By Nicholas Hildyard, Cornerhouse (1999)

Snouts in the Trough: Export Credit Agencies, Corporate Welfare and Policy Incoherence

SUMMARY

Export Credit Agencies (ECAs) - publicly-backed government agencies which give financial guarantees to companies operating abroad - are now the single largest source of taxpayer support for private sector companies seeking to off-load on to the public the financial risks of their business projects in the South and Eastern Europe. Ultimately, it is the poorest in these countries who end up paying the bill. ECA support now exceeds by far the total annual investments made by the World Bank and other multilateral development banks. With rare exceptions, the major ECAs lack mandatory environmental and development standards: in addition, they are secretive and unaccountable. The result is a range of ECA- backed projects - from dams to arms and polluting power stations - that are environmentally destructive, socially oppressive and, often, financially unviable. Environmental, human rights and development groups are pressing for fundamental reform.

Consider this: In November 1997, Britain's Department for International Development (DfID) outlined the newly-elected Labour Government's policy for UK aid to developing countries in a document entitled Eliminating World Poverty: A Challenge for the 21st Century. This committed the Government to paying "particular attention to human rights [and] transparent and accountable government"1 and to ensuring "that the full range of government policies affecting developing countries, including environment, trade, investment and agricultural policies, takes account of our sustainable development objective."2 In line with the new policy, the UK's bilateral aid programme would in future "avoid large capital projects".3

Barely 15 months later, however, the British Government is considering underwriting a £200 million investment insurance guarantee for UK construction company Balfour Beatty to build the giant Ilisu hydroelectric dam in Turkey, some 40 miles upstream from the Syrian-Iraq border. If constructed, the project - which would forcibly remove 15,000-20,000 mainly Kurdish people from their homelands - would violate not only five of the World Bank's guidelines for development projects on 18 counts, but also a UN convention aimed at preventing wars between states that share water resources (see Appendix 2).4 Because the Turkish State is engaged in a brutal, undeclared war against the region's Kurdish people, it is difficult for local communities to voice their concerns about the dam. Critics argue that for the UK to be involved in the forcible removal of an oppressed ethnic minority in Turkey whilst at the same time condemning Serbia for its policy of ethnic cleansing in Kosovo is the height of hypocrisy.5 The government department responsible? The UK Export Credits Guarantee Department.

Another example: On 12th May 1997, just days after the New Labour Government was elected, British Foreign Secretary Robin Cook announced a new "ethical foreign policy" for Britain.6 He proclaimed that the country would "once again be a force for good in the world . . . Our foreign policy must have an ethical dimension". In future, no more arms would be sold to dictatorial regimes. The announcement was intended to implement New Labour's election manifesto commitment not to permit:

"the sale of arms to regimes that might use them for internal repression or international aggression and to increase the transparency and accountability of decisions on export licences for arms, whilst at the same time stating our support for a strong UK defence industry."7
Yet almost two-thirds of the £3,360 million worth of military equipment exported from the UK in 1997 went to regimes with appalling human rights records, including Indonesia, which is currently deploying death squads in East Timor.8 £1,577 million went to Saudi Arabia, £112 million to Indonesia, and £25 million to Turkey. In many cases, such arms sales have been subsidised by the UK government. The government department responsible? The UK Export Credits Guarantee Department.9

Two isolated examples? What about this, then? In June 1997, British Prime Minister Tony Blair told the Special United Nations Session on Sustainable Development:

"Industrialised countries must work with developing countries to help them combat climate change . . . We must live up to our side of the bargain and ensure they have the resources to do this."10
The November 1997 document from DfID outlining the UK's new aid policy went on to spell out strategies for fulfilling this pledge, including "promoting and encouraging the use of renewable energy resources".11 Similarly, the UK Minister for the Environment, along with colleagues from other G8 countries, has stressed the need for international policies that "encourage developing countries to abate their greenhouse gas emissions while taking full account of their legitimate need to eradicate poverty and achieve sustainable development."12

Yet, despite such policy commitments, the UK Government is actively backing the construction of a number of carbon-dioxide emitting, coal-fired power plants in the developing world, thus ensuring that tonnes of greenhouse gases will be added to the atmosphere when non-polluting alternatives are available. These include: the Shiheng II, Heze II and Liaocheng coal-fired power plants in Shadong Province, China;13 the Huaneng power plant in Dalian Province, China;14 and the construction of a 1,040- megawatt power plant in Visakhapatnam, Andhra Pradesh, India. The government department responsible? The UK Export Credits Guarantee Department (ECGD).

Left unaddressed, such policy incoherence begins to look like hypocrisy rather than bureaucratic inertia. Despite being one of the smaller agencies in the UK government bureaucracy, the ECGD is no bit player. On the contrary, the value of the investments and exports it underwrites far outstrips the UK's bilateral aid budget.15

Yet, despite being backed by public money, the ECGD operates in almost total secrecy; is to all intents and purposes unaccountable even to Members of Parliament; and lacks any mandatory environmental and development standards. Moreover, repeated calls by UK environmental and development groups for reform have met with official indifference. Moves within the Organisation for Economic Co-Operation and Development (OECD), a grouping of the 29 major international nations, to institute common environmental and development standards for all OECD Export Credit Agencies (ECAs) have also led nowhere, the UK proving itself at best lukewarm to the reform process, at worst complacent. This, perhaps not un-coincidentally, is at a time when ECAs are becoming increasingly important sources of finance for infrastructure and other projects in the South and in Eastern Europe.

NGOs internationally are now pressing for all ECAs "to adopt and upwardly harmonize their environmental and social policies." Unsurprisingly, many now view the UK Government's willingness to respond to that call as a litmus test of New Labour's real commitment to human rights, sustainable development and the environment: put bluntly, will the government's flirtation with big business override its stated commitment to placing ethics at the heart of its foreign and development policy?