the United State...* This study was presented without conclusions or recommendations.

Some time in 1939 or 1940, the Executive Committee on Commercial Policy, a body of top United States Government officials concerned with international problems, created a subcommittee on export credit insurance. In December 1940 the subcommittee submitted a report to the Committee in which it was stated that:

"The subcommittee agreed that a financially sound export credit insurance plan might be desirable under more normal conditions but that it would be unwise to adopt a program at this time.

"Credit insurance would tend to expand United States exports at a time when the increasing balance in favor of the United States constitutes one of the fundamental problems confronting Latin America. The interruption of trade with Europe not only has eliminated much of the competition confronting our exporters and manufacturers but has forced the countries of this hemisphere to look to us for the major part of their essential needs. The resulting exchange difficulties must be met by the extension of dollar credits until imports are reduced or the Latin-American position is improved through industrial development and the expansion of noncompetitive exports to the United States.

"It is the policy of the Government, acting through the Export-Import Bank to extend such immediate credit as the emergency may require ***"

There is evidence that various congressional groups have been giving consideration to the adoption of an export credit insurance scheme at least since 1934. During 1945 the Foreign Trade Subcommittee of the Senate Small Business Committee conducted a comprehensive study of the desirability and practicability of Government insurance of private exports. The study covered operations of export credit insurance in foreign countries and included discussions with both private and governmental groups in the United States interested in foreign trade problems. The subcommittee filed a report favorable to the adoption of an export cre it insurance scheme by the United States Government.

This proposition was set forth in a speech entitled "Government Credit Aid for Foreign Trade" made at the 20th National Foreign Trade Convention on April 27, 1933, by Reginald F. Chutter, export manager of Sharpe & Dohme.

Published by U. S. Government Printing Office in 1934. S. Doc. No. 225, 73d Cong.

Following the report of the Senate Foreign Trade Subcommittee, a bill was introduced in the Senate by the chairman of the subcommittee on May 13, 1946. An identical bill has been introduced in each subsequent Congress. The most recent is that known as S. 849 introduced by Senator James E. Murray on February 10, 1953. The purpose of the bill is given as the encouragement of fuller participation by small business concerns in soundly expanded foreign trade. The bill, if enacted, would authorize the Export-Import Bank of Washington, through a Foreign Trade Insurance Division which would be created under the terms of the bill, to insure and reinsure for loss of payment from foreign debtors due United States residents and firms for the export sale of goods, including services and charges related to such sales. It would provide coverage up to 100 percent of the value of the obligation for failure to receive payment because of exchange control action by foreign governments, and up to 90 percent for failure to receive payment for credit and other reasons. The bill includes a statement of policy to the effect that the insurance would be available to all the classes of commodities in United States exports on reasonable terms.

Hearings on bill S. 414 of the 80th Congress held on March 25, 1947, and April 8, 1947, include testimony of a few representatives of the export trade who supported the bill. Much of the testimony, however, came from various groups in the United States Government concerned with international trade. With the exception of the Export-Import Bank and the Federal Reserve Board, none of these groups took a definite stand for or against the enactment of the bill. Both the Export-Import Bank and the Federal Reserve Board took a positive stand against

enactment.

The position taken by the Federal Reserve was essentially that the problem facing the United States was that of stimulating imports rather than exports. The Export-Import Bank expressed doubt that there was suficient demand for export credit insurance to warrant the entrance into this field by the United States Government and indicated that export credit insurance might be considered a more appropriate field for private enterprise than for Government. The obser vation was also made that there appeared to be a basic contradiction in the Export Insurance Act of 1947, which envisaged a Government system of export guaranties based on loss experience of exporters, but was avowedly designed especially for the benefit of manufacturers and producers who have little or no export credit experience. This led to the question as to whether a system open to all comers without discrimination could be operated without heavy adminis trative expenses or without a net loss to the Government.

The bank also warned of the possibility that a government system of export credit insurance might become a scheme for the indiscriminate promotion of exports not justified by underlying credit and exchange conditions in foreign countries.

