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Export
Credit Agencies Explained:
What they are, how they impact development, the environment and
human rights, and what the international reform campaign is doing about
it.
Introduction:
What are ECAs?
Export Credit Agencies and Investment Insurance Agencies, commonly known
as ECAs, are public agencies that provide government-backed loans, guarantees,
credits and insurance to private corporations from their home country
to do business abroad, particularly in the financially and politically
risky developing world. Most industrialized nations have at least one
ECA, which is usually an official or quasi-official branch of their government.
Today, ECAs are collectively
among the largest sources of public financial support for foreign corporate
involvement in industrial projects in the developing world. For example,
ECAs are estimated to support twice the amount of oil, gas and mining
projects as do all Multilateral Development Banks such as the World Bank
Group. Half of all new greenhouse gas-emitting industrial projects in
developing countries have some form of ECA support. ECAs often back such
projects even though the World Bank Group and other multilateral banks
find them too risky and potentially harmful to support.
Read the ECA Watch directory of the major ECAs.
What are
the Impacts of these ECAs?
In recent years ECAs are estimated to have supported between US $50 -
$70 billion annually in what are called "medium and long-term transactions,"
a great portion of which are large industrial and infrastructure projects
in developing countries. Many of these projects have very serious environmental
and social impacts. For example, ECAs finance greenhouse gas-emitting
power plants, large scale dams, mining projects, road development in pristine
tropical forests, oil pipelines, chemical and industrial facilities, forestry
and plantation schemes, to name a few.
Because most of these projects
are high risk due to their environmental, political, social and cultural
impacts, most would not come to life without the support and financial
backing of ECAs. Hence, ECAs are strategic development linchpins that
play an enormous part in the harmful impacts of corporate globalization.
Undercutting progress, violating
laws... Most ECAs only recently adopted environmental policies that
benchmark against those of the World Bank Group and regional development
banks (like the European Bank for Reconstruction and Development, African
Development Bank, Asian Development Bank, Inter-American Development Bank). These
policies resulted from an agreed set of recommendations, dubbed the "Common
Approaches," which was brokered in December, 2003 at the Export Credit
Group of the Organization for Economic Cooperation and Development in
Paris, France. Click
here to view the Common Approaches.
The environmental policies of
the regional development banks have been criticized for their weaknesses,
and the World Bank Group seems poised to weaken its own policies, too.
Hence, weak ECA standards are benchmarked against weak regional development
bank or World Bank standards, with precious little global leadership to
point to.
Meanwhile, the Common Approaches
agreement is rife with loopholes. For example, it states that ECA-backed
projects should "in all cases" comply with World Bank, regional
development bank and host country standards, unless an ECA "finds
it neccessary" to apply lower standards.
The lack of adequate environmental
and social policies and associated professional staff to perform due diligence
also results in ECA projects that contravene the international environmental,
human rights and other treaties and agreements to which these ECAs' own
governments are party.
Fueling a race to the bottom...
ECAs help corporations from within their own country expand into the developing
world, and as a result they compete intensely with ECAs from other countries
that do the same. They are quick to back projects that other ECAs and
multilateral development banks will refuse on environmental and social
grounds. This creates a "race to the bottom," that encourages ECA support
of projects with weak or no project environmental or social safeguards.
One of the best examples of
the race to the bottom is the Three Gorges Dam in China: This project
of 1.8 million people, the flooding of millions of hectares of prime farmland,
multi-billion dollar cost overruns, and corruption. In 1996, the German,
Swiss and Canadian ECAs raced with one another to help finance this project,
even though the World Bank and US Export Import Bank declined to provide
support on environmental grounds. Now growing internal opposition in China
is calling for a scaling down and even a halt to the gigantic dam.
Little transparency and
contempt for affected communities...Another characteristic of ECAs
is a wholesale lack of public disclosure of the impacts of their projects.
