APPENDIX 13
Memorandum from the World Development
Movement
THE EXPORT CREDITS GUARANTEE DEPARTMENT
WDM welcomes the Government's decision to review
the activities of ECGD. A few years ago the Movement and its members
drew attention to the enormous increase since the early 1980s
in the support ECGD offered to Britain's arms exporters. That
trend has now stabilised, but we remain concerned that the level
of support offered to that sector is excessive and actively undermines
the Government's sustainable development policies and its commitment
to an ethical foreign policy.
WDM has noted the conclusions of the Committee's
recent report "Conflict Prevention and Post-Conflict Reconstruction",
particularly "that the determined and principled control
of arms exports is a litmus test of this Government's concern
to prevent conflict and inject an ethical dimension into foreign
policy". That report also noted that the UK is the second
largest exporter of arms in the world and that the Government
must ensure coherence across all departments so that its policy
is credible. The report did not specifically mention the role
of ECGD in supporting the arms trade, but with one-fourth of the
value of export credits being used to support arms sales, it is
clearly an important issue and one which WDM strongly believes
conflicts with an ethical foreign policy. WDM's main research
into that issue began in 1994 and was published in Gunrunners
Gold in 1995. Copies of the briefing "Battle for Business"
which was drawn from that report are enclosed[7]
and the whole of that report can be made available to the Committee
if it would be useful.
WDM would urge the Committee to investigate
the degree of support the Government will give to the recent call
by the Managing Director of the IMF, Michael Camdessus, for an
end to the use of export credits for arms sales. Another key issue
is the two-year moratorium on the use of export credits for "unproductive
expenditure" announced by the Chancellor of the Exchequer
in the Mauritius Mandate. The quesitions now are whether the moratorium
will be extended in time, will it be extended to countries other
than just those eligible for the HIPC initiative (very few of
which are actually eligible for ECGD cover) and whether there
are any definitions of what constitutes "unproductive expenditure".
WDM, therefore, hopes that this review will
lead to substantial changes in the way that ECGD operates. There
is a role for the Government to support UK businesses activities
in developing countries but those activities must be seen to be
environmentally and socially responsible. ECGD must also become
more transparent and publicly accountable if its operations are
to retain public confidence and support.
1. The World Development Movement (WDM)
warmly welcomes the fundamental review of ECGD's functions announced
in July 1999 by Stephen Byers, the Secretary of the Board of Trade
and Industry.
2. WDM is a democratic membership organisation
with around 30,000 supporters and 100 local groups across the
UK. WDM's aim is to improve the policies of companies, governments
and international agencies towards the world's poor. Established
in 1970, WDM is an independent organisation, without any institutional
or political affiliation with extensive experience in research,
public education and advocacy.
3. WDM's interest in the workings of ECGD
goes back to the Movement's successful judicial review of the
Pergau dam in Malaysia and concerns raised at that time about
the increasing use of export credits to support arms sales. Since
then, there has also been increasing awareness that over 95 per
cent of all debts owed to the UK are due to export credits rather
than aid loans. Both of those issues are specifically mentioned
in the consultation document and questionnaire issued by ECGD
for this review and WDM welcomes the opportunity to state its
position.
QUESTION 1—ECGD'S
MISSION
What specific changes do you think should be made
to ECGD's Mission Statement?
4. Amongst the questions posed is the role
ECGD should play in promoting the Government's sustainable development
policy, including global environmental issues and developing country
debt. This is a very broad area, but none of the issues it raises
are represented in ECGD's current Mission Statement.
5. Since the early 1990s there has been
a growing interest in sustainable development issues. This is
reflected in the growth of international environmental treaties,
the growing realisation by northern creditors that developing
countries' debts need to be written off rather than endlessly
rescheduled, the OECD countries' adoption of measureable targets
for poverty reduction which form the core of the Government's
White Paper on International Development. This changed international
climate is ignored by ECGD's current Mission Statement.
6. The Mission Statement now needs updating
to include a "High Level Objective" referring to the
need for ECGD's activities to be consistent with the Government's
national and international sustainable development policies.
How should ECGD play a role in helping promote
the Government's sustainable development policy and take forward
its trade and environmental principles?
7. This question is answered in more detail
in our response to the related questions in question 2—"striking
the balance". At the moment, ECGD appears to be doing very
little to promote the Government's sustainable development policies.
The department still appears to operate as though the only important
part of ECGD's Mission Statement which matters is "To support
as much export business as possible" seemingly regardless
of the rest of the Mission Statement or the increasing understanding
internationally of the need for environmental standards and sustainable
development policies.
8. Over the years, as OECD guidelines have
reduced the ability of governments to support large scale development
projects through their aid programmes, Export Credit Agencies
(ECAs) have played an increasingly prominent role in promoting
industrialised countries' industries overseas. However, unlike
aid agencies, ECAs (except OPIC and Export-Import Bank in the
US) do not operate with any social and environmental requirements.
