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Export credit agency

April 30, 2024

An export credit agency (known in trade finance as an ECA) or investment insurance agency[1] is a private or quasi-governmental institution that acts as an intermediary between national governments and exporters to issue export insurance solutions and guarantees for financing. The financing can take the form of credits (financial support) or credit insurance and guarantees (pure cover) or both, depending on the mandate the ECA has been given by its government. ECAs can also offer credit or cover on their own account. This does not differ from normal banking activities. Some agencies are government-sponsored, others private, and others a combination of the two.

ECAs currently finance or underwrite about US$430 billion of business activity abroad – about US$55 billion of which goes towards project finance in developing countries – and provide US$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.[citation needed]

Export credit agencies use three methods to provide funds to an importing entity:

  • Direct Lending: This is the simplest structure whereby the loan is conditioned upon the purchase of goods or services from businesses in the organizing country.
  • Financial Intermediary Loans: Here, the export–import bank lends funds to a financial intermediary, such as a commercial bank, that in turn loans the funds to the importing entity.
  • Interest Rate Equalization: Under an interest rate equalization, a commercial lender provides a loan to the importing entity at below market interest rates, and in turn receives compensation from the export–import bank for the difference between the below-market rate and the commercial rate.

Officially supported export credits edit

Credits may be short term (up to two years), medium term (two to five years) or long term (five to ten years). They are usually supplier's credits, extended to the exporter, but they may be buyer's credits, extended to the importer. The risk on these credits, as well as on guarantees and insurance, is borne by the sponsoring government. ECAs limit this risk by being "closed" on risky countries, meaning that they do not accept any risk on these countries. In addition, a committee of government and ECA officials will review large and otherwise riskier than normal transactions.

Tied aid credits edit

Officially supported export credit may be connected to official development assistance (ODA) in two ways. First, they may be mixed with ODA, while still financing the same project (mixed credit). As the export credit is tied to purchases in the issuing country, the whole package qualifies as a tied aid credit, even if the ODA part is untied aid. Second, tied aid credits are not very different from export credits, except in interest, grace period (the time when there is no repayment of the principal) and terms of repayment. Such credits are separated from export credit by an OECD requirement that they have a minimum degree of "softness". "Softness" is measured by a formula that compares the present value of the credit with the present value of the same amount at standardized "commercial" terms. This difference is expressed as a percentage of the credit and called "concessionality level". Thus a grant has a concessionality level of 100%, a commercial credit scores zero per cent. The higher the concessionality level, the more the tied aid credit looks like ODA, the lower, the more it looks like an export credit.

Partially untied credits consist of a tied and an untied part. The latter is usually intended to finance "local cost", investment cost to be made in the importing country. This part may also be in a local currency. Partially untied aid is treated as tied aid.

International regulation edit

Both officially supported export credits and tied aid credit and grants are extended on terms bound by the OECD's arrangement on official export credits. The Arrangement is a "Gentlemen's Agreement" amongst its Participants who represent most OECD Member Governments. The Arrangement sets forth the most generous export credit terms and conditions that may be supported by its Participants. The main purpose of Arrangement is to provide a framework for the orderly use of officially supported export credits. In practice, this means providing for a level playing field (whereby competition is based on the price and quality of the exported goods and not the financial terms provided) and working to eliminate subsidies and trade distortions related to officially supported export credits.[2]

Since 1999, country risk categories have been harmonized by the Arrangement and minimum premium rates have been 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.[3] 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, summarized here).

At the EU level, the European Commission, in particular the Directorate General for Trade, plays a role in the harmonization of Export Credit Agencies and the co-ordination of policy statements and negotiation positions. This is based on council decisions 73/391/EEC and 76/641/EEC. These decisions provide for prior consultations among member states on long term export credits. Member states may ask each other if they are considering to finance a specific transaction with official export credit support. EU members may not subsidize intra-EU export credits. The application of the OECD arrangement in providing export credit is mandatory in EU countries under Art. 1 of Regulation (EU) No. 1233/2011.[4]

The Berne Union, or officially, the International Union of Credit & Investment Insurers, is an international organisation for the export credit and investment insurance industry. The Berne Union and Prague Club combined have more than 70 member companies spanning the globe. Its membership includes both commercial and state-sponsored insurers.

