Export Credit Agencies (ECAs) in Various Countries

ECAs differ in their goals, magnitude, and types of services. All offer medium- and long-term credits. They also provide other products and services such as short-term export credits, let­ter of credit guarantees, and bond unfair calling. (see Table 14.1).

Two areas in which ECAs differ are their mission and their organizational structure. Some emphasize the need to support domestic jobs through exports (U.S. Eximbank), while others underline the importance of promoting exports and other business opportunities (ECAs of Canada, France, Germany, Italy, and the United Kingdom). The mission of Japan’s ECA is primarily to secure natural resources, ensure competitiveness, and respond to disruptions in the global economy. Most supplement the private sector by playing a role as a lender or insurer of last resort, taking on transactions that are too risky or undesirable for commercial support. Canada’s Export Development Corporation, in contrast, has a commercial market orientation and is not restricted from competing with the private sector. In terms of orga­nization, ECAs range from government agencies such as Eximbank (United States), EDC (Canada), and ECGD (United Kingdom) to private companies contracted by the govern­ment (COFACE, in France, and Euler Hermes, in Germany).

ECAs receive specific mandates from government and put in place certain policy guide­lines. Certain governments emphasize the need to increase financing for small-business exporters (United States, France, Italy, United Kingdom), while others have developed initia­tives to support environmentally beneficial exports (United States, Italy).

The Eximbank has additional mandates and requirements beyond those of other ECAs:

  • Promotes exports to sub-Saharan Africa
  • Must ship certain exports (financed through its direct-loan and loan-guarantee pro­grams) on U.S.-flagged carriers
  • Must adhere to specific policy on carbon emissions (it must comply with the provisions of the National Environmental Policy Act)
  • Is required by Congress to perform an economic impact analysis to assess whether a project will negatively impact U.S. industries as well as to submit a statement describing a transaction prior to its final approval by its Board of Directors if the transaction value is equal to or greater than $100 million (U.S.) or relates to nuclear power or heavy-water production facilities (only Germany has a similar notification requirement)
  • Is subject to higher domestic-content requirements than other ECAs (See Table 14.2).

The Organization for Economic Cooperation and Development (OECD) has developed guidelines on export credits for its members. These are intended to provide the institu­tional framework for an orderly export credit market, thus preventing an export credit race in which exporting countries compete on the basis of who provides the most favorable financing terms rather than on the basis of who provides the best product at the lowest price. The arrangement applies to officially supported export credits with repayment terms of two years or more, relating to the export of goods and/or services. It does not apply to exports of military equipment and agricultural commodities. The guidelines provide for the following:

  • Cash payments: A minimum of 15 percent of the contract price is to be paid in cash.
  • Maximum repayment term: The maximum repayment term is five years (or eight and a half years with prior notification) with exceptions for poorer countries.
  • Minimum interest rates: Promote minimum interest rates to reduce the interest rate subsidy component in ECA support. These rates are adjusted on a monthly basis to reflect commercial lending rates.
  • Minimum premium rates: Promote minimum premium rates to reflect country credit risk including risk pertaining to that of overseas buyer.
  • Tied aid: Aid conditioned on the purchase of goods and services from the donor coun­tries is limited in two ways: the minimum grant (concessional) portion of such aid has been raised to 35 percent, and such aid is prohibited to richer developing countries.
  • Special sector understandings: Special sector arrangements have been reached for civil aircraft, nuclear power plants, renewable energy, and water projects.

While the scope of the OECD arrangement has expanded to cover additional areas, the increasing activities of nonmembers, particularly China, threaten the future ability of the agreement to provide a level playing field for exporters. There is a need to include these countries in future arrangements. Other areas of concern include market windows (ECA loans on market terms) as well as nonexport credit financing activities such as untied lend­ing and investment finance that fall outside the arrangement. Such arrangements can have an indirect linkage to exports.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

One thought on “Export Credit Agencies (ECAs) in Various Countries

Leave a Reply

Your email address will not be published. Required fields are marked *