Export credit agency

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Export credit agencies and investment insurance agencies, commonly known as ECAs, are institutions which act as finance companies for private domestic entities who conduct business abroad. ECAs provide government-backed loans, guarantees and insurance (Trade Credit Insurance) covering both commercial and political risk. Most industrialized nations have at least one ECA, which is usually a national, public or publicly-mandated agency that usually supports companies from their home country.

Most countries of the Organization for Economic Co-operation and Development (OECD) have at least one ECA, which is an official or quasi-official branch of their government (with private capital but acting on behalf or with the mandate of the national government, e.g. COFACE in France). The officially supported export credits provided by these agencies are distinct from private export credit financing, which is not discussed here.

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

Participants to the Arrangement on Officially Supported Export Credits have been working since 1978 to reach agreement on common guidelines for minimum standards in payment terms and credit periods (OECD Consensus). Although negotiations are facilitated by the OECD, not all OECD member countries are participants; the Participants are Australia, Canada, the European Community, Japan, Korea, New Zealand, Norway, Switzerland and the United States (as of December 2005). Since 1999, country risk categories have also been harmonized by the Arrangement and minimum premium rates 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).

For instance, a transnational corporation, or investor, will seek insurance cover from an ECA when selling goods or services to, or investing money in, a foreign country. The premium charged by the ECA depends on the political and economic stability of the foreign country, the buyer's credit profile and the credit terms, among other factors.

ECAs are now the world’s biggest group of public International Financial Institutions, collectively exceeding the World Bank Group in size.

ECAs currently finance or underwrite about $430 billion of business activity abroad - about $55 billion of which goes towards project finance in developing countries - and provide $14 billion of insurance for new foreign direct investment, dwarfing all other official sources combined (such as the World Bank and Regional Development Banks, bilateral and multilateral aid, etc.). As a result of the claims against developing countries that have resulted from ECA transactions, ECAs hold over 25% of these developing countries' US$2.2 trillion debt. Sadly, these data are unreliable in the absence of source, definition, or date.

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.

Observers argue for and against export credits. Some observers view them as nothing more than export subsidies by a different name. Others argue that export credits may further the burden of debt that poor countries already suffer. The activities of ECAs are considered by some to be a type of welfare for large corporations. ECAs are also criticised for insuring companies against political actions which aim to protect workers' rights, other human rights or the natural environment in the countries where the investment is being made. Advocates of ECAs have assertions of their own, such as the following: export credits allow impoverished importers to purchase needed goods that would otherwise be unaffordable; export credits are components of a broader strategy of trade policies; and government involvement can achieve results that the private sector cannot, such as applying greater pressure on a recalcitrant borrower. These arguments for and against export credits are not new, having been studied at length in academic literature (for a good general discussion, see Baron, David P. The Export-Import Bank: An Economic Analysis. Academic Press. 1983.; or Eaton, Jonathan. “Credit Policy and International Competition.” Strategic Trade Policy and the New International Economics, ed. Paul Krugman. MIT Press, Cambridge Mass. 1988.). Of course, these arguments also spill over into broader literature and it is certainly important not to confuse the agency that applies the export credits, the ECA, with the actual policy of providing guarantees or direct lending support to facilitate exports. For example, some accuse the Canadian Wheat Board of providing export credits (for a strident representation of this argument, see Goodloe, Carol. “The Canadian Wheat Board: Government Guarantees and Hidden Subsidies?” The Estey Centre Journal of International Law and Trade Policy, Vol 5 No 2, p 102-122. 2004.).

ECAs see themselves as facilitators of export and/or investment to both developed and emerging markets. By engaging in these activities, ECAs often act in cooperation with other international financial institutions involved in supporting the successful development of worldwide trade.

ECAs are increasingly requiring member countries to undertake anti-corruption due diligence when applying for export credit. This is due to the increased international enforcement of anti-bribery laws.

Contents

[edit] Examples

[edit] Known Due Diligence Companies

  • Kroll, Inc USA
  • Crisis Control Group, LLC USA
  • Control Risk Group UK

[edit] Online Due Diligence Providers

  • Choicepoint, Inc USA
  • Knowx USA

[edit] External links

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