The Common Approaches do not require ECAs to consult with affected
communities and civil society in the development of the projects they
finance. This lack of public discourse runs counter to decades of experience
in the field of sustainable development and is antagonistic to democratic
principles. This gaping hole in policy is suspect since ECAs back
projects that affect people's health, environment, and their ability to
maintain a sustainable local livelihood. In so doing, ECAs place
the desires of private corporations and their own economic gain above
the rights of citizens to protect their lives and environment.
Corruption... According
to Transparency International, "Bribing foreign officials in order to
secure overseas contracts for their exports has become a widespread practice
in industrial countries, particularly in certain sectors such as exports
of military equipment and public works. Normally these contracts are guaranteed
by government - owned or - supported Export Credit Insurance (ECI) schemes
(HERMES in Germany, COFACE in France, DUCROIRE in Belgium, ECGD in the
UK)."
Crushing debt... ECAs
for the most part also have no developmental mandate or obligations, yet
they account for the single biggest component of developing country debt,
consisting in 1996 some 24% of total debt and 56% of debt owed to official
agencies. While proper debt management can lead to positive development
impacts, ECAs often push countries to create debt to pay back loans for
projects that are inconsistent with the goals of sustainable development,
that have design weaknesses, and that are associated with corruption.
Thus, to the extent that excessive or inappropriate developing country
debt loads shackles the sustainable development process in these countries,
ECAs are in large part responsible.
Arms transfers and human
rights abuses... ECAs-backed projects are too-often associated with
human right abuses in developing countries. For example, large hydro-electric
projects can displace tens or hundreds of thousands of people (close to
1.9 million people in the case of the Three Gorges Dam), innundate vast
areas of fertile farmland, and submerge historically and culturally significant
sites. Typically, the people resettled are never fairly or adequately
compensated, and are forced to live in unfamiliar cultural surroundings
and living conditions that are worse than they had before.
ECAs are also frequently involved
in supporting the export of arms and military equipment to war-torn countries,
for example, UK-made Hawk fighter jets or US-made Black Hawk helicopters
that are exported to countries like Indonesia and Columbia. Once out of
the control of the exporters' hands and into the control of the government,
these arms are potentially used to kill innocent people and otherwise
violate human rights. Moreover, ECA-backed arms transfers are typically
onerous debt-producing transactions for countries from the start because
they are "non-productive expenditures" that are not associated with economically
productive activities that can contribute to debt repayment. Hence, in
addition to fostering human rights abuses, these arms transfers can create
a vicious cycle that can weaken a country's economic health and in turn
fuel more conflict.
Increasing risks they were
designed to protect against... The ECAs' "race to the bottom" does
more than harm the environment and human communities; it also results
in project standards that are so low or non-existent that their absence
increases some of the very political risks against which these public
agencies were designed to protect. A specific example: the Antamina mine
in Peru, insured by the Canadian ECA, Export Development Corporation,
experienced civil disturbances such as organized picketing, blockades
and strikes that target the project due to its negative impact on local
peoples' fishing areas and livelihoods. Another example: ECA backing for
the sale of military aircraft to Indonesia, absent adequate controls over
their use, contributed to its military and political instability. As a
22 September 1999 "Financial Times" editorial pointed out, careless
industrialized country export credit agencies share a major responsibility
for "Violence in East Timor and economic disaster in Indonesia." ECAs'
support of projects that exacerbate the very risks they were designed
to protect against can be compared to a flu medicine that spreads influenza.
Assuming no responsibility...
When a country's ECA lacks adequate safeguards and due diligence, which
leads to project failures and heightened risks, it is often other branches
of their respective governments that must respond. For example, countries'
foreign ministries and militaries may be called in to help quell uprising
resulting in part from local opposition to ECA-backed projects. Countries'
federal treasuries may ultimately cover financial losses stemming from
claims by failed ECA project sponsors. The fact that the political and
financial cost of project failures and resultant external impacts is borne
by parties other than the ECAs and their corporate clients is an indication
of a moral hazard that encourages ECAs' harmful activities to continue.
