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The export development corporation : its role and effectiveness in British Columbia Brown, James Gervin 1971

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THE EXPORT DEVELOPMENT CORPORATION ITS ROLE AND EFFECTIVENESS IN BRITISH COLUMBIA by JAMES GERVIN BROWN A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION i n the Department o f FINANCE We accept t h i s t h e s i s as conforming to the r e q u i r e d standard THE UNIVERSITY OF A p r i l , BRITISH COLUMBIA 1971 In presenting t h i s thesis in p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available for reference and study. I further agree that permission for extensive copying of t h i s thesis for s c h o l a r l y purposes may be granted by the Head of my Department or by h i s representatives. I t i s understood that copying or publication of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of Finance, Faculty of Commerce arid Business Administration, The U n i v e r s i t y of B r i t i s h Columbia, Vancouver 8, B. C. A p r i l 29th, 1971 i i The objective of t h i s thesis i s the evaluation of the Export Development Corporation's effectiveness in B r i t i s h Columbia. This objective i s r e a d i l y devisable into two tasks, an examination of the Corporation's programs in terms of i t s objectives, and the assessment of the perform-ance and poten t i a l of the programs in B r i t i s h Columbia. In Chapter I, a theory of the role of export c r e d i t in trade expansion i s developed. The importer's demand for export c r e d i t and the exporter's supply of that c r e d i t are examined separately, and the j o i n t e f f e c t of both on trade volume i s considered. The e f f e c t of export c r e d i t insurance and financing i n a l t e r i n g trade volume i s also presented. The questionnaire, sample, and method of analysis are described. In Chapter I I , a p r o f i l e i s presented of B r i t i s h Columbia exporters answering the questionnaire. Six c h a r a c t e r i s t i c s are examined: industry sector, export experience, sales volume, number of export markets, r e l a t i v e importance of exports and domestic sales, and the r e l a t i v e p r o f i t a b i l i t y of exports and domestic sales as perceived by the respondent. In Chapter I I I , r i s k perception and compensation are considered. Sample data are presented regarding the r e l a t i v e r i s k of exports and domestic business, the explanation of that r i s k , and the difference i n s e l l i n g terms which i s deemed in part to compensate for r i s k d i f f e r e n t i a l s . A theory of the e f f e c t of r i s k on p r o f i t -a b i l i t y i s presented and a j o i n t r e l a t i o n s h i p of c r e d i t terms, p r o f i t a b i l i t y , and r i s k developed. The theory and data of the f i r s t three chapters suggest that the Corporation's services should g r e a t l y enhance the export p r o f i t a b i l i t y of B.C. firms. However, the response to these services has not been as p o s i t i v e as i s to be expected. Chapter IV presents respondent attitudes toward EDC programs. Information sources are suggested as a possible explanation for negative at t i t u d e s , and evidence i s presented to suggest that the confidence of firms in sources from which they learn of EDC i s suspect. Three appendices are included to provide background for the study; the questionnaire, export c r e d i t services i n other major trading countries, and a d e s c r i p t i o n of the h i s t o r i c a l performance and present status of the Export Development Corporation. This study concludes that the programs of the Corporation are r a t i o n a l in view of i t s objectives, and that the p o t e n t i a l for export expansion i n B r i t i s h Columbia i s considerable. However, acceptance to date has been poor as a r e s u l t of an information gap which can be overcome to a great extent by e f f o r t s of the Corporation. ABSTRACT PAGE i i i CHAPTER I. INTRODUCTION II Export Development Corporation Thesis Objective Demand for Export Credit Supply of Export Credit Demand for Export Credit Insurance Demand for Export Credit Financing B.C. Industry Demand for Credit Services Questionnaire Sample Method of Analysis PROFILE OF RESPONDENTS 25 I Industry Sector Industry Sector D i s t r i b u t i o n of Population II Export Experience III Sales Volume IV Importance of Exports in Tot a l Sales V Number of Export Markets VI Relative P r o f i t a b i l i t y of Exports to Domestic Sales I I I . RISK PERCEPTION AND COMPENSATION 51 A. Risk 52 Risk Perception of Sample Risk and P r o f i t a b i l i t y Risk Explanation B. S e l l i n g Terms 78 S e l l i n g Terms as Risk Compensation Synthesis Summary . . . . 1 93 IV. ATTITUDES TOWARD THE EXPORT DEVELOPMENT CORPORATION A. Attitudes Toward Insurance Programs. . B. Attitudes Toward Finance Program . . . C. Information Sources SUMMARY AND CONCLUSIONS APPENDIX I. QUESTIONNAIRE I I . SURVEY OF NATIONAL EXPORT CREDIT SERVICES. . United Kingdom Japan France Germany I t a l y United States International Agencies Berne Union I I I . EXPORT DEVELOPMENT CORPORATION HISTORICAL DEVELOPMENT AND CURRENT STATUS. . H i s t o r i c a l Development . . . . . . . . . . Current States Export Credit Insurance Export Credit Guarantees Foreign Investment Insurance Export Financing Performance ,. . BIBLIOGRAPHY INTRODUCTION Export Development Corporation The Export Development Corporation was established i by act of Parliament, June 27, 1969, "... for the purposes of f a c i l i t a t i n g and developing trade between Canada and other countries by means of the financial and other powers provided in the act" ."^  To perform i t s role in trade expansion, the Corporation engages in a program of: 1. Insurance for exporters against non-payment by foreign buyers for commercial or p o l i t i c a l risks beyond the control of either party, and guarantees to f a c i l i t a t e the financing of exports. 2. Loans to foreign buyers of capital goods and major technical services - whether they are related to the supply of equipment or not, for which extended credit not available from regular commercial sources are required. 3. Insurance for Canadian investment against loss due to non-commercial credit risks. The Export Development Corporation succeeded the Export Credit Insurance Corporation, established in 1946. Section 10 (1), Export Development Act. The dhange in name and structure r e f l e c t s a change of emphasis among the functions of ECIC. Export c r e d i t insur-ance was the key service, and u n t i l November 1960, the only service of ECIC. In 1960, the provisions of Section 2lA of the Export Insurance Act were implemented whereby loans could be made to foreign buyers of Canadian c a p i t a l goods and s e r v i c e s . However, the conditions of q u a l i f i c a t i o n and the maximum c r e d i t allowable under Section 21A were such that loans never accounted for a s i g n i f i c a n t portion of ECIC's a c t i v i t i e s . Foreign investment insurance was not included at a l l i n the Export Credit Insurance Act. The Export Development Act of 1969 recognized the increasing p o t e n t i a l for sales abroad of Canadian c a p i t a l goods and technical s e r v i c e s . I t further recognized the growing involvement of Canadian c a p i t a l in foreign countries. To f a c i l i t a t e the e x p l o i t a t i o n of these growing opportun-i t i e s , both export financing and foreign investment insur-ance were incorporated into the Act, not as supplementary to the insurance function, but as separate elements of an expanded approach to serv i c i n g Canadian exports. Thesis Objective The objective of thi s thesis i s the assessment of the Corporation's finance and insurance programs with s p e c i f i c regard for the needs of the export community of B r i t i s h Columbia. The importance of t h i s evaluation hinges on the importance of EDC i t s e l f . I t s services are capable of influencing the magnitude, the components, and the pattern of Canadian exports. Export c r e d i t insurance, by reducing the cost of losses, increases the expected value and hence the volume of exports. Both financing and foreign invest-ment insurance cause a s h i f t toward trade with developing economies. EDC financing i s r e s t r i c t e d to c a p i t a l goods and tec h n i c a l services, thereby encouraging the growth of these sectors Relative to t o t a l exports. Are these forces optimal f o r the development of BC industry, and i f so, are the regulations and practices of the Corporation enabling businesses to r e a l i z e the p o t e n t i a l b e n e f i t of t h i s a s s i s t -ance? The existence of regional differences i n Canadian industry suggests v a r i a t i o n i n the effectiveness of a blanket program extended to a l l regions. The f i r s t step in the evaluation of the Corporation's performance i s , therefore, the i d e n t i f i c a t i o n of the needs and character-i s t i c s of industry in B r i t i s h Columbia. To accomplish t h i s and to acquire other information e s s e n t i a l to the evalu-ation, a questionnaire was sent to 250 exporting companies. One hundred and eleven r e p l i e s were received, accounting fo r approximately 30% of the active export population i n Role of Export Credit i n Trade Expansion Export Credit Insurance Act - "An Act ... to promote the r e v i v a l of trade by the provision of Dominion Government guarantees to encourage exports from Canada". Export Development Act - "An Act .... to f a c i l i t a t e and develop export trade by the provision of insurance, guarantees, loans, and other f i n a n c i a l f a c i l i t i e s . " Defining the BC exporter population poses consider-able d i f f i c u l t y . Ought one to d i s t i n g u i s h between companies which have a c t u a l l y exported and those which are a c t i v e l y seeking t h e i r f i r s t customers? And of those companies which have a c t u a l l y exported, ought one to include only those which have engaged in foreign transactions within an a r b i t r a r i l y set time period? To complicate the issue, companies engaged in exporting are not required to r e g i s t e r that f a c t with any government or industry body. Furthermore, i t i s unlawful, under the Canada Secrecy Act, f o r the Dominion Bureau of S t a t i s t i c s or other government agencies to publish export data in any form which might permit the i d e n t i f i c a t i o n of i n d i v i d u a l companies. For purposes of t h i s study, the BC exporter popula-t i o n i s defined as being companies which have v o l u n t a r i l y registered t h e i r i n t e r e s t and/or a c t i v i t y i n the export market with the Canadian Department of Industry, Trade and Commerce. That department's 1970 Exporters Directory l i s t s 552 such companies. However, of that number, approximately 375 reported exports in the previous corporate f i s c a l period. I t i s evident from these t i t l e s that the basis of trade promotion i n both acts i s an increase in export Whether insuring export c r e d i t extended by commercial sources, or providing the c r e d i t themselves, ECIC and i t s successor EDC, have increased the volume and improved the terms of Canadian export c r e d i t . I m p l i c i t i n these programs has been the assumption that c r e d i t terms influence trade volume. While i n t u i t i v e l y acceptable, this hypothesis warrants i n v e s t i g a t i o n . Demand for Export C r e d i t Carlson (1969) 1 states that the demand for export c r e d i t i s a function of several v a r i a b l e s : export p r i c e , P_; the cost of c a p i t a l in the importing country, r T ; and the resale c r e d i t period, t j . The r e l a t i o n s h i p among these variables i s apparent in a statement of net income f o r the importer, which he i s assumed to maximize. c r e d i t extended to foreign buyers of Canadian products. (1 - 1) resale price quantity purchased and resold export price (in currency of importing country) Carlson, Sune, International F i n a n c i a l Decisions, North Holland Publishing Company, London, 1969. Where r = cost of c a p i t a l f o r importer t E = export c r e d i t period t j = resale c r e d i t period Nj = net income of the importer i Another variable i m p l i c i t in (1 - 1) i s the importer^ e l a s t i c i t y of demand with respect to price, e p i r which dic t a t e s changes in Qj with a change in P E. In the case of c a p i t a l goods, Pj i s not p r e c i s e l y resale p r i c e , but rather the value of future net cash flows a t t r i b u t a b l e to the imported equipment, discounted to the date of purchase. The net income of the importer varies d i r e c t l y with export c r e d i t , assuming the cost of c r e d i t i s born by the exporter. In a competitive market, increases in export c r e d i t w i l l reduce the importer's cost structure, enabling him to lower Pj and gain a d d i t i o n a l Qj*^" The l i m i t i n g factor in the importer's demand for export c r e d i t i s there-fore the consumer's e l a s t i c i t y of demand with respect to price, f o r the product in question. The importance of export c r e d i t to the i n d i v i d u a l importer depends upon his cost of c a p i t a l , r , and h i s usual s e l l i n g terms, t . This argument assumes that P E remains constant; in other words, that the cost of financing export c r e d i t i s not concealed in a price change by the exporter. The demand for export c r e d i t in developing countries i s greatest in the c a p i t a l goods and tec h n i c a l services sectors. Ambitions for economic growth g r e a t l y exceed the purchasing power necessary f o r the r e a l i z a t i o n of those ambitions. Low marginal propensities to save, and high marginal propensities to import r e s u l t in inadequate domestic funds, and the i n t e r n a t i o n a l flow of long-term c a p i t a l i s i n s u f f i c i e n t to f i l l the gap. The introduction of foreign exchange r e s t r i c t i o n s and import controls i s designed to minimize the purchase abroad of non-essentials and to insure the maximum of deferred payments in a l l purchases. C a p i t a l goods are r e a d i l y admitted because of t h e i r a b i l i t y to produce income in excess of t h e i r import costs. However, even in the c a p i t a l goods sector, the source of imports w i l l depend to a great extent upon the c r e d i t terms offered by the exporter. Supply of Export Credit In Carlson's terminology, the income function of the exporter i s : _ N E = £. P EQ X (1 - X E t E ) - C EQj ( 1 - 2 ) Where <S = exchange rate X E = exporter's cost of c a p i t a l * t_ = period of export c r e d i t C„ = cost of production per unit and the other symbols are as in Equation (1 - 1). Carlson defines X as the sum of: insurance pre-mium, on insured portion; E r i s k premium, on uninsured portion; discount rate, on discounted portion; and the cost of financing undiscounted portion. For purposes of t h i s study i t i s more useful to define XL, as the firm's weighted average cost of c a p i t a l , and to reintroduce other costs separately. Insurance premiums appear in Equation ( 1 - 4 ) as i . Risk i s discussed on page 1 , and defined in Equation (3 - 1) as 1, the expected value of future payments. For s i m p l i c i t y , the exporter i s assumed not to discount his export receivables, although h i s doing so would involve merely weighting X E and the discount rates by the relevant portions of P O T . There are several advantages to this d e f i n i t i o n of ^ over that used by Carlson: a) The e f f e c t s upon net income of r i s k , cost of c a p i t a l and cost of insurance are separated. The e f f e c t of changes in any one i s not concealed in an aggregate f a c t o r . b) By including r i s k in X_, a discounting factor, Carlson ignores valuable information, namely the p r o b a b i l i t y d i s t r i b u t i o n of expected receipts from a transaction. There i s also the inherent e r r o r of an increasing r i s k element in future periods. For example, a r i s k premium of 1% in the discount rate results in an e f f e c t i v e r i s k premium of 1.045% when applied to cash flows in the second period. A t h i r d weakness i s the subjective nature of the assessment of the r i s k f a c t o r in t h i s method. For a further discussion of adjustment f o r r i s k , see J . C. Van Home, F i n a n c i a l Management and Policy, Prentice H a l l Inc., Englewood C l i f f s , 1968. The e f f e c t of t h i s change of d e f i n i t i o n on Carlson's model i s merely to reduce the magnitude for one v a r i a b l e , X E, and to add two factors, E E , the expectation of £ P Q_, and i ( p E Q j l / t n e cost of insurance. Equation ( 1 - 2 ) becomes \ = W l ( 1 " V E > " C E Q I " i ( £ P E Q I > The e f f e c t on net income of changes in any variable w i l l be i d e n t i c a l , whether expressed i n Carlson's terminology or as above. For a given volume, Qj, the exporter may increase net income by increasing the export price, P £, or by decreasing the export c r e d i t period, t _ . However, Q_ i s dependent upon the s e l l i n g terms. I f t E i s held constant, then the optimum p r i c e * i s dictated by the importer's price e l a s t i c -i t y of demand, which in turn i s derived from the resale 2 demand faced by the importer. This e l a s t i c i t y , and hence the exporter's range of price d i s c r e t i o n , w i l l depend upon the s u b s t i t u t a b i l i t y of products from other s u p p l i e r s . In any event, f o r a given set of external conditions, there e x i s t s only one optimal p r i c e . An optimum period of export c r e d i t also e x i s t s i f pr i c e i s held constant. As in the case of price, t h i s optimum i s dependent upon the importer's e l a s t i c i t y of demand. However, since p r i c e , P E, i s constant, t h i s e l a s t i c i t y i s with respect to changes i n t _ . *For optimum P E, l e t the f i r s t d e r i v a t i v e of Equation ( 1 - 2 ) with respect to Pg equal 0, and solve f o r P E. 2 E l a s t i c i t i e s are i d e n t i c a l in the absence of competition. - d°x ~ at E Where e. i s importer's e l a s t i c i t y of demand with respect E to export c r e d i t period. The f i r s t d e r i v a t i v e of Equation ( 1 - 2 ) with respect to t when equated to 0, y i e l d s the optimum period E of c r e d i t . Rasmussen (1955)* has summarized t h i s optimum in the following manner: export c r e d i t period (volume being given by PE Qj ) w i l l be increased u n t i l the unit cost of c r e d i t i s equal to the sales e l a s t i c i t y with respect to t or E £ p X t e = - (1 - 3) <PE " V " ^ E V E Where e t E = the e l a s t i c i t y of demand with respect to c r e d i t period; other symbols are as i n Equation (1 - 1) and (1 - 2) Rasmussen, Arne, P r i s t o r i E l l e r Parameteroeri, Studier Omkrinq Virksonhedens Afsoetninq, Copenhagen, 1955, Chapter VII, as discussed in Carlson (1969) Upon examination, i t i s apparent that t h i s state-ment and formula constitute marginal analysis of revenues and costs, and that the optimum occurs when marginal revenue equals marginal cost. Figure (1 - 1) depicts the r e l a t i o n s h i p discussed to this point. FIGURE 1 - 1 $ TOTAL REVENUE TOTAL EXPENSE •— with insurance without insurance VOLUME NET INCOME VVOLUME Since the function of the v a r i a b l e we seek to maximize, N E, i s the difference between two sub-functions, those of t o t a l revenues and t o t a l costs, optimization occurs when the two sub-functions are p a r a l l e l . Since, from Equation (1 - 1), the import demand e l a s t i c i t y with respect to c r e d i t i s always p o s i t i v e , the t o t a l revenue curve w i l l increase with the introduction or increase of export c r e d i t . C r e d i t increases both the optimum export volume, Q f and the maximum net income of the exporter. Demand for Export C r e d i t Insurance Equation (1-2) may be amended as follows for an exporter purchasing export c r e d i t insurance: N E " £ P E Q I ( 1 ~ X E t E ) " C E Q I " UE^Qj) (1 - 4) Where i i s equal to premium rate, and the other symbols the same as equation (1-2) Since insurance premiums are added costs, c e r t a i n p o s i t i v e changes must be expected in other factors i f the business i s to benefit from i t s use. The expression £ p E Q j (1 - represents the value of the exporter's future revenues from a contract, discounted to the date of s a l e . 1 For any tg, the value of the expression A o r the time of d e l i v e r y , depending upon the time at which financing costs are f i r s t incurred. may be increased by increasing CP^Q^, or decreasing Xg. I t w i l l be argued that export c r e d i t insurance performs e i t h e r or both of these changes. 1) Increasing £ p g Q j To t h i s point, gorss revenues have been expressed as the face value of contracts. Because of the r i s k of default by the importer, revenues should more c o r r e c t l y be expressed in terms of the expected value of future payments, E(£P O,.). without insurance, values associated with a range E I of p r o b a b i l i t i e s could vary from the face value of the contract to zero.* With insurance, these values may only vary between the face value and that percentage of the face value guaranteed by the insurer. In the case of the Export Development Corporation, t h i s i s 90%. I t follows that a l l values below 90% of the face value of the contract have a p r o b a b i l i t y of 0. The importance of t h i s e f f e c t upon the operations of the firm depends upon the proportion of exports in t o t a l sales, and upon the responsiveness of the firmfe cost of c a p i t a l to changes in r i s k . For a more det a i l e d discussion of expectation theory, see William R. King, P r o b a b i l i t y for Management  Decisions, John Wiley & Son Inc., New York, 1968. The following example i l l u s t r a t e s the e f f e c t on expected value of reducing downside r i s k through the use of export c r e d i t insurance. FREQUENCY DISTRIBUTION OF POSSIBLE OUTCOMES CONTRACT VALUE: $100 FREQUENCY f(x), f(x) = with insur ance | P r o b a b i l i t y Value E ( X ) 1 P r o b a b i l i t y Value E(X) .001 0 .00 .000 0 .00 .001 10 .01 .000 10 .00 .004 20 .08 .000 20 .00 .004 30 .12 .000 30 .00 .005 40 .20 .000 40 .00 .005 50 .25 .000 50 .00 .010 60 .60 .000 60 .00 .020 70 1.40 .000 70 .00 .040 80 3.20 .000 80 .00 .060 90 5.40 .150 90 13.50 .850 100 85.00 .850 100 85.00 1 xf (x) = $96.26 £xf(x) = $98.50 a l l x a l l x 2) Reducing Cost of C a p i t a l , X E A firm's cost of c a p i t a l depends upon i t s r i s k c h a r a c t e r i s t i c s as perceived by the suppliers of c a p i t a l . Although i n d i v i d u a l projects or transactions often have unique r i s k c h a r a c t e r i s t i c s and appropriately d i f f e r e n t costs of c a p i t a l , firms are not always able to acquire and a l l o c a t e packages of funds f o r s p e c i f i c p r o j e c t s . Further-more, the existence of a very r i s k y or very c e r t a i n prbject at the margin a l t e r s the firm's o v e r a l l r i s k complexion, and thereby i t s cost of c a p i t a l to refinance e x i s t i n g investments. Since the e f f e c t s of r i s k on cost of c a p i t a l are not l i m i t e d to a s p e c i f i c project, the marginal rate for financing that x = M *For continuous va r i a b l e s , E(X) =^*xf(x)dx for x ^ ^ X ^ x x = 0 0 M project i s not an appropriate estimate of the true cost of c a p i t a l . The weighted average cost of c a p i t a l for the firm as a whole i s a superior measure since i t accommodates the t o t a l e f f e c t of the transaction or the firm's financing costs. Such a cost ought not to be calculated from actual costs p r i o r to the proposed investment (project) but rather, based on estimates and quotations, should the venture be included in the firm's a c t i v i t i e s . X E, therefore, i s the post-transaction, weighted average cost of c a p i t a l for the 1 f i r m . In the previous section, the e f f e c t of export c r e d i t insurance in reducing downside r i s k was discussed. By reducing r i s k and increasing expected value, insurance improves the firm's r i s k complexion, thereby reducing i t s cost of c a p i t a l . I f a guarantee i s issued i n conjunction with t h i s insurance, an a d d i t i o n a l b e n e f i t may accrue to the exporter; h i s cost of c a p i t a l for financing the insured transaction w i l l probably be l e s s , thereby increasing the present value of revenues and reducing the cash requirement for i n t e r e s t payments. The importance of export c r e d i t insurance to the This d e f i n i t i o n d i f f e r s from that used by Carlson. For a discussion of these differences, and the reasons for the modification, see footnote 1, page 8. i n d i v i d u a l firm depends upon the degree of r i s k associated with i t s transaction, and also the responsiveness of i t s p a r t i c u l a r c a p i t a l costs to'that r i s k . One would expect insurance to be used to the point where the cost of premiums, i(£-P Q ) was just o f f s e t by the increase i n E I , expected value of revenues, E(£PEQ.J.) plus the decrease in the cost of c a p i t a l , (X t P Q ) . E E E I i Demand f o r Export C r e d i t Financing Export Development Corporation financing i s extended as a loan 'to foreign buyers f o r the purchase of Canadian c a p i t a l goods and s e r v i c e s . The exporter i s therefore relieve d of the cost of export c r e d i t , X t P Q . Higher E £ E I net income r e s u l t s from the absence of t h i s cost, but also from an increase in the expected value of revenues, since payment i s assured. In a competitive market, an increase in the expected value of revenues and a decrease i n costs w i l l r e s u l t in a lowering of the export p r i c e , £ p E « One would expect, there-fore, that exporters would seek c r e d i t financing u n t i l i t s benefits were just o f f s e t by a change i n gross revenues, Such an optimum would depend upon the importers Jj 1 e l a s t i c i t y of demand with respect to p r i c e . I t is on the basis of relationships discussed i n the above sections that government organizations such as the Export Development Corporation can j u s t i f y the pro-v i s i o n of export c r e d i t insurance and financing. The resultant increases in export trade b e n e f i t both i n d i v i d u a l exporters and the economy as a whole through increased Gross National Product and p o s i t i v e contributions to the Balance of Payments. The theory discussed to this point has alluded i n a general sense to benefits accruing to i n d i v i d u a l companies through the use of export c r e d i t s e r v i c e s . In the s p e c i f i c instance of companies in B r i t i s h Columbia, several inherent c h a r a c t e r i s t i c s amplify these benefits, and suggest that firms would e x p l o i t such services to the extent that they met the perceived need. 1) Small l o c a l market The consumer and i n d u s t r i a l markets in B r i t i s h Columbia are separated from other Canadian markets by an often p r o h i b i t i v e transportation cost b a r r i e r . As a r e s u l t , most companies face small markets, domestically, and costs of production are correspondingly high. The development of export trade provides an opportunity for production expansion towards more e f f i c i e n t l e v e l s , thereby reducing costs and increasing gross margin. R e l a t i v e l y inexpensive water transport makes shipment to export markets much less p r o h i b i t i v e i n most cases than to other domestic markets.^" 2) Industry Structure As w i l l be discussed in Chapter I I , B. C. industry consists p r i m a r i l y of c a p i t a l goods manufacturers and suppliers of i n d u s t r i a l materials. The domestic demand for these products i s much less than production capacity and foreign demand i s very great. In the f i r s t category, many opportunities e x i s t f o r assistance through EDC financing. In the second category, products from d i f f e r e n t sources are often homogeneous, and c r e d i t terms, rather than p r i c e , are the c r i t i c a l factor in the award of contracts. 3) Cost of Financing Although costs vary considerably from period to period, the provision of export c r e d i t constitutes a major cost f o r B.C. industry. The e f f e c t on net income i s ''"For example, B.C. Honey Ltd., New Westminster, B.C. has claimed that i t s product cannot compete in Calgary, Alberta, but s e l l s u c c e s s f u l l y i n over 30 foreign markets. Shipping costs to Amsterdam, for instance, are less than to Calgary. Source: Mrs. Ruth Bird, President, B.C. Honey Ltd. evident from Equation (1 - 2), and the benefits of EDC's services i n reducing t h i s e f f e c t have been discussed. P o t e n t i a l l y , the benefits to industry in t h i s province of exporting, and of ex p l o i t i n g c r e d i t services such as those of EDC, are great. The balance of t h i s thesis i s devoted to an assessment and explanation of the degree to which that p o t e n t i a l has been r e a l i z e d . Questionnaire General Design In the general design of the questionnaire, care was taken to ensure ease of response and thereby increase the probable number of responses. Only twelve questions were asked; multiple choice, check-off responses were chosen over narratives; and only seventy-eight a l t e r n a t i v e s were to be considered i n t o t a l . The basi c response required only twelve checks, and a statement of company products. However, to f a c i l i t a t e the re p l i e s of those wishing to provide addi-t i o n a l information, spaces were provided f o r explanations and elaborations wherever appropriate. A covering l e t t e r , written on U n i v e r s i t y of B r i t i s h Columbia letterhead and signed by Dr. W. Winiata, explained the purpose of the study, and related i t to a forthcoming seminar to be conducted in Vancouver by executives of the Export Development Corporation. Whereas the questionnaire format created an impression of the ease of response, the covering l e t t e r was designed to show the importance of the study and hence of the response of the r e c i p i e n t . A specimen of both the questionnaire and the covering l e t t e r appear as Appendix I . Sample The l i s t of companies chosen to receive the question-naire was provided by the Vancouver o f f i c e of the Export Development Corporation. I t consisted of companies that were exporting, or a c t i v e l y seeking export s a l e s . Further-more, these companies were aware of EDC services, but had not, at the date of mailing, used them. To the extent that c h a r a c t e r i s t i c s o f the sample d i f f e r from those of the export population as a whole, inductive conclusions regarding the population may be i n v a l i d . Such di f f e r e n c e s , and t h e i r p o t e n t i a l impact on the conclusions of t h i s study, are discussed i n Chapter I I . Method of Analysis " I t is a valuable and i n s t r u c t i v e d i s c i p l i n e , a f t e r every investigation, to divide the conclusions into three groups: a) the ones that are well known to s t a r t with, b) the ones that confirm or refute previous 'hunches' and c) the ones that no one ever thought of, ^ and possibly cannot be believed in some cases." The objective of t h i s study may be interpreted i n terms of finding r e l a t i o n s between and among character-i s t i c and attitude v a r i a b l e s . From these r e l a t i o n s h i p s , i t i s hoped that explanations of the poor responses to EDC w i l l be apparent, and that courses of action w i l l be i m p l i c i t to improve the response to present programs and to render them more e f f e c t i v e . Analysis of the data received in response to the questionnaire w i l l consist p r i m a r i l y of constructing frequency d i s t r i b u t i o n s among responses to in d i v i d u a l questions, and est a b l i s h i n g contingency c o e f f i c i e n t s between selected pairs of v a r i a b l e s . These r e s u l t s w i l l t e s t hypothesised relationships such as that between r i s k perception and c r e d i t . In addition, evidence of new rel a t i o n s i s expected, hopefully of a nature useful to the increased effectiveness of the Corporation. " I t i s perhaps unnecessary to stress that we should take into account knowledge aboutj our population derived from other sources." *M. J . Moroney, Facts from Figures, Penguin Books, Baltimore, 1962, page 123. Ibid, page 122. The i n t e r p r e t a t i o n of data received from questionnaire responses, and recommendations thereupon, w i l l be undertaken in l i g h t of information accumulated from a number of ad d i t i o n a l sources. Such information w i l l be introduced in the areas of: 1) population c h a r a c t e r i s t i c s , 2) EDC performance, 3) comparable insurance and finance programs in other countries. References w i l l be i d e n t i f i e d as they are introduced into the text. The basis of analysis for t h i s study i s the MVTAB program.