Both ENDS BRIEFING PAPER JANUARY 2007 Balancing Risks What Export Credit Agencies can do for sustainable development © 2007 Both ENDS Acronyms Orders and all other correspondence ASCM Agreement on Subsidies and Countervailing concerning this publication should be Measures sent to: Atradius CI Atradius Credit Insurance N.V. Both ENDS Atradius DSB Atradius Dutch State Business N.V. Nieuwe Keizersgracht 45 CSO Civil Society Organisation 1018 VC Amsterdam CSR Corporate Social Responsibility The Netherlands DNB De Nederlandsche Bank (Central Bank of the Netherlands) Telephone +31 20 623 08 23 Fax +31 20 620 80 49 EBRD European Bank for Reconstruction and E-mail [email protected] Development Website www.bothends.org ECA Export Credit Agency ECG Working Party on Export Credits and Credit Guarantees (in the OECD) EDC Export Development Canada Text Wiert Wiertsema, Both ENDS, Amsterdam EIA Environmental Impact Assessment Editing Mike Croall, Txtworks, Amsterdam EIS Environmental Impact Statement Design Margo Vlamings, Arnhem EU European Union Printing Drukkerij Roos en Roos, Arnhem HIPC Heavily Indebted Poor Country IFC International Finance Corporation ILO International Labour Organisation IMF International Monetary Fund JBIC Japanese Bank for International Cooperation MPR Minimum Premium Rate ODA Official Development Assistance OECD Organisation for Economic Cooperation and Development SDR Special Drawing Right (IMF defined currency Standard; SDR 1.00 is around 1.15/US$ 1.48) SFO Serious Fraud Office UN United Nations UNCED United Nations Conference on Environment and Development Both ENDS Briefing Papers present UNECE UNE conomic Commission for Europe information on important environmental UNEP United Nations Environment Programme and developmental issues. Readers are WTO World Trade Organisation encouraged to quote or use material from the briefing papers for their own publications or articles, but we would like to request acknowledgement and a copy of the publication. The Both ENDS Briefing Paper Series is also available on the web: www.bothends.org, as are other Both ENDS publications, factsheets, reports and news articles. Balancing Risks What Export Credit Agencies can do for sustainable development Table of Contents 1 Introduction to ECAs 3 1.1 Mandate and role 3 1.2 The ECA of the Netherlands: Atradius DSB 4 1.3 ECAs and sustainable development 5 2 ECA policies and sustainable development 6 2.1 Information disclosure and transparency 6 2.2 Environment 9 2.3 Bribery and corruption 10 2.4 Debt and economic sustainability 11 2.5 Human and social rights 13 2.6 Consultation and participation 14 2.7 Monitoring and compliance 16 3 Sustainable development and export credit policies in the Netherlands 17 4 Recommendations for Atradius DSB to avoid negative impacts on sustainable development 20 4.1 Information disclosure and transparency 20 4.2 Environment 21 4.3 Bribery and corruption 21 4.4 Debt and economic sustainability 22 4.5 Human and social rights 22 4.6 Consultation and participation 22 4.7 Monitoring and compliance 23 1 This publication is meant to provide an overview of additional steps ECAs could take to limit their negative social and environmental impacts, while at the same time exploring possibilities for ECAs to promote sustainable development. Since most ECAs are slightly different from each other, the policy recommendations formulated in Chapter 4 are primarily directed at the export credit policies of the Netherlands. 2 NOTES 1While private ECAs are operating in the financial markets too, this publication only addresses issues relating to government supported, official, public ECAs. 2While the ECG is a formal OECD IntrOductiON TO ECAs body, the group of Participants to 1 the Arrangement is not. 3Arrangement on Officially Supported Export Credits - 2005 Revision (effective as of 1 December 2005), Article 23, 1.1 OECD (TD/PG(2005)38/FINAL). 4 Mandate and ROLE them with a kind of level playing field. Council Directive 98-29-EC, 7 May 1998. The OECD countries and ECAs Companies that export goods and participating in the Arrangement are services or make investments abroad cooperating in the Working Party on face several risks, often different from Export Credits and Credit Guarantees those encountered in domestic busi- (ECG)2. One of the principles of the ness. Such risks may be related to OECD Arrangement is that the specific uncertainties regarding the participants agree to charge a Mini- nature of the transaction, but also mum Premium Rate (MPR) for the political uncertainties in foreign coun- cover provided to companies. tries result in additional risks. In order The premium rates also “shall be risk- to be able to go ahead with transac- based, shall converge and shall not tions in such circumstances, compa- be