Secretary-General

Aircraft Sector Understanding: Signing Ceremony

 

Remarks by Angel Gurría, OECD Secretary-General

OECD HQ, Friday 25th February 2011
 

Dear Ambassadors, aviation and airline officials, members of the press and media, ladies and gentlemen, good morning and welcome:

It is a pleasure to have you all at the OECD this morning for the signing of the new OECD Aircraft Sector Understanding (ASU). This path breaking export financing agreement is a major achievement. 

The ability of the participants to design, negotiate and conclude such a thorough, market-driven agreement in less than a year is remarkable. It is testimony to the power of the multilateral cooperation that continues to drive OECD work 50 years after its creation. 

    

 

CD211-025-019 

The Secretary-General (standing, fourth, left/right) during the Signing Ceremony.
Photo: Andrew Wheeler/OECD

1 . The dynamic airline market and the role of export credit agencies


Commercial aircraft represents a huge and expanding global market. The number of aeroplanes in the worldwide fleet is expected to  nearly double from around 19,000 today to over 36,000 aeroplanes in 2029. Aeroplane deliveries for fleet growth and replacement of ageing aircraft could total more than 30,000 over the next 20 years, with an expected value of US$3.6 trillion (i).  

To support this important market, Export Credit Agencies (ECAs) historically have provided financing for around 20% of aircraft deliveries. During the financial crisis, ECAs became even more central, providing financing for almost 30% of total deliveries in 2009. Preliminary figures show that last year, Export Credit Agencies provided around $20 billion of financing for commercial aircraft sales. This agreement is therefore highly relevant for global competition in this sector.

2.  The contribution of the new ASU: a market-driven export financing agreement


This new Aircraft Sector Understanding is interesting and remarkable:

First, because, it unifies the terms, conditions, and procedures of official support for large and regional aircraft exports; second, because of its innovative design; third, because of its ability to significantly reduce, if not eliminate, subsidies; and fourth because it creates a level playing field among exporters, airlines and governments. 

It is also interesting because all these things are accomplished through an agreement mechanism with a fairly unique legal status. Like all OECD export credit agreements, the form of the agreement in front of you is referred to as “soft law”. 

You might wonder whether “soft law” can produce “hard” rules. The success of our export credit rules throughout OECD history clearly shows that OECD export credit agreements do produce strong, effective rules.

In fact, I believe this special status helps to explain why our shared export credit disciplines have worked so well over the years and continue to do so. It explains why our agreements can be negotiated, implemented and evolve in a timely and effective manner. Moreover, our mechanism is flexible enough to enable partner countries, like Brazil, to join the agreement. 


3. An agreement based on WTO commitments


The efficiency of this “soft law” mechanism also lies in the fact that it is built on WTO commitments, with respect to the design and operation of export credit programs. In turn, the WTO has delegated the implementation of these commitments to the OECD, and they are embodied in OECD agreements through specific rules on the terms and conditions of official export credit financing.

This “soft law” mechanism provides an expedited ability to reach agreements on financing rules, as has been demonstrated in the agreement we are signing today. The first formal negotiating session was held here this time last year, and the agreement in principle was approved in December. This allows for a rapid response to the major changes in the market, such as shifts in the manufacturing and financing of commercial aircraft.

The benefits of multilateral cooperation are greatly magnified in the aviation sector. We must remember that the aviation manufacturing industry represents “national champions” in their respective countries. They are major exporters and job creators. Trade disputes between national champions and their governments tend to escalate quickly, raising the economic and political stakes to the highest levels.

On this note, let me add that two of the participants here today were not party to any formalized aircraft finance disciplines before the 2007 Aircraft Sector Understanding agreement signed in Rio de Janeiro. Brazil is now an important partner for the OECD and a full ASU Participant.

Before agreed disciplines, Canada and Brazil engaged in an extensive litigation process in the WTO over aircraft financing. They then opted for a more productive and mutually beneficial approach - to work together with participants in the OECD, rather than pursue the litigation route. Both governments agreed that our multilateral soft law mechanism was a better and more practical way of resolving their real-time competitive transaction differences. 

This is “hard” evidence in favour of the efficiency of “soft law”. No government has ever resigned from our export credit disciplines. Commitments are made by governments at the Ministerial level and compliance is excellent.


4. Partner countries are invited to join


In addition to working with commercial aviation stakeholders, the negotiators designed and negotiated the agreement in the presence of official observers from Russia and China. Representatives from these governments attended the negotiations and fully participated in the debates.

Russia and China were also given the opportunity to become full negotiating partners. While they both chose to remain observers for the time being, I want to emphasize that the OECD and all other ASU participants encourage them to become full partners in implementing this agreement as early as possible.

Russia is becoming a prominent commercial aircraft producer, and China will begin commercial aircraft production in the next few years. I believe that they will find it in their longer term economic and financial interest to join this agreement; just as manufacturers, airlines, and their governments committed to the new Aircraft Sector Understanding today.

We are ready to support Russia and China in joining the ASU and the offer also extends to the full range of OECD export credit disciplines.


The rules that we are agreeing on today have a tremendous impact on both producers and buyers of commercial aircraft. It is great to see so many representatives from the airline industry joining us for this important event.

Their contributions have been essential. Negotiators, the Chairman, and the Secretariat received helpful analysis and policy advice from both manufacturers and airlines during these negotiations. All of this was valuable and key to reaching this new agreement.

So thank you all for making this path-breaking agreement happen. Let us now make it work together! Without further ado, and with my strong congratulations to the ASU participants, let us sign this new agreement.

 

___________________

(i) Boeing estimate

 

 

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