* This program i s capable of c a l c u l a t i n g uni-variate and b i v a r i a t e frequency tables, and of performing ho r i z o n t a l , v e r t i c a l and t o t a l percentages in r e l a t i o n to these tables. The chi-square t e s t of independence i s also performed on data. In order to use t h i s program f o r the current study, one modification was necessary. Since MVTAB only considers single response to questions, the treatment of multiple responses could only be performed by creating "dummy" in d i v i d u a l s whose responses were zero i B j e r r i n g , Boyes, Campbell & Starkey, Multivariate Contingency Tabulation, U.B.C. Computing Center, 1970. to a l l variables except that for which the " r e a l " response was multiple. A separate " i n d i v i d u a l " was created for each of the multiple responses;* "Dummy" indi v i d u a l s do not d i s t o r t chi-square c a l c u l a t i o n since a l l zero responses are ignored under the "X" option (MVTAB, page 24). Nor do they d i s t o r t frequency d i s t r i b u t i o n s since zero responses are ignored in table construction under the "Z" option (MVTAB, page 24). For example, variable A assigned values 2 and 3, variable B assigned values 1, 3 and 5 , and v a r i a b l e C assigned value 5. A B C Card 1 Card 2 Card 3 Card 4 2 1 5 3 0 0 0 3 0 0 5 0 PROFILE OF RESPONDENTS The questionnaire included 5 items pertaining to company c h a r a c t e r i s t i c s ; industry sector, number of years export experience, sales volume, export/total sales r a t i o , and number of export markets. While other c h a r a c t e r i s t i c s would be e s s e n t i a l for the development of a d e t a i l e d p r o f i l e , these were deemed relevant and adequate for purposes of this study. I Industry Sector Question 7: What types of products do you export? Responses to this question were grouped into f i v e categories; consumer non-durables, consumer durables, c a p i t a l equipment, i n d u s t r i a l materials, and s e r v i c e s . Companies dealing i n more than one category were assigned to that category in which the majority of t h e i r revenue was earned . The objective i n determining the industry sector of respondents was to t e s t t h i s variable as a determinant of attitudes toward exporting in general, and toward the programs of the Export Development Corporation. Differences might be suspected among sectors, given the v a r i a t i o n s that e x i s t in the t r a d i t i o n a l importance of exporting, as well as pre-contract costs, type and number of customers, and the p r o b a b i l i t y of repeat business with customers. I f differences e x i s t according to industry sector, then the Corporation might be most e f f e c t i v e in the promotion of i t s services i f i t engages in market segmenta-tio n along product l i n e s . * For example, i f a c o r r e l a t i o n i s established between product category and sources of general information (Question 2), the information vehicle most e f f e c t i v e for the dissemination of EDC information w i l l depend upon the category to be reached. The r i s k with which exporting is associated, and i t s explanation (Question 4 and 5), may also depend upon industry sector, and w i l l suggest the perceived need for EDC services in each case. Such segmentation would be in addition to that dictated by the s p e c i f i c objective of the finance program to a s s i s t only the c a p i t a l goods and technical services sectors. INDUSTRY SECTOR DISTRIBUTION OF RESPONDENTS (Frequency and Percentage D i s t r i b u t i o n ) Cons . Cons. C a p i t a l Ind'1. Services Dur. Non-dur. Equip. Materials Frequency Total 113 1 10 50 32 20 Percent T o t a l 100 .88 8.85 44.25 28.32 17 .70 As indicated in Table 2-1, c a p i t a l equipment manu-facturers accounted for the largest share of respondents, at 44.25%, followed by i n d u s t r i a l materials manufacturers, services (which consisted e n t i r e l y of professional technical s e r v i c e s ) , and consumer goods, in that order. I t i s apparent from this d i s t r i b u t i o n , that the customers of BC exporters w i l l not be i n d i v i d u a l consumers, but rather, industries and governments. Within i n d i v i d u a l industry sectors, the responses to other c h a r a c t e r i s t i c s questions varied considerably.*-Consumer Non-Durables Eight out of 10 respondents in this category had been exporting longer than f i v e years; 5 had sales in There was only one respondent in the Consumer Durables category. excess of $2 m i l l i o n ; 5 exported less than 25% o f t h e i r t o t a l sales; 9 exported to more than 2 foreign countries; and respondents were evenly divided regarding t h e i r view of the r e l a t i v e p r o f i t a b i l i t y of exports and domestic business. C a p i t a l Equipment Twenty of the 50 respondents indicated that they had been active in export business f o r more than 5 years; 18 had sales in excess of $2 m i l l i o n ; 29 stated that exports accounted for less than 25% of t o t a l sales; 28 did business in more than 2 countries; and respondents were evenly divided regarding export p r o f i t a b i l i t y . I n d u s t r i a l Materials Twenty-six of the 32 respondents had been exporting for more than 5 years; 25 had sales i n excess of $2 m i l l i o n ; 23 exported more than 50% of t o t a l sales; 27 exported to more than 2 foreign markets; and of the 17 that answered the question regarding p r o f i t a b i l i t y , 12 indicated that exporting was more p r o f i t a b l e than domestic business. Services The 20 respondents were evenly d i s t r i b u t e d regard-ing years experience and sales volume; 10 exported less than 25% of t o t a l sales; 12 exported services to more than 2 foreign markets; and of the 13 that responded to the MOST FREQUENT RESPONSES BY INDUSTRY SECTOR (percent) Consumer Non-durables C a p i t a l Equipment I n d u s t r i a l Materials Services Years Experience 80% more than 5 years 40% more than 5 years 82% more than 5 years even d i s t r i b u t i o n Sales Volume 50% more than $2 m i l l i o n 36% more than $2 m i l l i o n 80% more than $2 m i l l i o n even d i s t r i b u t i o n Exports/ Total Sales 50% less than 25% 58% less than 25% 72% less than 25% 50% less than 25% Number of Fo re ign Markets 90% more than 2 56% more than 2 84% more than 2 60% more than 2 P r o f i t a b i l i t y even d i s t r i b u t i o n even d i s t r i b u t i o n 70% exports more p r o f i t a b l e 46% exports less p r o f i t a b l e p r o f i t a b i l i t y question, 6 indicated that exporting was less p r o f i t a b l e than domestic business. A summary of most frequent responses appears in Table 2 - 2. Industry Sector D i s t r i b u t i o n of Population Since the group of companies chosen to receive the questionnaire was not a random sample (See Sample, page 19) , i t is possible that the d i s t r i b u t i o n described in Table 2 - 1 i s not representative of the BC export community as a whole. As a means of comparison, companies l i s t e d in the 1970 Exporters Directory of the Department of Industry, Trade and Commerce were grouped into s i m i l a r categories. The frequency and percentage d i s t r i b u t i o n of these companies appears in Table 2 - 3 . TABLE 2 - 3 INDUSTRY SECTOR DISTRIBUTION OF POPULATION (Frequency and Percentage D i s t r i b u t i o n ) Cons. Cons . Ca p i t a l - I n d ' l . Services Dur. Non-dur. Equip. Materia Is Frequency Total 552 27 110 188 195 32 Percent Total 100 4.88 19.80 34.16 35 .40 5 .79 A chi-square test f or independence was performed on the data in Tables 2 - 1 and 2 - 3.* The study sample and the BC exporter population as a whole were found to be independent with respect to d i s t r i b u t i o n by industry sector 2 at the 99.5% l e v e l of confidence. Inductive conclusions pertaining to industry sector d i s t r i b u t i o n would therefore be i n v a l i d based on sample data. However, i t i s not the purpose of this study to make recommendations regarding the population as a whole, but rather, to e s t a b l i s h relationships between population c h a r a c t e r i s t i c s and population a t t i t u d e s . Thus the precise population d i s t r i b u t i o n , and the question of independence do not jeopardize i t s value. The r e l a t i v e importance of conclusions in thi s study may be guaged by the s i z e of that industry sector to which they apply. II Export Experience Question 8: How many years have you been active in the export market? Table 2 - 4 contains the frequency and percentage d i s t r i b u t i o n of responses to this question. genera] *Data . form: from these tables were organized in the 1 2 3 4 5 A B and a chi-square value of approximately 29.1 determined. This exceeded the chi-square value 9.49 at the 99.5% l e v e l o f confidence for 4 degrees of freedom. ^In t h i s study, the chi-square test i s used f o r Footnote 2 continued from page 31 contingency table a n a l y s i s . In a l l cases, the n u l l hypothesis i s that given sets of data are independent. I m p l i c i t l y , the alternate hypothesis i s that the data are not independent. This does not, of i t s e l f , mean dependence exists since the t e s t may be i n v a l i d i f the presumption of independence i s not met. The purpose of chi-square te s t i n g in Table 2 - 1 and 2 - 3 i s to determine whether or not sample data may be interpreted as representative of the population with respect to industry sector d i s t r i b u t i o n . Since independ-ence i s shown, we conclude that the d i s t r i b u t i o n of the sample i s not representative of that of the population as a whole. I t i s therefore not correct to make state-ments about the population based on the study sample, i f sector d i s t r i b u t i o n i s the determining v a r i a b l e . I f other c h a r a c t e r i s t i c s are c o i n c i d e n t a l l y homogeneous among industry sectors, such statement might be true, but t h i s does not a l t e r the fact of t h e i r i n v a l i d i t y based on known data. Information regarding the c h a r a c t e r i s t i c s of the population as a whole were not avai l a b l e for incorporation into t h i s study. EXPORT EXPERIENCE OP RESPONDENTS (Frequency and Percentage D i s t r i b u t i o n ) Less than 2 to 5 More than 2 years years 5 years Frequency T o t a l 109 21 27 61 Percent T o t a l 100 19.27 24.77 55.96 i More than h a l f of the respondents indicated that they had been active in exporting f o r more than 5 years, suggesting that they have acquired considerable experience in i t s p e c u l a r i t i e s and problems. As indicated in Table 2 - 5 , there i s a marked diffe r e n c e i n experience l e v e l by industry sector. Exporters of consumer non-durables and i n d u s t r i a l materials have much more experience than do i c a p i t a l equipment and services exporters. Table 2 - 6 provides a comparison of export exper-ience and sales volume, although the chi-square t e s t i s i n v a l i d because 5 of 12 c e l l s contain less than 5 responses, there i s an apparent r e l a t i o n s h i p between these two v a r i -ables. I f several of the rows and columns of Table 2 - 6 are combined, i t becomes apparent that there i s a p o s i t i v e r e l a t i o n s h i p between export experience and sales volume. The r a t i o of inexperienced to experienced exporters decreases markedly as sales volume increases, i n d i c a t i n g EXPORT EXPERIENCE - INDUSTRY SECTOR (Percentage Distribution) s > Less than 2 to 5 More than Number of 2 years years 5 years respondents Consumer Durables Consumer Non-Durables Capital Equipment Industrial Materials Services 100.00 .00 .00 1 10.00 10.00 80.00 10 22.00 38.00 40.00 50 6.67 6.67 86.67 30 33:33 27.78 38.89 18 EXPORT EXPERIENCE - SALES VOLUME (Percentage Distribution) ($•000) less than 100 100 to 500 500 to 2,000 more than 2,000 less than 2 years 36.84 15.79 26.32 21.05 2 to 5 years .00 22.22 37.04 40.74 more than 5 years 6.67 11.67 20.00 61.67 TABLE 2 - 6a EXPORT EXPERIENCE - SALES VOLUME 500 500-2,000 2,000 1 ^ 5 y r s . 12 5 4 II > 5 yrs . 6 10 11 Ratio of I: II 2:1 .5:1 .36:1 The r a t i o of inexperienced to experienced exporters decreases markedly as sales volume increases, i n d i c a t i n g that large firms have, in general, more export experience than small firms. Also of i n t e r e s t i s the r e l a t i o n s h i p between years of experience and export share of t o t a l sales, Table 2 - 7 . TABLE 2 - 7 EXPORT EXPERIENCE - EXPORT/TOTAL SALES RATIO (Percentage D i s t r i b u t i o n ) less than 25% 25 to 50% more than 50% less than 2 years 65.00 .00 35.00 2 to 5 years 50.00 38.46 11.54 more than 5 years 36.67 15 .00 48.33 F i f t y - e i g h t decimal f i v e zero percent of respondents having 5 years export experience or less exported less than 25% of t o t a l sales, while 48.33% of those with more than 5 years experience exported more than 50% of t o t a l s a l e s . This r e l a t i o n s h i p suggests that f a m i l i a r i t y with export business increases i t s attractiveness and expands the i d e n t i f i e d opportunities for sales abroad. Although chi-square tests for independence were invalidated by the presence of c e l l s i n the contingency tables with too few responses, there i s evidence from the relevant tables that the following statements are v a l i d . TABLE 2 - 6 Sales volume i s p o s i t i v e l y cor-related with export experience. TABLE 2 - 7 Export/total sales r a t i o i s p o s i t i v e l y correlated with export experience. TABLE 2 - 10* Sales volume i s p o s i t i v e l y cor-related with export/total sales r a t i o . On the basis of these statements, the following conclusion i s suggested: The rate at which sales growth of the exporter occurs i s dependent upon the r e l a t i v e importance of exports to t o t a l s a l e s . Reluctance for one reason or another to engage i n , or to expand, exports l i m i t s the growth p o t e n t i a l of the firm. Such a statement i s i n t u i t i v e l y acceptable in the case of firms in B r i t i s h Columbia. The l o c a l market i s small, and other domestic markets i n a c c e s s i b l e . Demand i s See page 36. not expanding quickly enough to support major growth, and competition i s well established. Export markets, on the other hand, o f f e r much greater t o t a l demand, and since suppliers are small in r e l a t i o n to the market, there i s more f l e x i b i l i t y i n any one supplier's competitive p o s i t i o n . I l l Sales Volume Question 9: What i s your annual sales volume? The frequency and percentage d i s t r i b u t i o n of responses to t h i s question appear in Table 2 - 8 . Sales volume by industry sector appear in Table 2 - 9 . TABLE 2 - 8 SALES VOLUME OF RESPONDENTS (Frequency and Percentage D i s t r i b u t i o n ) ($'000) less than 100 100 to 500 500 to 2,000 more than 2, 000 Frequency Tot a l 107 11 16 27 53 Percent T o t a l 100 10.28 14.95 25.23 49.53 SALES VOLUME - INDUSTRY SECTOR (Percentage Distribution) ($'000) less than 100 to 500 to more than 100 500 2,000 2, 000 Consumer Dur. .00 .00 100.00 .00 Cons. Non-dur. 20 .00 10.00 20.00 50 .00 Capital Equip. 10 .00 22.00 32.00 36 .00 Industrial Mat. .00 .00 13.79 86 .21 Services 23 .53 23.53 23.53 29 .41 While half of the total respondents had sales in excess of $2 million, there was considerable variation among industry sectors. Of industrial materials suppliers, 86.21% had sales in excess of $2 million, while exporters in the consumer non-durables, capital equipment, and services sectors had, in that order, fewer respondents in the largest category. TABLE 2 - 10 SALES VOLUME - EXPORT/SALES RATIO (Percentage Distribution) less than 25% 25 to 50% more than 50% respondents less than 100 90.91 .00 9.09 11 100 to 500 43.75 25.00 31.25 16 500 to 2,000 57.69 11.54 30.77 26 more than 2,000 30.77 25.00 44.23 52 105 The frequency d i s t r i b u t i o n from which Table 2 - 1 0 was derived cannot be tested for independence with the chi-square in i t s present form since 1/3 of i t s c e l l s have fewer than f i v e responses. However, a r e l a t i o n s h i p i s apparent, since 63% of respondents with sales below $500,000 exported less than 25% of those sales, while of firms with sales exceeding $2 m i l l i o n , 44% exported more than 50% of s a l e s . For a comparison of sales volume and export experi-ence, see Table 2 - 6 . I V Importance of Exports i n Total Sales Question 10: What proportion of your annual sales volume i s i n exports? The frequency and percentage d i s t r i b u t i o n of responses to this question appear in Table 2 - 11. TABLE 2 - 1 1 EXPORTS AS PERCENT OF TOTAL SALES (Frequency and Percentage D i s t r i b u t i o n ) Less than 25% 25 to 50% More than 50% Frequency To t a l 107 48 20 39 Percent T o t a l 100 44.86 18.69 36.45 The r e l a t i v e importance of exports in t o t a l sales varied considerably among the response categories of other c h a r a c t e r i s t i c questions. These d i s t r i b u t i o n patterns are depicted in Table 2 - 12 to 2 - 15. EXPORTS/TOTAL SALES - INDUSTRY CATEGORY (Horizontal Percentage Distribution) Less than 25% 2 5-50% More than 50% Number of Respondents Consumer Durables 100.00 .00 .00 1 Consumer Non-Durables 50.00 20.00 30.00 10. Capital Equipment 58.00 26.00 16.00 50 Industrial materials 10.34 10.34 79.31 29 Services 58.82 11.76 29.41 17 TABLE 2 - 1 3 EXPORTS/TOTAL SALES - EXPORT EXPERIENCE (Horizontal Percentage D i s t r i b u t i o n ) Less than More than Number of 25% 25-50 50% Respondents Less than 2 y r s . 2 - 5 y r s . More than 5 y r s . 65.00 .00 35.00 20 50.00 38.46 11.54 26 36.67 15.00 48.33 60 TABLE 2 - 1 4 EXPORTS/TOTAL SALES - SALES VOLUME (Horizontal Percentage D i s t r i b u t i o n ) ($•000) Less than 25-50 More than ; Number of 25% 50% Respondents Less than 100 100-500 500 -2,000 More than 2,000 90.91 .00 9.09 11 43.75 25.00 31.25 16 57.69 11.54 30.77 26 30.77 25.00 44.23 52 , _ J TABLE 2 - 1 5 EXPORTS/TOTAL SALES - NUMBER OF EXPORT MARKETS Less than 25% 25 - 50 More than 50% Number of Respondents 1 65.00 15.00 20.00 20 2 88.89 .00 11.11 9 Several 34.25 23.29 42.47 73 t TABLE 2 - 1 6 EXPORTS/TOTAL SALES - EXPORT PROFITABILITY (Horizontal Percentage D i s t r i b u t i o n ) Less than 25 - 50 More than Number of 25% 50% Respondents More P r o f i t a b l e 26.47 23 .53 50 .00 34 Same 65.00 20 .00 15 .00 20 Less P r o f i t a b l e 64.29 21 .43 14 .29 28 Although chi-square t e s t for independence were invalidated in each Table except 2 - 16, several r e l a t i o n -ships are apparent. Of the manufacturers of consumer goods and c a p i t a l equipment, and suppliers of te c h n i c a l services, more than half-54.00%, 58.00%, & 58.87% respectively, export less than one quarter of t h e i r t o t a l s a l e s . Of the i n d u s t r i a l materials manufacturers, on the other hand, 79.31% export more than TABLE 2 - 1 3 TABLE 2 - 1 4 TABLE 2 - 1 5 TABLE 2 - 1 6 There i s no apparent r e l a t i o n s h i p between the r a t i o of exports to t o t a l sales, and export experience. The importance of exports to t o t a l sales increases in d i r e c t proportion with sales volume.* For firms exporting to only 1 or 2 foreign markets, exports accounted for a smaller per cent of t o t a l sales than f o r firms 2 exporting to several countries. There i s a strong r e l a t i o n s h i p between expo r t s / t o t a l sales, and the perceived r e l a t i v e p r o f i t a b i l i t y of exports to domestic s a l e s . One h a l f of those firms i n d i c a t i n g greater p r o f i t a b i l i t y in exports This i s consistent with the argument that the l o c a l market i s too small to afford opportunities for large sales volumes, so that growth oriented firms must eventually seek foreign markets, e s p e c i a l l y in view of the competitive disadvantage of entering other domestic markets. This suggests e i t h e r an increase in the number of export opportunities or an increase in the attractiveness of e x i s t i n g opportunities on the basis of broader r i s k d i s t r i b u t i o n . earn more than 50% of t h e i r t o t a l revenues through exports. Of those i n d i c a t i n g less p r o f i t a b i l i t y , 64.29% s e l l less than 25% of t h e i r t o t a l sales abroad. The chi-square t e s t confirms that these variables are not independent at the 99.5% l e v e l of confidence. V Number of Export Markets Respondents were asked to indicate whether t h e i r exports were to 1, 2 or several countries. This question was asked i n the b e l i e f that the number of export markets r e f l e c t s the scope of the base upon which export experience i s being gained. Furthermore, r i s k perception may well be influenced by the number of markets to which exports are made. TABLE 2 - 1 7 EXPORT MARKETS (Frequency and Percentage D i s t r i b u t i o n ) 1 i 2 Several Frequency Total 106 21 9 76 Percent To t a l 100 19.81 8.49 71.70 In comparing t h i s d i s t r i b u t i o n with other character-i s t i c s , there i s only one noteworthy deviation from the pattern: 8 of 18 respondents who have exported for less than 2 years exported to only one market. Otherwise, the majority of respondents in a l l instances exported to more than 2 countries. VI Relative P r o f i t a b i l i t y of Exports to Domestic Sales Respondents were asked to indicate whether they thought exporting was more, or less, profitable than domestic business. Responses to this question w i l l reflect the firm!s predisposition regarding exports. The p r o f i t a b i l i t y index discussed below is to some extent a measure of that pre-disposition. Many respondents wrote in reply to the effect that the two were the same. Table 2 - 1 8 describes the frequency and percentage distributions. TABLE 2 - 1 8 RELATIVE PROFITABILITY OF EXPORTING AND DOMESTIC BUSINESS Exports Exports No More Less Difference Profitable Profitable Frequency Total 83 Percent Total 100 34 29 20 40.96 34.94 24.10 This d i s t r i b u t i o n suggests that exports are, for the population as a whole, s l i g h t l y more p r o f i t a b l e . 1 However there are marked differences in attitudes in t h i s section depending upon the response to other c h a r a c t e r i s t i c s that were determined. To f a c i l i t a t e comparison among categories, a p r o f i t -a b i l i t y index was determined i n the following manner. Each response in d i c a t i n g exports more p r o f i t a b l e was assigned "+1"; each i n d i c a t i n g less p r o f i t a b l e , "-1"; and each in d i c a t i n g the same, "0". The v e r t i c a l sums were then divided by the t o t a l responses i n the columns. Indices therefore range between - 1 and +1, the extremities r e f l e c t -ing strong agreement as to the r e l a t i v e p r o f i t a b i l i t y of exports and domestic s a l e s . Of p a r t i c u l a r s i g n i f i c a n c e are Table 2 - 1 9 and 2 - 2 2 , where a very strong r e l a t i o n s h i p i s revealed between export p r o f i t a b i l i t y and industry sector, and export/sales r a t i o r e s p e c t i v e l y . ''"Data in t e r p r e t a t i o n i s complicated in this section by the existence of a l t e r n a t i v e measures of p r o f i t a b i l i t y . P r o f i t could be viewed as a percentage margin, as sales volume, as d o l l a r margin on sales, or as a rate of return. For purposes o f this study, p r o f i t a b i l i t y i s defined as the d o l l a r margin on s a l e s . This d e f i n i t i o n i s consistent with the r e s u l t s of the questionnaire data, and i s assumed in a l l t h e o r e t i c a l r e l a t i o n s h i p s to be hypothesized. EXPORT PROFITABILITY - INDUSTRY SECTOR (Percent of Respondents) (Profitability Index) • Consumer Durables Consumer Non-durables Capital Equipment Industrial Materials Services More .00 25.00 36.36 70.59 30.77 Less 1.00 50.00 34.09 17.65 46.15 Same .00 25.00 29.55 11.76 23.08 PI -1.00 -.13 + .02 + .53 -.02 EXPORT PROFITABILITY - EXPORT EXPERIENCE (Percent of Respondents) ( P r o f i t a b i l i t y Index) 2 y r s . 2-5 y r s . 1 5 y r s . More 35.71 33.33 47.73 Less 35.71 37.50 31.82 Same 28.57 29.17 20.45 PI .00 -.04 + .16 TABLE 2 - 2 1 EXPORT PROFITABILITY - SALES VOLUME i (Percent of Respondents) ( P r o f i t a b i l i t y Index) 100-500 500-2,000 2,000 More 25.00 50.00 28.57 50.00 Less 37.50 35.71 38.10 31.58 Same 37.50 14.29 33.33 . 18.42 PI -.13 + .14 -.09 + .18 EXPORT PROFITABILITY - EXPORTS/SALES RATIO (Percent of Respondents) ( P r o f i t a b i l i t y Index) Less than 25% 25 - 50% More than 50% More 22.50 44.44 70.83 Less 45.00 33.33 16.67 Same 32.50 22.22 12.50 PI -.23 + .11 + .55 TABLE 2 - 2 3 EXPORT PROFITABILITY - NUMBER OF EXPORT MARKETS i (Percent of Respondents) ( P r o f i t a b i l i t y Index) 1 2 Several More 35.29 12.50 45.61 Less 35.29 50.00 33.33 Same 29.41 37.50 21.05 PI .00 -.38 + .12 Risk Perception and Compensation The presence of r i s k in any transaction reduces i t s expected value, and hence i t s a t t r a c t i v e n e s s , to the s e l l e r . Consequently, the Export Development Corporation's promotion of exports consists of services which are believed to reduce r i s k . Two assumptions are i m p l i c i t : one, that exporters perceive a r i s k in exporting; and two, that t h i s r i s k i s a t t r i b u t a b l e to a cause which can be negated by EDC s e r v i c e s . While i t i s acceptable to assume the perception of some r i s k in a l l business transactions i t i s important to e s t a b l i s h the r e l a t i v e degrees of r i s k between exporting and domestic business. Firms which perceive greater r i s k in exporting are more l i k e l y to seek insurance protection fo r t h e i r foreign transactions. SECTION A Risk Risk Perception of Sample To assess r e l a t i v e r i s k and the explanation of differences as perceived by B.C. exporters, r e c i p i e n t s of the questionnaire were asked: Question 4: With respect to the r i s k of not being paid by your customers or of other things going wrong would you say that export business i s much r i s k i e r than domestic business s l i g h t l y r i s k i e r than domestic business about as r i s k y as domestic business s l i g h t l y less r i s k y than domestic business much less r i s k y than domestic business Question 5: To what do you a t t r i b u t e any diffe r e n c e and in r i s k ? s e l l i n g terms (explain) ( ) c r e d i t standing of customers (explain) ( ) complexity of documentation (explain) ( ) communications - distance ( ) - language ( ) P e r i s h a b i l i t y of product (explain) ( ) The results of these questions appear i n Table 3 - 1 and 3 - 2 re s p e c t i v e l y . The r e l a t i o n s h i p between r i s k perception and explanation i s described in Table 3 - 3. TABLE 3 - 1 RELATIVE RISK OF EXPORT AND DOMESTIC BUSINESS (Frequency and Percentage D i s t r i b u t i o n ) Much Ris k i e r S l i g h t l y More Risky About As Risky S l i g h t l y Less Risky Much Less Risky Frequency To t a l 100 22 34 28 9 7 Percent T o t a l 100 22 .00 34.00 28.00 9.00 7.00 Risk C o e f f i c i e n t + .55 As a measure of the r e l a t i v e r i s k o f exporting and domestic business, a c o e f f i c i e n t was calculated i n the following manner; responses i n d i c a t i n g exports much r i s k i e r were mu l t i p l i e d by a factor of +2; those i n d i c a t i n g s l i g h t l y more ri s k y , +1; about as r i s k y , 0; s l i g h t l y less r i s k y , -1; and much less r i s k y , -2. The t o t a l was then divided by the number of responses. Thus a c o e f f i c i e n t of 0 indicates i d e n t i c a l r i s k , more than 0, more r i s k in exporting and less than 0, less r i s k i n exporting. The r i s k c o e f f i c i e n t f o r the population as a whole, derived from Table 3 - 1 was +.55. EXPLANATION OF RISK DIFFERENTIALS (Frequency and Percentage D i s t r i b u t i o n ) • S e l l i n g Terms Customer Credit Rating Complexity of Documentation Commun i c a t ion Distance Language Perish-a b i l i t y Frequency T o t a l 97 19 20 17 29 9 3 Percent To t a l 100 19.59 20.62 17.53 29.90 9.28 3.09 TABLE 3 - 3 RISK DIFFERENTIALS - EXPLANATION (Horizontal Percentage D i s t r i b u t i o n ) S e l l i n g Customer Complexity Communication Perish-Terms Credit Rating of Documentation Distance Language a b i l i t y Much Ri s k i e r 28.57 42.86 14.29 14.29 .00 .00 S l i g h t l y More Risky 17.86 3 .57 25.00 50.00 .00 .00 About As Risky 12 .50 50.00 12.50 25.00 .00 .00 S l i g h t l y Less Risky 50.00 33.33 16.67 .00 .00 .00 Much Less Risky 66.67 33.00 .00 .00 .00 .00 Risk C o e f f i c i e n t .32 .71 1.00 1.05 N/A 1.00 s The explanation most frequently given f o r r i s k d ifferences was communication problems due to distance, 29.9% of responses. Customer c r e d i t rating and s e l l i n g terms also ranked high with 20.62% and 19.59% r e s p e c t i v e l y . However, as with other data i n t h i s study, there are s i g n i f i c a n t v a r i a t i o n s in both r i s k perception and explan-ation depending upon responses to other c h a r a c t e r i s t i c questions. Table 3 - 4 through 3 - 9 contain r i s k per-ception data by d i f f e r e n t c h a r a c t e r i s t i c categories. While chi-square tests f o r independence were invalidated i n each case by the presence of c e l l s with fewer than 5 entr i e s , the following statements can be made about respondents with respect to the r e l a t i o n s h i p described in each t a b l e . TABLE 3 - 4 Industry categories each perceive exporting as having d i f f e r e n t r i s k r e l a t i v e to domestic business. I n d u s t r i a l materials manufacturers see only a s l i g h t l y greater r i s k to exporting, while suppliers of te c h n i c a l services per-ceive much more. TABLE 3 - 5 Companies in a l l experience categories perceived more r i s k in exporting than domestic sales, However, those with more than 5 years experience saw much less difference than those with fewer years experience. Consumer Durables Consumer Non-durables C a p i t a l Equipment I n d u s t r i a l Materials Services Much More Risky .00 22.22 25.58 10.71 .00 S l i g h t l y More Risky t About As Risky 100.00 .00 33.33 22.22 27.91 27.91 21.43 50.00 66.67 .00 S l i g h t l y Less Risky Much Less Risky .00 .00 .00 22.22 11.63 6.98 14.29 3.57 .00 .00 Number of Respondents Risk C o e f f i c i e n t 1 1.00 9 .21 43 .54 28 .11 18 1.00 U l TABLE 3 - 5 RISK PERCEPTION - EXPORT EXPERIENCE . ( V e r t i c a l Percentage D i s t r i b u t i o n ) Less than 2 y r s . 