Support and criticism edit

Some observers view state-sponsored export credits as nothing more than export subsidies by a different name. As such, the activities of ECAs are considered by some to be a type of corporate welfare.[5] Others argue that ECAs create debt in poor countries motivated not by development goals but to support rich countries' industry.[6]

In addition, ECAs may soak up aid money as debt relief programs predominantly relieve poor countries from debt owed to donor countries' ECAs.[7] ECAs are also criticised for insuring companies against political actions that aim to protect workers' rights, other human rights, or the natural environment in the countries in which the investment is being made.[8]

Advocates of ECAs assert that 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 and have 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.

List of export credit agencies edit

Export credit agencies edit

Official export credit agencies by country edit

See also edit

References edit

  1. ^ "A Complete Guide To Export Credit Insurance". 13 July 2016.
  2. ^ "Arrangement and Sector Understandings – OECD". www.oecd.org. Retrieved 2021-10-15.
  3. ^ "OECD – Export Credits – The Arrangement".
  4. ^ (EU) No. 1233/2011
  5. ^ "Cato Institute – Policy Recommendations for the 108th Congress" (PDF). p. 340.
  6. ^ "eurodad – Exporting goods or exporting debts? Export Credit Agencies and the roots of developing country debt" (PDF).
  7. ^ "eurodad – Exporting goods or exporting debts? Export Credit Agencies and the roots of developing country debt" (PDF).
  8. ^ . Archived from the original on 2010-02-11.
  9. ^ http://eximbank.gov.pk/

External links edit

  • Berne Union the leading international organisation
  • OECD Export Credit Division
  • ECA Watch international NGO campaign on export credit agencies
  • European export credit agencies reform campaign, coordinated by FERN
  • The Use of Environmental and Social Criteria in Export Credit Agencies’ Practices 2008-05-29 at the Wayback Machine, by Markus Knigge et al. Published in 2003 by the Deutsche Gesellschaft fuer Technische Zusammenarbeit – GTZ

