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.
ECAs make it easier for those corporations 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.
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...
- Fueling a race to the bottom...
- Operating with little transparency and contempt for affected communities...
- Associated with corruption...
- Causing crushing debt...
- Involved in arms transfers and human rights abuses...
- Increasing risks they were designed to protect against...
- Assuming no responsibility...
- Isolating themselves...
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.
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.