too inadequate to cover long-term nies usually look for an insurance that operating costs and losses3.” Within would provide adequate protection the European Union, this break-even against such risks. Export Credit requirement has been incorporated Agencies (ECAs) provide such export into EU law4. credit insurances. Exports to, or investments in, developing countries ECAs provide at least three types of often only materialise with the sup- official export credit support: port of ECAs. • Direct credits • Guarantees Many of the risks that are covered • Insurances by ECAs are considered too big for private insurance companies. Since ECAs always charge interest and/or governments can act as last-resort a premium for the financial services lenders, most ECAs are official, they provide. In general, many non- government-supported agencies. OECD markets are considered risky, A government supported ECA1 can often too risky for private insurance take more risks and offers backing companies. ECAs mainly provide their for transactions that purportedly services for domestic corporations cannot find export credit support in exporting to, or investing in, develop- private financial markets. Within the ing countries. Most officially support- Arrange-ment on Officially Supported ed export credits cover transactions Export Credits of the Organisation for with repayment terms of 2 years or Economic Cooperation and Develop- more (medium and long-term). ment (OECD), most ECAs of in- dustrialised countries have agreed The Agreement on Subsidies and to common principles, which provide Countervailing Measures (ASCM) > 3 > of the WTO5 provides the legally A total value of US$ 65 billion of While Atradius DSB is a private binding international framework for private transactions received medium- company, the Dutch government regulating government subsidies and and long-term ECA support in 2004. ensured a construction that allows the other private sector support. It aims By including also short-term transac- State under all circumstances to to minimize government support for tions, the total cover provided by continue the provision of export private sector activities. The ASCM ECAs exceeds an amount of US$ 100 credit insurances to Dutch compa- leaves a specific “carve-out” or “safe- billion. In the same year, the total nies7. In case Atradius DSB or haven” allowing government support amount of Official Development Atradius CI would face serious to business through ECAs. In item (k) Assistance (ODA) was a little less than financial problems, or in case the of Annex I to the ASCM, reference is US$ 80 billion6, which illustrates the Nederlandsche Bank (DNB, the made to the OECD Arrangement, significance of ECA-supported capital central bank) would prevent or limit stating that export credit support to flows. Atradius DSB in offering public corporations in compliance with this export credit insurances, Atradius Arrangement shall not be considered CI will be forced to sell the shares an export subsidy forbidden by the of Atradius DSB to the Dutch State. ASCM. In other words, the partners Regarding the role of the ECA in the in the OECD Arrangement are left to management of export credit debt, define what is permissible within the Atradius Provenuen8 B.V. should also WTO with regard to export credits 1.2 be mentioned as a 100% subsidiary and subsidies. Developing countries of Atradius DSB. Atradius Provenuen that are signatories to the ASCM, The ECA OF the NetherLands: B.V. is in charge of the management therefore, are subjected to a set of AtradiUS DSB of all claims of the official public provisions over which they have no export credit insurance facility. immediate say. The official Dutch ECA is Atradius Dutch State Business N.V. (Atradius In addition to Atradius DSB, three ECAs collectively provide a large DSB). Atradius DSB is a 100% subsidi- other government institutions are source of public financial support for ary of Atradius Credit Insurance N.V. stakeholders in the Dutch export foreign corporate investment in (Atradius CI), an international private credit facility. The Ministry of Finance largescale industrial projects in the export credit insurance company. formulates the policies according to developing world. The table below Atradius DSB is charged with which Atradius DSB implements the presents the figures for the year 2004 providing export credit insurances official export credit insurance of medium- and long-term transac- and guarantees to Dutch companies scheme. It is in charge of, and partici- tions of ECAs from OECD countries. on behalf of the Dutch Government. pates in, all international meetings Unlike the ECAs of some other coun- and negotiations of official ECAs. The tries, it does not provide direct credits. Ministry