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UK Export credit scheme bypasses international environmental and corruption standards

(ECA Watch, Ottawa, 30 October 2009) The Export Credit Guarantee Department (ECGD) of the UK began a process of consultation last May on a new mechanism to subsidize short-term export credits in the face of the global financial crisis which has severely reduced trade financing and impacted sales of British exporters.

Approved on 21 October 2009 and entitled the Letter of Credit Guarantee Scheme (LCGS), it allows a bank in the UK to guarantee payment to its exporting customer, provided documents stipulated in the letter of credit issued by the buyer’s overseas bank are presented to it.

The ECDG claims that the nature of these trade finance transactions is such that exporters typically expect their banks to respond to letter of credit confirmation requests within 1 to 2 business days and occasionally in a matter of hours. The ECGD argues that such tight timing makes it impractical to require that the scheme meets with the ECGD's current commitments with respect to the environment, human rights and bribery and corruption which require due diligence in order to honour UK obligations under international law, in accordance with ECGD's own Business Principles.

The ECGD therefore plans to exempt the LCGS scheme from ECGD’s stated policies on human rights, environment and sustainable development. Although the ECGD proposes to require that the banks undertake anti-corruption due diligence in relation to the exports supported under the scheme, NGO observers believe that the proposed due diligence procedures fall far short of ECGD’s current policies and that the recourse rights proposed by ECGD will not be adequate if transactions do prove to have been tainted by corruption or violation of environmental standards.

In consultations on the proposal, the Corner House and Jubilee Debt Campaign argued that these exemptions constitute an unwarranted departure from a range of the ECGD’s stated policies and from the Government’s broader commitments and policies on sustainable development, combating corruption and ensuring that interventions to address the economic downturn work to achieve a “green” recovery.

The groups proposed that the issue of timing could be overcome by ECGD retaining the right to rescind cover should subsequent due diligence reveal corruption red flags or adverse social and environmental impacts.

In a letter to the Corner House dated 9 October 2009, ECGD rejected these proposals and stated that it does not propose to request undertakings from exporters regarding the environmental, social and human rights impacts of projects which it supports under the scheme.