2 - 5 y r s . More than 5 y r s . Much More Risky- 12.50 42.31 14.55 S i ight'ly More Risky 50.25 34.62 27.27 About As Risky 25.00 15.38 36.36 S l i g h t l y Less Risky 6.25 .00 14.55 Much Less Risky .00 7.69 7.27 Number of Respondents 16 26 55 Risk C o e f f i c i e n t .75 1.05 .28 ( V e r t i c a l Percentage Di s t r i b u t i o n ) - ($'000) Less than 100 - 500 500 - 2,000 More than 100 2,000 Much More Risky .00 23.08 13.04 30.61 S l i g h t l y More Risky 66.67 46.15 34.78 22.45 About As Risky 22.22 15.38 39.13 28.57 S l i g h t l y Less Risky 11.11 7.69 4.35 12.24 Much Less Risky .00 7.69 8.70 6.12 Number of Respondents 9 13 23 49 Risk C o e f f i c i e n t .57 .70 .39 .60 Less than 25% 25 - 50% More than 50% Much More Risky , 19.05 36.84 15.15 S l i g h t l y More Risky 42.86 26.32 27.27 About As Risky 26.19 26.32 33.33 S l i g h t l y Less Risky 7.14 5.26 15.15 Much Less Risky 4.76 5.26 9.09 Number of Respondents 42 19 33 Risk C o e f f i c i e n t .65 .82 .24 1 2 Several Much More Risky 33.33 42.86 18.57 S l i g h t l y More Risky 27.78 28.57 32.86 About As Risky 27.78 14.29 31.43 S l i g h t l y Less Risky 5.56 14.29 10.00 Much Less Risky 5.56 .00 7.14 Number of Respondents 18 7 70 Risk C o e f f i c i e n t .77 .86 .45 More Less Numbe r P r o f i t -P r o f i t a b l e Same Pr o f i t a b l e of Respond. a b i l i t y Index Much More Risky • 20.59 21.05 34.62 20 S l i g h t l y More Risky 20.59 26.32 46.15 24 -.16 About As Risky 32.35 42.11 11.54 , 22 + .36 S l i g h t l y Less Risky 14.71 10.53 .00 7 Much Less Risky 11.76 .00 7.69 12 + .44 Number of Respondents 34 19 26 Risk C o e f f i c i e n t .23 .58 1.00 TABLE 3 - 7 TABLE 3 - 8 TABLE 3 - 9 Sales volume apparently i s not related to r i s k perception. Companies exporting more than 50% of t o t a l sales perceive less r i s k in exporting than those exporting lesser shares, but s t i l l more than domestic business. Companies exporting to more than 2 countries perceive s l i g h t l y less r i s k i n exporting than do companies shipping to fewer export markets. There i s a strong inverse r e l a t i o n s h i p between the r e l a t i v e r i s k and r e l a t i v e p r o f i t a b i l i t y of exports and domestic s a l e s . Risk and P r o f i t a b i l i t y Companies viewing exports as more p r o f i t a b l e than domestic sales see only a s l i g h t r i s k disadvantage, while those to which exports are less p r o f i t a b l e view them with much greater r i s k . But, while the r e l a t i o n s h i p i s c o n s i s t -e n t l y negative, why does export r i s k remain greater while p r o f i t a b i l i t y s h i f t s from greater to less? In an attempt to answer t h i s question, one must recognize that, although the data of t h i s study has only been assigned c a t e g o r i c a l values, r e l a t i v e p r o f i t a b i l i t y could be expressed numerically, as could r i s k . The former could be expressed as a percent of a contract's face value, the l a t t e r as a discount factor -the aggregate of p r o b a b i l i t i e s f or each possible value of a contract. In t h i s context, a regression c o e f f i c i e n t takes on meaning, and a regression l i n e of the general form Y = MX + b can be defined, where Y i s the measure of r e l a t i v e p r o f i t a b i l i t y and X, the measure of r e l a t i v e r i s k . M, the slope of the regression l i n e , i s negative, b, the intercept i s p o s i t i v e , since, when p r o f i t a b i l i t y (Y) i s i d e n t i c a l f o r export and domestic l i n e s (column 2, Table 3 - 9) the r i s k c o e f f i c i e n t i s s t i l l p o s i t i v e , 0.58. I f r i s k was the only independent variable influencing export p r o f i t a b i l i t y , b would be zero, and there would be no apparent i r r a t i o n a l i t y i n the responses of exporters. The sample data and an estimated regression l i n e appear in Figure 3 - 1 . Figure 3 - 1 RELATIVE RISK AND RISK More PROFITABILITY OF EXPORTS PROFITABILITY Less More Less The loss due to the r i s k of exporting r e l a t i v e to domestic business could be expressed as: ((! - E E) - (1 - ED)) P E (3 - 2) Where E Q i s equal to the expectation of s e l l i n g price for domestic transactions. The t e s t data show that f o r our sample, (3 - 2) i s always p o s i t i v e . The p r o f i t margin f o r export sales of one unit i s : (P E - C E) (3 - 3) The r e l a t i v e p r o f i t a b i l i t y of exporting and domestic business could be expressed as: <PE " °E> ' ( PD " CD> <3 " 4 ) Where P D i s equal to the domestic s e l l i n g p r i ce, and , 1 s a l e . C D i s equal to the cost of production f o r domestic For a discussion of variables which determine differences between costs of production for domestic and foreign sale, see 0. M. H i l l , How to Win World Markets, Queen's Printer, Ottawa, 1967. Export and domestic price may also d i f f e r depending upon the r e l a t i v e magnitudes and e l a s t i c i t i e s of the domestic and foreign demand curves with respect to p r i c e . When (3 - 4) equals (3 - 2), companies should be i n d i f f e r e n t between exporting and domestic business. A firm may be expected to export, therefore, i f indicated that exports were both more r i s k y and less p r o f i t -able? i n other words, that (3 - 5) d i d not hold for them. Why do they export? One i s faced with several explanations, assuming that these firms make r a t i o n a l decisions.''" 1. The attitudes expressed in t h i s questionnaire could r e l a t e to exporting in general, and these firms only export under mitigating circumstances such as s e l l i n g to parent or subsidiary firms, or s e l l i n g to brokers, which constitutes in essence a domestic s a l e . 2. While the r e l a t i v e p r o f i t a b i l i t y and r i s k of exports and domestic sales may not indicate the s u p e r i o r i t y of an export transaction, i t may s t i l l be undertaken r a t i o n a l l y i f : (3 - 5) However, in Table 3 - 9, 30.9% of the exporters 1) a l l domestic opportunities have been exploited Rational in this context i s definable as maximizing return f o r a given l e v e l of r i s k , or minimizing r i s k f o r a given l e v e l of return. and 2) • the expected return from the export exceeds the firm's cost of c a p i t a l . 3. A more widely applicable explanation however i s that exporting causes changes in the cost structure of domestic transactions. Exporting increases sales, and hence production volume. Economies of scale can be r e a l i z e d in more e f f i c i e n t operating, costs, in a wider d i s t r i b u t i o n of fixed costs, and also in the reduction of seasonal fluctuations in production volume. The extent to which t h i s e f f e c t would be r e a l i z e d i s dependent upon the l i m i t a t i o n s of the domestic market. The decision to export w i l l be p o s i t i v e under these circum-stances i f the following i n e q u a l i t y holds true. ( P E " C E ) ~ <PD " <W + ( CDE ' CDD> ^ 1 " V - (1 - E ^ ( 3 - 6 ) Where C D E i s cost of production for domestic sale when exports are occuring, and C i s cost of production for domestic sale when no DD exports are occuring. I t i s apparent from in e q u a l i t y 3 - 6 , that exporting can be a t t r a c t i v e even i f i t i s both more ri s k y , and less p r o f i t -able than domestic s a l e s , b in Figure 3 - 1 , page a measure of the impact of export sales on domestic p r o f i t s , and i t provided the incentive to export even when the e x p l i c i t p r o f i t s on that transaction w i l l be 'less than on a s i m i l a r domestic s a l e . An Example A manufacturer of l i g h t r e f r a c t o r s for educational use has the choice of exporting his product or s e l l i n g e x c l u s i v e l y in the domestic market. The competitive domestic pr i c e for the product i s $50 F.O.B. plant and the cost of production, sales and administration, $40. In the export market, the firm i s confident that contracts could be won at a price of $55 F.O.B. plant. Costs for export are $38*. However management perceives a difference i n r i s k such that the expected value of the domestic sale i s .95 of the con-t r a c t while that f o r the export i s .75. The expected p r o f i t from the domestic sale i s therefore (.95 • $50) - $40 = $7.50 and, the expected p r o f i t from the export sale i s f.75 ' $55) - $38 = $3.25 From Equation (3 - 5) , *17 - ^10 <• (.25 - .05)-55 Therefore t h i s company would choose not to export. Could be less than domestic cost for several reasons: eg.; no 12% federal sales tax,* duty drawback on imported components. But, the entrance of t h i s firm into the export market would r e s u l t in a reduction in the costs of production for domestic sales . Volume purchase discounts and broader d i s t r i b u t i o n of fixed costs would r e s u l t i n a domestic cost of $35 rather than $40. Prom Equation (3 - 6), then, 7 + 5 > 11 and, i t would be wise for the firm to export, even though the expected p r o f i t of that export i s less than that of a s i m i l a r domestic s a l e . Table 3 - 2 contains the d i s t r i b u t i o n of responses to the question of r i s k explanation. Although differences do occur among categories i n c h a r a c t e r i s t i c questions, they are not as great as differences in some other responses categories. These appear i n Table 3 - 1 0 through 3 - 1 5 . I t i s i n t e r e s t i n g that no respondents in any category attributed r i s k d i f f e r e n c e to language problems. With that exception, the d i s t r i b u t i o n of responses by c h a r a c t e r i s t i c category i s r e l a t i v e l y even, with major differences occuring only in columns with small t o t a l responses. In summary, from Table 3 - 2 , 49 of the 69 t o t a l respondents said exporting was more r i s k y than domestic business. Of t h i s 11%, 17 blamed distance of communication as the cause of the r i s k d i f ference, 11 s e l l i n g terms, 10 c r e d i t rating of the customer, 10 complexity of documentation, and 1 p e r i s h a b i l i t y of product. Distance of communication then, with 35% of a l l greater r i s k respondents i s the major cause of the p o s i t i v e r i s k d i f f e r e n t i a l between exports and domestic s a l e s . Since distance i s , of i t s e l f , i r r e l e v a n t , i t seems correct to assume the actual cause to be the timing and uncertainty of comfaunications caused by distance. Another element in distance i s intermediaries. Middlemen such as trade agencies, regulatory bodies, and communication companies f a l l between the exporter and the importer, and the r i s k of inaccurate communication i s g r e a t l y increased by t h e i r presence. Exchange rate f l u c t u a t i o n i s one type of r i s k associated with s e l l i n g terms, i f quoted in the importer's currency. The r i s k of not meeting a l l the terms of a d r a f t or l e t t e r of c r e d i t i s also s u b s t a n t i a l . Several firms claiming r i s k differences due to customer c r e d i t rating explained that the problem was one of obtaining dependable c r e d i t references. Credit rating, for them, was not so much poor as unknown. Firms claiming complexity of documentation indicated that the number, sources, and d e t a i l of.required documents posed p a r t i c u l a r timing and coordination problems. Consumer Durables Consumer Non-durables C a p i t a l Equipment I n d u s t r i a l Materials Services S e l l i n g Terms .00 50.00 37.50 22 .22 .00 Credit Standing of Customer .00 .00 25.00 38.89 23.08 Complexity of Docume nta t ion .00 33.33 15.63 11.11 30.77 Communication - distance 100.00 16.67 18.75 27.78 46.15 Commun ica tion - language .00 .00 .00 .00 .00 P e r i s h a b i l i t y of Product .00 .00 3.13 .00 .00 No. of Respondents 1 6 32 18 13 Less than 2 years 2 - 5 y r s . More than 5 years S e l l i n g Terms ' 8.33 33.33 27.14 Credit Standing of Customer .00 28.57 25.71 Complexity of Documentation 33.33 9.52 18.57 Communication - distance 50.00 28.57 27.14 Communication - language .00 .00 .00 P e r i s h a b i l i t y of Product 8.33 .00 1.43 Number of Respondents 12 21 37 Less than 100 100 - 500 500 - 2,000 More than 2,000 S e l l i n g Terms .00 27.27 25.00 34.29 Credit Standing of Customer .00 18.18 31.25 28.57 Complexity of Documentation 40.00 18.18 25.00 14.29 Communication - distance 40.00 36.36 18.75 22 .86 Communication - language .00 .00 .00 .00 P e r i s h a b i l i t y of Product 20.00 .00 .00 .00 Number of Respondents 5 11 16 35 ( V e r t i c a l Percentage Dist r i b u t i o n ) Less than 25% 25 - 50% More than 50% S e l l i n g terms 21.21 41.67 27.27 Credit Standing of Customer 18.18 33.33 31.82 Complexity of Documentation 15.15 16.67 27.27 Communication - distance 45.45 8.33 9.09 Communication - language .00 .00 .00 P e r i s h a b i l i t y . of Product .00 .00 .00 Number of Respondents 33 12 22 1 2 Several I S e l l i n g terms 28.57 16.67 29. .17 Credit Standing of Customer 35.71 16.67 25 .00 Complexity of Documentation 21.43 16.67 16 .67 Communication - distance 14.29 50.00 29 .17 Communication - language. .00 .00 .00 P e r i s h a b i l i t y of Product .00 .00 .00 Number of Respondents 14 6 48 more pr o f i t a b l e same less p r o f i t a b l e S e l l i n g terms 21.74 30.00 31.82 Credit Standing of Customer 43.48 30.00 13.64 Complexity of /Documen t at ion 17.39 20.00 13.64 Communication - distance 13.04 20.00 40.91 Communication - language .00 .00 .00 P e r i s h a b i l i t y of Product 4.35 .00 .00 Number of Respondents 23 10 22 S e l l i n g Terms S e l l i n g Terms as Risk Compensation The terms of an export sale, s p e c i f i c a l l y the c r e d i t element, may r e f l e c t the r i s k perceived by the exporter. The discussion of r i s k and c r e d i t in Chapter I revealed the ro l e of both in determining the exporters net income. Risk reduces net income by reducing the expected value of revenues. N E = f ( 1 - E E ) " 1 ( 3 - 7 ) Where E = expectation f o r export transaction (see d e f i n i t i o n , Equation 3 - l ) i Credit, while a d i r e c t cost, increases export volume, and thereby, revenues. The extent to which t h i s r e l a t i o n s h i p hold true depends upon the price e l a s t i c i t y of demand f o r the exports, and the cost of c a p i t a l . From Chapter I, c r e d i t w i l l only be extended when: e t e ^ S P E X E t € < P E - C E > " CEVE^ ( 3 - 8 ) Where e^ e - export demand e l a s t i c i t y with respect to c r e d i t c S P g X Et e = cost of extending c r e d i t (P - C ) = net income except c r e d i t c o sts. E E Within the range described above, net income i s a d i r e c t N E = g ( t e ) (3 -r 9) But the extension of c r e d i t increases r i s k : (1 - Eg) = h ( t e ) (3 - 10) Recognizing that revenues, P]jQi# and thus net income, con s i s t of both a quantity and p r i c e factor, the following statement i s v a l i d regarding the use of c r e d i t : Export c r e d i t w i l l be extended by the exporter as long as the increase i n revenues due to increased Qj i s equal to or greater than the sum of 1) the decrease i n revenues due to lower Pg caused by increased Qj, 2) the decrease i n revenues caused by the e f f e c t of added r i s k on the expected value of Pg, and, 3) the cost of extending c r e d i t . The ex ante optimum volume of export c r e d i t , that point at which 3 - 8 i s an equality, i s dependent upon several f a c t o r s : * 1. The perceived r i s k - f ( l - Eg) 2. The e f f e c t of c r e d i t on r i s k - M t e ) 2 3. The cost of c a p i t a l - X e . *The c r e d i t e l a s t i c i t y of demand i s assumed given The e f f e c t of changes i s discussed in Chapter I . The reader i s referred to the d e f i n i t i o n of Xg ^ n footnote Question 6: With respect to your terms of sale please indicate which of the following are relevant for domestic and foreign sales: Domestic Foreign documentary sight d r a f t ( ) ( ) l e t t e r of c r e d i t ( ) ( ) cash i n advance ( ) ( ) up to 90 days' c r e d i t ( ) ( ) 91 to 180 days' c r e d i t ( ) ( ) other (specify) ( ) ( ) The responses to t h i s question are presented in a b i v a r i a t e frequency form in Table 3 - 1 7 . The columns and rows of Table 3 - 1 7 are arranged in order of increasing c r e d i t content r i g h t to l e f t and top to bottom. The maximum c r e d i t d i f f e r e n t i a l i s 5 categories, and Table 3 - 1 8 contains the frequency d i s t r i b u t i o n of a l l d i f f e r e n t i a l s . SELLING TERMS OF DOMESTIC AND FOREIGN TRANSACTIONS (Frequency Distribution) Cash in Advance Progress Payments Sight Draft Letter of Credit Up to 90 days c r e d i t Up to 180 days c r e d i t No. of Respon. Vert. % Cash i n Advance 3 0 7 2 0 0 12 13.8 Progress Payments 0 5 2 4 1 0 12 13 .8 Sight Draft 0 0 . 7 1 0 0 8 9.1 Letter of Credit 0 0 0 0 0 0 0 0.0 90 days c r e d i t 0 4 12 17 21 0 54 62 .1 180 days Credit 0 0 0 0 0 0 1 1.2 No. of Respond. 3 9 28 24 22 1 87 Horiz. % 3.3 10.0 32.1 27.3 25.1 1.2 100.0 TABLE 3 - 1 8 CREDIT DIFFERENTIALS - EXPORT RISK BY TABLE 3 - 1 7 CATEGORIES Less Credit in Exports More Credit in Exports -5 -4 -3 -2 -1 0 + 1 +2 +3 +4 +5 To t a l 89 0 0 4 12 17 37 3 11 3 0 0 Much More Risky ' 16 0 0 1 0 6 4 0 2 3 0 0 i S l i g h t l y More Risky 29 0 0 1 5 5 15 0 3 0 0 0 Same 22 0 0 0 4 3 10 2 3 0 0 0 S l i g h t l y Less Risky 6 0 0 0 1 2 1 1 1 0 0 0 Much Less Risky 6 0 0 1 0 1 2 0 2 0 0 0 The independence of these data cannot be tested by the chi-square i n t h e i r present form, since many c e l l s contain less than 5 responses. Combining columns and rows removes t h i s problem, but usually causes loss of meaningful information. However in t h i s instance, the value of category d i s t i n c t i o n can be questionned on several grounds. Rows: The thought process of the respondent in deciding the degree of r i s k difference he w i l l indicate i s not known. Furthermore, the category l i m i t s depend upon the respondents aversion to r i s k , and are there-fore d i f f e r e n t for each i n d i v i d u a l . Columns: Although the incorporation of multiple responses into the analysis*allows for the s e l e c t i o n of more than orte column, there i s no means of weighting these according to the proportion of t o t a l exports in each. On the basis of these weaknesses, i t would not appear that combining columns and categories as in Table 3 .- 19 r e s u l t s in the loss of meaningful information. The b e n e f i t of sta-2 t i s t i c a l t e sting therefore warrants such grouping. *See footnote, Chapter I, page 2 Although 2 c e l l s s t i l l contain less than 5 e n t r i e s , t h i s weakness i s within acceptable l i m i t s for chi-square t e s t i n g . RELATIVE RISK OF EXPORTS - RELATIVE CREDIT FOR EXPORTS (Credit) Risk Less Same More Horizontal % More 18 19 8 56.8 Same 7 10 5 28.0 Less 5 3 4 15.2 V e r t i c a l (%) 37.8 40.2 22 .0 100.0 A chi-square value of 3.13 was calculated for the data of Table 3 - 1 9 . This i s less than the value 9.49 of c h i -square at the 99.5% l e v e l of confidence for 4 degrees of free-dom. I t i s therefore concluded that, at that confidence l e v e l , these data are not independent. The r e l a t i o n s h i p between r i s k and c r e d i t can be demonstrated i n the following manner: Respondents extending less c r e d i t to foreign customers were assigned a value of -1; those extending the same c r e d i t terms, 0, and those extending more c r e d i t , +1. This c o e f f i c i e n t i s determined for each category of perceived r e l a t i v e r i s k . TABLE 3 - 2 0 CREDIT COEFFICIENT - RELATIVE RISK Perceived Risk of Exports/Domestic more same less Business C r e d i t C o e f f i c i e n t -.22 -.09 - .08 can be assigned numerical v a l u e s 1 even though i t has only been examined by category in t h i s study. Regression analysis i s therefore meaningful, and the r e l a t i o n s h i p of Table 3 - 2 0 2 can be depicted as in Fugure 3 - 2. EXPORT RISK AND EXPORT CREDIT TERMS RISK Vlore Less Less Figure 3 - 2 EXPORT CREDIT More TERMS Credit i s measured in units of time, and expressed in Carlson's terminology as t . E I t i s not the purpose of t h i s paper to measure the strength of rel a t i o n s h i p s , but rather to e s t a b l i s h t h e i r existence and importance to the theory and practice of export c r e d i t s e r v i c e s . Regression equations and c o e f f i c i e n t s are therefore not s p e c i f i c a l l y determined. The causes of perceived r i s k in exporting are numerous, but may generally be grouped into p o l i t i c a l , such as war or ins u r r e c t i o n ; economic, such as exchange rate f l u c t u a t i o n s ; and commerical, such as default of the buyer. Assuming price to be given by i n t e r n a t i o n a l competition, exporters attempt to compensate f o r r i s k by adjusting c r e d i t terms. Figure 3 - 2 i l l u s t r a t e s that t h i s i s true f o r firms in our sample. Synthesis The export c r e d i t index with respect to r i s k , (Table 3 - 20; Figure 3 - 2 ) , and the p r o f i t a b i l i t y index with respect to r i s k , (Table 3 - 9 ; Figure 3 - 1), are compared i n Figure 3 - 3. Figure 3 - 3 RELATIONSHIP OF EXPORT CREDIT TERMS AND PROFIT-ABILITY TO PERCEIVED RISK CREDIT , EXPORT , RISK \PROFITABILITY do re EXPORT CREDIT . ' TERMS/ Less PROFITABILITY More Less To t h i s point, p r o f i t a b i l i t y and c r e d i t terms have both been viewed as dependent variables influenced by perceived r i s k . I f a dependency r e l a t i o n s h i p could be established between c r e d i t terms and p r o f i t a b i l i t y , then i t could be shown that the exporter i s capable of influencing the p r o f i t a b i l i t y of exports at a given l e v e l of r i s k by a l t e r i n g c r e d i t terms. But thi s has already been established in the discussion leading to Equation 3 - 9 . Since a l l variables in Figure 3 - 3 are represented by pure numbers between the l i m i t s +1 and -1, the values f o r c r e d i t and p r o f i t a b i l i t y indices may be compared. Figure 3 - 4 depicts the r e l a t i o n s h i p between c r e d i t and p r o f i t a b i l i t y in the absence of r i s k . Figure 3 - 4 CREDIT TERMS AND RELATIVE PROFITABILITY OF EXPORTS1 EXPORT PROFITABILITY More / / / EXPORT CREDIT Less More / / / Less Coordinates f o r Figure 3-4 were determined from 3-3 in the following manner. Coordinates i n Figure 3-3 are of the general form: c r e d i t , (credit c o e f f i c i e n t , r i s k c o e f f i c i e n t ) and p r o f i t a b i l i t y , ( p r o f i t a b i l i t y index, r i s k c o e f f i c i e n t ) . In Figure 3-4, coordinates are ( C C , P I ) r i s k m o r e ( C C , P I ) r i s k s a m 6 / and ( C C , P I ) r i s k l e s s . But in the absence of several key elements there i s the absurd conclusion that i n f i n i t e c r e d i t terms w i l l r e s u l t in i n f i n i t e p r o f i t s . The f i r s t element to be re-introduced i s the cost of c a p i t a l to exporter, X„, taken to be the firm's o v e r a l l cost of c a p i t a l . X^ , w i l l increase with increasing c r e d i t , since the firm's l i q u i d i t y i s reduced. This, combined with the changes in the importer's demand e l a s t i c i t y with respect to c r e d i t , causes the curve to reach some maximum p r o f i t l e v e l and then recede. Figure 3 - 4 also assumes the absence of r i s k , and to re-introduce i t required the use of a t h i r d a x i s . Risk, (1 - E ), reduces E the expected p r o f i t in a l l transactions. I t also causes increases in the cost of c a p i t a l . 1 Its presence therefore reduces both the maximum p r o f i t , and c r e d i t outstanding at that p r o f i t l e v e l . Figure 3 - 5 contains the family of c r e d i t / p r o f i t a b i l i t y functions that develop under these l i m i t i n g conditions. Risk a l t e r s the firm's cost of c a p i t a l only to the extent that i t i s perceived by the suppliers of c a p i t a l . As perceived by the exporter,•it a l t e r s the expected value of gross revenues. These are independent e f f e c t s on net income, and must both be included in the a n a l y s i s . RELATIONSHIP AMONG EXPORT PROFITABILITY, RISK, AND EXPORT CREDIT 1 EXPECTED EXPORT PROFITABILITY EXPORT CREDIT Export price and cost of production are held constant. I f , as the economist, we define p r o f i t as a return to r i s k , then the expected value of an export should be constant over a l l r i s k l e v e l s . However, price i s not f r e e l y adjustable to compensate for r i s k , but rather, i s dictated by in t e r n a t i o n a l competition. Expected value therefore decreases with r i s k . I t has been stated that the extension of export c r e d i t i s dependent upon perceived r i s k . But the extension of c r e d i t creates r i s k . This reversal of dependencies creates an apparent inconsistency which may be resolved by the d i v i s i o n of r i s k into two basic elements such that: K 4- i = C< + J 3 . t o t a l t E Where tX = residual r i s k in absence of c r e d i t , b = r i s k factor dependent upon c r e d i t terms. w i l l always be equal to, or greater than, 0, since, for example, the complexity of documentation may r e s u l t in losses even with prepayment or C.O.D.* b w i l l also be p o s i t i v e , since commercial, p o l i t i c a l , and economic r i s k factors e x h i b i t some frequency d i s t r i b u t i o n with respect to time. Credit increases the time of payment and consequently the aggregate p r o b a b i l i t y of l o s s . Product, packaging, or shipping s p e c i f i c a t i o n s may not be exactly followed, and could r e s u l t in the re j e c t i o n of goods by the importer and a subsequent s u i t for the recovery of funds. The e f f e c t of these elements i n Figure 3 - 5 i s depicted below. Figure 3 - 6 ELEMENTS OF RISK EXPECTED EXPORT PROFITABILITY R t o t a l EXPORT CREDIT RISK We therefore conclude that, for a given export price and cost structure, there e x i s t s a l e v e l of export c r e d i t which w i l l maximize expected p r o f i t s and that t h i s l e v e l i s dependent upon the r e l a t i o n s h i p between r i s k and c r e d i t . SUMMARY The objective of the Export Development Corporation i s "...to f a c i l i t a t e and develop export trade".* Based on the following ser i e s of functions developed in t h i s and other chapters, i t i s concluded that the insuring and extending of export c r e d i t w i l l accomplish t h i s o b j e c t i v e . In the following statements, unmentioned factors are assumed constant. D x - f ( t E ) (3 - 11) The demand fo r exports i s a function of export c r e d i t . S x = g(Ng) (3 - 12) The supply of exports i s a function of the net income r e a l i z -able from exports. N E = h ( l - E g ) " 1 (3 - 13) The p r o f i t a b i l i t y of exports i s an inverse function of the r i s k associated with exports. 