Thanks to ECA support, private
commercial banks can shirk much of their responsibilities as well. As
a Midland Bank executive in charge of arms deals once described,
"You see, before we advance
monies to a company, we always insist on any funds being covered by the
[UK] Export Credit Guarantee Department...We can't lose. After 90 days,
if the Iraqis haven't coughed up, the company gets paid instead by the
British Government. Either way, we recover our loan, plus interest of
course. Its beautiful."[i]
For their part, ECAs continue
to resist change, managing to antagonize other government officials and
agencies, including even those sympathetic of the process of corporate
globalization. According to European Union Trade Secretary, Pascal Lamy:
"I too am frustrated with the
ECAs' lack of progress in adopting common environmental policies. Every
time any of them move forward a millimeter, they stop to see if anybody
else moved."[ii]
Indeed, ECAs even resist the
Presidents and Prime Ministers of the countries they represent. For example,
since 1996 the G-8 has issued three separate mandates for ECA environmental
policy reform, and all have gone unfulfilled.
Isolating themselves...
ECAs insist that they should not have adopt the same level of environmental
and social safeguard policies that other mature international organizations
have long accepted as normal, common practice. ECAs argue that they shouldn't
have to apply such safeguards because their unique mission makes them
different from other international finance institutions like the World
Bank Group, different from aid agencies, and different from domestic agencies
in their own countries. However, in distancing themselves from virtually
every other kind of public agency in the world, ECAs isolate themselves,
alienate others, and present a clearer target for citizens and government
officials that are concerned about the negative impacts of corporate globalization.
Reason for hope... Despite
the slow progress among ECAs in accepting reform, there are hopeful signs
on the horizon for change. For example, the Common Approaches, while seriously
flawed, represents the first agreement among ECAs on the need for minimal
environmental policies. Some individual ECA policies go a bit further.
The UK's ECGD, for example, has a set of proactive business principles
that extends beyond the environment to encompass sustainable development
and human rights concerns. France's ECA, COFACE, will soon discloses all
non-military transactions over ten million Euro, and not just those that
have high environmental impact. The ECAs of Japan, Canada and the
U.S. now have independent mechanisms for citizens to bring claims of policy
violations. NGO engagement of ECAs on specific projects has resulted
in some of these projects being shelved and others significantly improved.
Still, there remains strong resistance to change by ECAs in many leading
countries, and, where change has occurred, close monitoring is required
to ensure adequate implementation.
The NGO Campaign:
Since 1996, NGOs from many countries have joined forces in an international
campaign to reform ECAs. The goals and demands of the campaign are best
described in the Jakarta Declaration
for Reform of Official Export Credit and Investment Insurance Agencies,
endorsed by over 300 NGOs following a May 2000 international ECA reform
strategy session in Jakarta, Indonesia. While focusing on the impacts
of ECAs in Indonesia, the Jakarta Declaration has a global "call for reform"
that includes:
- Transparency, public access to information and consultation by ECAs
and the OECD ECA Working Party;
- Binding common environmental and social guidelines and standards
that are no lower and less rigorous than existing international procedures
and standards for public international finance such as those of the
World Bank Group and OECD Development Assistance Committee;
- The adoption of explicit human rights criteria guiding the operations
of ECAs;
- The adoption of binding criteria and guidelines to end ECA abetting
of corruption;
- The adoption of a commitment only to finance economically productive
investments;
- The adoption of comprehensive relief for developing countries for
ECA debt.
What you
can do:
You can join the international campaign to reform export credit agencies!
Bookmark this website and come back for late-breaking news, action alerts
and contact fellow campaigners near you.
notes:
[i]Killing Secrets: ECGD, The Export Credit Guarantee Department, Killing
Secrets, 1998.
[ii] Source: High Level Panel
of the Trans-Atlantic Environmental Dialogue, Brussels, May 2000.
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