The international campaigns against large dams (especially the
Narmada dam in India) have forced the World Bank to develop social
and environmental guidelines for its projects. These are still
not ideal, but at least they exist. All ECAs, including ECGD should
include explicit guidelines on the likely social and environmental
impacts of their activities, extending beyond damage limitation
to include explicit impacts of their activities, extending beyond
damage limitation to include explicit consideration of how export
credits can promote poverty eradication an sustainable development.
It would be short-sighted of the Government not to institute a
similar set of environmental and social standards for ECGD during
this review.
How should ECGD manage its debt? . . . ECGD will
write off debt only in conformity with this obligation and Government
policy on debt forgiveness
9. This question is answered more full in
response to question 2, but WDM has consistently called on the
Government to show greater willingness to unilaterally write off
debts of HIPC and other debt-stressed countries.
What factors should ECGD consider when determining
the availability of cover for a country? and should ECGD distinguish
between different types of business when allocating cover for
some or all countries according to their economic circumstances?
10. In 1995, WDM persuaded over 150 Member
of Parliament to sign letters to the then President of the Board
of Trade, Ian Lang, calling for an end to financial support for
arms sales to governments which abuse human rights, are in regions
of conflict or spend excessively on the military. WDM's research
showed that in the early 1980s about 6 per cent of the value of
export credits were used to support arms sales, but in 1993-94
it had risen eightfold to 48 per cent and over the last ten years
its has averaged 27 per cent. This level of support is far in
excess of the proportion of military exports in the UK's total
exports.
11. At that time there was evidence that
civilian exports were unable to get export credit backing. That
would indicate that ECGD does already distinguish between different
types of business in favour of arms exports. This policy should
be reversed as it undermines the Government's sustainable development
policies and commitments. The two-year moratorium on `unproductive
expenditure' announced by the Chancellor in the Mauritius Mandate
should be extended to all countries and made permanent.
12. It is not only NGOs such as WDM which
are making this point. The Financial Times recently added its
voice to those calling for greater circumspection when offering
export credits for arms sales. Commenting on the rescheduling
of £130 million of payments due by Indonesia for Hawk jets,
the FT called for careful discrimination "between those countries
buying arms for self-defence and those with darker motives."[8]
QUESTION 2—STRIKING
THE BALANCE
Promoting only those projects which will help
achieve sustainable development may limit ECGD's ability to help
all classes of UK exporters and investors.
13. There is increasing international concern
over sustainable development, reflected in the increasing number
of international treaties, the setting of poverty eradication
targets and the introduction of environmental guidelines for projects
funded by the multilateral development banks and by OECD countries'
international development ministries. ECGD must therefore, fall
in line and cease supporting out of date technologies and environmentally
and socially damaging projects.
14. The Prime Minister and Deputy Prime
Minister have both spoken strongly about the role of industrialised
countries in helping developing countries to combat global warming.
But ECGD is still enabling British industry to export coal-fired
power plants to countries such as China and India even though
less-polluting alternatives are available.[9]
The priority for the companies and ECGD appears to be, using the
phrase from the Mission Statement, "to support as much business
as possible" regardless of the social and environmental cost
in distant countries.
15. There is also, as has been mentioned
elsewhere in this submission, a strong case for recognising the
role that the arms trade plays in undermining sustainable development.
ECGD support for arms sales must be ended.
A change in approach to debt forgiveness might
help countries achieve economic stability but have negative implications
for the UK taxpayer
16. The Chancellor of the Exchequer and
the International Development Secretary are strongly committed
to greater debt relief for those countries potentially eligible
for debt relief under the heavily indebted poor countries initiative
(HIPC). However, those countries are not amongst the largest debtors
to ECGD An analysis of the debts owed to ECGD by HIPC countries
carried out by the House of Commons Library in 1998, showed that
completely writing off their debts would pose no great burden
on the taxpayer, costing no more than £30 million, and probably
as little as £6 million per year up to 2031.[10]
That sum can easily be afforded.
17. However, HIPC countries tend not to
be the largest debtors to ECGD. The single largest debtor, by
far, is Nigeria which owes about £3.5 billion, nearly half
of the total debt oustanding to ECGD. That country's recent return
to democracy should mean that a review of its ability to pay its
debts is likely in the near future and that would have much greater
significance for the UK taxpayer than all of the 41 HIPC countries
combined. Other major debtors include Poland, Russia, Brazil,
Jordan and Sudan. Any debt relief for those countries and other
countries is likely to be negotiated on a case-by-case basis at
the Paris Club. As with the calculations made by the House of
Commons Library on the likely impact of writing off HIPC countries'
debts, the overall cost to the taxpyer, even if 100 per cent cancellation
were agreed for some countries, can be expected to have minimal
impact on the UK taxpayer as the total debt outstanding represents
about 2 per cent of total government spending and the cost of
writing off the debts would be spread over a number of years.