1 - E E - 3 ( t E E ) (3 - 14) Risk i s a function of the export c r e d i t extended by the exporter. S x = k ( t E E ) " 1 (3 - 15) From (3 - 11), (3 - 12), (3 - 13) ^ T i t l e , Export. Development Act, J u l y 26, 1969. ^Export c r e d i t must often be provided e i t h e r to meet competition from other suppliers, or to induce the importer to buy; see Chapter I, Equation (1 - 1). The supply of exports i s an inverse function of the export c r e d i t that must be provided by the exporter. fcE = fcEE + tfiG ( 3 " 1 6 ) The t o t a l export c r e d i t a v a i l a b l e to the importer i s the sum of that provided by and at a cost to the exporter, and that provided by t h i r d parties at no cost to exporter or importer. Export c r e d i t insurance increases the supply of exports by reducing the r i s k associated with c r e d i t , and thereby increasing the p r o f i t a b i l i t y of transactions. Reduces the e f f e c t of (3 - 14) on (3 - 15) . Both the volume of c r e d i t and the l e v e l of p r o f i t s can be expected to increase. Export c r e d i t financing meets the importer c r i t e r i o n for increased demand without imposing a c r e d i t burden on the exporter. Demand for exports w i l l therefore increase (with l i m i t s of e t ) and the supply of exports w i l l not decrease E in accordance with (3 - 12) and (3 - 13). Based on both t h e o r e t i c a l r e l a t i o n s h i p s and those evident from the sample data, EDC programs are r a t i o n a l in view of the stated objective. Exporting i s perceived as r i s k i e r than domestic business, and that r i s k i s d i r e c t l y related to c r e d i t terms. Reducing that r e l a t i o n s h i p through insurance, or reducing the exporters need to supply c r e d i t by t h i r d - p a r t y financing can both be expected to increase export trade. I ATTITUDES TOWARD THE EXPORT DEVELOPMENT CORPORATION In preceding chapters, a theory of the role of export c r e d i t in trade expansion has been developed; a p r o f i l e of questionnaire respondents presented; and a theory of the r e l a t i o n s h i p of r i s k and c r e d i t developed, and tested for the sample. The conclusions, have been that c r e d i t does expand trade and that B.C. exporters responding to the questionnaire perceive the r i s k of exports as dependent upon c r e d i t terms. Under such con-d i t i o n s , one would expect an enthusiastic response to a program which, in the case of insurance, reduced the r i s k of extending c r e d i t , and in the case of finance, provides the expansionary e f f e c t of c r e d i t while assuring the exporter of immediate payment. However, the response to the services of the Export Development Corporation has not been as posi t i v e as was expected. A l l 250 firms which received the questionnaire, f o r example, are active exporters, e l i g i b l e for 1 or more of EDC's services, but none has become a c l i e n t of the Corporation. In t h i s chapter, attitudes toward the Corporation's programs are presented. In addition, i t i s hypothesized that the negative response of some firms i s , at lea s t in part, a t t r i b u t a b l e to the means by which they learned of these programs. Although, the data avai l a b l e to this study i s i n s u f f i c i e n t to c onclusively t e s t such a hypothesis, evidence w i l l be presented to show that information sources are suspect. I t w i l l f a l l to subsequent studies to e s t a b l i s h the cause and the e f f e c t s of perceptual biases caused by information sources. Question 3: I f you are aware of the services of E.D.C. what reasons would you give f o r not e x p l o i t i n g i t s (a) insurance services hunch that premiums and other costs are too high ( do not q u a l i f y (explain) ( too much red tape ( procedure too time-consuming ( incompatible with E.D.C. representative ( reluctance to deal with a government agency ( inadequate coverage ( other (specify) ( no need f o r insurance because - sales are to a subsidiary ( - sales are to r e l i a b l e accounts ( - i t s a s e l l e r ' s market ( - the bank did not require i t ( - other (specify) ( (b) long-term financing services do not q u a l i f y (explain) ( terms inadequate ( too much red tape ( procedure too time consuming ( incompatible with E.D.C. representative ( reluctance to deal with a government agency ( ) other (specify) ( ) The responses to Question 3 revealed attitudes toward EDC's insurance s e r v i c e s . Table 4 - 1 contains the d i s t r i b u t i o n of these responses. There were s i g n i f -icant v a r i a t i o n s in response d i s t r i b u t i o n according to several c h a r a c t e r i s t i c s , and these are revealed in Table 4 - 2 through 4 - 8. The most frequently i d e n t i f i e d reason f o r not using EDC insurance was that there was no need since sales were only made to r e l i a b l e accounts. I t is noteworthy that, from Table 4 - 3,50% of respondents indicated both r e l i a b l e accounts and greater r i s k in exporting. This tends to confirm, for these companies, the hypothesis of page 64 that exports are undertaken only in circumstances which d i f f e r from those imputed to foreign trade i n general. The second most frequent response was that EDC services involved "too much red tape" followed by "no need for insurance because ..." and "hunch that premiums and other costs are too high". Statements of degree such as those pertaining to paperwork, time, and costs are .very subjective and d i f f i c u l t to assess in the form i n which they were presented in the present questionnaire. For thi s study, i t w i l l s u f f i c e to define "too much" resource committment as being "greater than that to which firms are accustomed". A respondent's decision in t h i s regard i s made e i t h e r upon personal i n v e s t i g a t i o n , or on the basis of attitudes expressed to him by persons informing him of EDO's s e r v i c e s . Statements from the B.C. branch o f f i c e of the Corporation reveals that many respondent's have not d i r e c t l y sought d e t a i l s of available s e r v i c e s . Opinions are thus based on incomplete and/or biased information c o l l e c t e d from t h i r d p a r t i e s . Section C of thi s chapter discusses the e f f e c t of the information source on a t t i t u d e s . Chi-square tests of independence were invalidated by the presence of small c e l l s i n a l l the contingency tab l e s . However, c e r t a i n d i s t r i b u t i o n patterns are evident in the j o i n t responses to Question 3 and other attitude and c h a r a c t e r i s t i c questions, as d e t a i l e d in the relevant t a b l e s . TABLE 4 - 2 Industry Sector Consumer non-durables manufacturers most frequently indicated "no need -r e l i a b l e accounts" as t h e i r reason for not using EDC insurance. This accounted for 42.86% of responses, followed by "hunch that costs are too high", 28.57%. ' C a p i t a l equipment manufacturers also chose "no need - r e l i a b l e accounts" most often, 27.03%, followed by "too much red tape" and "no need for insurance because...", 16.22% each. I n d u s t r i a l materials companies most frequently indicated a "hunch that ... are too high", 21.74%, and were f a i r l y evenly d i s t r i b u t e d across other responses. Suppliers of technical services explained t h e i r decision not to use EDC insurance as follows: 23.53% "too much red tape"; 23.53% "no need for insurance because ..."; 17.65% "do not q u a l i f y " ; other responses evenly d i s t r i b u t e d . TABLE 4 - 3 Risk Perception Of those respondents perceiving much more r i s k in exporting than domestic business, one-third indicated there was "too much red tape" to EDC insurance. Of those i n d i c a t i n g s l i g h t l y more r i s k , 29.17% said there was "no need" since they shipped only to r e l i a b l e accounts. Those perceiving s i m i l a r r i s k were f a i r l y evenly d i s t r i b u t e d among responses, although 2 5% indicated "no need - r e l i a b l e accounts". Only 11 respondents perceived less r i s k in exporting than domestic business. Of these, 3 said costs were too high, and 3 said there was no need since shipments were only made to r e l i a b l e accounts. TABLE 4 - 4 Export Experience In the case of firms with less than 2 years experience, "too much red tape" and "no need - other" were, in that order the most frequent responses, accounting in t o t a l f o r 53.85% of responses. Firms with 2 to 5 years experience most frequently chose "no need - other" and "hunch that costs are too high", 27.27% and 22.73% r e s p e c t i v e l y . Of firms with more than 5 years experience, 26.09% indicated "no need -r e l i a b l e accounts" while the remainder were f a i r l y evenly d i s t r i b u t e d . TABLE 4 - 5 Sales Volume Firms with less than $500,000 t o t a l sales most frequently indicated "no need -r e l i a b l e accounts", "other", each 23.70%, and "too much red tape, 19.00%. Firms with sales volumes between $500,000 and $2 m i l l i o n were f a i r l y evenly d i s t r i b u t e d among responses, as were those with sales in excess of $2 m i l l i o n , although 25.64% of the l a t t e r claimed "no need - r e l i a b l e accounts". TABLE 4 - 6 Export/Total Sales Firms exporting 50% or less of t o t a l sales most frequently i d e n t i f i e d no need because sales were made only to r e l i a b l e accounts as t h e i r reason for not using EDC insurance (26.90%). Of those exporting more than 50%, 21.43% i d e n t i f i e d excessive costs, and the same number, miscellaneous reasons as deterents against the use of EDC insurance. exporting to only one market, 26.67% indicated "no need - r e l i a b l e accounts" and the same number indicated "no need - other". Only 6 firms exporting to 2 countries responded to t h i s question, and they were evenly d i s t r i b u t e d except that 2 said there was "too much red tape". Of respondents who exported to more than 2 countries, 22.41% said "no need -r e l i a b l e accounts" and 17.24% responded to each of "hunch that ... costs are too high" and "too much red tape". TABLE 4 - 8 Export P r o f i t a b i l i t y Firms that said exports are more p r o f i t a b l e than domestic business were f a i r l y evenly d i s t r i b u t e d in t h e i r responses. Those i n d i c a t i n g s i m i l a r p r o f i t a b i l i t y most frequently said "no need - r e l i a b l e accounts", 28.57%. Of those perceiving exports as less p r o f i t -able, 30.43% chose "no need - r e l i a b l e accounts", and 26.09% said "hunch that ... costs are too high". I t i s not within the scope and objective of t h i s study to explain these variables in a t t i t u d e s . However, i t i s of in t e r e s t to recognize d i f f e r e n t patterns, and e f f o r t s by the EDC to promote i t s services should be under-taken with consideration of the probable attitudes of those TABLE 4 - 2 REASONS FOR NOT INSURING - INDUSTRY SECTOR (Horizontal Percentage Dist r i b u t i o n ) No Need to CD -P cn •P CD c 0 CD CD c CO tn CD CO CD 0 >i Cu E •H 3 (0 • iH -p 13 -P +J UH ro •H E O1 VH rQ C HH C Xi 0 -H -P •P 3 CD CD u •rH ro 3 u 0 0 -P cn C rH CO > CD to •<H 0 CD 0. 10 -H 10 »o 0 c 10 0 x: rQ rH fj rC • to O Xi 0 3 CD 0 O C O •P 3 CD CJ -p 0 CD TJ O 1 U •p o •rW o to t-t ro 0 C K -* Consumer 28.57 .00 14.29 .00 .00 .00 .00 : 42 .86 14.29 7 Non-durables C a p i t a l 13.51 8.11 16.22 2 .70 2 .70 8.11 5.41 27.63 16.22 37 Equipment I n d u s t r i a l 21.74 17.39 13.04 .00 .00 17.39 .00 17.39 13.04 23 Materials Services 5.88 17.65 23.53 .00 5.88 11.76 5 .88 5.88 23.53 17 84 TABLE 4 - 3 REASONS FOR NOT INSURING - RISK PERCEPTION (Horizontal Percentage Di s t r i b u t i o n ) No Need Exports cost too high do not qualify red tape too time consuming inadequate coverage other subsid. reliable accounts other no. of respondents Much more r i s k 11.11 .00 33.33 5.56 11.11 5.56 5.56 11.11 16.67 18 S l i g h t l y more r i s k 4.17 12.50 12 .50 .00 .00 16.67 8.33 29.17 16.67 24 About as r i s k y 16.67 20.83 12 .50 .00 .00 12 .50 .00 25.00 12.50 24 S l i g h t l y less r i s k 20.00 20.00 40.00 .00 .00 .00 .00 20.00 .00 5 Much less r i s k 33.33 .00 .00 .00 .00 .00 .00 33.33 33.33 6 77 00 o re rt 3* 0» 3 cn ro 01 n CO LO ID Ln ro ro cn ro ro o O ro v j CO LO Cn to o CO 00 • vl o cn •< (D OJ r« (0 to to v l LO cn cn vo o vO O o cn cn vo o VO cn cn CD • r-1 00 ro vi • ro vl ro ro CD CO CO rt 3* 0J 3 ro ro 01 M CO o o cn vo LO O vl vl cn vo O O cn LO 00 O O cn • LO CD to CO o CD CO cost too high do not q u a l i f y red tape too time consuming inadequate coverage other subs i d . r e l i a b l e account other number of respondents as ro fD a > cn O =3 0 w n *l N o o JO 3 rt 53 0) O •3 •d H »-3 CD 25 CO td O C fD f° m 3 fi rt SS OJ a vQ ro i I D W H- X CO •d rt O n JO p- •3 V e M rt X H-0 w 3 H td 53 O w TABLE 4 - 5 REASONS FOR NOT INSURING - SALES VOLUME (Horizontal Percentage D i s t r i b u t i o n ) No. Need ($•000) cost too high do not qualify red tape too time consuming inadequate coverage other subsid. reliable accounts other number of respondents l e s s than 100 .00 11.11 22 .22 .00 .00 11.11 11.11 44.44 .00 9 100 to 500 16.67 8.33 16.67 .00 .00 33.33 .00 8.33 16.67 12 500 to 2,000 25.00 15.00 15.00 .00 10.00 .00 .00 15.00 20.00 20 more than 2,000 15.38 10.26 12.82 2.56 .00 7.69 5.13 25.64 20.51 39 80 TABLE 4 - 6 REASONS FOR NOT INSURING - EXPORTS/TOTAL SALES (Horizontal Percentage D i s t r i b u t i o n ) No Need CD •P Cn •P CD <P c 0 a) c ro Cn CD CO 0 CD 0 >. £ - H 3 ro • rH -p ' O •P rC •P «p •H E tr U T3 XI C H C Cn O - H •P 3 <D cu u •H ro 3 r l CD 0 - P - H C rH CO •O > cu CO •H o CD xt a CO rC ra CU (0 0 C ro O X! X» rH O x: E io 0 0 3 u +> O 0 C O •p 3 CD O 3 CD u T J cr •P O •H 0 (0 u ro 0 C U less than 25% 14.29 8.57 17.14 2.86 2.86 2 .86 5.71 28.57 17.14 35 25 - 50% 11.76 5.88 23.53 .00 .00 11.76 .00 29.41 17.65 17 more than 50% 21.43 17.86 7.14 .00 3.57 21.43 3.57 10.71 14.29 28 80 o 00 v l CO ro < ro n a* v l cn • • to cn *» v l v l M to CO o * • • cn o to v l o CO (-* v l CO to • • • to to to to to h-1 • • • vj O O to O o M CTi • • • v l cn o to v l o M I—1 O cn cn • t • cn cn v l v l tn • • * M o o v l o o to to to cn • • o cn M o v l M to tn cn • • • cn o to o v l cn r-1 CO cn cn cost too high do not q u a l i f y red tape too time consuming inadequate coverage other subsid. r e l i a b l e accounts other number of respondents 53 0 25 ro ro a o M H-N O 3 rt a* »d CO rj O ro 3 rt to oa ro o H-(0 r t H & C rt H-O 3 co CO o 50 53 O •-3 H 53 CO cj 50 H 23 O td 50 O *J tt •d O 50 >-3 13 CO I TABLE 4 - 8 FLEA SONS FOR NOT INSURING - EXPORT PROFITABILITY (Horizontal Percentage Di s t r i b u t i o n ) No Need CO -p CD Cr> - P CD H-l _ 0 CD c ra cn CD CO 0 CD 0 e -H 3 ra • r-l +J •o * •P Xi 4-> <P •H e CP J-l T3 Xi c H C CP 0 - H •P 3 CD CD >-i •H ro 3 to CD 0 rQ ^ - P - H C rH CD CO rQ > CD CO •H 0 CD CO XI ra o c ra o Xi XI rH O x: B W 0 O 3 CD ra 0 0 c o •P 3 CD O •P 3 CD o —, cr u - P •P o •H 0 CO vi ro 0 C rl more p r o f i t a b l e 14.81 18.52 14.81 3 .70 3.70 18.52 .00 7.41 18.52 21 same 7.14 14.29 14.29 .00 .00 7.14 14.29 28.57 14.29 14 less p r o f i t a b l e 26.09 .00 17.39 .00 4.35 .00 4.35 30.43 17.39 23 ______ 64 firms i t i s seeking to reach. I t i s somewhat disconcerting that 58% of a l l respondents (Table 4 - 1 ) indicated that, fo r various reasons, they saw no need for EDC insurance. The theory developed i n previous chapters would not have led to the same conclusion. While t h i s i s consistent with the Corporation's less-than-enthusiastic response i n B r i t i s h Columbia, i t alludes to a major discrepancy between the actual usefulness of export c r e d i t insurance, and i t s assumed usefulness. B. Attitudes Toward Finance Program Question 3 (b): I f you are aware of the services of EDC what reasons would you give for not e x p l o i t i n g i t s : (b) long-term financing services ( ) do not q u a l i f y (explain) ( ) terms inadequate ( ) too much red tape ( ) procedure too time consuming ( ) incompatible with EDC representative ( ) reluctance to deal with a government agency ( ) Other (specify) ( ) The d i s t r i b u t i o n of responses to Question 4 i s described in Table 4 -'9. (Frequency & Percentage D i s t r i b u t i o n ) Do Not Qualify Inadequate Coverage Red Tape Too Time Consuming Incompat. Rep. Govn't. Agency Other Frequency Total 71 25 1 7 9 2 2 25 Percent Total 100 35.21 1.41 9.86 12.68 2 .82 2 .82 35.21 Technically, Canadian exporters are not the c l i e n t s f o r EDC financing. As out-lined in Appendix III,the foreign buyer becomes the debtor. However, the exporter who perceives the potential of such services can be expected to promote i t to his prospect-ive c l i e n t , and to i n i t i a t e i n q u i r i e s which might lead to contract financing. REASONS FOR NOT USING EDC FINANCE - RESPONDENT CATEGORY (Percent o f Category and Rank) Do Not Qualify Inadequate Coverage Red Tape Too Time Consuming Govn't. Agency Other RISK % Rank % Rank % Rank % Rank % Rank % Rank More 41.45 1 3.45 4 10.35 3 3.45 4 .00 - 34.50 2 Same 35.00 2 .00 - 5.00 4 10.00 3 .00 - 50.00 1 Less 55.75 1 .00 - 22.17 2 .00 - .00 - 22.17 2 INDUSTRY SECTOR Non-durable 60.00 1 .00 - .00 - 20.00 2 .00 - 20.00 2 C a p i t a l 32.14 2 .00 - 10.71 3 10.71 3 3.57 5 42 .86 1 I n d u s t r i a l 44.44 1 .00 - 5.56 3 5.56 3 .00 - 44.44 1 Services 41.67 1 8.33 4 16.67 3 .00 - .00 - 33 .33 2 P SALES ($'000) TABLE 4 - 10 continued Less than 100 16.67 3 .00 - 33.33 1 16.67 3 .00 - 33.33 1 100 to 500 36.36 1 .00 - 9.09 4 18.18 3 .00 - 36.36 1 500 to 2,000 35.71 2 7.14 3 .00 - .00 - .00 - 57.14 1 More than 2,000 46.67 1 .00 - 6.67 3 6.67 3 3 .33 5 36.67 2 EXPORTS/TOTAL SALES Less than 25% 33.33 2 .00 - 8.33 4 16.67 3 .00 - 33.33 1 25% to 50% 38.46 1 .00 - 15.38 3 .00 - 7 .69 4 38.46 1 More than 50% 45.83 1 4.17 3 4.17 3 4.17 3 .00 - . 41.67 2 EXPORT MARKETS One 33.33 2 .00 - 8.33 3 .00 - .00 - 58.33 1 Two 40.00 1 .00 - 20.00 2 20.00 2 .00 - 20.00 2 Several 43.18 1 2.27 5 9.09 3 9.09 3 2 .27 5 34.09 2 EXPORT PROFITABILITY More 31.82 2 4.55 4 18.18 3 4.55 4 .00 - 40.91 1 Same 36.84 1 .00 - 5.26 4 15.79 3 5 .26 4 36.84 1 Less 40.00 2 .00 - 10.00 3 .00 - .00 - 50.00 1 Since the financing of exports by EDC i s limited to c a p i t a l equipment and technical services, and since there are minima regarding the size and Canadian content of financed transactions, i t i s not surprising that 35.21% of respondents indicated that they do not q u a l i f y f o r t h i s s e r v i c e . However, the same number also selected the category "other"; of those 25 firms, 6 said they did not know of such financing, and another 7 made statements which revealed that they lacked even rudimentary knowledge of EDC financing. Of a l l respondents, then, 18% are unaware of EDC's role as a source of export financing. "Too much red tape" and "procedure too time consuming" were the next most frequent responses with 12.68% and 9.86% of the t o t a l , r e s p e c t i v e l y . There was only s l i g h t v a r i a t i o n in the frequency and ranking of these responses according to respondent categories. The percentage of responses and the rank of each appears in Table 4 - 1 0 . Firms that are aware of the Corporation's financing program most frequently said there i s "too much red tape" or the "procedure i s too time consuming". The r e l a t i v e frequency did not vary s i g n i f i c a n t l y among respondent categories, and, of the t o t a l r e p l i e s of 71, (Table 4 - 9 ) 16, or 22.52% chose these responses. I f , upon a review of i t s procedures, the Corporation i s s a t i s f i e d that these statements are not v a l i d , then i t w i l l be apparent that information sources have produced an inaccurate perceptual i bias . In summary, 35.21% of respondents stated that they do not q u a l i f y for the Corporation's financing program. But 40.52% e i t h e r are unaware of t h i s service, or have detering attitudes the v a l i d i t y of which i s suspect. There i s , therefore, a d e f i n i t e need for e f f o r t s to educate p o t e n t i a l users about the scope and the procedures of EDC export financing. C. Information Sources The source from which information i s received influences the response to that information. I f confidence is placed in the source, information i s l i k e l y to be incorporated as knowledge by the r e c i p i e n t and made immediately available for use. I f there i s doubt about the r e l i a b i l i t y of the source, information w i l l be held in abayance, pending confirmation and further refinement. I t i s not the objective of t h i s chapter to define what conditions lead to dependability in an information source. However, i t i s useful in the present study to i d e n t i f y sources deemed dependable by respondents, and those from which information pertaining to the Export Development Corporation was f i r s t obtained. I f differences occur between these categories, a possible explanation i s made f o r the reluctance of some firms to use the services of EDC, even though t h e i r businesses would p r o f i t from so doing. Firms were asked: Question 1: I f you are aware of the services offered by the Export Development Corporation (E.D.C.), from what sources did you f i r s t learn about the Corporation? Newspapers ( ) Business colleagues Business publications ( ) Your bank Di r e c t mail ( ) Agents/brokers Telephone c a l l from an Department of Industry, E.D.C. representative ( ) Trade & Commerce V i s i t from an E.D.C. Other (specify) representative ( ) Question 2: Whether or not you are aware of the E.D.C. what sources do you r e l y on most heavily for i n f o r -mation on insurance, financing and other services r e l a t i n g to your export business? Newspapers Business publications D i r e c t mail Business colleagues Industry associations Your bank ( ) Agents/brokers ( ) Department of Industry, Trade & Commerce ( ) Other (specify) ( ) Table 4-11 and 4 - 1 2 contain the d i s t r i b u t i o n of responses to questions 1 and 2 r e s p e c t i v e l y . The most frequently acknowledged source of i n f o r -mation regarding EDC was the Department of Industry, Trade and Commerce with 32.28% of responses. This i s not sur-p r i s i n g in view of Industry, Trade and Commerce's active export promotion program, i t s a f f i l i a t i o n with EDC^and the size and scope of i t s export a c t i v i t i e s . Through d i r e c t mail as w e l l as contact by telephone and personal v i s i t s , the Corporation i t s e l f accounted for 24.41% of responses. Business colleagues and business publications followed with 16.54 each. I t i s noteworthy at t h i s point that banks accounted for only 2.36%, 3 of the 127 responses. Only two explanations are possible for t h i s poor showing: e i t h e r the banks them-selves lack adequate information about the programs of the Corporation or, they are apprehensive of promotion i t s s e r v i c e s . The problem i s more perplexing since the Corpor-ation's insurance p o l i c y holders reduce t h e i r business r i s k and should therefore be more a t t r a c t i v e bank c l i e n t s . The EDC i s a crown corporation, which reports to Treasury Board and Cabinet through the Minister of the Department of Industry, Trade and Commerce. SOURCE OF FIRST INFORMATION REGARDING EXPORT DEVELOPMENT CORPORATION (Frequency and Percentage D i s t r i b u t i o n ) News-papers Bus . Pub'n Direct Mail T e l . V i s i t Bus . C o l l . Bank Agents/ Brokers IT&C Other --Frequency '-Total 127 6 21 4 6 21 21 3 0 41 4 Percent To t a l 100 4.72 16.54 3.15 4.72 16.54 16.54 2 .36 0 32 .28 3.15 Rank 5 2 7 5 2 2 8 9 1 7 MOST DEPENDED SOURCE OF EXPORT INFORMATION (Frequency & Percentage D i s t r i b u t i o n ) News-Paper Bus . Pub'n Dire c t Mail Bus. C o l l . Ind. Assoc'n Bank Agents/ Brokers IT&C Other Frequency Total 180 1 14 3 16 23 49 36 35 3 Percent Total 100 .56 7.78 1.67 8.89 12.78 27.22 20.00 19 .44 1.67 Rank 9 6 7 5 4 1 2 3 7 financing a c t i v i t i e s of the Corporation are not competitive with those of banks since the former generally applies to transactions in which banks have expressed l i t t l e i n t e r e s t . Sales under EDC financing expand corporate a c t i v i t y without increasing r i s k and ought, again, to enhance the a t t r a c t i v e -ness of business c l i e n t s to banks.* In Table 4 - 1 2 four i n s t i t u t i o n s accounted f o r f o u r - f i f t h s of a l l responses: bank 27.22%; agents and brokers, 20.00%; Industry, Trade and Commerce, 19.44%; and industry associations, 12.78%. Firms place t h e i r greatest confidence in these sources, and one would expect that information from them would be, in that order, most quickly adopted into the working knowledge of the r e c i p i e n t . A comparison of Table 4-11 and 4 T 12 reveals a considerable difference in frequency d i s t r i b u t i o n s . Only 18.36% of respondents indicated that they f i r s t heard about EDC services from the source upon which they r e l y most hea v i l y . Before discussing the p o t e n t i a l impact of t h i s s i t u a t i o n , i t i s i n t e r e s t i n g to note differences that e x i s t For a discussion of the Corporation's insurance and finance procedures, see Appendix I. among industry s e c t o r s . 1 i Consumer Non-Durables The eight respondents were f a i r l y evenly d i s t r i b u t e d regarding general sources of information although newspapers, business pulbications, and Industry, Trade and Commerce were not mentioned. But 4 of the 8 stated that they f i r s t heard of EDC through a v i s i t from a Corporation representative. Other sources of EDC information were business publications, business colleagues, and Industry, Trade and Commerce. Ca p i t a l Equipment Seventeen of the 45 respondents indicated banks as t h e i r most r e l i e d upon source of information. Other responses included: business publications and industry associations, 7 each; agent/brokers and Industry, Trade and Commerce, 6 each; and business colleagues, 1. Industry, Trade and Commerce and business publications were most frequently mentioned as sources of EDC information with 13 and 10 responses r e s p e c t i v e l y . Other important sources were business colleagues, 8, and EDC representative, 6. Only 1 response in Consumer Durables category. I n d u s t r i a l Materials Chartered banks were named as the most r e l i e d upon source by 11 of the 26 respondents, followed by industry associations, 6, business colleagues, 4, and others, 5. Business colleagues and industry associations were each named by 6 respondents as t h e i r f i r s t source of EDC i n f o r -mation, followed by Industry, Trade and Commerce, 5, EDC representative, 4, and others, 5. Services Six of the 18 respondents indicated that the Department of Industry,Trade and Commerce was r e l i e d upon most heavily f o r export information. Other responses included business publications, 4, business colleagues and agents/brokers, 3 each, and industry associations and agents/brokers, 1 each. Industry, Trade and Commerce was named by 5 respondents as the f i r s t source of EDC i n f o r -mation. Other responses were evenly d i s t r i b u t e d except that EDC contact by telephone and v i s i t were each i d e n t i f i e d by 3 firms. One tes t of the Corporation's past performance i h reaching exporters with information regarding i t s programs i s the comparison of budget a l l o c a t i o n s among information sources, and the r e l a t i v e frequency with which those sources were i d e n t i f i e d i n Table 4 - 11. I t i s evident from the industry sector comparisons above that e f f o r t s to reach each sector ought to be directed through d i f f e r e n t i n t e r -mediaries. For instance, c a p i t a l equipment manufacturers place greatest confidence in banks; suppliers of i n d u s t r i a l materials also depend most on banks, but are more widely d i s t r i b u t e d in t h e i r choices; suppliers of t e c h n i c a l services depend most on Industry, Trade and Commerce, although business publications are also important. Consumer goods manufacturers do not prefer any one source, and are widely d i s t r i b u t e d in t h e i r dependence upon information sources. I t has been suggested that information received from sources not held i n confidence i s not r e a d i l y accepted or u t i l i z e d . Opinions r e s u l t i n g from such information may also r e f l e c t a perceptual bias which discourages further i n v e s t i g a t i o n or u t i l i z a t i o n . 1 In the responses to question 10, several options were included which were suspected of having discouraged p o t e n t i a l users of EDC s e r v i c e s . Such a bias may also be b u i l t in by the i n t e r -mediary and merely passed on to the r e c i p i e n t regardless of any confidence f a c t o r . This d i s t o r t i o n cannot be tested on the basis of the present questionnaire. "Hunch that premiums are too high", "too much red tape", and "procedure too time consuming" were deemed by the author to be i n v a l i d , on the basis of a study of the Corporation's procedures and cost as described in Appendix I I I , and a comparison with s i m i l a r services in other countries. Respondents choosing these explanations e i t h e r perceive the benefits as less than suggested by the theory developed in preceeding chapters, or they assess the Corp-oration's f i n a n c i a l , documentation, and time requirements d i f f e r e n t l y than the author. The former i s u n l i k e l y , since the data i n Chapter III revealed the perception of greater r i s k in exporting than domestic business and the d i r e c t r e l a t i o n s h i p s of that r i s k to c r e d i t terms. Why then do firms perceive excessive resource costs in the use of EDC services? There were i n s u f f i c i e n t j o i n t responses to te s t information sources against "too much red tape" and against "procedure too time consuming". However, a comparison was made between general and EDC information sources for firms not using insurance because of a "hunch that premiums and other costs are too high". Information sources were grouped into 4 general categories: publications, business associates, banks and government. Table 4 -13 contains the d i s t r i b u t i o n of response to Question 1 and 2 for firms that do not use EDC insurance because costs are too high. TABLE 4 - 1 3 INFORMATION SOURCES FOR NON-USERS "COSTS TOO HIGH" Assoc. Public 'n Bank Govn't. # Resp. Assoc. 1 0 0 0 1 Public'n 1 1 1 0 3 Bank 0 0 0 0 0 Govn't. 2 0 3 1 6 # Resp. 4 1 4 1 10 Only 3 respondents in thi s group indicated the same for both general and EDC information. Considerable source d i f f e r -ence i s evident from the table, p a r t i c u l a r l y f o r banks, 4 general - 0 EDC, and government, 0 general - 6 EDC. The data regarding information source differences i s not conclusive as an explanation f o r f a i l u r e to use EDC s e r v i c e s . However, differences are frequent. On the assumption that dependence on information sources i s a r e f l e c t i o n of confidence, and that the reaction to i n f o r -mation depends upon confidence i n the source, information regarding the Corporation's programs has not been e f f e c t -i v e l y communicated. As a r e s u l t , firms have not had f u l l and objective information upon which to base decisions regarding the use of EDC se r v i c e s . One would expect that e f f o r t s to improve communications with prospective c l i e n t s would r e s u l t in g r e a t l y improved acceptance of the Corp-o r a t i o n . SUMMARY AND CONCLUSIONS The services of the Export Development Corporation are v i a b l e tools for the expansion of Canadian exports. Foreign demand for goods and services i s contingent, to a considerable extent, upon the extension of c r e d i t , while exporters hesitate to extend c r e d i t because of the inherent a d d i t i o n a l costs and r i s k . Export c r e d i t insurance reduces r i s k , and ultimately the exporter's cost of c a p i t a l . Export c r e d i t guarantees f a c i l i t a t e financing at reasonable costs. Export c r e d i t financing eliminates c r e d i t r i s k . A l l three services increase the l e v e l of c r e d i t acceptable to exporters, and thereby a t t r a c t greater foreign demand. Industry in B r i t i s h Columbia i s faced with a limited l o c a l market and inaccessible a l t e r n a t i v e domestic markets. Major sales growth can therefore only occur with the development of export business. But greater r i s k i s perceived in exporting than in domestic business. To develop markets, firms must extend c r e d i t , but c r e d i t adds to r i s k , and r i s k reduces p r o f i t a b i l i t y . The need and the p o t e n t i a l then, for EDC services in B r i t i s h Columbia i s s u b s t a n t i a l . However, i t has been the experience of the Corporation that most active'exporters i n th i s province have chosen not to use i t s services even though there would be a d i s t i n c t d o l l a r b e n e f i t from so doing. A review of companies attitudes toward the Corporation reveals d i s t i n c t perceptual inaccuracies. Many claim no need, but indicate that t h e i r exports are r i s k i e r than domestic business, and a t t r i b u t e that r i s k to causes which are covered by EDC p o l i c i e s . Others a t t r i b u t e character-i s t i c s to the Corporation which arepprobably not c o r r e c t . Some claim ignorance of these programs, or reveal i t in t h e i r statements. The conclusion of t h i s study i s that the p o t e n t i a l of the Export Development Corporation has not been re a l i z e d in B r i t i s h Columbia because exporters have not had adequate objective information upon which to base t h e i r p a r t i c i -pation d e c i s i o n . Information sources have played a key role in t h i s f a i l u r e , since a d i s t i n c t difference was revealed between sources in which greatest confidence i s placed, and sources from which information was received regarding the Corporation's programs. The need for c r e d i t services has been established, as has the a b i l i t y of EDC to meet that need. I t remains for the Corporation to ensure the e f f e c t i v e , and objective, communication of that a b i l i t y . APPENDIX I SURVEY QUESTIONNAIRE AND COVERING LETTER T H E U N I V E R S I T Y O F BRITISH C O L U M B I A V A N C O U V E R 8 , C A N A D A FACULTY OF C O M M E R C E A N D WJS1NUSS ADMINISTRATION Ponderosa Office Annex - Block C September 28, 1970 Gentlemen: The University of British Columbia, in co-operation with the Export Development Corporation, is conducting a survey of export-conscious firms in B.C. As you may know, the Export Development Corporation is a federal crown corporation engaged in the insuring of exports and long term financing. The objectives of this survey are: 1) To determine the extent of knowledge in the B.C. business community of the insurance and finance services of the EDC. 2) To determine why the services of the EDC are not being used more extensively. The survey data wil l be incorporated into a report to be presented at a forthcoming seminar on the role and effectiveness of the Export Development Corporation in Canada's international business relations. This seminar wil l coincide with a visit to Vancouver by officials of the Export Development Corporation. We should appreciate your assisting in this survey by completing the attached questionnaire and returning i t to. by October 9 , 1970. Regards, W. Winiata Attach, Assistant Professor QUESTIONNAIRE To be completed by exporters in B r i t i s h Columbia PLEASE RETURN BY OCTOBER 9, 1970 TO: Dr. W. Winiata, > » Should there be questions which you are unable or  unwilling to answer please omit these but complete the  remaining questions . 