Export Credit Agency - International Regulation

International Regulation

Both officially supported export credits and tied aid credit and grants are extended on terms controlled by governments. Therefore, there is a constant temptation to use these financial instruments to subsidize commercial exports in order to win a temporary advantage on an export market or to counterbalance such an action from another government (matching). However, the end result of such action is negative for importing countries (usually developing countries), who are rendered unable to choose the best combination of quality and price but consider financing first. It is also negative for tax payers, who foot the bill. It may only to the benefit of exporters whose government have the deepest pockets and the greatest willingness to subsidize, even though the macro-economic outcome of the subsidy is doubtful. In the past, there have been big, government-sheltered companies that were kept alive to a very large extent by export credits and tied aid credits. To avoid these traps, it was considered useful to standardize export credit conditions and to monitor matching and tied aid credits.

This situation has led first to an informal agreement in 1976 among some OECD countries, known as "The Consensus". This was succeeded in 1978 by a gentlemen's agreement facilitated by the OECD's now defunct Trade Directorate, which established a Working Party on Officially Supported Export Credits. This gentleman's agreement, officially known as the Arrangement on Guidelines for Officially Supported Export Credits, is known as "The Arrangement". Although negotiations are facilitated by the OECD, not all OECD member countries are participants ad membership is possible for non-OECD countries.

Since 1999, country risk categories have been harmonized by the Arrangement and minimum premium rates have been allocated to the various risk categories. This is intended to ensure that competition takes place via pricing and the quality of the goods exported, and not in terms of how much support a state provides for its exporters. The Arrangement does not extend to exports of agricultural commodities or military equipment. A recent decision at the World Trade Organization (WTO) indicates that the use of officially supported export credits in agriculture is bound by WTO members' commitments with respect to subsidised agricultural exports (see the WTO Appellate Body decision on the Brazil-US cotton case as it relates to the General Sales Manager (GSM) 102 and 103 programs and other US agricultural export credits).

The Berne Union, or officially, the International Union of Credit & Investment Insurers, is an international organisation for the export credit and investment insurance industry. The Berne Union and Prague Club combined have more than 70 member companies spanning the globe.

At EU level, the European Commission, in particular DG Trade, plays a role in the harmonization of Export Credit Agencies and the co-ordination of policy statements and negotiation positions. This is based on council decisions 73/391/EEC and 76/641/EEC. These decisions provide for prior consultations among member states on long term export credits. Member states may ask each other if they are considering to finance a specific transaction with official export credit support. EU members may not subsidize intra-EU export credits.