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A host of Western governments and the European Union have stepped away from talks aimed at thrashing out new rules for governing the use of export credits, throwing into fresh doubt any hopes of global reform of the system.

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

Talks between the 18 member nations have dragged on since 2012, as the group of OECD countries – as well as non-OECD nations such as China, Russia and Brazil – attempt to hash out potential changes in the rules governing the activities of export credit agencies (ECA) globally.

However, an impasse has now been reached, with the statement noting that transparency remains a key area of contention.

According to Ralph Lerch, head of export finance at DZ Bank, transparency has been an issue for some time, with non-OECD ECAs unwilling to share details of their export credit support, such as the terms and conditions they are prepared to offer.

At the same time, the statement notes that members are also at odds over 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), the country’s official ECA, declined to comment on the breakdown in discussions.

However, the bank has been critical in recent times of China’s export credit system, taking aim in its 2019 competitiveness report at both the size of support the Chinese government provides to its exporters, as well as its lack of transparency – or “opacity” – when reporting financing.

According to US Exim’s estimates, 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.

“China is fundamentally changing the nature of competition. China is very aggressive, strategically focused, and, unlike the United States and many other countries, not subject to the same international rules and agreements,” the report reads.

The US, the EU and eight other countries – such as Australia and Canada – are all members of the OECD Arrangement.

This so called “gentleman’s agreement” was created in 1978 and works to limit the financing terms and conditions a participating country’s ECA can offer for officially supported export credits, as well as any tied aid support.

The aim is to create a “level playing field”, where exporters win contracts based on the quality and price of the goods and services they offer, rather than the punching power of their domestic ECA.

But in recent years the OECD Arrangement has seen its influence wane in the face of the growing dominance of China, which is not a member.

Even OECD Arrangement nations – in their bid to offer more favourable terms – have increasingly started to turn to trade-related programmes that fall outside the purview of “official export credits”. In other words, these are products that don’t formally require a buyer to purchase a certain amount of products from the ECA’s country of origin.

US Exim says that in recent years Asian countries have ramped up their use of untied aid, for example, with Korea’s use of the product rising a “whopping 1,100% from around US$425mn in 2018 to over US$5bn in 2019”.

 

Attention turns to OECD modernisation

According to DZ Bank’s Lerch, the breakdown in IWG talks will likely see a renewed push to modernise the OECD Arrangement.

Lerch tells GTR that in a discussion with Euler Hermes and other ECAs, he was informed that countries had not seen any signs from non-OECD ECAs of a “constructive resolution” in IWG talks over the past 12 months – and so had decided to concentrate resources elsewhere.

He says: “A lot of people in the European Council, in the European Commission, people from the different member states’ ECAs, and so on, have supported these IWG activities. It has been quite a time-consuming exercise for everybody, so it makes sense to free these resources in order to concentrate on the OECD Arrangement.”

Talks aimed at modernising the Arrangement’s rules have themselves been going on for over a year, with a joint paper from the International Chamber of Commerce (ICC), Business at OECD and the European Banking Federation – released in late 2019 – labelling it “no longer fit for purpose”.

In the report, they call for changes to various aspects of the Arrangement, including an increase in cover for local costs from 30% to 50%, as well as longer maximum repayment terms.

While any reforms to the OECD Arrangement won’t directly affect non-OECD countries, Lerch says that by increasing its relevance, it will create a “stronger position to speak with the Chinese and the other non-OECD countries”.

IWG talks aren’t completely dead and buried either, with the joint statement stating that the nations are open to a resumption of talks in a year – or sooner – if the conditions are right.

The signing members of the statement include figureheads from the European Commission, Australia, Brazil, Canada, Japan, Korea, New Zealand, Norway, Switzerland, Turkey, and the US. China, India, Indonesia, Israel, Malaysia, Russia and South Africa were the IWG members who did not sign.