1. I f you are aware of the services offered by the Export Development Corporation (E.D.C), from what sources did you f i r s t learn about the Corporation? Newspapers Business publications D i r e c t mail Telephone c a l l from an E.D.C. representative V i s i t from an E.D.C. representative Business colleagues ( ) Your bank ( ) Agents/brokers ( ) Department of Industry, Trade and Commerce ( ) Other (specify) ( ) 2. Whether or not you are aware of the E.D.C. what sources do you rel y on most heavily for information on insurance, financing and other services r e l a t i n g to your export business? Newspapers ( ) Your bank ( ) Business publications ( ) Agents/brokers ( ) Direct mail ( ) Department of Industry, Trade Business colleagues ( ) and Commerce ( ) Industry associations Other (specify) 3. I f you are aware of the services of E.D.C. what reasons would you give for not e x p l o i t i n g i t s : (a) insurance services . hunch that premiums and other costs are too high ( . do not q u a l i f y (explain) ( . too much red tape ( . procedure too time-consuming ( . incompatible with E.D.C. representative ( reluctance to deal with a government agency ( . inadequate coverage ( . other (specify) ( . no need f o r insurance because - sales are to a subsidiary ( - sales are to r e l i a b l e accounts ( - i t s a s e l l e r ' s market ( - the bank did not require i t ( - other (specify) _. ( (b) long-term financing services . do not q u a l i f y (explain) ( . terms inadequate ( . too much red tape ( . procedure too time consuming ( . incompatible with E.D.C. representative ( . reluctance to deal with a government agency ( . other (specify) ( 4. With respect to the r i s k of not being paid by your customers or of other things going wrong would you say that export business i s . much r i s k i e r than domestic business ( ) . s l i g h t l y r i s k i e r than domestic business ( ) .about as r i s k y as domestic business ( ) . s l i g h t l y less r i s k y than domestic business ( ) . much less r i s k y than domestic business ( ) 5. To what do you at t r i b u t e any difference in r i s k ? . s e l l i n g terms (explain) . c r e d i t standing of customers (explain) . complexity of documentation (explain) ( ) ( ) ( ) . communications - distance ( ) - language ( ) . p e r i s h a b i l i t y of product (explain) ( ) 6. With respect to your terms of sale please indicate which of the following are relevant for domestic and foreign sales: Domestic Foreign . documentary sight d r a f t ( ) ( ) . l e t t e r of c r e d i t ( ) ( ) . cash in advance ( ) ( ) up to 90 days' c r e d i t 91 to 180 days' c r e d i t other (specify) Domestic ( ) ( ) _ ( ) Foreign ( ) ( ) ( ) 7. What types of products do you export? (Please specify) 8. How many years have you been active in the export market? . less than 2 years ( ) . 2 to 5 years ( ) . more than 5 years ( ) 9. What i s your annual sales volume? . less than $100,000 ( ) . $100,000 to $500,000 ( ) . $500,001 to $2,000,000 ( ) . more than $2,000,000 ( ) 10. What proportion of your annual sales volume i s in exports? . less than 25 percent ( ) . 25 to 50 percent ( ) . more than 50 percent ( ) . one ( ) . two ( ) . several ( ) 12. With respect to p r o f i t a b i l i t y i s your export business more or less a t t r a c t i v e than domestic business? . more (please explain) ( ) less (please explain) SURVEY OF NATIONAL EXPORT CREDIT SERVICES One might well question the e q u i t a b i l i t y of govern-ment assistance i n the insuring and financing of Canadian exports were i t not f o r the existence of s i m i l a r programs in most countries with which Canadian exporters compete. The following b r i e f survey i s designed to provide a compar-ison of export c r e d i t services offered by the public sector in several major trading nations.* I t i s not intended as a d e t a i l e d study, and the descriptions of i n d i v i d u a l programs 2 are of necessity abridged. With the exception of Japan, export c r e d i t finan-cing i s limited to the export of c a p i t a l goods and tech-n i c a l s e r v i c e s . 2 F o r a more detailed study, see Lee C. Nehrt, Financing C a p i t a l Equipment Exports, International Text-book Co., Scranton, 1966. The Export Credit Guarantee Department insures exports from the United Kingdom. I t i s wholly government owned and operated, and i t s insurance covers exporters against commercial, p o l i t i c a l , and economic l o s s . Four basic types of p o l i c i e s are offered: 1. Comprehensive Guarantee. Covers a l l exports of a company for a s p e c i f i e d period of time. 2. S p e c i f i c Guarantee. Covers, i n d i v i d u a l ship-ments . 3. Direct Bank Guarantee. For goods valued at greater than t 100,000, and for which payment terms exceed three years. The Guarantee i s issued d i r e c t to exporter's bank in return for which the bank agrees to finance 90% of the export contract value, without recourse to the exporter. 4. Shipbuilding Guarantee. Covers 95% of contract value, with very low premiums, upon securement of a ship mortgage. The b u i l d e r assumes a l l preship-ment r i s k , and at least 40% of the contract price must be paid p r i o r to d e l i v e r y . Premiums for ECGD coverage depend upon i n d i v i d u a l circumstances. Considerations include the c r e d i t rating of the importer, whether i t i s a private or public organization, the nature of the goods, and the economic, and p o l i t i c a l conditions of the importing country. Exports to some countries are not insured since, in the view of the ECGD, such countries are overextended and premiums proportionate to r i s k would be so large as to d i s t o r t the o v e r a l l premium structure. Finance In addition to commercial sources of export financing, the Bank of England has, since 1961, operated a rediscount service for joint-stock banks holding export paper. In e f f e c t , t h i s has r e c l a s s i f i e d e l i g i b l e s e c u r i t i e s as l i q u i d assets, r e s u l t i n g in improved l i q u i d i t y r a t i o s for p a r t i c i p a t i n g banks. The volume of c r e d i t available to exporters is increased therefore not only by the supply of public funds, but by the guaranteed a c c e s s i b i l i t y to such funds, and the resultant increase in attractiveness of export paper to commercial f i n a n c i e r s . Export c r e d i t insurance i s a government con t r o l l e d function administered by the Export Insurance Section of the Ministr y of International Trade and Industry. There are two types of insurance p o l i c y available to the Japanese exporter: 1. Prefinancing Insurance. Cover the manu-facturer of c a p i t a l goods from loss in the event that goods manufactured for export are produced but d e l i v e r y is not possible. 2. Export C r e d i t Insurance. Covers the exporter a f t e r shipment. Both types of p o l i c y protect the exporter against commercial and p o l i t i c a l r i s k , up to 90% of the contract value. Premiums depend upon the product, the terms of sale, the importing country, and the c r e d i t rating of the importer. Premiums are reduced to h a l f i f one or both of the following conditions i s met; a l e t t e r of c r e d i t or guarantee i s issued by an "approved" bank in the importing country, or, the importer i s a government i n s t i t u t i o n . The Export-Import Bank, a government agency, was established in 1950 to a l l e v i a t e the shortage of funds in commercial banks available to finance i n t e r n a t i o n a l trans-actions, domestic demand being very great. Since 1962, consumer durables have been e l i g i b l e for financing as well as c a p i t a l goods. The Bank p a r t i c i p a t e s in transactions to an extent determined by a percentage of the contract value, less downpayment, less p r o f i t s . This percentage ranges from 70% to 80% depending upon the nature of the goods, and the c r e d i t period. In determining i n t e r e s t rates, the Bank gives due regard to the product, the importer, and the terms of sale, but also to the degree of urgency in developing or securing export markets for Japanese products. France / A l l export c r e d i t insurance in the public sector i s provided by the Companie Francaise r]Assurance pour le Commerce Exterieur (COFACE) . The shares of COFACE are a l l held by f i n a n c i a l i n s t i t u t i o n s in the public sector. Two basic types of p o l i c i e s are offered to the exporter: 1. Global. Covers a l l exports by the insured for a period of one year and i s renewable. ( 2. S p e c i f i c . Covers only an i n d i v i d u a l export contract, and i s available for periods of 6 months to 2 years. P o l i c i e s protect the exporter against prefinancing, commercial, p o l i t i c a l and catastrophic r i s k . Premiums are determined on the usual basis of product, importing country, terms of sale, and the importer's c r e d i t rating . Coverage rate i s dependent upon the country of destination, and the r i s k type, varying between 70% and 90% of the contract value. Finance The Banque Francaise de Commerce Exterieur, a govern-ment owned f a c i l i t y founded in 1946, finances exports by way of acceptances and discounting. Promissary notes accepted by the Banque may be discounted by commercial banks at the Banque de France. Export c r e d i t insurance for German exporters i s provided by the federal government, but through two private t r u s t companies, Hermes Kreditversicherungs - AG, and Deutche Revisions un Treuhand - AG. These companies act as agents for the government in return for a fee, although only "Hermes" deals d i r e c t l y with the p u b l i c . Two types of p o l i c i e s are offered through Hermes, and both cover commercial and p o l i t i c a l r i s k : 1. Einzelgarantie. Covers single transactions. 2. Revolvierende Deckung. Covers a l l export transactions of the insured during a s t i p u l a t e d period of time. Coverage i s dependent upon the nature of the r i s k ; 80% for commercial, 85% for p o l i t i c a l due to foreign exchange r e s t r i c t i o n s , and 90% due to other p o l i t i c a l r i s k . The cost of coverage depends upon the terms of sale and the period of coverage. A unique feature of the German insurance program i s that the premiums do not vary with the country of destination, or the c r e d i t rating of the importer. This affords a decided advantage to German exporters to countries or customers of high r i s k . Exporters may insure e i t h e r for the predelivery period, or the f u l l duration of the c r e d i t period. Finance Government involvement in the financing of German exports i s undertaken v i a the Kreditansta1t fur Weideraufbau, established in 1948. Financing i s undertaken in conjunction with a commercial consortium, Ausfurrkredit - AG, and i s usually limited to 25% of the contract value. In addition, replacement loans may be extended in the event that the c r e d i t terms extended to the importer are greater than those of loans to the exporter by the consortium. Although rediscount f a c i l i t i e s e x i s t through the Deutche Bundesbank, these have not been developed. The cost of c r e d i t for exports i s not subsidized by the government, and as a r e s u l t , rates are higher than those faced by French and B r i t i s h competitors. Export-Credit Insurance in I t a l y is the respon-s i b i l i t y of the Technical Administrative Committee, made up of representatives from relevant government m i n i s t r i e s . This committee determines whether or not to accept each ap p l i c a t i o n , and in the event of acceptance, sets the premium rate. The actual insurance p o l i c y and the finan-c i a l transactions arehhandled by the state owned I n s t i t u t o  Nationalle d e l l e A s s i c u r a z i o n i . One unique feature of I t a l i a n export c r e d i t insurance is the provision for foreign subsidiaries of I t a l i a n companies to be named as b e n e f i c i a r i e s . In such a case, however, the percentage of insurance cover i s limited to the proportion of I t a l i a n ownership in that subsidiary. Government insurance does not protect the I t a l i a n exporter against commercial r i s k such as the bankruptcy of the importer. Consequently, most exports from I t a l y are i covered by a bank guarantee issued in the importing country. 1 Coverage i s extended for p o l i t i c a l and catas-trophic r i s k a f t e r shipment, and loss due to ca n c e l l a t i o n I f the importer i s a government agency, then commercial risks are in fact p o l i t i c a l , and the exporter i s covered. or suspension of the order p r i o r to shipment. This l a t t e r r i s k may be insured separately. Exporters may also insure against economic loss on "fix e d - p r i c e " contracts due to i n f l a t i o n in I t a l y which increases cost of production a f t e r the date of sa l e . In a l l cases, the exporter may cover up to 85% of the p r i n c i p a l and int e r e s t of the extended c r e d i t to a maximum of 100% of the p r i n c i p a l . The cost of insurance varies with the nature of the goods to be exported and the ri s k s to be covered. Finance In 1952, the government owned I n s t i t u t o Central  per i l Credito a Medio Termine (Mediocredito) was estab-lished to augment commercial sources of export financing. Mediocredito is a re-discount f a c i l i t y for exporters' notes discounted by medium-term banks . Because of limited resources, the I n s t i t u t o has r e s t r i c t e d i t s service to 25% of the insured portion of any contract. 1 To compensate for t h i s l i m i t , an int e r e s t rate contribution of 1.7% i s made to the exporter for an addit i o n a l 50% of the c r e d i t portion of a transaction. With a d d i t i o n a l funds acquired in the mid-1960's Mediocredito has been able to re-discount approximately 25% of the t o t a l insured c r e d i t extended to importers of I t a l i a n c a p i t a l goods. P r i o r to 1962, export c r e d i t s insurance was a function of the Export-Import Bank, a government owned agency. But in 1962 the Foreign Credits Insurance Associa-tion was formed, (FCIA) consisting of private insurers of export c r e d i t . Insurance i s now a j o i n t function of the Bank and FCIA. FCIA covers the f i r s t $150,000 for com-mercial r i s k , beyond which the Bank assumes commercial r i s k . A l l p o l i t i c a l r i s k is also assumed by "Eximbank" . Insurance usually covers 90% of financed portion of the contract value, although Eximbank reserves the r i g h t to reduce t h i s coverage in the event of unusually high r i s k . Exporters may insure for only p o l i t i c a l r i s k i f they so choose. P o l i c i e s are usually issued for s p e c i f i c trans-actions, although "revolving-sales" p o l i c i e s may be issued for repeated sales to the same customer. Exporters may also purchase "whole turnover" p o l i c i e s covering t o t a l sales during a s t i p u l a t e d period. Through a s p e c i a l endorsement of the policy, preshipment coverage is available The cost of coverage i s p r i m a r i l y a function of the country to which the shipment i s to be made. P o l i t i c a l r i s k s have been found to be greater than other types of r i s k , and exporters seeking to cover only p o l i t i c a l r i s k pay 75% of the comprehensive rate. Finance The Export-Import Bank is the only government agency engaged in export financing in a general sense, although cer t a i n types of contracts may be covered under aid or a g r i c u l t u r a l programs. Eximbank funds are only made available for the sale of c a p i t a l goods for which private sector financing is not a v a i l a b l e . In addition to financing i n d i v i d u a l export sales, the Bank has loaned funds to foreign countries to finance a v a r i e t y of purchases during a time of economic hardship, and also to finance purchases in connection with major projects. This l a t t e r type of loan has constituted the largest portion of the Bank's transactions in recent years. The financing of i n d i v i d u a l contracts has gradually been reduced, the Bank preferring instead to o f f e r guarantees which make financing more a t t r a c t i v e to commercial sources. Several prerequisites are mandatory for the extension of such a guarantee; the importer must pay between 10 % and 20% as a downpayment; the contract must be in English and payable in US d o l l a r s ; and, terms must be less than the expected economic l i f e of the purchased goods. The exporter then agrees to carry 19% of the financed portion, and a commercial bank to accept, on a non-recourse basis, the remaining 90%. Eximbank then guarantees the 90% held by the commercial bank against p o l i t i c a l r i s k for the entire c r e d i t period, and against commercial r i s k during l a t e r maturity. A l t e r n a t i v e l y , coverage may include a l l p o l i t -i c a l r i s k and 50% of the commercial r i s k for the entire c r e d i t period. Preshipment coverage i s a v a i l a b l e , but only i f postshipment guarantees are sought by the exporter. The survey has dealt only with the c r e d i t and insurance f a c i l i t i e s available to exporters from the public sector at the national l e v e l . There e x i s t also a number of i n t e r n a t i o n a l agencies from which e i t h e r or both of these services are a v a i l a b l e . Only a p a r t i a l l i s t of these organ-iza t i o n s appears below; fo r a detailed discussion see Bank of America, Sources of C a p i t a l and Credit Insurance for International Transactions. International Agencies  Providing Export Credit Services International Monetary Fund International Bank for Reconstruction and Development International Finance Corporation International Development Association Inter-American Development Bank Bank for International Settlements European Investment Bank' European Development Fund L'Union d'Assureurs des Credits Internationaux (the Berne Union) i s an i n t e r n a t i o n a l association of export c r e d i t insurers. I t s 20 member countries, including Canada -EDC, represent the majority of the large trading nations of the world. The p r i n c i p a l objective of the union i s "... to work for r a t i o n a l development of c r e d i t insurance in the in t e r n a t i o n a l f i e l d " . * Members exchange information on c r e d i t terms for various commodities, and undertake to thold such terms within predetermined, reasonable l i m i t s . Through regular correspondence and annual meetings, members also discuss t h e i r experience in various importing countries, and the general economic outlook in countries to which insured shipments are made. EXPORT DEVELOPMENT CORPORATION HISTORICAL DEVELOPMENT AND CURRENT STATUS "The Export Development Corporation, a Crown Corporation, i s the f o c a l point of govern-ment i n t e r e s t in the financing of exports and the insuring of private investment abroad. This new Corporation succeeds the Exports Credits Insurance Corporation which had operated in Canada f o r the past 25 years. EDC has achieved more f l e x i b i l i t y than ECIC through a broader range of functions, more su b s t a n t i a l f i n a n c i a l resources, and greater d i s c r e t i o n a r y powers."* H i s t o r i c a l Development • The Export Development Corporation's predecessor, the Export Credits Insurance Corporation, was created by Act of Parliament in 1944, and began operations in October 1945. ^Information booklet, Export Development Corporation, page 1. ECIC's executive and management structure consisted of: Board of Director: . s i x senior c i v i l servants including the Deputy Minister of the Dept. of Finance, the Governor of the Bank of Canada, and the General Manager of ECIC. Advisory Council: fourteen senior businessmen drawn from across Canada. O f f i c e r s : a general manager, a c h i e f c r e d i t o f f i c e r , and a secretary. The business of the Corporation was "... to provide insurance, at a s u i t a b l e premium, for Canadian Exporters who wished to cover themselves against c e r t a i n r i s k s of non-payment for goods sold to buyers in foreign c o u n t r i e s " . 1 S p e c i f i c a l l y , coverage was offered against: 1. The r i s k of a foreign buyer becoming insolvent. 2. The r i s k of c a n c e l l a t i o n of an import l i c e n s e . 3. The r i s k of adverse charges in foreign exchange regulations in the buyers country. • P o l i c i e s were issued to cover the export of general commodities and c a p i t a l goods. In the case of general commodities, the exporter had the option of a "shipments type" p o l i c y which covered the transaction only from the date of shipment, or a "contract type" p o l i c y which covered the transaction from the date the exporter accepted an order. C a p i t a l goods coverage was a l l of the contract type. General commodities coverage consisted of "whole turnover" p o l i c i e s covering a l l transactions for a s p e c i f i e d period. C a p i t a l goods p o l i c i e s are " S p e c i f i c " , applying to only a designated transaction. By the end of the f i r s t f u l l f i s c a l year of operations, December 31st, 1946, 95 p o l i c i e s had been issued covering an estimated export volume in excess of $22 m i l l i o n . Of t h i s approximately 98% consisted of general commodities, and the majority of coverage was of the shipment type. Following i s a synopsis of major l e g a l and stuc-t u r a l changes in ECIC from 1946 to 1969. 1947 - Branch o f f i c e s in Montreal and Toronto. 1948 - Act amended to add Section 20A. Whereas the Corp-oration had previously been limited to a maximum l i a b i l i t y of 10 times i t s paid-up c a p i t a l and surplus* 1 P a i d - up c a p i t a l amounted to $5 m i l l i o n . i t could now, with the approval of the Governor in Council, exceed that l i m i t . Such action could only be taken when " i n the opinion of the Minister (of Trade & Commerce) i t (was) i n the national i n t e r e s t that a proposed contract of insurance be entered i n t o " . 1 1952 - F i r s t attended meeting of L'Union d'Assureurs pour le Controle des Credits Internationaux (Berne Union) 1954 - Act amended to increase c a p i t a l from $5 m i l l i o n to $15 m i l l i o n . 1954 - Vancouver representation by o f f i c e r of Department of Trade and Commerce. 1957 - Act amended to extend coverage to 1. goods shipped abroad for e x h i b i t i o n or consign-ment and sale of such goods 2. sales made abroad by foreign s u b s i d i a r i e s of Canadian companies 3. payment for engineering, construction, t e c h n i c a l or s i m i l a r services in foreign countries. 4. expenses incurred abroad for i n s t a l l a t i o n , s ervicing procurement of materials and labour by Canadian exporters of c a p i t a l goods or 1959 - Act amended to allow Corporation to give d i r e c t guarantees to lenders covering payment of negot-iable instruments given to Canadian exporters by foreign buyers in respect of export transactions. Minimum value - $250,000; Minimum time - 2 years; Minimum Canadian content - 80%. - Governor of Bank of Canada removed from Board of Governors. 1960 - Implementation of Section 21A of Act for provision of long term financing f o r export sale of c a p i t a l goods. Limited to countries unable to meet 5 years customary terms. Maximum c r e d i t $200 m i l l i o n . - Increase in Section 21A c e i l i n g to $300 m i l l i o n . 1962 - Maximum insurance l i a b i l i t y under Section 21 increased from $200 m i l l i o n to $400 m i l l i o n . 1963 - Representation by o f f i c e r s of Dept. of Trade and Commerce in H a l i f a x and Winnipeg. 1964 - Maximum l i a b i l i t y under Section 21 increased to $600 m i l l i o n . - Co-insurance rate (ECIC coverage) increased from 85% to 90%. - Waiting period f o r settlement shortened. - Maximum c r e d i t under Section 2 1A increased to $400 m i l l i o n . - Working basis established with Inter American Bank for future j o i n t financing. - ECIC now tax exempt. - Act amended to provide for re-insurance arrangements with foreign exports c r e d i t insurers. - Represented in Edmonton by o f f i c e r of Department of Trade and Commerce. 1965 - Act amended to allow ECIC to issue unconditioned guarantees to banks in return for non-recourse financing of c a p i t a l equipment exports. - Section 21A financing amended to allow transaction of $1 m i l l i o n or more to q u a l i f y . - Negotiations now b i l a t e r a l between ECIC and foreign buyers. - ECIC may now make loans to national development hanks for re-loaning and subsequent pruchase of Canadian c a p i t a l goods . 1966 - Act' amended to allow d i r e c t bank guarantees to be issued under Section 14, thereby reducing the demands on funds under Section 2lA. - Section 21A t o t a l c r e d i t c e i l i n g raised to $500 m i l l i o n . - Opened regional o f f i c e i n Vancouver. 1969 - L e g i s l a t i o n passed introducing Export Development Corporation. EDC assumed a l l assets, l i a b i l i t i e s and obligations of ECIC. Provides a l l services of ECIC but terms of reference much expanded. Current Status The objective of the Export Development Corporation stated in the t i t l e of i t s founding Act was "... to f a c i l i t a t e and develop export trade by the provision of insurance, guarantees, loans and other f i n a n c i a l f a c i l i t i e s " . The executive structure of EDC consisted of: Board of D i r e c t o r s : 8 senior public servants, including Deputy Ministers of the Department of Finance, and Industry, Trade & Commerce, Governor of the Bank of Canada, President, Candian Inter-national Development Corp., and the President of the Corporation. Also on the Board of Directors, 4 senior businessmen. Executive O f f i c e r s : President, 2 Vice-Presidents, (Insurance and Finance), and l Secretary. To accomplish i t s objectives, the Corporation engages in 4 f i n a n c i a l a c t i v i t i e s ; exports c r e d i t insurance, export c r e d i t guarantees, foreign investment insurance, and export financing. I Export Credit Insurance (Sections 24 and 27) The nature of the p o l i c i e s and procedures f o r insurance did not change s i g n i f i c a n t l y from those of ECIC. However, the scope of coverage was enhanced to include "...any r i s k of loss under or in respect of an export transaction, from any cause not avoidable by (the exporter) 1 or his foreign a f f i l i a t e Examples of application f o r "Shipment" and "Contract" p o l i c i e s appear as E x h i b i t s 1 and 2, accompanied by copies of p o l i c y forms, E x h i b i t s la and 2a. I t i s not the practice of EDC to publish rate structure, or to reveal the s p e c i f i c manner in which rates Export Development Act, Section 24, Subsection (1) paragraph (a). are determined. Rates depend upon the product, the des t i n -ation, and the c r e d i t rating of the customer, but s p e c i f i c quotes are only made, in confidence, to the exporter upon the provision of d e t a i l s of the pending transaction. Such d e t a i l s are provided i n an application f o r a p o l i c y . This a p p l i c a t i o n does not constitute any ob l i g a t i o n on the part of the exporter. I f , upon receipt of the premium quotation, he decides to accept coverage, the exporter deposits approx-imately 10% of the annual premium. Presmiums are payable monthly based on a declaration of the contracts and ship-ments made during the previous month. A S p e c i f i c Contract P o l i c y may also be issued by EDC. A specimen of the Application for a P o l i c y Covering a S p e c i f i c Contract appears as E x h i b i t 3 of this appendix. Section 27 of the Act provides f o r the extension of insurance beyond the statutory l i m i t s , upon the approval of the Governor in Council under conditions which are in the national i n t e r e s t . Funds to pay losses from such insurance come from the Consolidated Revenue Fund of the federal government. II Export Credit Guarantees (Sections 24 (b) and 29 (b)) EDC is authorized to provide unconditional guarantees to banks in cases where insured Canadian exporters have sold c a p i t a l equipment on medium-term c r e d i t . Such guarantees cover 100% of the contract p r i c e , and are issued in return for non-recourse financing of the exporter by the bank. I I I Foreign Investment Insurance (Section 34) Foreign investment insurance i s designed to protect Canadian investors abroad from p o l i t i c a l r i s k . S p e c i f i c causes of loss which are covered are, war or revolution, c o n f i s c a t i o n or expropriation, or the i n a b i l i t y to repat-r i a t e c a p i t a l or transfer earnings. To q u a l i f y , investments must be new1, and made in developing countries. One further condition has limited the effectiveness of t h i s program to date. B i l a t e r a l agreements must be signed with the host country, as a prerequisite to insuring projects in that 2 country. A waiver l e t t e r may be issued at the time of investment, to permit future consideration of coverage, although the investment i s no longer new. 2 At the time of writing, plans were being made to reduce the stringency of the term of these agreements. The maximum volume of investment covered at any one time cannot exceed $150 m i l l i o n . i IV Export Financing "The purpose of long term export financing i s to enable Canadian exporters of c a p i t a l equipment and related services to o f f e r the same scope of f i n a n c i a l , c r e d i t f a c i l i t i e s available from major foreign competitors when the terms required extend beyond those normally available from commercial sources."