Information in: Español - Français - Deutsch - Português - Russian - Japanese - Svenska - Italiano - Suomi

Short-term export credits move back to government subsidies

(ECA Watch, Ottawa, 31 July 2009) Short-term export credits have generally been deemed "marketable", and therefore under “normal circumstances”, official ECAs are prohibited from supporting short-term cover for exports to OECD and some other countries. However, since the outset of the financial crisis, a significant withdrawal of private actors from the short-term (ST) trade finance market has been experienced in many EU countries and in response, various measures have been taken at national levels to fill the gap. Two EU members which had privatized ST credits have decided to re-introduce ST export credit mechanisms and new ST products have been launched in 5 other EU states.

A 1997 European Commission Communication to Members outlines the issues of distortion of competition and regulation of ST export credits within the framework of both the OECD Export Credit Arrangement and the WTO Agreement on Subsidies and Countervailing Measures which require official ECAs to break even, i.e. their insurance products must charge rates which are adequate to cover the long-term operating costs and losses of their programmes. This was amended in December 2005. A July 2005 Commission report looks at "Market Trends of Private Reinsurance in the Field of Export Credit Insurance" with a view to "revising the current definition of “marketable risks”", i.e. to allow more flexibility with respect to ST export credits. The EU's Temporary Community framework for State aid measures of 7 April 2009 opens a crack in this door by allowing official ST export credits for "temporarily non-marketable risks", i.e. when there are no private sector funds forthcoming.

The OECD Statement on the Global Financial Crisis and Export Credits of 24 April 2009 also provides a mechanism whereby state aid for exports can be facilitated while dancing around their theoretical commitment to "free trade" and the provisons of the Arrangement and the WTO ASCM which prohibit subsidies.

In general, these initiatives appear to be moving ECAs toward less regulation of the social and environmental impacts of export credit and insurance products. For example, the UK's ECGD proposal for a Letter of Credit Guarantee Scheme (LCGS) would exempt ST credits from the OECD Common Approaches and Principles on Sustainable Lending Practices (Paragraph 45) and would weaken montioring of corrupt practices (Paragraph 42). UK NGOs The Corner House and the Jubilee Debt Campaign have been critical of the LCGS' "unwarranted departure from a range of the ECGD’s stated policies and from the Government’s broader policies on sustainable development, combating corruption and ensuring that interventions to address the economic downturn work to achieve a 'green' recovery."

The British Exporters Association however welcomes these changes, stating "that the burden of red tape associated with ECGD’s normal application process is excessive and, BExA believes, acts as a disincentive to exporters from using ECGD’s services. Overseas competitors, while still compliant with the law, and with support from less restrictive ECAs, have a real advantage over British exporters."

This theme, that compliance with ECA principles and international commitments is excessively onerous, and equating social and environmental due diligence with red tape, could be construed as part of a concerted attempt to challenge and undermine social and environmental due diligence, in the name of making exports more competitive.

The global financial crisis has spawned many "creative" responses which tend to make it easier for governments to subsidize their national corporations and banks with billions of dollars, while ignoring the crises of climate and poverty which will inevitably bring "the system" down if not tackled in a meaningful way. Export credit subsidies are but one of these "creative" responses which, while helpful in some ways for the maintenance of jobs, detract from the real crises by supporting the wrong actors, many of whom created the crisis in the first place.