Export credits

20th anniversary of the Arrangement

 

The Export Credit Arrangement 1978/1998:
Achievements and Challenges
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INTRODUCTION

By Janet West
 
In 1998 we could not let the 20th anniversary of the Arrangement on Guidelines for Officially Supported Export Credits go by without marking the occasion. The evolution over two decades of this "gentlemen's agreement", from a relatively simple to a more market-reflective instrument, seemed to be a tale worth telling, especially in the light of its many distinguished players.

But simply reflecting on past experiences and achievements was not enough: we wanted also to look forward to the new challenges facing the Participants to the export credit Arrangement. The Participants are, after all, a dynamic group of negotiators ever keen to hone and tease the Arrangement to reflect market realities. Some would even view their aim as to negotiate themselves out of the export credit market entirely à'?à‚? although recent events in south-east Asia will, for others, re-inforce the continuing desirability for official support.

Contributors to this commemorative publication, including Chairmen and Vice-chairmen of the Participants, past and present negotiators and representatives of the international institutions and the private sector, have expressed their recognition of the vital role that the Arrangement has played in eliminating trade distortions. Timothy Geithner (United States), for example, refers to the evolution of the Arrangement from a simple creditors' cartel to a powerful force for improved international and domestic economic policies worldwide; and Hidehiro Konno (Japan) refers to export credits as being the fuel that powers the trade engine that drives the increasingly integrated global economy

The genesis of the Arrangement, as Rolf Gerberth (Germany) writes, was the desire on the part of some OECD governments in the early 1970s to have a "gentlemen's agreement" to bring order to official export financing, with the focus on interest rate subsidies. In 1976 the G7 summit at Rambouillet provided the backdrop for a "Consensus" on official export credits among a limited number of OECD countries. Two years later, in April 1978, the Arrangement was established at the OECD in Paris with twenty participating countries.

The Arrangement has grown over the years and we now have a refined and reformatted text which has been welcomed by all the Participants. As Bob Crick (United Kingdom) remarks, the definition of official support is not yet cemented but the quest continues. Jacques de Lajugie (France) notes in his article that although the Arrangement is soft law it produces hard results; and although it is not a legal act of the OECD, the degree of adherence by its Participants is extremely high à'?à‚? indeed, it is quite remarkable in the absence of any formal dispute settlement process. As my predecessor, John Ray, explains in his article, this success is attributable to modesty, pragmatism and transparency, all of which the Participants have displayed in abundance over the last two decades.

There have been a number of notable successes in the life of the Arrangement, in particular, the phasing-out of interest-rate subsidies, the implementation of tied aid disciplines and, more recently, the establishment of risk-based premium fees which should also satisfy the WTO obligation to charge premiums that are not inadequate to cover long-term operating costs and losses.

The reflections by many of the contributors on these past successes illustrate well both the sense of the Participants' objective to eliminate trade distortion and the process by which their aim is achieved: the former driven by economic, competitive and developmental motivations, the latter dictated by the need to reach practical and pragmatic consensus. David Stafford (Australia) recalls the concerns that led to each of the major set of reforms to the Arrangement: the Wallén, Helsinki, Schaerer and Knaepen Packages. And in their articles Eero Timonen (Finland), Pierre Knaepen (Belgium), and our Spanish colleagues - Soledad Abad Rico, Luis Marti Espluga and Rafael Manzanares - reflect the reality that consensus inevitably means compromise to some degree or other and that the benefits and the burdens have to be shared as equally as possible among all parties.

Export credits is a practical business, and the implementation of negotiated compromises is always a priority. The codification of experience with the Helsinki tied aid disciplines into Ex Ante Guidance for Tied Aid is an example of this often difficult process. Birgitta Nygren (Sweden) and Frans Lammersen (Netherlands) write on this apparent "mission impossible" turned "mission accomplished" with the analytical assistance of Professor Tony Owen (Australia). Although it is concerns about trade distortion that has steered the Participants' debate about tied aid, it is the quality of aid that remains uppermost in the minds of our colleagues in development assistance, as Bill Nicol (OECD Secretariat) and Gerry Duffy (United Kingdom) note.

Of course, the Participants have neither the export credit insurance and guarantee field to themselves nor a monopoly on export financing. Paul Melly (Financial Times) and Ted Watson (United Kingdom) note that the private market, over the lifetime of the Arrangement, has developed enormously. Today the market not only complements the facilities available from official Export Credit Agencies (ECAs) but also competes with them, especially for business in the more creditworthy markets. Indeed, some contributors suggest that official ECAs may in the future be left with the rump of lesser-quality risk while the market takes the lion's share of the best business (not a happy thought for the taxpayer) unless more commercially orientated approaches are adopted. The development of the market, of course, poses challenges for ECAs, and a range of responses is offered here, including the view of Ian Gillespie (Canada) that a market philosophy should be maintained and that ECAs should re-think the role of the Arrangement and how they do business, and Malcolm Stephens' (Berne Union) warning against over-gilding the Arrangement lily.

All this calls for the ECAs to be innovative and open to bilateral and multilateral opportunities such as co-financing with the international financial institutions, as Hiroo Fukui (World Bank) and Noreen Doyle (EBRD) describe, and with the private sector, as noted by Vivian Brown (United Kingdom) and others, who consider that ECAs have a future which by necessity must be one of change and continuing adaptation to the business environment. The Arrangement should therefore be constantly under review to ensure that market developments and the Participants' innovative and dynamic spirit are translated into appropriate disciplines backed by transparency. In this context, many have written about the importance of accommodating the structure of project finance transactions: international companies such as Alcatel (Julien de Wilde) and ABN AMRO (Jan Kalff) emphase how desirable this flexibility is, and their views are underlined by our German colleagues Michael Kruse and Eckhardt Moltrecht and others.

The Participants' acknowledgment of market developments has led to the present negotiations on project finance, the examination of interest-rate practices under the CIRR system and the peer review of so-called "market window" operations. And in the forum of the Working Group on Premia the Participants are looking at private market indicators as one of the three tools to evaluate the ongoing validity of the minimum premium benchmarks.

There are also a number of challenges lined up before the Participants, if they are to protect and build upon their achievements while ensuring that market realities are not ignored. The continued monitoring and review of the extant Arrangement guidelines, the regular reports and the codification of experience remain vital activities. Looking to the future, the priorities are the negotiations on complementary guidelines for agricultural products, agreement on flexibility under the Arrangement for project finance and the emerging issues of export credits and the environment (a G8 priority), the impact of the OECD Convention on Bribery on official export credit support and the further untying of aid. Other dimensions that the Participants will have to bear in mind as the next millennium approaches include the preparation for the European Monetary Union: a euro-CIRR will have to be developed, as Allan Dalvin (European Commission Services) notes. And there will be implications for the Participants from a wider membership of the OECD and an enlarged European Community. Of course, there are other issues à'?à‚? such as market windows and the updating of the interest rate regime - that await resolution. But even here movement is visible and the Participants continue to discuss and examine possibilities.

Against the background of all these issues, the OECD pillar of transparency through the exchange of information remains the fundamental cornerstone, one which is essential for the effectiveness of the disciplines that rely on peer review.

My thanks to the authors for the efforts which made this book possible. The result is a unique document and analysis of a remarkable piece of international "law"; it also contains some surprising insights into the world of international negotiation.


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Note

Janet West has been Head of the Export Credits Division of the OECD Trade Directorate since June 1993, prior to which she was Director of International Relations and Debt at ECGD, London.

 

 

 

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