(ECA Watch, Ottawa, 31 January 2017) On January 18, 2017, the first day of a 2 day special meeting of a joint OECD Development Assistance Committee (DAC) and OECD Export Credit Working Group (ECG) task force took place with a number of outside CSO and business representatives, to discuss changes (“modernizations”) in the definition of Overseas Development Assistance (ODA), with a view to “liberalize” ODA rules to allow subsidies to private firms to be counted as ODA. This change raises a number of risks, for example it could permit a rise in ODA without any change in expenditures as a portion of the work of Development Finance Institutions (DFIs), and possibly also of Export Credit Agencies (ECAs), which could be counted as ODA.
The basis of these changes would be in the definition of the “grant element” or “subsidy” in private sector instruments (PSIs) such as loans, guarantees or equity. This involves complex comparisons of PSI rates to market rates, with the difference counting as “grant element”. As ECAs increasingly undertake loans as well as guarantees, and DFIs increasingly provide guarantees as well as loans, they find themselves at times financing (and possibly competing for) components of the same projects. Those ECAs which are members of the OECD “Arrangement” are prohibited by the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (ASCM) from providing export subsidies, i.e. “grant elements”.
It is against that background that reportedly a number of OECD ECAs are opposed to the current proposals advocated by the OECD-DAC. While ECA’s mandate is clearly to support domestic companies doing business abroad, it is quite troubling that officials that are supposed to fight poverty and inequity are widening their mandate to many kinds of private sector support as well, without taking care to examine the consequences. To ensure the ownership of developing countries on how the Sustainable Development Goals (SDGs) are to be financed, the OECD should be exploring in quite different directions. The current discussions of ECAs and ODA raises CSO concerns that ODA could be (mis)used as a source of subsidy for donor firms and that it could be directed away from current countries and sectors toward private sector support, middle-income countries and a reduction of actual public money available to developing countries.
(The Week, London, 23 September 2016) French aircraft-maker Airbus has benefitted from as much as $22bn (£17bn) in illegal state aid from EU member states, including £3bn from the UK, the World Trade Organisation (WTO) has ruled. The judgement marks the latest chapter in what the BBC brands the world’s “largest and longest-running trade dispute”. It will not by any means be the last. On its own, the ruling has the potential to trigger a “trade war between the United States and the European Union”, says The Times. The WTO says the EU has failed to comply with as many as 34 diktats designed to prevent governments subsidising Airbus at the cost of competition – and to the ultimate detriment of its big US rival, Boeing. A UK SFO (Serious Fraud Office investigation centres on “irregularities” in the use of third-party intermediaries on export deals underwritten by the UK, France and Germany through so-called “export credits”.
(Financial Times, Tokyo, 14 June 2016) Japanese investment in Asean infrastructure is set to rise. The Japan Bank for International Cooperation (JBIC) has changed its lending rules to allow higher risk investment through a special account… Power and transport infrastructure projects are likely to be the main targets for Japanese firms. JBIC currently has ¥1.6tn ($15bn) in outstanding commitments to Asean countries, with much of the investment in power plants and other power-related infrastructure. The rule change will allow Japanese companies to better compete for contracts with Chinese competitors, as the two rivals vie for influence across Asean. Many projects in Asean previously fell foul of stringent [ECA] credit standards, but now Japanese firms investing in the region with the support of the government – a cohort referred to as Japan Inc – will be able to compete more aggressively with rivals from China. [Questions as to whether these rules comply with OECD and WTO rules on ECA state subsidies to exports seem inevitable, and if not, why not?]
(Lexology, London, 2 May 2016) The Treaty on the Functioning of the European Union (TFEU) prohibits State aid to support [subsidize?] export-credit insurance in “marketable risk” countries, which includes EU Member States. Given the difficult economic circumstances in Greece and the resulting dearth of insurance or reinsurance capacity to cover exports to Greece, in December 2013 the European Commission decided to temporarily remove Greece from the list of “marketable risk” countries in 2013 and again in 2015 – an exception set to expire on 30 June 2016. The Commission is now asking Member States, credit insurers, and other interested parties to submit information on private credit insurance capacity; the activity of insurers acting on behalf of or with State guarantee or the state itself in the provision of short-term credit insurance for exports to Greece during the period March 2015 to March 2016; changes in Greece’s credit ratings for the last six months; corporate sector performance in Greece; and any other relevant data and information. The deadline for responses is 24 May 2016. [Comment: The TFEU prohibition mirrors the WTO Agreement on Subsidies and Countervailing Measures which prohibits export credit premiums (or interest rates) that “are not inadequate to cover long-term operating costs and losses”, i.e. subsidies to national corporations. While professing allegiance to free markets, the EU, OECD and WTO in these ways support negotiations and exceptions which favour national and corporate interests through poorly monitored, non-transparent fora and regulations which are tantamount to a special interest “Gentleman’s Club”.]