At the hearings on the bill officials of the Export-Import Bank called attention to the fact that a single large credit extended by the bank gives many United States exporters an opportunity to sell their products on a cash basis to foreign countries.

In its official comments from time to time since 1947, on proposed legislation whereby the United States Government through the Export-Import Bank would establish an export credit insurance scheme, the bank has continued to express its disapproval of such proposed legislation. The basis of this disapproval is succinctly summarized in the following excerpt from a letter dated August 27, 1953, to the chief clerk of the Senate Committee on Banking and Currency:

"No reason is found under existing circumstances to warrant changing our opinion as to the lack of wisdom of this legislation. Measures undertaken by this bank to promote United States foreign trade must take into account the acknowledged two-way nature of that trade. More specifically, this means that assistance by the bank in financing United States exports can only be successful if carried out on a selective basis. Such assistance must contribute in the long run to the economic ability of foreign countries to stand on their own feet and to maintain or increase their own capacities to finance the acquisition of United States goods and commodities. This is especially true at the present time when improvement of the dollar-exchange position of our existing and prospective foreign customers is of such importance.'

The hearings on the Export Credit Insurance Act of 1947 incorporate the findings of a survey made in 1945 by the Board of Governors of the Federal Reserve System at the request of the Foreign Trade Subcommittee of the Senate Small * A digest of these hearings is included as appendix A.

Business Committee. This survey indicated that many of the banks canvassed in the survey would probably be interested in expanding the volume of their foreign export financing and in offering more liberal terms if the export transactions were covered by export credit insurance. This finding did not appear to be particularly significant, since a reduction in risks would almost automatically bring an interest in expanded business and in more liberal terms.

Proposals for the establishment under the auspices of the United States Government of an export credit insurance system in this country have had mixed reactions. During the period of 1933-34 when employment and economic activity in the United States were at a low ebb, it appears that considerable support for a governmental insurance system developed. For the most part, however, since that time the response of a majority of the spokesmen for both the export trade and financial institutions interested in such trade has been unfavorable to the entry of the Government into this field of activity.

Objections have most frequently been raised on the grounds that the Government should not extend its activities further into the business area and that the export credit insurance field might appropriately be reserved for private enterprise. There is an allied fear that a governmental system of export credit insurance would encourage unsound trade promotion and the extension of unwarranted credit. Concern has also been registered that the cost of such a system by the Government would result in excessively high premiums or subsidization of the export trade by the taxpayers.

Since the beginning of World War II, many economists and international trade specialists in the United States have contended that, as a matter of policy, during the period of the existing trade imbalance, emphasis should be placed on the promotion of imports rather than exports. The proposition has frequently been advanced that the operations of the Export-Import Bank as carried out over the postwar period offer a better means of promoting sound export trade in that the operations permit selectivity of risks and at the same time provide many United States exporters with cash business.

In support of the adoption of an export credit insurance system by the United States Government, it is contended that such a system would assist many smallbusiness concerns which are now unable to tap foreign markets to participate in the export trade of this country, and that the promotional effects of such a system would help in maintaining a high level of employment in this country. They also point out that the costs of such a system as evidenced by experience in other countries would not be excessive.

One recent commentator on this subject has suggested that the recent reorientation of the lending policies of the Export-Import Bank will further impair the ability of manufacturers of capital goods in the United States to compete in world markets and may add impetus to the efforts to have the Government adopt a system of export credit insurance.

Many who would object to the entry of the United States Government into the direct administration of an export credit insurance system, retain reservations as to transfer or exchange risks. It has been suggested that even though the general field be reserved for private enterprise, the Government might properly underwrite this particular type of risk.

