OECD Approves Weak, Unenforceable Environmental Policy for Export Credit Agencies

(ECA Watch, Paris, 29 June 2007) Environmental NGOs have criticized the OECD Council for its June 12 approval of the weak and unenforceable environmental policy Recommendation of the OECD Export Credit Working Group (ECG). After 17 months of dithering, the Recommendation barely revises the 2003 version of environmental and social standards which govern projects supported by export credit guarantees or loans over 10 million SDRs (US$15.3 million or €11.2 million). Many OECD Member export credit agencies (ECAs) did not want to make even common sense changes to the 2003 standards and some even wanted to weaken standards, citing competition with Chinese ECAs which they say have no such standards, despite the growing number of OECD ECA joint ventures with the Chinese.

Article 13 of the new Recommendation allows OECD ECAs, "should they so decide", to opt out of applying any standards at all, provided that they report and justify this to the notoriously secretive and effectively unaccountable OECD working group on export credits. The number of World Bank group standards that ECAs are required to benchmark projects against has increased and minor changes to both prior and after the fact reporting requirements were added to the 2003 Recommendation. However, international environmental groups believe that ECA environmental and social standards are now weaker than international best practices accepted by industry and other financial institutions, standards which themselves are still inadequate to protect communities affected by these large projects.

"The shopping basket of optional standards that OECD ECAs debated for the past 17 months are effectively meaningless, since a gaping hole in the basket allows export credit agencies to do nothing at the check-out counter", says Bob Thomson, Paris based Facilitator of the ECA Watch network.

Not only are standards still "benchmarked" and not mandatory, the monitoring and public reporting on their implementation under the Common Approaches over the past three years has been notoriously vague, with the OECD Secretariat only providing highly aggregated reports, which effectively obscure classification of environmental impacts and do not publicly disclose or guarantee compliance with conditions imposed to bring projects up to international standards. Stating that most projects are indeed benchmarked and that only one ECA project was exempted from the standards last year, the OECD claims that the derogation clause exists only for exceptional circumstances.

However, 3 OECD ECAs from Germany, Austria and Switzerland have just agreed to support the Ilisu dam project in Turkey. The Ilisu project has no Environmental Impact Assessment (EIA) that meets accepted international standards, including World Bank policies. Baseline data for the project is almost non-existent and the Iraqi government has complained to the EU that Turkey has not yet consulted with other Tigris riverain nations, contrary to international law. The "flexibility" permitted by the OECD's Common Approaches in this context appear to exist well beyond the formal application of the Article 13 opt out provisions in the eyes of Germany, Austria and Switzerland. These ECAs seem to fear no ill effects from the so-called OECD peer review process under which Member countries “review each other’s policies and performance and monitor implementation of and compliance with agreed measures... [and] where countries fall short, they come under pressure from their peers to take action to meet requirements."

Sixteen environment and development NGOs from Europe, North America and Japan wrote to the OECD in April stating that the final negotiating draft of the standards failed to meet the objectives of the OECD as outlined in the preamble to the Recommendation. The preamble calls on OECD Members to promote coherence, good environmental practice and a level playing field, as well as to develop common procedures and enhance efficiency.

"The message that this sends to non-member economies from the OECD is clear," added Mr. Thomson, "environmental standards are not an OECD priority, and deviation from even minimal standards brings little fear of sanctions or even reproach from other OECD members."

"This is the wrong message at a time when large infrastructure projects threaten not only locally affected communities, but also the environmental and social health of the entire planet," he continued.

ECA-Watch, an international network of groups that monitor the activities of ECAs, believes that a truly transparent and thorough peer review process, which safeguards public interests and encourages public accountability, must be coupled with mandatory standards which permit international norms to be upheld in all material respects.