(Space News, London, 15 April 2016) Britain’s export-credit agency may be the most attractive source of satellite project financing that almost none one has heard of or uses. While its more active counterparts in the United States and France are most comfortable guaranteeing loans only when a large majority of the work done in these nations, U.K. Export Finance is willing to support projects with as little as 20 percent U.K. content, said Peter Maplestone, senior underwriter at the agency and responsible for satellite export programs.
(Hindu Business Line, NewDelhi, 20 December 2015) The World Trade Organisation’s Ministerial in Nairobi failed to deliver anything concrete for India and other developing countries in the areas of food security and farmer protection. Worse, it has saddled them with the burden of doing away with all export subsidies in the next eight years, and all but ended the development framework of the Doha Round within which negotiations have been taking place. There was no breakthrough in areas of food, farmer security; as export subsidies are to be phased out by 2023.
(World Grain, Kansas City, 15 December 2015) In a letter to the U.S. Department of Agriculture (USDA) and the Office of the U.S. Trade Representative, the American Soybean Association (ASA) led a coalition of agricultural organizations in urging the U.S. Agriculture Secretary to work toward positive outcomes for agriculture in this week’s WTO Ministerial in Nairobi. With regard to export competition, the letter strongly supports U.S. efforts to eliminate export subsidies (including by the E.U. and Canada), reform export credit programs, and eliminate state trading enterprises and single desk trading. At the same time they cautioned against weakening such rules in developing nations, specifically noting subsidies by Brazil and other emerging nations for transportation, handling and processing costs for exported commodities. The ASA has subsequently expressed its disappointment with the decision to allow the continued use of export subsidies by developing nations.
(Livemint, Delhi, 2 November 2015) The US has demanded ‘safe harbor’ protection for its controversial farm export credit programme from the disciplines underpinning the World Trade Organization’s agreement on subsidies and countervailing measures despite denying such a flexibility to India and other developing countries for public stockholding programmes for food security last year. In October, Washington’s trade envoy Ambassador Michael Punke sought the ‘safe harbor’ protection for export credits for its farm products from legal challenges arising from the disciplines in the WTO’s agreement on Subsidies and Countervailing Measures (SCM), which also apply to OECD export credit agencies. The EU has joined forces with Brazil and five other farm exporting countries to propose tighter WTO rules on export subsidies and similar measures, one month ahead of the global trade body’s ministerial conference in Nairobi, Kenya.
(Globe & Mail, Toronto, 28 September 2015) General Electric Co. is planning to build a state-of the art $265-million (U.S.) engine plant in Canada, as it shifts more business out of the United States following the collapse of U.S. government-sponsored export financing. GE said Monday it will close down its operation that makes gas-powered engines in Wisconsin and construct a plant in Canada, creating 350 new jobs there. In mid-September GE said it would invest $26-million in an aircraft engine facility in Winnipeg, including a major upgrade to a massive wind tunnel used for testing jet engines. GE says it is making the moves because it can no longer get U.S. export credit financing and is currently bidding on $11-billion of projects that must have export financing in order to be completed. GE also recently announced an agreement with the UK export credit agency UK Export Finance to access export financing for up to $12 Billion. [It is not yet clear if such efforts are part of an effort to re-establish US export credit financing blocked by the US Republican Tea Party faction, or to stimulate competition amongst OECD ECAs to further sweeten official subsidies to exporting corporations.]
(Premium Times, Abuja, 28 August 2015) The World Trade Organization, WTO, on Wednesday pledged to collaborate with the Nigerian Export-Import Bank, NEXIM, to explore areas of synergy to help remove trade barriers and provide better access to market commodities towards regional integration and poverty eradication.