* I t i s the foreign customer, and not the Canadian exporter, who becomes debtor to the bank. However, the prime exporter must make the i n i t i a l a p p l i c a t i o n f o r financ-ing, on behalf of the foreign borrower. A specimen of the d i r e c t i o n s for making such an ap p l i c a t i o n appears as E x h i b i t 4. The volume of c r e d i t outstanding at one time cannot exceed $600 m i l l i o n on EDC's account. An a d d i t i o n a l $200 m i l l i o n can be made ava i l a b l e , upon approval of the i Governor in Council, for transactions in the national i n t e r e s t . In 1945, ECIC insured $2 m i l l i o n of exports at i t s own r i s k . By 1968, t h i s figure had risen to $247 m i l l i o n . In that period of time, at t o t a l of $2,862 m i l l i o n had been insured, $1,888 m i l l i o n at ECIC's own r i s k , the balance covered under Section 21 by the Consolidated Revenue Fund of the federal government. Financing, introduced in late 1960, has fluctuated in volume due to the changing demand for, and competitive p o s i t i o n of, Canadian c a p i t a l goods 1 in developing countries. A summary of insurance and financing volumes appears i n Exhibits 5 and 6 r e s p e c t i v e l y . Although f i n a n c i a l statements have not been released for 1970 as of the date of wr i t i n g , the author was advised by a representative of the Corporation that contracts worth $100.8 m i l l i o n were financed in 1970. In the f i r s t quarter of 1971, contracts amounted to $93.6 m i l l i o n . EXHIBIT 1 CS 163 To E X P O R T D E V E L O P M E N T C O R P O R A T I O N , (EDC) P.O. Box 655, Ottawa, Canada. APPLICATION FOR A SHIPMENTS POLICY We have read a specimen of your Shipments Policy "CS" and request that you will inform us of the terms on which you are prepared to insure us in accordance with the terms and subject to the conditions of the said Policy against a proportion of the loss as therein defined that we may sustain in respect of goods shipped from Canada during the period from _ 19- , to 19 , inclusive under contracts entered into by us. D E C L A R A T I O N 1. The goods the subject of all the shipments above-mentioned will be 2. We have not assigned or pledged, without full recourse aeginsr^uTOelves, or insured any part of the purchase price receivable under any such contract as<<lQ£csaid>or any right or interest acquired by virtue thereof or received any indemnity or security whatsoever in respect thereof and we will not effect any such assignment, pledge or insurane<!>$&^uryour prior consent in writing and will promptly notify you of any such indemnity or^ecur^ty^received by us. 3. We are not aware of any circumstances relating to any particular buyer or shipment which might adversely influence your acceptance ^tfT^ny xrf^ 'the risks on which we are hereby requesting insurance. x"^ ) 4. Unless otherwise agreed itfwritijjg by EDC, the Policy for which we are asking you to quote is not to attach: (a) to any shipment made to any buyer in whose profits we have any interest, direct or indirect, or who has any interest in our business, or (b) to any shipment made to any buyer after we have received information that he is in financial difficulties or that his position appears to be such as to make shipments to him undesirable. 5. We undertake to carry on our business with due care in making contracts and in regard to the conditions of the contract and the trustworthiness of the buyer, and we further undertake to declare in accordance with the terms and conditions of the Policy A L L shipments made to any and every buyer to which the Policy will apply. 6. All discussions and correspondence in connection with this Application and with any Policy arising therefrom are to be treated by both sides as confidential, and we undertake not to disclose any of the details to our agents or to the buyers or to any other person or concern, other than in confidence to our bankers, without the prior consent in writing of EDC. 7. We certify that the representations made and facts stated by us are true, and that we have not misrepresented or omitted any material fact which might have a bearing on the Policy, and we agree that such representations and facts shall form the basis of and be incorporated in the Policy and that the truth of such representations and facts and due performance of each and every under-taking contained herein or in the Policy shall be a condition precedent to any liability of E D C there-under and to the enforcement thereof by us. 8. We anticipate that our total export business with A L L countries in the period stated will be: 164 C O U N T R Y CREDIT PERIOD TOTAL A M O U N T C A S H IN ADVANCE [Include irrevocable letters of credit) (Applicable to Paragraphs 8 & 9) USUAL M A X I M U M $ $ • TOTAL $ $ 9. Our export turnover and bad debts, (actual losses incurred on all export buyers, exclusive of , ^  j compensation received from agents, insurers and any other source) for the previous three con^ nJcged years and the subsequent period to date, have been as follows: ror each of the last three (completed) financial years ending 19 Turnover Bad Debts Written Off Turnover Bad Debts Written Off 19 19 19 19 19 19 8 $ $ $ $ s $ S $ $ S Subsequent period to date 10. We append (if "none" please state): (a) a note of any exceptional losses on individual firms or countries; (b) a statement of overdue accounts with an estimate of possible losses thereon. 11. The approximate number and credit limits of our export accounts are as follows: No. Credit Limits No. Credit Limits Up to $ 500 $ 2,501/$ 5,000 $ 501/$ 1,000 $ 5,001/$10,000 $l,001/$2,500 $10,001/$2 5,000 12. The sources from which we obtain information regarding prospective buyers are: Exporter's Name ^ Per Authorized Signing Officer Address Date 19, UNO—POI—8-69 EXHIBIT lA No. CS EXPORT DEVELOPMENT CORPORATION OTTAWA. CANADA SHIPMENTS P O L I C Y POLICY made 1 9 , between who carries on business at (hereinafter called the "Exporter") of the one part and the Export Development Corporation (hereinafter called "EDC" ) of the other part. W H E R E A S the Exporter has made an Application dated 19 (hereinafter called the "Application") requesting EDC to insure the Exporter against a proportion of the loss which may be sustained by reason of certain risks involved in the export of goods from Canada; Now T H E R E F O R E in consideration of the premium paid and to be paid by the Exporter to E D C as hereinafter set out, E D C hereby insures the Exporter in accordance with the terms and subject to the conditions hereof against a percentage of the amount of any loss as hereinafter defined which may be sustained by the Exporter in respect of shipments of goods from Canada hereinafter specified by reason of the occurrence of any of the following causes (hereinafter called the "risks insured"): (i) the insolvency of the buyer as hereinafter defined, "^C^ V insured (ii) the failure of the buyer to pay to the Exporter within sK^sntn^after the due date of payment the gross invoice value of goods delivered to and acc^pteavtft ijje buyer, (iii) the operation of a Law or of an Order, Decr,«_J or KeguHtion having the force of law, which in circumstances outside the control of thg^xpiorten ortif the buyer prevents, restricts or controls, where payment of the gross invoice valued to%£^nade: (a) in Canadian dollars, the trffrsra: theperJf to the Exporter in Canada, or (b) in any other curren^-tiie^Eansfer thereof to the Exporter in Canada and its conversion into Canadian dollarst^/ (iv) the occurrence of war between the buyer's country and Canada, (v) the occurrence of war, hostilities, civil war, rebellion, revolution, insurrection, civil commotion or other disturbance in the buyer's country, (vi) the incurring in respect of goods shipped from Canada of any additional handling, transport or insurance charges which are occasioned by interruption or diversion of voyage outside Canada and the continental United States of America and which are due by the buyer, but which it is impracticable to recover, (vii) the cancellation or non-renewal of an Export Permit or the imposition of restrictions on the ship-ment from Canada of goods not subject to permit or restriction prior to the date of the shipment, (viii) the failure or refusal of the buyer to accept goods which have already been exported from Canada, and are not within the continental United States of America, where such failure or refusal is not excused by and does not arise from or in connection with any breach of contract on the part of the Exporter or from any cause within his control, provided that E D C is satisfied that no good purpose would be served by the institution of proceedings against the buyer in respect of such failure or refusal, or (ix) any other cause not being within the control of the Exporter or of the buyer, which arises from events occurring outside Canada and the continental United States of America; Provided that the said risks insured, shall not under this Policy include any risk which at the date when any shipment is made can be and normally is insured with commercial insurers. TERMS AND CONDITIONS REPRESENTATIONS AND DISCLOSURES BY EXPORTER Application 1, j j j e Application shall be incorporated with this Policy as the basis thereof and if any of the statements con-tained in the Application be untrue or incorrect in any respect this Policy shall be void, but EDC may retain any premium or deposit that has been paid. Disclosure 2. Without affecting the operation of any rule of law it is declared that this Policy is given on condition that the of facts Exporter has at the date of issue of this Policy disclosed and will at all times during the operation of this Policy promptly disclose all facts in any way affecting the risks insured. SHIPMENTS COVERED AND EXCEPTIONS Shipments covered Shipments not covered Withdrawal of coverage Schedule conditions Declarations 3. Subject to the terms and conditions contained herein, this Policy shall apply in respect of all shipments of goods from Canada made pursuant to any contract or agreement for the sale thereof to any buyer in the countries specified in the Schedule hereto, during the period from 19 to 19 inclusive. The shipment of goods from Canada shall be deemed to include the despatch of goods within Canada by the Exporter to the buyer. 4. Except with the approval in writing of EDC this Policy shall not apply to any shipment which: (i) is invoiced to the buyer in any currency other than that approved by EDC, or (ii) involves the granting of credit by the Exporter to the buyer for a longer period than the maximum indicated in respect of the buyer's country in the Schedule hereto, provided that the Exporter shall be entitled, except in the case of cash against documents, documentary sight draft or documents against payment transactions, in the event of need arising at or shortly before the due date, to extend the due date of any payment for a period not exceeding 90 days from the original due date, but in any event such extended due date shall not be a date occurring later than 180 days from the date of shipment 5. EDC shall be at liberty at any time to give written notice to the Exporter that on and after such date as may be specified in the notice this Policy shall not apply in respect of shipments that may be made to a buyer specified in the notice or to all buyers in a country specified in the notice notwithstanding that the country in which the said buyer is or the said buyers are situated is specified in the Schedule hereto. 6. The application of this Policy to shipments made to buyers in any of the countries specified in the Schedule hereto shall be further subject to the special conditions (if any) stated in the Fourth Column of the Schedule opposite the name of that country. MONTHLY REPORT BY EXPORTER 7. The Exporter shall declare to EDC on or before the tenth day of each calendar month: (i) all shipments made by him during the previous month to which this Policy is, or may be, applicable, provided that the first declaration hereunder shall include all the said shipments made in the previous month or earlier, and (ii) all amounts which at the end of the previous month remained wholly or partly unpaid for more than three months from the original due date in respect of shipments previously declared. Deposit Premiums Gross invoice value Variation of rates Exporter's privilege Exporter's obligations Percentage of loss payable PREMIUMS 8. The Exporter shall, on his acceptance of EDC's letter of quotation dated 19 , pay by way of premium the sum of $ which shall be treated as a deposit and returned to the Exporter on the expiry of this Policy or carried forward in the event of renewal. 9. The Exporter shall be liable to pay premium on all shipments to which this Policy applies forthwith upon the making of such shipments at the rates set out in the Third Column of the Schedule hereto (or, as the case may be, at any varied rates for the time being in force) on the gross invoice value of such shipments and shall pay the said premium as and when the shipments are required to be declared under this Policy. 10. In this Policy the gross invoice value of shipments shall include any insurance, freight or other charges paid or to be paid by the Exporter on the buyer's behalf but exclude any payments secured by irrevocable letters of credit or cash received from the buyer prior to the date of shipment 11. Any premium rate set out in the Schedule hereto may be varied upon written notice to that effect being given to the Exporter by EDC. In such a case, the change will take effect on and after the date specified in the notice, but will apply only to shipments made on or after that date. 12. If the rate of premium for any country set out in the Schedule hereto for the time being in force is increased, the Exporter shall be entitled within 14 days after notification to him of the increase to exclude that country from this Policy and in that event no premium shall thereafter be payable in respect of any shipments made to buyers in that country nor shall EDC be liable in respect of any such shipments made subsequent to that date. DUTIES OF EXPORTER 13. The Exporter shall: (i) use all reasonable and usual care, skill and forethought, and take all practicable measures, including any measures which may be required by EDC, to prevent or minimize loss; (ii) notify EDC in writing of the occurrence of any event likely to cause a loss within 30 days of his becoming aware of any such occurrence. LOSSES 14. Subject to the terms and conditions hereof, in respect of any loss, as hereinafter defined, which is sustained by the Exporter under any shipment to which this Policy applies by reason of any of the risks insured, EDC hereby agrees to pay to the Exporter immediately after the time hereinafter specified for ascertainment of the amount of the loss: (i) 90% of the loss, where the loss is due to the occurrence of any of the causes specified in paragraphs (i), (ii), (iii), (iv), (v), (vi), (vii) and (ix) of the risks insured; or (ii) where the loss is due to the occurrence of the cause specified in paragraph (viii) of the risks insured, the Exporter shall bear a first loss equal to 15% of the gross invoice value of the goods, and 90% of the balance of the loss shall be payable by EDC, save that in no case shall EDC pay a sum in excess of 40% of the gross invoice value of the goods. 15. In this Policy the amount of the loss sustained by the Exporter in respect of any shipment shall: (i) as regards goods delivered, be the gross invoice value of those goods less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has received in respect of them and less any sums or credits in the possession of the Exporter which the buyer would have been entitled to have taken into account by way of set-off or counter-claim or which the Exporter is entitled to appropriate in whole or part payment of the price of the goods; (ii) as regards goods not delivered, or delivered to but not accepted by the buyer, be the gross invoice value of those goods less any expenses saved by non-fulfilment of the contract of sale, and less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has recovered from any source, including payment of any part of the gross invoice value, realization of any security, and resale of any goods or materials. 16. The amount of any loss in respect of any shipment shall be ascertained: (i) where the loss is due to the buyer's insolvency as hereinafter defined, immediately after the occurrence of such insolvency; (ii) where the loss is due to the failure of the buyer to pay within six months after the due date of payment the gross invoice value of goods delivered to and accepted by the buyer, immediately after the expiry of the said period of six months; (iii) where the loss is due to the operation of a Law or of an Order, Decree or Regulation having the force of law, which in circumstances outside the control of the Exporter or of the buyer prevents, restricts or controls, where payment of the gross invoice value is to be made: (a) in Canadian dollars, the transfer thereof to the Exporter in Canada, or (b) in any other currency, the transfer thereof to the Exporter in Canada and its conversion into Canadian dollars, four months after the due date of payment; (iv) where the loss is due to the occurrence of the cause specified in paragraph (viii) of the risks insured one month after the date on which, with EDC approval, the goods have been resold or otherwise disposed of by the Exporter; (v) in all other cases, four months after the occurrence of the event which is the cause of the loss. PAYMENTS IN CANADIAN CURRENCY 17. Payment of premiums and losses hereunder shall be made in Canadian dollars and for the purpose of such payment the gross invoice value of shipments invoiced in a foreign currency shall be converted to Canadian dollars at the bank buying rate of exchange at noon on the date of the relative shipment. LIMITATIONS ON EDCS LIABILITY FOR LOSSES 18. EDC shall not be liable for loss: (i) in respect of a shipment if all or any part of the gross invoice value thereof receivable by the Exporter has been assigned without full recourse against the Exporter unless the prior approval in writing of EDC has been obtained; (ii) in respect of a debt as to which the Exporter has accepted a composition arrangement with the buyer without the prior approval in writing of EDC; (iii) which occurs due to the fault of the Exporter, or any agent of the Exporter or of any collecting bank, or due to the insolvency of such agent or bank; or | (iv) unless a claim for the loss is made in writing to EDC by the Exporter on or before 19 j 19. The liability of EDC under this Policy for losses sustained by the Exporter in respect of the total gross invoice value of shipments to any one buyer which is outstanding at any one time is limited: (i) in respect of goods delivered to the buyer on credit terms or in respect of shipments of goods which have been tendered to the buyer on payment terms of cash against documents, documentary sight draft, or documents against payment, to the amount hereinafter defined as the Credit Limit for the buyer, and (ii) in respect of all goods in the course of shipment to the said buyer, to the amount hereinafter defined as the Trading Limit for the buyer. Amount of loss 169 20. The amount of the Credit Limit for any buyer shall be: (i) a maximum of $ for credit transactions or $ * mentary sight draft and/or documents against payment transactions, BUT IN NO CASE shall the amount of the Credit Limit exceed: for cash against documents and/or docu-(a) the highest amount at any one time outstanding during the two years preceding the date of this Policy, or (b) such amount as may be justified by up-to-date information as to the credit-worthiness of the buyer obtained by the Exporter from at least two reliable sources; or (ii) the amount approved in writing by EDC upon application for that purpose by the Exporter. 21. The amount of the Trading Limit for any buyer shall be two times the amount of the Credit Limit for the buyer, and shall be subject to the same terms and conditions as those on which EDC has approved the Credit Limit. Time of loss Rates of exchange Limitation of liability Credit Limit Trading Limit Amount of Credit Limit Amount of Trading Limit 22. The total liability of EDC under this Policy shall be limited to $ may be agreed in writing between the Exporter and EDC. or such other total sum as Maximum liability \ Action after, payment of claim Recoveries Insolvency Assignment Fraudulent claims Observance of Conditions Failure to comply with Conditions RECOVERIES 170 23. Upon payment by EDC the Exporter shall take all steps to effect recoveries from the buyer which may be necessary or expedient or which EDC may at any time require, including if so required the institution of legal proceed-ings against the buyer by and in the name of the Exporter, and EDC shall have the right at any time to require the Exporter to transfer to EDC his rights under any contract of sale in respect of which payment has been made as aforesaid for the purpose of effecting recoveries in such manner as EDC may consider necessary or desirable. 24. In respect of a loss paid by EDC, any sums recovered by the Exporter or EDC from the buyer or any other source shall be divided between the Exporter and EDC in the proportions in which they bore the loss. The Exporter shall pay all sums so recovered to EDC forthwith upon their being received by him or on his behalf, and until such payment is made to EDC he shall receive and hold such sums in trust for EDC. Where the gross invoice value of shipments is expressed in a foreign currency, amounts recovered in that currency shall not be converted to Canadian dollars but shall be divided between the Exporter and EDC as herein provided. This division shall be made notwithstanding that the aggregate amount of such currency paid to EDC in respect of the loss would, if converted to Canadian dollars at the bank buying rate of exchange at noon on the date when the payment is made to EDC, exceed the amount of the payment made by EDC to the Exporter in respect of the loss, and notwithstanding any rule or principle of law to the effect that an insurer who has indemnified an insured for loss may recover from any third party responsible for the loss only what the insurer has paid as indemnity. GENERAL 25. The buyer shall be deemed to be insolvent for the purpose of this Policy when: (i) he is declared bankrupt; or (ii) he has made a valid assignment, composition or other arrangement for the benefit of his creditors generally; or (iii) a Receiver has been appointed to manage his estate; or if an incorporated body: (iv) an order has been made for compulsory winding-up; or (v) an effective resolution has been passed for voluntary winding-up provided that such resolution is not merely for the purpose of reconstruction or amalgamation; or (vi) an arrangement binding on all creditors has been sanctioned by the Court; or whether incorporated or unincorporated: (vii) such conditions exist as are equivalent in effect to any of the foregoing conditions. 26. This Policy, or any amount payable hereunder, is assignable only with the approval in writing of EDC. 27. If the Exporter makes any claim hereunder knowing the same to be false or fraudulent the liability of EDC hereunder shall thereupon cease and the Exporter shall have no claim hereunder, and shall repay to EDC on demand all sums paid by EDC and EDC shall be entitled to retain all payments made to it by way of premium or deposit. 28. The due performance and observance of each term and condition contained herein or in the Application shall be a condition precedent to. any liability of EDC hereunder and to the enforcement thereof by the Exporter. 29. No failure by the Exporter to comply with the terms and conditions of this Policy shall be deemed to have been excused or accepted by EDC unless the same is specifically so excused or accepted by EDC in writing. SCHEDULE Countries covered (1) Maximum ' period of credit (2) Premium rate per $100* (3) Any special conditions applicable (4) •Premium rate means the rate per $100 of the gross invoice value as defined in Condition 10 of this Policy. EXPORT DEVELOPMENT CORPORATION UND—P05—8-69 EXHIBIT 2 CC 171 To EXPORT DEVELOPMENT CORPORATION, (EDC) P.O. Box 655, Ottawa, Canada. APPLICATION FOR A CONTRACTS POLICY We have read a specimen of your Contracts Policy "CC" and request that you will inform us of the terms on which you are prepared to insure us in accordance with the terms and subject to the conditions of the said Policy against a proportion of the loss as therein defined that we may sustain under contracts for the export of goods from Canada: (i) already entered into by us excluding any shipments thereunder made before the date of this Application, namely .19 ; (ii) hereafter entered into by us during the period from 19 to 19 , inclusive. DECLARATION 1. The total gross invoice value of the goods yet to be shipped under all our existing contracts at this date is $ as declared (per country) in the Schedule hereto. 2. The goods the subject of all the contracts above-mentioned ai 3. We have not assigned or pledged, without fulivfcecourse against ourselves, or insured any part of the contract price receivable under any^chveonxract as aforesaid or any right or interest acquired by virtue thereof or received any indemnity or security whatsoever in respect thereof and we will not effect any such assignment, -dJeq^ e dt j^nSurance without your prior consent in writing and will promptly notify you of any sqch nrd€mnity or security received by us. 4. We are not aware q^ sony circumstances relating to any particular buyer or contract which might adversely influence your acceptance of any of the risks on which we are hereby requesting in-surance. 5. Unless otherwise agreed in writing by EDC, the Policy for which we are asking you to quote is not to attach: .... (a) to any contract entered into with any buyer in whose profits we have any interest, direct or indirect, or who has any interest in our business, or (b) to a contract entered into with any buyer or to any shipments to such buyer after we have received information that he is in financial difficulties or that his position appears to be such as to make shipments to him undesirable. 6. We undertake to carry on our business with due care in making contracts and in regard to the conditions of the contract and the trustworthiness of the buyer, and we further undertake to declare in accordance with the terms and conditions of the Policy ALL contracts made with any and every buyer to which the Policy will apply. 7. All discussions and correspondence in connection with this Application and with any Policy arising therefrom are to be treated by both sides as confidential, and we undertake not to disclose any of the details to our agents or to the buyers or to any other person or concern, other than in con-fidence to our bankers, without the prior consent in writing of EDC. 8. We certify that the representations made and facts stated by us are true, and that we have not misrepresented or omitted any material fact which might have a bearing on the Policy, and we agree that such representations and facts shall form the basis of and be incorporated in the Policy and that the truth of such representations and facts and due performance of each and every under-taking contained herein or in the Policy shall be a condition precedent to any liability of EDC there-under and to the enforcement thereof by us. • ' 172 9. We anticipate that our total export business with A L L countries in the period stated will be: COUNTRY Applicable to Paragraphs 9 & 10) CREDIT PERIOD TOTAL AMOUNT CASH IN ADVANCE (Include irrevocable letters of credit) USUAL MAXIMUM $ $ " O T A L $ s 10. Our export turnover and bad debts, (actual losses incurred on all export buyers, exclusive of I compensation received from agents, insurers and any other source) for the previous three completed years and the subsequent period to date, have been as follows: or each of the last three (completed) financial years ending 19 Turnover Bad Debts Written Off Turnover Bad Debts Written Off 19 19 19 19 19 19 $ $ $ $ $ $ S -S $ $ $ $ $ $ Subsequent period to date 11. We append (if "none" please state): (a) a note of any exceptional losses on individual firms or countries; (b) a statement of overdue accounts with an estimate of possible losses thereon. 12. The approximate number and credit limits of our export accounts are as follows: No. Credit Limits No. Credit Limits Up to $ 500 $ 2,501/$ 5,000 $ 501/$1,000 $ 5,001/$10,000 $l,001/$2,500 $10,001 /$25,000 13. Schedule of outstanding contracts. Country Approximate total gross invoice value of goods yet to be shipped (per country) Remarks (Terms, Date of Shipment, etc.) - - • - — '•, -... If any contract included in the above Schedule provides for a period of shipment extending beyond twelve months from the date of the relative contract the date at which such period of shipment ends and No. of the relative contract (or other means of identification) must be noted under "Remarks" above. 14. The sources from which we obtain information regarding prospective buyers are: Exporter's Name Per Authorized Signing Officer. Address Date 19. UND-P02-8-69 EXPORT DEVELOPMENT CORPORATION O T T A W A . C A N A D A C O N T R A C T S P O L I C Y POLICY made 1 9 , between who carries on business at (hereinafter called the "Exporter") of the one part and the Export Development Corporation (hereinafter called "EDC") of the other part W H E R E A S the Exporter has made an Application dated 1 9 (hereinafter called the "Application") requesting EDC to insure the Exporter against a proportion of the loss which may be sustained by reason of certain risks involved in contracts for the export of goods from Canada; Now T H E R E F O R E in consideration of the premium paid and to be paid^bjkthe Exporter to E D C as hereinafter set out, EDC hereby insures the Exporter in accordance with th^le^ms and subject to the conditions hereof against a percentage of the amount of any loss as -ftenanaffyy: defined which may be sustained by the Exporter under contracts for the export of good^roimCailada hereinafter specified by reason of the occurrence of any of the following causes (hereina&ej^alleo^die "risks insured"): (i) the insolvency of the buyer as hereinafter defined, ^ \ R i s k g (ii) the failure of the buyer to pay to the Egjorrer within six months after the due date of payment n s u r e the gross invoice value of goods delivei^djp arKt^ccepted by the buyer, (iii) the operation of a Law or of a^S)der^exree or Regulation having the force of law, which in circumstances outside the^^ntrliVof the Exporter or of the buyer prevents, restricts or controls, where payment of the corftcaOsprree is to be made: (a) in Canadian dollars, tficftransfer thereof to the Exporter in Canada, or (b) in any other currency, the transfer thereof to the Exporter in "Canada and its conversion into Canadian dollars, (iv) the occurrence of war between the buyer's country and Canada, (v) the occurrence of war, hostilities, civil war, rebellion, revolution, insurrection, civil commotion or other disturbance in the buyer's country, (vi) the incurring in respect of goods shipped from Canada of any additional handling, transport or insurance charges which are occasioned by interruption or diversion of voyage outside Canada and the continental United States of America and which are due by the buyer, but which it is impracticable to recover, (vii) the cancellation or non-renewal of an Export Permit or the imposition of restrictions on the export from Canada of goods not subject to permit or restriction prior to the date of the contract, (viii) the failure or refusal of the buyer to accept goods which have already been exported from Canada, and are not within the continental United States of America, where such failure or refusal is not excused by and does not arise from or in connection with any breach of contract on the part of the Exporter or from any cause within his control, provided that EDC is satisfied that no good purpose would be served by the institution of proceedings against the buyer in respect of such failure or refusal, or (ix) any other cause preventing performance of the contract by the Exporter or the buyer and not being within the control of either which arises from events occurring outside Canada and the continental United States of America; Provided that the said risks insured, shall not under this Policy include any risk which at the date when any contract is made can be and normally is insured with commercial insurers. TERMS AND CONDITIONS 176 REPRESENTATIONS AND DISCLOSURES BY EXPORTER 1. The Application shall be incorporated with this Policy as the basis thereof and if any of the statements con-tained in the Application be untrue or incorrect in any respect this Policy shall be void, but EDC may retain any premium or deposit that has been paid. 2. Without affecting the operation of any rule of law it is declared that this Policy is given on condition that the Exporter has at the date of issue of this Policy disclosed and will at all times during the operation of this Policy promptly disclose all facts in any way affecting the risks insured. CONTRACTS COVERED AND EXCEPTIONS 3. Subject to the terms and conditions contained herein, this Policy shall apply to all contracts for the export of goods from Canada to buyers in the countries specified in the Schedule hereto: (i) declared by the Exporter in the Application, excluding any shipments thereunder made before 19 , and (ii) entered into by the Exporter during the period from 19 to 19 , inclusive. 