World Trade Organization (WTO)

The BRICS come of age [But what role for ECAs?]

(Project Syndicate, Cairo, 18 August 2023) by Hippolyte Fofack, Chief Economist and Director of Research at the African Export-Import Bank (Afreximbank). Given the BRICS’ economic success, more than 40 countries have shown an interest in joining the group and 22 have formally applied for membership. Expansion, trade and investment facilitation will be high on the agenda of the group’s summit scheduled for August 22-24 in Johannesburg. They include many issues on which the bloc’s views diverge from those of the G7, such as sustainable development, global governance reform (especially reform of the IMF), and de-dollarization. An enlarged grouping could deepen trade and settlement in local currencies, accelerate de-dollarization, and lead the transition to a more multipolar world. The economic potential of Brazil, Russia, India, and China, the group – called the BRICS since the addition of South Africa – contributes more to global GDP (in purchasing-power-parity terms) than the G7. Since 2014, Russia’s trade with G7 countries has fallen by more than 36%, owing to unprecedented Western sanctions, while its trade with the other BRICS has increased by more than 121%. The International Monetary Fund forecasts that China and India alone will generate about half of global growth this year.  With geopolitical tensions running high, and the weaponization of the dollar for national-security purposes continuing to escalate, the BRICS have taken on new significance, offering trade diversion and other relief to weaken the effectiveness of sanctions and fast-tracking the transition to a multipolar world. Read the Summit Declaration here.

Lexology report: Export Credit Agencies and Insurers

(Lexology, London, 24 August 2021) ASHURST LLP has produced a 12 page overview of official export credit agencies in the EU, OECD, UK and globally, which broadly reviews ECA history, policies, competition, budgets, sector agreements, etc. It notes that as recently as the turn of the century, the OECD Arrangement was understood to cover the vast majority of export credits globally, whereas US EXIM now estimates that in 2019 total activity provided under the rules of the OECD arrangement amounted to only 34% of total export and trade-related finance – approximately US$76 billion. The OECD arrangement is described as a ‘gentlemen’s agreement’ among its participants, seeking to ensure there is not a race to the bottom or a crowding out of private financing options that could lead to public resources subsidising exporters. The participants to the Arrangement claim that, despite its voluntary nature, the international cooperation that regulates ECA operations has been a mainstay of the market for decades, looking to ensure that competition remains on the quality and pricing of goods and services rather than the financing terms, i.e. subsidies. However they admit that the core purpose of ECAs is to promote exports to provide jobs domestically and increase the wealth of the country they originate from. Meanwhile, ECA Watch maintains that monitoring of the implementation of the OECD Arrangement, its sectoral agreements as well as the Common Approaches on social and environmental due diligence for officially supported export credits, remains seriously inadequate. The lack of transparency in the application of due diligence procedures results in official ECA support for multiple projects to contravene international environmental, human rights and other treaties and agreements to which these ECAs’ own governments are parties. While a somewhat useful overview of complex ECA agreements and practices, the report neglects the significant contraventions of international rights and the resultant trauma caused by so many official ECA supported projects on people and their families across the globe.

EXIM is helping American workers and keeping China at bay

(The Hill, Washington, 17 December 2020) [An example of political influences on EXIM vs the OECD’s purely economic free market level playing field.] One year ago, under President Trump’s leadership, Congress came together across party lines to re-authorize EXIM, our nation’s export credit agency. As our great economic resurgence continues and American companies battle the setbacks caused by COVID-19, that decision looks even better. American companies and their workers face an unlevel playing field, where countries like China stack the deck. As just one part of the Chinese Communist Party’s multi-faceted Belt and Road initiative to achieve global dominance, its government offers vast amounts of export finance to incentivize foreign companies to purchase Chinese goods and services. The country’s export financing is estimated to equal 90% of what is provided by all G7 countries combined. While the number of export credit agencies like EXIM has grown to 115 around the world, up from 85 only four years ago, China’s expansive export and trade-related activity far exceeds that of other countries. The reauthorization law charges the agency with a goal of reserving no less than 20% of its total financing authority — $27 billion out of $135 billion — for support of U.S. exports to neutralize export credit or other subsidies provided by China or other covered countries.