April 30, 2024
export, credit, agency, this, article, uses, bare, urls, which, uninformative, vulnerable, link, please, consider, converting, them, full, citations, ensure, article, remains, verifiable, maintains, consistent, citation, style, several, templates, tools, avail. This article uses bare URLs which are uninformative and vulnerable to link rot Please consider converting them to full citations to ensure the article remains verifiable and maintains a consistent citation style Several templates and tools are available to assist in formatting such as reFill documentation and Citation bot documentation August 2022 Learn how and when to remove this message An export credit agency known in trade finance as an ECA or investment insurance agency 1 is a private or quasi governmental institution that acts as an intermediary between national governments and exporters to issue export insurance solutions and guarantees for financing The financing can take the form of credits financial support or credit insurance and guarantees pure cover or both depending on the mandate the ECA has been given by its government ECAs can also offer credit or cover on their own account This does not differ from normal banking activities Some agencies are government sponsored others private and others a combination of the two ECAs currently finance or underwrite about US 430 billion of business activity abroad about US 55 billion of which goes towards project finance in developing countries and provide US 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 citation needed Export credit agencies use three methods to provide funds to an importing entity Direct Lending This is the simplest structure whereby the loan is conditioned upon the purchase of goods or services from businesses in the organizing country Financial Intermediary Loans Here the export import bank lends funds to a financial intermediary such as a commercial bank that in turn loans the funds to the importing entity Interest Rate Equalization Under an interest rate equalization a commercial lender provides a loan to the importing entity at below market interest rates and in turn receives compensation from the export import bank for the difference between the below market rate and the commercial rate Contents 1 Officially supported export credits 2 Tied aid credits 3 International regulation 4 Support and criticism 5 List of export credit agencies 5 1 Export credit agencies 5 2 Official export credit agencies by country 6 See also 7 References 8 External linksOfficially supported export credits editCredits may be short term up to two years medium term two to five years or long term five to ten years They are usually supplier s credits extended to the exporter but they may be buyer s credits extended to the importer The risk on these credits as well as on guarantees and insurance is borne by the sponsoring government ECAs limit this risk by being closed on risky countries meaning that they do not accept any risk on these countries In addition a committee of government and ECA officials will review large and otherwise riskier than normal transactions Tied aid credits editOfficially supported export credit may be connected to official development assistance ODA in two ways First they may be mixed with ODA while still financing the same project mixed credit As the export credit is tied to purchases in the issuing country the whole package qualifies as a tied aid credit even if the ODA part is untied aid Second tied aid credits are not very different from export credits except in interest grace period the time when there is no repayment of the principal and terms of repayment Such credits are separated from export credit by an OECD requirement that they have a minimum degree of softness Softness is measured by a formula that compares the present value of the credit with the present value of the same amount at standardized commercial terms This difference is expressed as a percentage of the credit and called concessionality level Thus a grant has a concessionality level of 100 a commercial credit scores zero per cent The higher the concessionality level the more the tied aid credit looks like ODA the lower the more it looks like an export credit Partially untied credits consist of a tied and an untied part The latter is usually intended to finance local cost investment cost to be made in the importing country This part may also be in a local currency Partially untied aid is treated as tied aid International regulation editBoth officially supported export credits and tied aid credit and grants are extended on terms bound by the OECD s arrangement on official export credits The Arrangement is a Gentlemen s Agreement amongst its Participants who represent most OECD Member Governments The Arrangement sets forth the most generous export credit terms and conditions that may be supported by its Participants The main purpose of Arrangement is to provide a framework for the orderly use of officially supported export credits In practice this means providing for a level playing field whereby competition is based on the price and quality of the exported goods and not the financial terms provided and working to eliminate subsidies and trade distortions related to officially supported export credits 2 Since 1999 country risk categories have been harmonized by the Arrangement and minimum premium rates have been 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 3 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 summarized here At the EU level the European Commission in particular the Directorate General for Trade plays a role in the harmonization of Export Credit Agencies and the co ordination of policy statements and negotiation positions This is based on council decisions 73 391 EEC and 76 641 EEC These decisions provide for prior consultations among member states on long term export credits Member states may ask each other if they are considering to finance a specific transaction with official export credit support EU members may not subsidize intra EU export credits The application of the OECD arrangement in providing export credit is mandatory in EU countries under Art 1 of Regulation EU No 1233 2011 4 The Berne Union or officially the International Union of Credit amp Investment Insurers is an international organisation for the export credit and investment insurance industry The Berne Union and Prague Club combined have more than 70 member companies spanning the globe Its membership includes both commercial and state sponsored insurers Support and criticism editSome observers view state sponsored export credits as nothing more than export subsidies by a different name As such the activities of ECAs are considered by some to be a type of corporate welfare 5 Others argue that ECAs create debt in poor