As indicated above, a great deal of attention both within and without the United States Government has been given to the matter of a system of export credit insurance to cover exports from the United States. Much of the reaction in the past has been adverse to the adoption of such a system for operation by an agency of the Government. It does not necessarily follow, however, that the position taken in the past is correct as applied to current or future conditions in the United States and to its export trade. With changing conditions the business community in this country may be shifting to a more favorable attitude. Recent developments in connection with the Export-Import Bank may greatly influence the attitude of persons interested in the export trade on this subject. It would appear desirable, therefore, to make sure that the question of a Government-sponsored and administration export credit insurance system at this time has full discussion and debate within the Government and in the business community before a final conclusion is reached.

COMMENTS

This review of foreign governmental aid extended to their export traders does not disclose particular methods which it might be well for us to consider for adoption in this country with the possible exception of export credit insurance. The reason for this is that most of the devices used have come about because of the

disruption and imbalance of these foreign economies and hence would not be applicable here. Our investigations have disclosed a dearth of available information on the overall subject. This review has necessarily not been exhaustive. As pointed out above in order to make a complete study full use should be made of our Government's foreign economic officers. Obviously this will take time. Along with this, a study could be made showing all the methods which we in this country are employing to assist our own exporters. A comparison of the two studies when completed would demonstrate whether or not we are giving our exporters as much aid as their foreign counterparts are receiving and might disclose areas to which further attention should be directed. A review of the banking laws of other countries compared with our own would demonstrate whether or not our foreign trader are operating at a comparative disadvantage in this regard.

Consideration of the adoption by our Government of an export credit insurance system which has been discussed above at some length must necessarily be com bined with a knowledge of what the future activities of the Export-Import Bank of Washington are to be. In the past, various operations of the Export-Import Bank have accomplished purposes similar to those for which export credit insurance is intended. Consequently, if the bank is to continue as it has in the past, there does not appear to be a strong argument for our Government to inaugurate such a system.

An effective system of this kind could not be established unless it were provided that the insurer would be fully informed of the detailed business operations of the insured. This would mean the injection of the Government into the very heart of a business and in the view of the writer is sufficient to condemn the plan as not being in accord with our traditional ideas of free enterprise. Further than this it has not been determined that there is a real need in this country for export-credit insurance or that it would receive the support of our foreign traders. Aside from the cost it is difficult to believe that exporters would welcome it when they came to a full realization of how such a plan would have to be operated if it were to be done on a self-supporting basis rather than by some method in the nature of a subsidy.

Competitor nations are conducting their foreign trade along nationalistic lines and to blink this fact serves to delude ourselves and benefit our competitors. Many in this country feel that in one way or another large sums of money earned by Americans are utilized to finance foreign firms competing with our own nationals. With the completion of industrial reconstruction in Western European countries and the attending increase in international competition to supply foreign markets this feeling will become more pronounced and articulate. It is difficult to believe, in spite of the views expressed in some quarters, that we as a country are strong enough economically and rich enough so that we alone of all the nations can afford to ignore or belittle the fact that world trade is and has always been conducted along nationalistic lines. Admittedly, this is not an ideal situation but it should be corrected by international cooperation and there are organizations working toward this end, but lasting improvement will not be obtained by the United States making the bulk of the concessions and making them first without any quid pro quo. United States firms are entitled to the support of our Government especially when such help is needed in order to meet unfair competition. Our Government has a responsibility to see that there is nothing in our laws or policies to prevent or hinder our nationals from trading on an equal basis anywhere in the free world they so desire. This does not mean. of course, that we should aid or abet an international race for the extension of longer or more favorable credit terms. Trade wars always leave those who participate in them worse off in the long run.

APPENDIX A

DIGEST OF UNITED STATES SENATE HEARINGS IN 1947 ON S. 414 TO ESTABLISH SYSTEM OF GOVERNMENT INSURANCE FOR UNITED STATES EXPORTS

BILL S. 414

The bill which was under consideration in 1947 would have authorized the Export-Import Bank of Washington, through a Foreign Trade Insurance Divi sion, provided for under the terms of the bill, to insure and reinsure for loss of payment from foreign debtors due United States residents and firms for the export sale of goods, including services and charges related to such sales. The