4. Except with the approval in writing of EDC this Policy shall not apply to any contract which: (i) does not specify the nature and quantity of the goods sold, the terms of payment and a currency approved by EDC in which payment is to be made; (ii) provides for the shipment of any of the goods thereunder during a period extending beyond twelve months after the date of the contract; or (iii) involves the granting of credit by the Exporter to the buyer for a longer period than the maximum indicated in respect of the buyer's country in the Schedule hereto, provided that the Exporter shall be entitled, except in the case of cash against documents, documentary sight draft or documents against payment transactions, in the event of need arising at or shortly before the due date, to extend the due date of any payment for a period not exceeding 90 days from the original due date, but in any event such extended due date shall not be a date occurring later than 180 days from the date of shipment. 5. EDC shall be at liberty at any time to give written notice to the Exporter that on and after such date as may be specified in the notice this Policy shall not apply to any contract that may be made with a buyer specified in the notice or with all buyers in a country specified in the notice notwithstanding that the country in which the said buyer is or the said buyers are situated is specified in the Schedule hereto. 6. The application of this Policy to contracts entered into with buyers in any of the countries specified in the Schedule hereto shall be further subject to the special conditions (if any) stated in the Fourth Column of the Schedule opposite the name of that country. MONTHLY REPORT BY EXPORTER 7. The Exporter shall declare to EDC on or before the tenth day of each calendar month: (i) all contracts entered into by him during the previous month to which this Policy is, or may be, applicable; and (ii) all shipments made by him during the previous month under contracts to which this Policy is, or may be, applicable; and . (iii) all amounts which at the end of the previous month remained wholly or partly unpaid for more than three months from the original due date in respect of shipments previously declared; Provided that the first declaration hereunder shall include all contracts, or shipments thereunder to which this Policy is, or may be, applicable, entered into or made in the previous month or earlier. PREMIUMS 8. The Exporter shall, on his acceptance of EDC's letter of quotation dated 19 , pay: (i) by way of premium the sum of $ which shall be treated as a deposit and returned to the Exporter on the expiry of this Policy or carried forward in the event of renewal, and (ii) a premium calculated at the rates set out in the Third Column of the Schedule hereto (or, as the case may be, at any varied rates for the time being in force) on 20% of the contract price of goods remaining to be shipped under the contracts declared in the Application, no part of which premium will be returnable in any event. 9. The Exporter shall be liable to pay premium on all contracts, and shipments thereunder, to which this Policy applies forthwith upon the making of such contracts and shipments and shall pay the said premium at the rates set out in the Third Column of the Schedule hereto (or, as the case may be, at any varied rates for the time being in force): (i) on 20% of the contract price of such contracts, no part of which premium will be returnable in any event, at the time of declaration of the contracts, and (ii) on 80% of the gross invoice value of such shipments as and when the shipments are required to be declared under this Policy; Provided that when any loss is sustained under a contract the unpaid portion of the full premium on the contract price of the goods not then shipped thereunder will forthwith become due and payable. 10. In this Policy: (i) the contract price, and (ii) the gross invoice value of a shipment shall include any insurance, freight or other charges paid or to be paid by the Exporter on the buyer's behalf but exclude any payments secured by irrevocable letters of credit or cash received from the buyer at the date of the contract. 11. Any premium rate set out in the Schedule hereto may be varied upon written notice to that effect being given to the Exporter by EDC. In such a case, the change will take effect on and after the date specified in the notice, but will apply only to contracts entered into on or after that date. 12. If the rate of premium for any country set out in the Schedule hereto for the time being in force is increased, the Exporter shall be entitled within 14 days after notification to him of the increase to exclude that country from this Policy and in that event no premium shall thereafter be payable in respect of any contracts entered into with buyers in that country nor shall EDC be liable in respect of any such contracts entered into subsequent to that date. DUTIES OF EXPORTER 13. The Exporter shall: (i) use all reasonable and usual care, skill and forethought, and take all practicable measures, including any measures which may be required by EDC, to prevent or minimize loss; (ii) notify EDC in writing of the occurrence of any event likely to cause a loss within 30 days of his becoming aware of any such occurrence. > 1 L O S S E S 14. Subject to the terms and conditions hereof, in respect of any loss, as hereinafter defined, which is sustained by the Exporter under any contract to which this Policy applies by reason of any of the risks insured, EDC hereby agrees to pay to the Exporter immediately after the time hereinafter specified for ascertainment of the amount of the loss: (i) 90% of the loss, where the loss is due to the occurrence of any of the causes specified in paragraphs (i), (ii), (iii), (iv), (v), (vi), (vii) and (ix) of the risks insured; or (ii) where the loss is due to the occurrence of the cause specified in paragraph (viii) of the risks insured, the Exporter shall bear a first loss equal to 15% of the gross invoice value of the goods, and 90% of the balance of the loss shall be payable by EDC, save that in no case shall EDC pay a sum in excess of 40% of the gross invoice value of the goods. 15. In this Policy the amount of the loss sustained by the Exporter in respect of any contract shall: (i) as regards goods delivered, be the gross invoice value of those goods less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has received in respect of them and less any sums or credits in the possession of the Exporter which the buyer would have been entitled to have taken into account by way of set-off or counter-claim or which the Exporter is entitled to appropriate in whole or part payment of the price of the goods; (ii) as regards goods not delivered, or delivered to but not accepted by the buyer, be the contract price for those goods or the gross invoice value thereof, as the case may be, less any expenses saved by non-fulfilment of the contract, and less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has recovered from any source, including payment of any part of the contract price or the gross invoice value, as the case may be, realization of any security, and resale of any goods or materials. 16. The amount of any loss in respect of any contract shall be ascertained: (i) where the loss is due to the buyer's insolvency as hereinafter defined, immediately after the occurrence of such insolvency; (ii) where the loss is due to the failure of the buyer to pay within six months after the due date of payment the gross invoice value of goods delivered to and accepted by the buyer, immediately after the expiry of the said period of six months; (iii) where the loss is due to the operation of a Law or of an Order, Decree or Regulation having the force of law, which in circumstances outside the control of the Exporter or of the buyer prevents, restricts or controls, where payment of the contract price is to be made: (a) in Canadian dollars, the transfer thereof to the Exporter in Canada, or (b) in any other currency, the transfer thereof to the Exporter in Canada and its conversion into Canadian dollars, four months after the due date of payment; (iv) where the loss is due to the occurrence of the cause specified in paragraph (viii) of the risks insured one month after the date on which, with EDC approval, the goods have been resold or otherwise disposed of by the Exporter; (v) in all other cases, four months after the occurrence of the event which is the cause of the loss. PAYMENTS IN CANADIAN CURRENCY 17. Payment of premiums and losses hereunder shall be made in Canadian dollars and for the purpose of such payment the contract price for the sale of goods and the gross invoice value of shipments invoiced in a foreign currency shall be converted to Canadian dollars at the bank buying rate of exchange at noon on the date of the relative contract of sale. LIMITATIONS ON EDCS LIABILITY FOR LOSSES 18. EDC shall not be liable for loss: (i) in respect of a contract if all or any part of the contract price thereof receivable by the Exporter has been assigned without full recourse against the Exporter unless the prior approval in writing of EDC has been obtained; (ii) in respect of a debt as to which the Exporter has accepted a composition arrangement with the buyer without the prior approval in writing of EDC; (iii) which occurs due to the fault of the Exporter, or any agent of the Exporter or of any collecting bank, or due to the insolvency of such agent or bank; or (iv) unless a claim for the loss is made in writing to EDC by the Exporter on or before 19 19. The liability of EDC under this Policy for losses sustained by the Exporter in respect of the total contract price under one or more contracts outstanding at any one time in respect of any one buyer is limited: (i) in respect of goods delivered to the buyer on credit terms or in respect of shipments of goods which have been tendered to the buyer on payment terms of cash against documents, documentary sight draft, or documents against payment, to the amount hereinafter defined as the Credit Limit for the buyer, and' (ii) in respect of all goods in the course of preparation for or shipment to the said buyer, to the amount hereinafter defined as the Trading Limit for the buyer. 20. The amount of the Credit Limit for any buyer shall be: (i) a maximum of $ for credit transactions or $ for cash against documents and/or documentary sight draft and/or documents against payment transactions, BUT IN NO CASE shall the amount of the Credit Limit exceed: (a) the highest amount at any one time outstanding during the two years preceding the date of this Policy, or (b) such amount as may be justified by up-to-date information as to the credit-worthiness of the buyer obtained by the Exporter from at least two reliable sources; or (ii) the amount approved in writing by EDC upon application for that purpose by the Exporter. 21. The amount of the Trading Limit for any buyer shall be three times the amount of the Credit Limit for the buyer, and shall be subject to the same terms and conditions as those on which EDC has approved the Credit Limit. 22. The total liability of EDC under this Policy shall be limited to $ or such other total sum as may be agreed in writing between the Exporter and EDC. 177 Percentage of loss payable Amount of loss Time of loss Rates of exchange Limitation of liability Credit Limit Trading Limit Amount of Credit Limit Amount of Trading Limit Maximum liability Action after payment of claim Recoveries Insolvency Assignment Fraudulent claims Observance of Conditions Failure to comply with Conditions RECOVERIES 23. Upon payment by EDC the Exporter shall take all steps to effect recoveries from the buyer which may be necessary or expedient or which EDC may at any time require, including if so required the institution of legal proceed-ings against the buyer by and in the name of the Exporter, and EDC shall have the right at any time to require the Exporter to transfer to EDC his rights under any contract of sale in respect of which payment has been made as aforesaid for the purpose of effecting recoveries in such manner as EDC may consider necessary or desirable. 24. In respect of a loss paid by EDC, any sums recovered by the Exporter or EDC from the buyer or any other source shall be divided between the Exporter and EDC in the proportions in which they bore the loss. The Exporter shall pay all sums so recovered to EDC forthwith upon their being received by him or on his behalf, and until such payment is made to EDC he shall receive and hold such sums in trust for EDC. Where the contract price for the sale of goods or the gross invoice value of shipments is expressed in a foreign currency, amounts recovered in that currency shall not be converted to Canadian dollars but shall be divided between the Exporter and EDC as herein provided. This division shall be made notwithstanding that the aggregate amount of such currency paid to EDC in respect of the loss would, if converted to Canadian dollars at the bank buying rate of exchange at noon on the date when the payment is made to EDC, exceed the amount of the payment made by EDC to the Exporter in respect of the loss, and notwithstanding any rule or principle of law to the effect that an insurer who has indemnified an insured for loss may recover from any third party responsible for the loss only what the insurer has paid as indemnity. GENERAL 25. The buyer shall be deemed to be insolvent for the purpose of this Policy when: (i) he is declared bankrupt; or (ii) he has made a valid assignment, composition or other arrangement for the benefit of his creditors generally; or (iii) a Receiver has been appointed to manage his estate; or if an incorporated body: (iv) an order has been made for compulsory winding-up; or (v) an effective resolution has been passed for voluntary winding-up provided that such resolution is not merely for the purpose of reconstruction or amalgamation; or (vi) an arrangement binding on all creditors has been sanctioned by the Court; or whether incorporated or unincorporated: (vii) such conditions exist as are equivalent in effect to any of the foregoing conditions. 26. This Policy, or any amount payable hereunder, is assignable only with the approval in writing of EDC. 27. If the Exporter makes any claim hereunder knowing the same to be false or fraudulent the liability of EDC hereunder shall thereupon cease and the Exporter shall have no claim hereunder, and shall repay to EDC on demand all sums paid by EDC and EDC shall be entitled to retain all payments made to it by way of premium or deposit. 28. The due performance and observance of each term and condition contained herein or in the Application shall be a condition precedent to any liability of EDC hereunder and to the enforcement thereof by the Exporter. 29. No failure by the Exporter to comply with the terms and conditions of this Policy shall be deemed to have been excused or accepted by EDC unless the same is specifically so excused or accepted by EDC in writing. SCHEDULE" Countries covered (1) Maximum period of credit (2) Premium rate per $100* (3) Any special conditions, applicable (4) •Premium rate means the rate per $100 of the contract price or gross invoice value as defined in Condition 10 of this Policy. EXPORT DEVELOPMENT CORPORATION UND—PO 6—8-69 EXPORT DEVELOPMENT CORPORATION OTTAWA. CANADA C O N T R A C T S P O L I C Y POLICY made 1 9 , between who carries on business at (hereinafter called the "Exporter") of the one part and the Export Development Corporation (hereinafter called "EDC") of the other part. W H E R E A S the Exporter has made an Application dated 1 9 (hereinafter called the "Application") requesting EDC to insure the Exporter against a proportion of the loss which may be sustained by reason of certain risks involved in contracts for the export of goods from Canada; Now T H E R E F O R E in consideration of the premium paid and to be paid^ b^ x. the Exporter to EDC as hereinafter set out, EDC hereby insures the Exporter in accordance with tK&^ feims and subject to the conditions hereof against a percentage of the amount of any loss as Aeranafrej- denned which may be sustained by the Exporter under contracts for the export of gooa^rorrtfCailada hereinafter specified by reason of the occurrence of any of the following causes (herein^er^alleoytne "risks insured"): (i) the insolvency of the buyer as hereinafter defined, >\ R i s k s (ii) the failure of the buyer to pay to the Eggorrer mthirrsix months after the due date of payment the gross invoice value of goods deliverffcOp anltafucepted by the buyer, (iii) the operation of a Law or of a*Tt|)der>^ >ecree or Regulation having the force of law, which in circumstances outside tha^ntniVof the Exporter or of the buyer prevents, restricts or controls, where payment of the coritoBa^ priee is to be made: (a) in Canadian dollars, tntnransfer thereof to the Exporter in Canada, or (b) in any other currency, the transfer thereof to the Exporter in "Canada and its conversion into Canadian dollars, (iv) the occurrence of war between the buyer's country and Canada, (v) the occurrence of war, hostilities, civil war, rebellion, revolution, insurrection, civil commotion or other disturbance in the buyer's country, (vi) the incurring in respect of goods shipped from Canada of any additional handling, transport or insurance charges which are occasioned by interruption or diversion of voyage outside Canada and the continental United States of America and which are due by the buyer, but which it is impracticable to recover, (vii) the cancellation or non-renewal of an Export Permit or the imposition of restrictions on the export from Canada of goods not subject to permit or restriction prior to the date of the contract, (viii) the failure or refusal of the buyer to accept goods which have already been exported from Canada, and are not within the continental United States of America, where such failure or refusal is not excused by and does not arise from or in connection with any breach of contract on the part of the Exporter or from any cause within his control, provided that EDC is satisfied that no good purpose would be served by the institution of proceedings against the buyer in respect of such failure or refusal, or (ix) any other cause preventing performance of the contract by the Exporter or the buyer and not being within the control of either which arises from events occurring outside Canada and the continental United States of America; Provided that the said risks insured, shall not under this Policy include any risk which at the date when any contract is made can be and normally is insured with commercial insurers. TERMS AND CONDITIONS 1 7 6 REPRESENTATIONS AND DISCLOSURES BY EXPORTER 1. The Application shall be incorporated with this Policy as the basis thereof and if any of the statements con-tained in the Application be untrue or incorrect in any respect this Policy shall be void, but EDC may retain any premium or deposit that has been paid. 2. Without affecting the operation of any rule of law it is declared that this Policy is given on condition that the Exporter has at the date of issue of this Policy disclosed and will at all times during the operation of this Policy promptly disclose all facts in any way affecting the risks insured. CONTRACTS COVERED AND EXCEPTIONS 3. Subject to the terms and conditions contained herein, this Policy shall apply to all contracts for the export of ' goods from Canada to buyers in the countries specified in the Schedule hereto: (i) declared by the Exporter in the Application, excluding any shipments thereunder made before 19 , and (ii) entered into by the Exporter during the period from 19 to 19 , inclusive. 4. Except with the approval in writing of EDC this Policy shall not apply to any contract which: (i) does not specify the nature and quantity of the goods sold, the terms of payment and a currency approved by EDC in which payment is to be made; (ii) provides for the shipment of any of the goods thereunder during a period extending beyond twelve months after the date of the contract; or (iii) involves the granting of credit by the Exporter to the buyer for a longer period than the maximum indicated in respect of the buyer's country in the Schedule hereto, provided that the Exporter shall be entitled, except in the case of cash against documents, documentary sight draft or documents against payment transactions, in the event of need arising at or shortly before the due date, to extend the due date of any payment for a period not exceeding 90 days from the original due date, but in any event such extended due date shall not be a date occurring later than 180 days from the date of shipment. 5. EDC shall be at liberty at any time to give written notice to the Exporter that on and after such date as may be specified in the notice this Policy shall not apply to any contract that may be made with a buyer specified in the notice or with all buyers in a country specified in the notice notwithstanding that the country in which the said buyer is or the said buyers are situated is specified in the Schedule hereto. 6. The application of this Policy to contracts entered into with buyers in any of the countries specified in the Schedule hereto shall be further subject to the special conditions (if any) stated in the Fourth Column of the Schedule opposite the name of that country. MONTHLY REPORT BY EXPORTER 7. The Exporter shall declare to EDC on or before the tenth day of each calendar month: (i) all contracts entered into by him during the previous month to which this Policy is, or may be, applicable; and (ii) all shipments made by him during the previous month under contracts to which this Policy is, or may be, applicable; and ' . . (iii) all amounts which at the end of the previous month remained wholly or partly unpaid for more than three months from the original due date in respect of shipments previously declared; Provided that the first declaration hereunder shall include all contracts, or shipments thereunder to which this Policy is, or may be, applicable, entered into or made in the previous month or earlier. PREMIUMS 8. The Exporter shall, on his acceptance of EDC's letter of quotation dated 19 , pay: (i) by way of premium the sum of $ which shall be treated as a deposit and returned to the Exporter on the expiry of this Policy or carried forward in the event of renewal, and (ii) a premium calculated at the rates set out in the Third Column of the Schedule hereto (or, as the case may be, at any varied rates for the time being in force) on 20% of the contract price of goods remaining to be shipped under the contracts declared in the Application, no part of which premium will be returnable in any event. 9. The Exporter shall be liable to pay premium on all contracts, and shipments thereunder, to which this Policy applies forthwith upon the making of such contracts and shipments and shall pay the said premium at the rates set out in the Third Column of the Schedule hereto (or, as the case may be, at any varied rates for the time being in force): (i) on 20% of the contract price of such contracts, no part of which premium will be returnable in any event, at the time of declaration of the contracts, and (ii) on 80% of the gross invoice value of such shipments as and when the shipments are required to be declared under this Policy; Provided that when any loss is sustained under a contract the unpaid portion of the full premium on the contract price of the goods not then shipped thereunder will forthwith become due and payable. 10. In this Policy: (i) the contract price, and (ii) the gross invoice value of a shipment shall include any insurance, freight or other charges paid or to be paid by the Exporter on the buyer's behalf but exclude any payments secured by irrevocable letters of credit or cash received from the buyer at the date of the contract. 11. Any premium rate set out in the Schedule hereto may be varied upon written notice to that effect being given to the Exporter by EDC. In such a case, the change will take effect on and after the date specified in the notice, but will apply only to contracts entered into o.n or after that date. 12. If the rate of premium for any country set out in the Schedule hereto for the time being in force is increased, the Exporter shall be entitled within 14 days after notification to him of the increase to exclude that country from this Policy and in that event no premium shall thereafter be payable in respect of any contracts entered into with buyers in that country nor shall EDC be liable in respect of any such contracts entered into subsequent to that date. DUTIES OF EXPORTER 13. The Exporter shall: (i) use all reasonable and usual care, skill and forethought, and take all practicable measures, including any measures which may be required by EDC, to prevent or minimize loss; (ii) notify EDC in writing of the occurrence of any event likely to cause a loss within 30 days of his becoming aware of any such occurrence. ! LOSSES 14. Subject to the terms and conditions hereof, in respect of any loss, as hereinafter defined, which is sustained by the Exporter under any contract to which this Policy applies by reason of any of the risks insured, EDC hereby agrees to pay to the Exporter immediately after the time hereinafter specified for ascertainment of the amount of the loss: (i) 90% of the loss, where the loss is due to the occurrence of any of the causes specified in paragraphs (i), (ii), (iii), (iv), (v), (vi), (vii) and (ix) of the risks insured; or (ii) where the loss is due to the occurrence of the cause specified in paragraph (viH) of the risks insured, the Exporter shall bear a first loss equal to 15% of the gross invoice value of the goods, and 90% of the balance of the loss shall be payable by EDC, save that in no case shall EDC pay a sum in excess of 40% of the gross invoice value of the goods. 15. In this Policy the amount of the loss sustained by the Exporter in respect of any contract shall: (i) as regards goods delivered, be the gross invoice value of those goods less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has received in respect of them and less any sums or credits in the possession of the Exporter which the buyer would have been entitled to have taken into account by way of set-off or counter-claim or which the Exporter h entitled to appropriate in whole or part payment of the price of the goods; (ii) as regards goods not delivered, or delivered to but not accepted by the buyer, be the contract price for those goods or the gross invoice value thereof, as the case may be, less any expenses saved by non-fulfilment of the contract, and less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has recovered from any source, including payment of any part of the contract price or the gross invoice value, as the case may be, realization of any security, and resale of any goods or materials. 16. The amount of any loss in respect of any contract shall be ascertained: (i) where the loss is due to the buyer's insolvency as hereinafter defined, immediately after the occurrence of such insolvency; (ii) where the loss is due to the failure of the buyer to pay within six months after the due date of payment the gross invoice value of goods delivered to and accepted by the buyer, immediately after the expiry of the said period of six months; (iii) where the loss is due to the operation of a Law or of an Order, Decree or Regulation having the force of law, which in circumstances outside the control of the Exporter or of the buyer prevents, restricts or controls, where payment of the contract price is to be made: (a) in Canadian dollars, the transfer thereof to the Exporter in Canada, or (b) in any other currency, the transfer thereof to the Exporter in Canada and its conversion into Canadian dollars, four months after the due date of payment; . : . . (iv) where the loss is due to the occurrence of the cause specified in paragraph (viii) of the risks insured one month after the date on which, with EDC approval, the goods have been resold or otherwise disposed of by the Exporter; (v) in all other cases, four months after the occurrence of the event which is the cause of the loss. PAYMENTS IN CANADIAN CURRENCY 17. Payment of premiums and losses hereunder shall be made in Canadian dollars and for the purpose of such payment the contract price for the sale of goods and the gross invoice value of shipments invoiced in a foreign currency shall be converted to Canadian dollars at the bank buying rate of exchange at noon on the date of the relative contract of sale. LIMITATIONS ON EDC'S LIABILITY FOR LOSSES 18. EDC shall not be liable for loss: (i) in respect of a contract if all or any part of the contract price thereof receivable by the Exporter has been assigned without full recourse against the Exporter unless the prior approval in writing of EDC has been obtained; (ii) in respect of a debt as to which the Exporter has accepted a composition arrangement with the buyer without the prior approval in writing of EDC; (iii) which occurs due to the fault of the Exporter, or any agent of the Exporter or of any collecting bank, or due to the insolvency of such agent or bank; or (iv) unless a claim for the loss is made in writing to EDC by the Exporter on or before 19 19. The liability of EDC under this Policy for losses sustained by the Exporter in respect of the total contract price under one or more contracts outstanding at any one time in respect of any one buyer is limited: (i) in respect of goods delivered to the buyer on credit terms or in respect of shipments of goods which have been tendered to the buyer on payment terms of cash against documents, documentary sight draft, or documents against payment, to the amount hereinafter defined as the Credit Limit for the buyer, and' (ii) in respect of all goods in the course of preparation for or shipment to the said buyer, to the amount hereinafter defined as the Trading Limit for the buyer. 