US Exim’s role in the Republican/China trade and political war

(TXF News, New York, 16 July 2020) The US administration [and corporate media] has drastically upped the ante in its economic war against China with its actions against Huawei. At the same time, US Exim has been charged to not only promote US exports and jobs but also counter Chinese state financing where necessary. For Exim, which came back from its virtual 7 year moribund state when it was fully reauthorised on 20 December 2019, there is much work to be done to rebuild relationships with overseas markets and actively support US exports and jobs. But one of the additional requirements for US Exim under its new mandate is to directly counter China’s two ECAs – Sinosure and China Exim. Beijing is using its ECAs, along with several other state entities, to expand its economic influence and gain a competitive advantage against the United States, the U.S. Export-Import Bank said in its annual competitiveness report. China’s official medium- and long-term export credit activity from 2015 to 2019 was at least 90 percent of that provided by all G-7 countries, the report found. Anti-China sentiment has grown significantly through this year and the Covid-19 period in particular. As such, the widening of the trade war to unilaterally introduce sanctions on a company such as Huawei drastically broadens the scope of the US economic confrontation with China. But for US Exim, even fully funded, and for that matter other ECAs globally, they still face an uphill struggle in competing against Chinese ECAs which not only have huge financial resources at their disposal, but also a big start in many markets – particularly within Africa – where China Inc has spent years developing its trade and investment foothold. China has not been afraid to fly the China Inc flag by extending itself over longer terms and with cheaper debt. Many other ECAs are part of the OECD Consensus and for certain market activity they [are supposed to] follow specific agreed guidelines. China is not part of this. Some observers have categorised China’s trade and investment activities in Africa as a new form of colonialism.  There never has been, nor will there ever be a true ‘level playing field’. EXIM’s new mandate charged it with a goal of reserving not less than 20% of the agency’s total financing authority (ie $27 billion out of a total of $135 billion) “to directly neutralise China’s export subsidies for competing Chinese goods and services.”  Republican members of the China Task Force have expressed gratitude for “the Export-Import Bank’s multi-pronged efforts to combat the Chinese Communist Party’s (CCPs) predatory practices that put American workers and companies at a disadvantage.”

Controversy over Chinese subsidies for Huawei

(Zdnet, York PA, 26 December 2019) Huawei Technologies has lashed out at a Wall Street Journal report that suggests the tech giant’s success is fuelled by billions of dollars in financial support from the Chinese government, arguing that its ties are no different from any other “private company” that operates in China. The WSJ article noted that besides subsidies, Huawei since 1998 has received an estimated $16 billion in loans, export credits, and other forms of financing from Chinese banks for itself or its customers. But the WSJ also notes that Huawei’s largest American competitor, Cisco Systems, received $44.5 billion in state and federal subsidies, loans, guarantees, grants and other U.S. assistance since 2000. Further, it notes that Swedish export authorities provided some $10 billion in credit assistance for Sweden’s tech-and-telecom sector as of 2018 and that Finland authorized $30 billion in annual export credit guarantees economywide from 2017. A 2005 study by the UK Secretary of State for Trade and Industry showed that the “opportunity cost” of UK export credits, i.e. government “subsidies”, was around US$271 million per annum. This dispute highlights the well known fact that Chinese and official OECD member export credit agency budgets are subsidies which violate the WTO’s Agreement on Subsidies and Countervailing Measures. The OECD ECA Arrangement creates a WTO loop-hole for OECD ECA subsidies if they meet the OECD’s poorly monitored and largely secretive OECD ECA self-monitoring. The Arrangement is a self-professed “Gentlemen’s Agreement” designed to restrict a race to the bottom in export subsidies, but is flawed by a lack of transparency. So yes, the Chinese subsidize Huawei just as OECD ECAs subsidize their own exporters. The difference is the US claim of internet security concerns wrt Huawei in their efforts to retain economic superiority in global markets. Google and Facebook’s violations of internet privacy and security don’t seem to rate the same US concerns.

Right problem – wrong solution: The Chinese ECA threat to the multilateral official finance system

(TFX News, London, 10 December 2018) Often priced at well below accepted market rates, Chinese official finance is a major hurdle to fair competition in the global export market. A growing number of governments are attempting to compete by circumventing OECD rules and blurring trade with aid. But adding more unfair trade practices risks the global official finance system self-combusting and ending any real chance of a lasting and fair resolution to the problem. While delegates dressed in matching stilettos and pinstripe suits would probably spice up your average OECD meeting, real ECA and DFI cross-dressing – the increasingly blurred lines between tied ECA support and untied multilateral/DFI support – is a serious and growing problem, and one that governments need to address. ECA/DFI cross-dressing is a reaction to a common issue for non-Chinese ECAs – how to compete with opaque official finance offerings from China, which has long been providing cheap debt, arguably at unrealistic market rates. During the past 10 years China has transformed itself from an aid recipient into the largest official financier of developing countries. But many OECD companies are rightly concerned about the completely unregulated official finance practices of China.

Export credit agencies lurk in the shadows of responsible financing

The full publication of this new 136 page report is available here.

Between 2015 and 2017, Finance & Trade Watch and Bankwatch, together with their national partners, researched export credit agencies (ECAs) in seven countries of the European Union (Austria, Czech Republic, Croatia, Hungary, Poland, Romania and Slovakia). The aim of this research was to assess how the procedures and performance of these institutions comply with the relevant national, European and international regulatory frameworks. This first-of-its-kind research examines ECAs in the ‘new’ EU Member States and compares these with an example from the EU 15 – the Austrian ECA OeKB – as well as examples from other EU 15 countries. It shows regulatory gaps and offers a range of policy recommendations.

