Related News

ECAs continue to debate fate of Mozambique LNG project

ECAs continue to favour fossil fuels over clean energy, data shows

EU makes fresh bid for OECD export credit fossil fuel ban

Supply chain finance industry hopeful EU will soften late payment rules

First-of-its-kind EU export credit facility to target Ukraine rebuild

The European Commission (EC) has said it is mulling the launch of a new EU export credit facility as part of broader plans to help domestic exporters take on global competitors.

The EC broached the idea for the new facility in a review into the bloc’s trade strategy in the coming years, published in February, which also laid out wider plans to “explore options” for a new EU export credit strategy.

“To ensure a better level playing field for EU businesses [in] third country markets, in which they increasingly have to compete with the financial support foreign competitors receive from their governments, the Commission will explore options for an EU strategy for export credits,” the report reads.

“This will include an EU export credit facility and enhanced coordination of EU financial tools,” it adds.

Sources at the EC – the executive branch of the European Union – tell GTR that at this stage the body is seeking to launch a feasibility study into the creation of the new service. This would look “into all aspects of establishing an EU facility, as well as alternative avenues”.

But speaking about the EC’s initial plans for the EU export credit facility, they note that it would “operate in parallel and as a complement to existing national export credit institutions”.

In member states that currently have an export credit agency (ECA), the EU facility would support transactions that go beyond the capacity of their national institutions. “Huge infrastructure projects,” for instance, the sources say.

They further note that for countries with limited or no export credit offering, the facility would help exporters who would otherwise struggle to find the backing that such institutions provide.

The majority of EU countries have some form of ECA – barring the likes of Ireland, Malta and Cyprus.

Vinco David, secretary general at the Berne Union, a global association for the export credit industry, says it’s unclear at this stage whether the new facility, should it be set up, is intended to provide export insurance or financing – or a combination of both.

If an export insurance facility is on the cards, David tells GTR he questions whether the more established ECAs in the bloc would need that kind of backing for larger infrastructure projects.

“Even if the national content of huge contracts is below the threshold, there are excellent co-operation agreements and reinsurance agreements between ECAs in the European Union. Maybe there is the odd project that falls between the cracks that needs support. But I do not know, at the moment, what gap they want to fill when it comes to export credit insurance for large projects,” he says.

There could, however, be more of a demand for a facility that provides EU export financing, he says. “There may be more gaps there to fill, given not all EU countries have dedicated public export credit banks, and maybe not all of these markets or their ECAs are attractive for international commercial banks.”

“Unfair trading practices”

In reviewing its export credit strategy, the EC has made clear it wants to better protect European exporters and help them compete with companies globally.

Speaking about the need for the new facility, Commission sources say that EU exporters are facing “harsh competition” in third-country markets, often from exporters that receive government-backed support.

For years, concerns have been growing among Western countries over an imbalance in the export credit system, with talks aimed at thrashing out new rules for governing the use of export credits breaking down in late 2020.

Vice-ministers from the EU and 10 countries – including the US, Japan and Korea – announced in a joint statement in November that they would suspend technical negotiations at the International Working Group on Export Credits (IWG) because members remain “significantly divergent” on core issues.

They pointed to a lack of transparency among some ECAs into the terms they offer, as well as the “scope of coverage that applies to both goods and services exports and a commitment to international standards for debt sustainability”.

The Export-Import Bank of the United States (US Exim) has previously railed against the support provided by the Chinese government in particular, with the bank noting in its 2019 competitiveness report that China is “fundamentally changing the nature of competition”.

According to the US Exim report – released while Trump appointee Kimberly Reed was in charge of the bank – China’s medium and long-term export credit activity from 2015 to 2019 was at least equal to 90% of that provided by all G7 countries combined.

At the heart of the issue is a concern that countries such as China, which aren’t part of the OECD Arrangement governing the use of official export credits, are able to muscle out countries that are signed up to the gentleman’s agreement.

Created in 1978, the OECD Arrangement seeks to harmonise the terms and conditions on offer from ECAs, such as interest rates and repayment terms.

Yet, US Exim has also previously pointed to the use of trade-related programmes by OECD Arrangement participating ECAs that fall outside the scope of the agreement.

The bank said in its competitiveness report that Asian countries have been ramping up their use of untied aid, for instance, with Korea’s use of the product rising a “whopping 1,100% from around US$425mn in 2018 to over US$5bn in 2019”.