20. The amount of the Credit Limit for any buyer shall be: (i) a maximum of $ for credit transactions or $ for cash against documents and/or documentary sight draft and/or documents against payment transactions, BUT IN NO CASE shall the amount of the Credit Limit exceed: (a) the highest amount at any one time outstanding during the two years preceding the date of this Policy, or (b) such amount as may be justified by up-to-date information as to the credit-worthiness of the buyer obtained by the Exporter from at least two reliable sources; or (ii) the amount approved in writing by EDC upon application for that purpose by the Exporter. 21. The amount of the Trading Limit for any buyer shall be three times the amount of the Credit Limit for the buyer, and shall be subject to the same terms and conditions as those on which EDC has approved the Credit Limit. 22. The total liability of EDC under this Policy shall be limited to $ as may be agreed in writing between the Exporter and EDC. 177 Percentage of loss payable Amount of loss Time of loss Rates of exchange Limitation of liability Credit Limit Trading Limit Amount of Credit Limit or such other total sum Amount of Trading Limit Maximum liability Action after payment of claim Recoveries Insolvency Assignment Fraudulent claims Observance of Conditions Failure to comply with Conditions RECOVERIES 23. Upon payment by EDC the Exporter shall take all steps to effect recoveries from the buyer which may be necessary or expedient or which EDC may at any time require, including if so required the institution of legal proceed-ings against the buyer by and in the name of the Exporter, and EDC shall have the right at any time to require the Exporter to transfer to EDC his rights^under any contract of sale in respect of which payment has been made as aforesaid for the purpose of effecting recoveries in such manner as EDC may consider necessary or desirable. 24. In respect of a loss paid by EDC, any sums recovered by the Exporter or EDC from the buyer or any other source shall be divided between the Exporter and EDC in the proportions in which they bore the loss. The Exporter shall pay all sums so recovered to EDC forthwith upon their being received by him or on his behalf, and until such payment is made to EDC he shall receive and hold such sums in trust for EDC. Where the contract price for the sale of goods or the gross invoice value of shipments is expressed in a foreign currency, amounts recovered in that currency shall not be converted to Canadian dollars but shall be divided between the Exporter and EDC as herein provided. This division shall be made notwithstanding that the aggregate amount of such currency paid to EDC in respect of the loss would, if converted to Canadian dollars at the bank buying rate of exchange at noon on the date when the payment is made to EDC, exceed the amount of the payment made by EDC to the Exporter in respect of the loss, and notwithstanding any rule or principle of law to the effect that an insurer who has indemnified an insured for loss may recover from any third party responsible for the loss only what the insurer has paid as indemnity. GENERAL 25. The buyer shall be deemed to be insolvent for the purpose of this Policy when: (i) he is declared bankrupt; or (ii) he has made a valid assignment, composition or other arrangement for the benefit of his creditors generally; or (iii) a Receiver has been appointed to manage his estate; or if an incorporated body: (iv) an order has been made for compulsory winding-up; or (v) an effective resolution has been passed for voluntary winding-up provided that such resolution is not merely for the purpose of reconstruction or amalgamation; or (vi) an arrangement binding on all creditors has been sanctioned by the Court; or whether incorporated or unincorporated: (vii) such conditions exist as are equivalent in effect to any of the foregoing conditions. 26. This Policy, or any amount payable hereunder, is assignable only with the approval in writing of EDC. 27. If the Exporter makes any claim hereunder knowing the same to be false or fraudulent the liability of EDC hereunder shall thereupon cease and the Exporter shall have no claim hereunder, and shall repay to EDC on demand all sums paid by EDC and EDC shall be entitled to retain all payments made to it by way of premium or deposit. 28. The due performance and observance of each term and condition contained herein or in the Application shall be a condition precedent to any liability of EDC hereunder and to the enforcement thereof by the Exporter. 29. No failure by the Exporter to comply with the terms and conditions of this Policy shall be deemed to have been excused or accepted by EDC unless the same is specifically so excused or accepted by EDC in writing. SCHEDULE" Countries covered (1) Maximum period of credit (2) Premium rate per $100* (3) Any special conditions, applicable (4) •Premium rate means the rate per $100 of the contract price or gross invoice value as defined in Condition 10 of this Policy. EXPORT DEVELOPMENT CORPORATION UND-P06-8-69 To E X P O R T D E V E L O P M E N T C O R P O R A T I O N , P. O. Box 655, Ottawa, Canada. CC (Spec) 1 7 9 APPLICATION FOR A POLICY COVERING A SPECIFIC CONTRACT We have read a specimen of your Policy "CC(Spec)" attached hereto and request that you will inform us of the terms on which you are prepared to insure us in accordance with the terms and subject to the conditions of the said Policy against a percentage of the amount of any loss as therein defined that we may sustain under the Contract for the export of goods from Canada specified in the Schedule hereto with the Buyer named therein (hereinafter called the "Contract" and the "Buyer" respectively), excluding any loss in respect of shipments made pursuant to the Contract prior to the date of this Application. Payment under the Contract is to be made in (currency) to a total estimated gross invoice value of. being Canadian $ , DECLARATION 1. The goods the subject of the Contract will be. 2. We have not assigned or pledged, without full recourse against ourselves, or insured any part of the Contract price receivable under the Contract or any right or interest acquired by virtue thereof or received any indemnity or security what-soever in respect thereof and we will not effect any such assignment, pledge or insurance without your prior consent in writing and will promptly notify you of any such indemnity or security received by us. 3. We are not aware of any circumstances relating to the Buyer or the Contract which might adversely influence your acceptance of any of the risks on which we are hereby requesting insurance. 4. We certify that * \ (a) we have no interest, direct pr indirect, in the profits of the Buyer's business, nor hl&the^Buyer any such interest in our business, and < < ^ A V ^ (b) we will not make any shipments to the Buyer after we have received information that'fie is in financial difficulties or that his position appears to be such as to make shipments to him und^^able. 5. All discussions and correspondence in connection with this Application and with any Policy arising therefrom are to be treated by both sides as confidential, and we undertake not to disclosramy of^theaetails to our agents or to the Buyer or to any other person or concern, other than in confidence to our bafflers, vuthouTthe prior consent in writing of EDC. 6. We certify that the representations made andIfatts siatedJby ns are true, and that we have not misrepresented or omitted any material fact which might have a bearing or^fh^oli6C3»ld we agree that such representations and facts shall form the basis of and be incorporated in the Policy andjhat tWroruth of such representations and facts and due performance of each and every undertaking contained herein or in th^dpcy slj^lroe a condition precedent to any liability of EDC thereunder and to the enforcement thereof by us. >£| VfJ Exporter's Signature ^Jr. Address—— Date 19 SCHEDULE (Particulars of the Contract) 1. Name and Address of the Buyer 2. Date of Contract 3. Shipment Period (If the actual dates are not known, the approximate dates should be given and noted to this effect) TERMS OF PAYMENT (Specify currency) 4. (a) Total Contract price (d) Amount payable *(b) Total estimated gross o n s h i P m e n t invoice value of (e) As to balance Contract payable (c) Amount payable with Contract * Include any insurance, freight or other charges to be paid on the Buyer's behalf No. CC (Spec) 180 EXPORT DEVELOPMENT CORPORATION OTTAWA. CANADA SPECIFIC C O N T R A C T P O L I C Y POLICY made 19 , between who carries on business at (hereinafter called the "Exporter") of the one part and the Export Development Corporation (hereinafter called "EDC") of the other part WHEREAS the Exporter has entered into a contract dated 19 for the sale of certain goods, to be exported from Canada, to (hereinafter called the "Buyer") particulars of the said contract of sale (hereinafter called the "Contract") being specified in the Schedule to the Application hereinafter mentioned; AND WHEREAS the Exporter has made an Application dated 19 (hereinafter called the "Application") requesting EDC to insure the Exporter against a proportion of the loss which may be sustained by reason of certain risks involved in the Contract, excluding any loss in respect of shipments made pursuant to the Contract prior to the date of the Application; NOW THEREFORE in consideration of the premium of $ paid by the Exporter to EDC (receipt of which EDC hereby acknowledges) EDC hereby insures the Exporter in accordance with the terms and subject to the conditions hereof against a percentage of the amount of any loss as hereinafter defined which may be sustained by the Exporter under the Contract by reason of the occurrence of any of the following causes (hereinafter called the "risks insured"): (i) the insolvency of the Buyer as hereinafter defined, (ii) the failure of the Buyer to pay to the Exporter within six months after the due date of payment the gross invoice value of goods delivered to and accepted by the Buyer, (iii) the operation of a Law or of an Order, Decree or Regulation having the force of law, which in circumstances outside the control of the Exporter or of the Buyer prevents, restricts or controls, where payment of the Contract price is to be made: (a) in Canadian dollars, the transfer thereof to the Exporter in Canada, or (b) in any other currency, the transfer thereof to the Exporter in Canada and its conversion into Canadian dollars, (iv) the occurrence of war between the Buyer's country and Canada, (v) the occurrence of war, hostilities, civil war, rebellion, revolution, insurrection, civil commotion or other dis-turbance in the Buyer's country, (vi) the incurring in respect of goods shipped from Canada of any additional handling, transport or insurance charges which are occasioned by interruption or diversion of voyage outside Canada and the continental United States of America and which are due by the Buyer, but which it is impracticable to recover, (vii) the cancellation or non-renewal of an Export Permit or the imposition of restrictions on the export from Canada of goods not subject to permit or restriction prior to the date of the Contract, or (viii) any other cause preventing performance of the Contract by the Exporter or the Buyer and not being within the control of either which arises from events occurring outside Canada and the continental United States of America; Provided that the said risks insured, shall not under this Policy include any risk which at the date when the Contract is made can be and normally is insured with commercial insurers. TERMS AND CONDITIONS 181 REPRESENTATIONS AND DISCLOSURES BY EXPORTER 1. The Application shall be incorporated with this Policy as the basis thereof and if any of the statements con-tained in the Application be untrue or incorrect in any respect this Policy shall be void, but EDC may retain any premium or deposit that has been paid. 2. Without affecting the operation of any rule of law it is declared that this Policy is given on condition that the Exporter has at the date of issue of this Policy disclosed and will at all times during the operation of this Policy promptly disclose all facts in any way affecting the risks insured. Application Disclosure of facts DUTIES OF EXPORTER 3. The Exporter shall: (i) furnish to EDC on or before the 10th day of each calendar month such information as may be required by EDC; (ii) use all reasonable and usual care, skill and forethought, and take all practicable measures, including any measures which may be required by EDC, to prevent or minimize loss; (iii) notify EDC in writing of the occurrence of any event likely to cause a loss within 10 days of his becoming aware of any such occurrence. Exporter's obligations CONTRACT PRICE AND GROSS INVOICE VALUE 4. In this Policy: (i) the Contract price, and (ii) the gross invoice value of a shipment shall include any insurance, freight or other charges paid or to be paid by the Exporter on the Buyer's behalf but exclude any irrevocable payments received from the Buyer at the date of the Contract in accordance with the terms of the Contract. Contract price and gross invoice value LOSSES 5. Subject to the terms and conditions hereof, EDC agrees to pay to the_ Exporter % of the loss, as hereinafter defined, sustained by him in respect of the Contract, excluding any loss in respect of shipments made pursuant to the Contract prior to the date of the Application, by reason of any of the risks insured immediately after the time hereinafter specified for ascertainment of the loss. Percentage of loss payable 6. In this Policy the amount of the loss sustained by the Exporter in respect of the Contract shall: (i) as regards goods delivered to and accepted by the Buyer, be the gross invoice value of those goods less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has received in respect of them and less any sums or credits in the possession of the Exporter which the Buyer would have been entitled to have taken into account by way of set-off or counter-claim or which the Exporter is entitled to appropriate in whole or part payment of the price of the goods; (ii) as regards goods not delivered, be the Contract price for those goods less any expenses saved by non-fulfilment of the Contract, and less the amount which prior to the time hereinafter specified for ascertainment of the amount of the loss the Exporter has recovered from any source, including payment of any part of the Contract price, realization of any security, and resale of any goods or materials. Amount of loss 7. The amount of any loss in respect of the Contract shall be ascertained: (i) where the loss is due to the Buyer's insolvency as hereinafter defined, immediately after the occurrence of such insolvency; (ii) where the loss is due to the Buyer's failure to pay within six months of the due date of payment the gross invoice value of goods of which delivery has been duly accepted by the Buyer, immediately after the expiry of the said period of six months; (iii) where the loss is due to the operation of a Law or of an Order, Decree or Regulation having the force of law, which in circumstances outside the control of the Exporter or of the Buyer presents, restricts or controls, where payment of the Contract price is to be made: (a) in Canadian dollars, the transfer thereof to the Exporter in Canada, or (b) in any other currency, the transfer thereof to the Exporter in Canada and its. conversion into Canadian dollars, four months after the due date of payment; (iv) in all other cases, four months after the occurrence of the event which is the cause of the loss. Time of loss PAYMENTS IN CANADIAN CURRENCY 8. Payment of premiums and losses hereunder shall be made in Canadian dollars and for the purpose of such Rates of payment the Contract price for the sale of goods and the gross invoice value of shipments invoiced in a foreign currency exchange shall be converted to Canadian dollars at the bank buying rate of exchange at noon on the date of the relative Contract of sale. LIMITATIONS ON EDC'S LIABILITY FOR LOSSES 9. EDC shall not be foble for loss: (i) if any alteration is made in the Contract without the prior approval in writing of EDC; (ii) if all or any part of the Contract price receivable by the Exporter has been assigned without full recourse against the Exporter unless the prior approval in writing of EDC has been obtained; (iii) if the Exporter has accepted a composition arrangement, in respect of the whole or any part of the Contract price, with the Bujer without the prior approval in writing of EDC; (iv) if the Exporter acquires any interest, direct or indirect, in the profits of the Buyer's business, or the Buyer acquires any such interest in the Exporter's business during the life of this Policy; (v) which occurs due lb the fault of the Exporter, or any agent of the Exporter or of any collecting bank, or due to the insolvency off such agent or bank; or (vi) unless a claim forBhe loss is made in writing to EDC by the Exporter on or before 19 10. The total liability of EDC under this Policy shall be limited to $ or such other total sum as nay be agreed in writing between the Exporter and EDC. RECOVERIES 11. Upon payment by EDC the Exporter shall take all steps to effect recoveries from the Buyer which may be necessary or expedient or isaich EDC may at any time require, including if so required the institution of legal proceed-ings against the Buyer by and in the name of the Exporter, and EDC shall have the right at any time to require the Exporter to transfer to EDC his rights under the Contract in respect of which payment has been made as aforesaid for the purpose of effecting recoveries in such manner as EDC may consider necessary or desirable. 12. In respect of a loss paid by EDC, any sums recovered by the Exporter or EDC from the Buyer or any other source shall be divided between the Exporter and EDC in the proportions in which they bore the loss. The Exporter shall pay all sums so recovered to EDC forthwith upon their being received by him or on his behalf, and until such payment is made to EDC She shall receive and hold such sums in trust for EDC. Where the Contract price for the sale of goods or the gross invoice value of shipments is expressed in a foreign currency, amounts recovers:! in that currency shall not be converted to Canadian dollars but shall be divided between the Exporter and EDC as ierein provided. This division shall be made notwithstanding that the aggregate amount of such currency paid to EDC in respect of the loss would, if converted to Canadian dollars at the bank buying rate of exchange at noon on the dste when the payment is made to EDC, exceed the amount of the payment made by EDC to the Exporter in respect the loss, and notwithstanding any rule or principle of law to the effect that an insurer who has indemnified an insured for loss may recover from any third party responsible for the loss only what the insurer has paid as indemnity. Insolvency Assignment Fraudulent claims Observance of Conditions Failure to comply with Conditions GENERAL 13. The Buyer shall lie deemed to be insolvent for the purpose of this Policy when: (i) he is declared 'bankrupt; or (ii) he has made a vaEd assignment, composition or other arrangement for the benefit of his creditors generally; or (iii) a Receiver has bten appointed to manage his estate; or if an incorporated body: (iv) an order has been made for compulsory winding-up; or. (v) an effective resolution has been passed for voluntary winding-up provided that such resolution is not merely for the purpose of reconstruction or amalgamation; or (vi) an arrangement binding on all creditors has been sanctioned by the court; or whether incorporated or uattncorporated: (vii) such conditions exist as are equivalent in effect to any of the foregoing conditions. 14. This Policy, or :any amount payable hereunder, is assignable only with the approval in writing of EDC. 15. If the Exporter makes any claim hereunder knowing the same to be false or fraudulent the liability of EDC hereunder shall thereupon cease and the Exporter shall have no claim hereunder, and shall repay to EDC on demand all sums paid by EDC ani EDC shall be entitled to retain all payments made to it by way of premium or deposit. 16. The due performance and observance of each term and condition contained herein or in the Application shall be a condition precedent S» any liability of EDC hereunder and to the enforcement thereof by the Exporter. 17. No failure by the Exporter to comply with the terms and conditions of this Policy shall be deemed to have been excused or accepted by EDC unless the same is specifically so excused or accepted by EDC in writing. EXPORT DEVELOPMENT CORPORATION UND—P03—8-69 EXPORT DEVELOPMENT CORPORATION 183 INFORMATION REQUIRED IN AN APPLICATION FOR SECTION 29 OR 31 FINANCING T O B E S U B M I T T E D I N T R I P L I C A T E T O : E X P O R T F I N A N C E D I V I S I O N , E X P O R T D E V E L O P M E N T C O R P O R A T I O N , P.O. Box 655, O T T A W A 4. Commitments of long term export financing under Sections 29 or 31 of the Export Development Act are given only on the basis of an application submitted by the Canadian prime exporter requiring long term financing to obtain a major order of capital equipment, and/or engineering services for a sound transaction or project abroad. No commitment of any kind can be given by the Export Development Corporation until full particulars of the transaction or project have been submitted. The Canadian exporter applies for the credit on behalf of the foreign borrower; therefore the application must include complete and detailed information which may be obtained only from the borrower. This form is to be regarded as a guide to the information required and not as a question-naire to be completed with brief answers. Any additional relevant information not specifically called for under the listed headings should definitely be included in the application. It is essential that satisfactory feasibility studies, tender specifications and/or other reports be presented with the application to establish the technical and economic soundness of the transaction requiring financing. Detailed answers to the questions asked hereunder do not^f%glud\-EDC from requesting further information relating to the transaction at a later date. GENERAL SUMMARY 1. Name of Exporter: V (a) Head Office address ^ \ ^ (b) Plant address \<^A 2. Name and address of prospectH e^^ breigri buyer. ' 3. Outline of the project indicting ijke total cost, total foreign exchange cost and the amount of EDC financing requesrEiO List the major equipment, materials and services to be supplied from Canada showing their dollar value. INFORMATION CONCERNING EXPORTER 4. Describe exporter's corporate history and operations, including subsidiaries, affiliates, major shareholders and parent company (if any.) 5. If the exporter is a subsidiary, does it have complete freedom to initiate export business? If not what manufacturing and/or selling limitations are placed on its operations by the parent company? 6. Attach audited financial and ancillary statements of exporter for the past five years. For each of the past five years list exporter's total domestic and export sales, domestic and export sales of equipment of the type requiring present financing. 7. On the basis of existing plant capacity state in dollar value: a) maximum output, b) optimum output, c) normal output, d) present output, e) level of output if proposed project undertaken. 8. Show the number of employees of exporter as of the latest available date and as of at least 184 one year ago. Give exporter's average annual employment over the past five years. 9. Describe the employment situation in the area where production facilities are located, giving the latest number and percentage of unemployed, and for the last three years. 10. INFORMATION CONCERNING BORROWER ( I F I N P R I V A T E SECTOR) (a) Describe borrower's corporate history and operations, including subsidiaries, affiliates, major shareholders and parent company (if any). (b) Attach audited financial and ancillary statements of borrower for the past five years, including details of payment terms and interest rates of borrower's present outstanding debts. (c) Attach borrower's forecast: (i) balance sheet (ii) income statement (iii) statement of source and application of funds including working capital (iv) capital expenditure schedule (N.B.: forecast should cover the period of construction and extend for a further period of at least five years) (d) Provide details of additional equity and debt financing contemplated by the borrower during the above forecast period. (e) If borrower is undertaking a new venture, or entering a new field of activity, supply in complete detail provisions which will be made for supply of experienced manage-ment during the first five years of borrowers proposed operations. 11. INFORMATION CONCERNING BORROWER ( I F I N P U B L I C SECTOR) (a) Provide the exact name of government department, agency or entity that will be acting as borrower. (b) If borrower is a government owned or controlled agency or entity, supply a copy of the statute or decree etc. establishing the organization. (c) Does the central government guarantee the payment of all the borrower's capital debts? If not provide the information requested in Section 10(a) to (d) inclusive. 12. INFORMATION CONCERNING PROJECT Describe the project fully, giving detailed information on the following: (a) nature of project (b) location (c) economic and technical soundness (d) viability (e) national and regional importance in the importing country (f) further engineering before construction commences (g) whether sale will be on a f.a.s. or c.i.f. basis — if f.a.s., will insurance claims be paid in Canadian or U.S. dollars? (A) TIMING ' . « ; --Xi. K'A I *.\VV '•%() Z t v i c ^ i t . 185 State the anticipated periods and/or dates for the following with reference to the project: (a) completion and/or start up . (b) construction period (c) delivery period of the equipment/material at site (d) placing of orders ..... . , ,. .. (e) signing of a commercial agreement. ..'••.,...;•••.;•> :r . , : i > •'•) (B) COSTS Provide details of project costs as follows: (a) total cost of project .,: , . . ; . ; (b) local costs and how financed .-,-.s--, •••.-,<•• \<u ii (c) foreign exchange costs (Canadian) (d) foreign exchange costs (Non-Canadian) and how financed (e) foreign agents commission, other commissions, fees and royalties (if any) and how financed , (/„• HI :•.»: , "\ (f) exporter's anticipated net profit after income taxes. ,v • • • • • • ... ."v v « i ; w yulnu! ban .;Toir.v->i|..^.% •(C) CANADIAN CONTENT . ; > . . Y . . „ 0 , i » v>.ib TH'-H, w-hi State the overall percentage of Canadian content of the project calculated according to EDC criteria. Indicate the equipment, material and/or services to be supplied by the exporter and by his main suppliers, giving names of suppliers, and dollar values. For equipment or materials purchased in Canada it should be recognized that most items have non-Canadian content which should be considered when computing the overall Canadian content of the project. 0 : (D) TERMS OF FINANCING REQUESTED i ^ . i (a) state financing terms required for project (b) supply detailed and verified information justifying the financing terms requested (i.e. what is foreign competition offering?) (c) state name of agency or department of government which will provide guarantee of principal and interest (d) state name of central bank, etc., which will provide guarantee of foreign exchange availability. BENEFITS OF T H E PROJECT TO THE ECONOMY OF THE IMPORTING COUNTRY (a) As a result of this project coming into production what economic benefits will the importing country derive, including employment, use of domestic raw materials, additional revenue to the government and foreign exchange savings? (b) If the importing country has a National Development Plan, attach a copy of the Plan and give the priority of this project under the Plan. (a) Describe any special industrial advantages to be derived from this transaction in terms of utilization of labour force and plant capacity, of assistance or encouragement in developing new designs or lines of production, and of increasing Canadian manufacture of equipment or component parts. (b) Specify the export trade promotion benefits that may be expected to result from this transaction with regard to:. (i) direct market development prospects in the country of purchase and in the general area; and (ii) continuing market for replacement parts of Canadian origin. (c) What will be the direct and indirect labour effects in Canada: (i) for the applicant company (ii) for each of the main associated firms and sub-contractors; and (iii) for the total transaction 15. CERTIFICATION Please certify as follows: We certify that the representations made and facts stated by us are true, and that we have have not misrepresented or omitted any material fact which might have a bearing on this application, and further certify that no fees, commissions, grants, gifts or payments of any kind other than those listed in this application have been paid or will be paid to anyone in Canada or abroad in connection with this transaction or application for financing. Name of Company .: :....<....:.-...:... Signature i : (TITLE) AddreSS..... '. .'• Date A:::::.....'.:...::.u.L:. 19.: F I N - 0 1 - 8 - 6 9 LONG TERM EXPORT FINANCING (mi l l i o n d o l l a r s ) m&mmm%M miWammam EmmmwiE® •Hi ms ml IBEI m& EM mm ma. mm mi ^5%f7l2t? 50 5\S15351 55&57S8 51 LO U 63 if 45 U il 68 & Adapted from EDC Annual Report, 1969 Adelman, Irma, Theories of Economic Growth and Development, Stanford U n i v e r s i t y Press, Stanford, 1967. Bank of America, Sources of C a p i t a l and Credit Insurance f o r International Transactions, San Francisco. Bjerring, Boyer, Campbell and Starkey, M u l t i v a r i a t e Contin- gency Tabulations, U n i v e r i s t y of B r i t i s h Columbia Computing Centre, Vancouver, 1970. Carlson, Sune, International F i n a n c i a l Decisions, North Holland Publishing Co., London, 1969. Export Credits Insurance Act, amended o f f i c e consolidation, Queen's P r i n t e r , Ottawa, 1967. Export Credits Insurance Corporation, Annual Report, 1946 through 1968. Export Development Act, Queen's Pr i n t e r , Ottawa, 1969. Export Development Corporation, Annual Report, 1969. Export Development Corporation Publications Export Development Corporation, Transcript  of Proceedings at a panel discussion held in Montreal, Quebec, November 4, 1969. Export Development Corporation, What i t i s  and How i t Works The Foreign Investment Insurance Program, September, 1970. H i l l , 0. Mary, How to Win World Markets, Queen's Prin t e r , Ottawa, 1967. Kerlinger, Fred B., Foundations of Behavioral Research, Hotl, Reinhart & Winston, New York, 1964. King, William R., P r o b a b i l i t y for Management Decisions, John Wiley & Sons, Inc., New York, 1968. McNemar, Quinn, Psychological S t a t i s t i c s , John Wiley & Moroney, M. J . , Facts From Figures, Penguin Books Inc., Baltimore, 1962. Nehrt, Lee C , Financing C a p i t a l Eguipment Exports, Inter-national Testbook Co., Scranton, 1966. Van Home, J . C , F i n a n c i a l Management and Policy, Prentice H a l l Inc., Englewood C l i f f s , 1968. 

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