18. The current economic and political turmoil
in Indonesia is likely to result in a large increase in that country's
indebtedness as it has been one of the largest markets for ECGD
in recent years. Total exposure there, in ECGD's latest Annual
Report (1997-98) was £1,747 million, of which about half
relates to support for arms sales.
19. The questionnaire strongly implies that
developing countries are solely responsible for their debts. WDM
strongly believes that this is not the case. The UK Government,
businesses and ECGD must also take some responsibility. As WDM
has shown in its earlier work on the use of export credits for
arms sales, the British Government and the defence industry have
been (and remain) only too happy to export to coutries regardless
of their ability to pay. Foreign policy decisions and the desire
to win business at any cost have all too often taken priority
over sensible business decisions. The debts owning by Nigeria
and Iraq, and those now being built up by Indonesia and Saudi
Arabia are excellent examples.
20. The real burden of indebtedness is not
felt by the UK taxpayer, but by poor people in those countries
who inevitable lose access to health and education and other public
services as they are cut back to enable governments to meet their
debt payments.
The pursuit of an ethical foreign policy may impact
on the support which could be provided
21. There is a real need to bring greater
coherence to the UK's international development, trade and foreign
policies. The credibility of the Government's ethical foreign
policy has been severely dented by the activities of other government
departments. This is particularly true of the continued support
by the DTI, MOD and ECGD for arms exports to countries with dubious
human rights records (Indonesia for example). It is also damaged
by ECGD's interest in supporting UK industries' involvement in
the Ilisu dam in Turkey, regardless of the environmental and social
impact of the proposed dam and its impact on relations between
Turkey and its neighbours.
22. Since 1994, WDM has been calling for
an end to the use of export credits to finance arms sales. That
campaign received some support when, in his Mauritius Mandate,
the Chancellor of the Exchequer Gordon Brown announced a two year
moratorium on the use of export credits for "unproductive
purposes" for HIPC countries. The actual impact of this announcment
was minimal as only a very few HIPC countries were eligible for
export credit cover at that time, but it was an important marker.
It is also unclear as to whether that moratorium will be maintained
as the Chancellor added the proviso that it was dependent on other
countries agreeing to similar controls.
23. But at the recent World Bank/IMF Annual
meetings in Washington, WDM's campaign demand was taken up by
a no less a figure than the Managing Director of the IMF, Michel
Camdessus who called for an end to the provision of export credits
for military purposes and restraint in sales of military equipment
to sensitive regions.[11]
Will unilateral changes affect UK businesses ability
to compete?
24. Unilateral changes to ECGD's policies
may well affect UK business competitiveness in certain markets,
but as with the 1996 study on the impact of untying aid,[12]
the impact may be much less than feared and in reality only affect
a few companies. As with tied aid, an end to the implicit subsidies
provided through ECGD support may prove to generate benefits to
the British economy through greater efficiency in the allocation
of resources.
25. However, unilateral action is not the
only option. The United States' ECAs OPIC and Ex-Im Bank have
already adopted some environmental and social standards. And,
there are very slow moving discussions on the need for Export
Credit Agencies to adopt environmental and social standards at
the OECD. In August 1999, for example, the OECD Working Party
on Export Credits and Credit Guarantees agreed measures to promote
exchange of information between ECAs on the environmental impact
of large projects in environmentally sensitive sectors. This is
a very small step, but support for the need for ECAs to be more
environmentally and socially aware has been provided by the G8
heads of government at the Denver summit in 1997.
26. Britain could act unilaterally and following
on from the Chancellor's initiative could demonstrate leadership
by example and speed up meaningful multilateral negotiations.
Conclusion
27. WDM recommends that, as a public institution,
ECGD should serve the public interest, not simply the interest
of private businesses. WDM supports the call, made by Cornerhouse
in its "Snouts in the Trough" briefing, for ECGD to
develop an Ethical Guarantees Policy which will embody a commitment
to socially-just and environmentally-sound development and be
consistent with the Government's broader sustainable development
and "ethical foreign policy" objectives. In answer to
the question of how ECGD should play a role in helping to promote
the Government's sustainable development policy, there is a case
for saying that promoting sustainable development is the only
role that ECGD should have.
World Development Movement
October 1999
7 Not printed. Back
8
Financial Times 16.9.99. Back
9
Snouts in the Trough, Cornerhouse, 1999, p2. Back
10
The Cancellation of Third World Debt, M Hilliard, House
of Commons Library 1998. Back
11
Address to the Board of Governors of the International Monetary
Fund, Washington, 28.9.99. Back
12
A Review of UK Aid Tying Policy, ODA, August 1996. Back
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