countries motivated not by development goals but to support rich countries industry 6 In addition ECAs may soak up aid money as debt relief programs predominantly relieve poor countries from debt owed to donor countries ECAs 7 ECAs are also criticised for insuring companies against political actions that aim to protect workers rights other human rights or the natural environment in the countries in which the investment is being made 8 Advocates of ECAs assert that 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 and have 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 List of export credit agencies editExport credit agencies edit Africa African Export Import Bank Afreximbank Asia Asian Development Bank Islamic Corporation for the Insurance of Investment and Export Credit ICIEC part of the Islamic Development Bank Islamic Development Bank IsDB Latin America Inter American Development Bank IADB Latin America Development Bank of Latin America and the Caribbean CAF Nordic Development Fund NDF OPEC Fund for International Development OFfID Multilateral financial institutions African Trade Insurance Agency ATI Central and Eastern Europe European Union EU Central and Eastern Europe European Investment Bank EIB Multilateral Investment Guarantee Agency MIGA part of World Bank International Finance Corporation IFC part of World Bank Sub regional banks nbsp Australia Australian Agency for International Development AusAID nbsp Austria Austrian Development Agency ADA nbsp Canada Canadian International Development Agency CIDA nbsp Denmark Danish Development Agency DANIDA nbsp Finland Department for International Development Cooperation nbsp France Agence francaise de developpement AFD nbsp Germany Kreditanstalt fur Wiederaufbau KFW nbsp Japan Japan International Cooperation Agency JICA nbsp Netherlands Netherlands Development Cooperation nbsp New Zealand New Zealand Official Development Assistance NZODA nbsp Norway Norwegian Agency for Development Cooperation nbsp Russia Foreign Insurance Agency of Russia nbsp Sweden Swedish International Development Cooperation Agency SIDA nbsp United Kingdom Department for International Development DFID nbsp United States U S Agency for International Development USAID Official export credit agencies by country edit nbsp Algeria Compagnie Algerienne Assurance et de Garantie des Exportations CAGEX nbsp Australia Export Finance and Insurance Corporation EFIC nbsp Austria Oesterreichische Kontrollbank AG OeKB nbsp Bangladesh Export Import Bank of Bangladesh Limited nbsp Belgium Office national du Ducroire Nationale Delcrederedienst ONDD nbsp Brazil Brazilian Guarantees Agency ABGF Brazilian Development Bank BNDES nbsp Canada Export Development Canada EDC nbsp Mainland China Export Import Bank of China Exim China Export amp Credit Insurance Corporation Sinosure China Development Bank CDB People s Insurance Company of China PICC nbsp Hong Kong Hong Kong Export Credit Insurance Corporation nbsp Colombia Banco de Comercio Exterior de Colombia Bancoldex nbsp Czech Republic Export Guarantee and Insurance Corporation EGAP Czech Export Bank nbsp Denmark Eksport Kredit Fonden EKF nbsp Egypt Export Credit Guarantee Company of Egypt ECGE nbsp Estonia Kredex Krediidikindlustus EST nbsp Finland Finnvera and its subsidiary Finnish Export Credit Ltd FEC nbsp France BPIfrance Assurance Export BPI FAE Direction des Relations Economiques Exterieures Ministere de l Economie DREE nbsp Germany Euler Hermes Kreditversicherungs AG AuslandsGeschaftsAbsicherung der Bundesrepublik Deutschland nbsp Greece Export Credit Insurance Organisation ECIO nbsp Hungary Hungarian Export Credit Insurance Ltd MEHIB Hungarian Export Import Bank nbsp India Export Import Bank of India ECGC Limited nbsp Iran Export Guarantee Fund of Iran EGFI nbsp Israel Israel Foreign Trade Risks Insurance Corporation ASHRA nbsp Italy SACE S p A Servizi Assicurativi del Commercio Estero nbsp Japan Japan Bank for International Cooperation JBIC Nippon Export and Investment Insurance NEXI nbsp Jordan Jordan Loan Guarantee Cooperation JLGC Loan Guarantee amp Export Credit Guarantee nbsp Luxembourg Office du Ducroire ODD nbsp Mexico Banco Nacional de Comercio Exterior Bancomext nbsp Morocco Societe Marocaine d Assurance a l Exportation nbsp Netherlands Atradius nbsp New Zealand Export Credit Office ECO nbsp Nigeria Nigerian Export Import Bank nbsp Norway The Norwegian Guarantee Institute for Export Credits GIEK Export Credit Norway nbsp Pakistan The EXIM Bank of Pakistan 9 nbsp Philippines Philippine Guarantee Corporation nbsp Poland Korporacja Ubezpieczen Kredytow Eksportowych KUKE nbsp Portugal Companhia de Seguro de Creditos nbsp Russia Export Insurance Agency of Russia nbsp Saudi Arabia Saudi Export Program SEP nbsp South Africa Export Import Credit Insurance Agency EICIA nbsp South Korea Korea Trade Insurance Corporation K SURE The Export Import Bank of Korea KEXIM nbsp Slovakia Export Import Bank of the Slovak Republic Eximbank SR nbsp Sri Lanka Sri Lanka Export Credit Insurance Corporation SLECIC nbsp Spain Compania Espanola de Seguros de Credito a la Exportacion CESCE Ministerio de Economia nbsp Sweden Exportkreditnamnden EKN nbsp Switzerland Swiss Export Risk Insurance SERV nbsp Taiwan Export Import Bank of the Republic of China nbsp Turkey Export Credit Bank of Turkey Turk Eximbank nbsp Ukraine Export Credits Agency ECA nbsp United Arab Emirates Etihad Credit Insurance ECI 1 nbsp United Kingdom United Kingdom Export Finance UKEF nbsp United States Export Import Bank of the United States Ex Im Bank CoBankSee also edit nbsp Banks portal Trade credit insuranceReferences edit A Complete Guide To Export Credit Insurance 13 July 2016 Arrangement and Sector Understandings OECD www oecd org Retrieved 2021 10 15 OECD Export Credits The Arrangement EU No 1233 2011 Cato Institute Policy Recommendations for the 108th Congress PDF p 340 eurodad Exporting goods or exporting debts Export Credit Agencies and the roots of developing country debt PDF eurodad Exporting goods or exporting debts Export Credit Agencies and the roots of developing country debt PDF ECA Watch ECAs explained Archived from the original on 2010 02 11 http eximbank gov pk External links editBerne Union the leading international organisation OECD Export Credit Division ECA Watch international NGO campaign on export credit agencies European export credit agencies reform campaign coordinated by FERN The Use of Environmental and Social Criteria in Export Credit Agencies Practices Archived 2008 05 29 at the Wayback Machine by Markus Knigge et al Published in 2003 by the Deutsche Gesellschaft fuer Technische Zusammenarbeit GTZ Retrieved from https en wikipedia org w index php title Export credit agency amp oldid 1205587569, wikipedia, wiki, book, books, library,

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