Export credits are big business. Globally, members of the industry’s Berne Union, both state and private ECAs, insured approximately USD 1.9 trillion per year between 2012 and 2016. That amount far exceeds the total investments of multilateral lenders such as the World Bank and the regional development banks

Key points

  • We  investigated export credit agencies in Poland, Czech Republic, Slovakia, Hungary, Croatia and Romania. We found that these institutions finance various projects around the world that cannot otherwise access financing.
  • Austria’s Oesterreichische Kontrollbank was also included in the study in order to benchmark ECAs from central and eastern Europe with an ECA that has already made several positive steps in the areas of public participation and transparency.
  • The main problem with the ECAs examined in this study is a lack of transparency around their operations, preventing the public from questioning their dubious investments, particularly in fossil fuels.
  • ECAs often operate outside the reach of national legislation, for example by not following targets for greenhouse gases reduction established by the ratification of Paris Agreement.
  • While ECAs are supposed to adhere to the so-called OECD Common Approaches for environmental and social protections, this normative framework is voluntary and unable to guarantee that harmful investments are prohibited.
  • Standards for ECA reporting to European Commission are too general. There have been complaint submitted by colleges from ECA-Watch to Ombudsman two years ago. There is chance Ombudsman will make press on EC to make the reporting more detailed and stricker.

Background facts and figures

  • None of the ECAs covered by the study publish all information about the projects they support after the fact.
  • The Dutch ECA Atradius DSB publishes a list of cases including projects with credit terms under two years on monthly basis, which is the exception, rather than the rule, for ECA disclosure requirements.
  • Collectively the ECAs featured in this report command nearly EUR 30 billion
  • The volume of ECA support accounts for 11 per cent of world trade.
  • In almost all countries included in the study, court cases have been filed because ECAs have not provided information on request.
  • The Czech Republic has a long history of failed projects in the coal sector, but seems determined to keep this dying industry alive

Resources

Media contacts

Thomas Wenidoppler
Finance & Trade Watch
tomas.wenidoppler@ftwatch.at

Dan Heuer
Centre for Transport and Energy
CEE Bankwatch Network
dan.heuer@ecn.cz

 

US leads the way on protectionism in 2017 with tarifs and export credit

(Global Trade Review, London, 22 February 2018) No less than 467 protectionist measures were implemented worldwide in 2017, with the US responsible for 90 of them. But while protectionism is still rising, the scale of the increase is slowing: in 2016 there were 827 new measures introduced. Research from Euler Hermes, a trade credit insurer, found that the US “decided to bolster measures to counteract perceived protectionism from key competitors” in 2017. The Trump administration implemented 30 new import tariff measures, 20 anti-dumping measures and 17 tariffs on China alone, with the headline tariff being the 30% import tariff on Chinese solar panels. Euler Hermes also found that many trading powerhouses use what it considers to be protectionism to boost their exports. Among these is export credit agency (ECA) support, with Japan being highlighted for adopting 137 protectionist measures pertaining to its ECAs over the past four years.

U.S. Treasury official slams China’s ‘non-market behavior’

(Reuters, Washington, 21 February 2018) The U.S. Treasury’s top diplomat ramped up his criticisms of China’s economic policies on Wednesday, accusing Beijing of “patently non-market behavior” and saying that the United States needed stronger responses to counter it. He said market-oriented, democratic governments were awakening to the challenges posed by China’s economic system, including from its state-owned banks and export credit agencies. And he reiterated his view that China had stopped liberalizing its economy and was actually reversing these trends. China says that its state-owned enterprises operate on free-market principles and is battling within the World Trade Organization’s dispute settlement system to be recognized as a “market economy” — a designation that would weaken U.S. and EU trade defenses. [and their own ECA trade subsidies?]

UKEF lines up new delegated supply chain finance (SCF) guarantees

(Global Trade Review, London, 7 December 2017) UK Export Finance (UKEF) has announced plans for a new invoice financing scheme for exporters in a bid to boost exports through supply chain efficiency. GTR has learned that the new scheme will allow an exporter to set up a supply chain discounting facility with its bank, through which suppliers can receive up to 95% of their payment on invoice submission. The facility will be based on an export contract and support will be based on the buyer’s creditworthiness. UKEF will provide the bank with a guarantee for up to 80% of the amount of credit provided through the facility. The finer details of the scheme, which is due to be launched next year, are still being ironed out. Earlier in the year, the export credit agency (ECA) launched the Bank Delegation scheme, which gives banks authority to issue UKEF guarantees for their customers simply by telling UKEF they are issuing the guarantee based on the banks’ own due diligence. [How UKEF will ensure compliance with its own international, WTO and OECD agreed due diligence requirements on human rights, environmental standards and corruption is not clear under this delegation of responsibility to private sector banks.]