House of Commons - Environmental Audit

Select Committee on Environmental Audit Seventh Report

Introduction

1. Export Credit Agencies (ECAs) are usually Government-sponsored agencies that use taxpayers' money to help their countries' companies to export goods or services or to win overseas contracts. Their support is typically provided in the form of guarantees and insurance and, in some cases, direct loans. The purpose of ECAs is to support their domestic companies in export markets by offering a degree of protection from political and commercial risks.

2. ECAs, collectively the largest source of public finance for private sector projects in the world, are powerful, influential players in the field of international business. They underwrite ten per cent of exports from large industrialised countries, whose exports account for three-quarters of total world exports.[1] Between 1982 and 2001, ECAs supported US$7.3 billion of exports, mostly to developing countries, and US$1.4 billion of foreign direct investment. In 2000 export credit agencies were providing a total of US$500 billion in guarantees and insurance to companies operating in developing countries and issued US$59 billion worth of new export credits. This compares to a total of US$60 billion given out globally in overseas development assistance and the US$41 billion provided as loans by multilateral development banks (such as the World Bank) in the same year.

3. There are 76 export credit agencies across 62 countries. 51 of these ECAs are members of the Berne Union, in effect the international trade association for export credit and investment insurance providers. The UK's ECA, the Export Credits Guarantee Department (ECGD) is among the largest and most influential ECAs in the world along with the Export Import Bank (Ex-Im) in the United States; the Export Development Corporation (EDC) in Canada; the Japanese Bank for International Cooperation (JBIC) and the Nippon Export Investment Insurance (NEXI); the French Compagnié Française d'Assurance pour le Commerce Exterier (COFACE); and Hermes in Germany.

4. While the terms of support provided by ECAs are often similar to those offered by the private sector, ECAs frequently provide cover for larger sums, longer periods and for higher risk countries than the private sector would be willing to do. The premiums that ECAs charge are often lower than those offered by in the private sector (although in practice, the private sector usually would not offer cover for the types of projects that ECGD supports).

5. Historically ECAs have operated at a loss, paying out far more in claims than they have received in premium income and recoveries on claims. In 1994 the World Trade Organisation required ECAs to break even in the long run and in 1999 amendments to the 1978 OECD Export Credit Agreement established minimum premium rates. The effect is that since 1995 ECAs have been moving into the black: overall they achieved a net operating surplus of US$2.8 billion in 2001.

6. Despite their potential to influence international trade and investment, particularly trade with and investment in developing countries, ECAs have a poor history in taking into account the potential environmental or social impacts of the projects they support.

Export Credits Guarantee Department

7. ECGD, established in 1919, is the oldest export credit agency in the world. Its original mandate was to support British exports, especially those to Russia, because private banks were reluctant to do so. It is a non-ministerial Government department, accountable to Parliament through the Secretary of State for Trade and Industry.

8. Between 1995 and 2000 ECGD underwrote £17 billion worth of exports from British companies; an average of £4 to £5 billion per annum.[2] This contrasts with the Department for International Development's annual aid budget of around £3 billion. Premium income is between £80 and £100 million each year. ECGD now covers some three per cent of the UK's total exports (a level significantly lower than in past times: in the 1960s ECGD covered around 30 per cent of UK exports). Unlike some other ECAs, ECGD does not provide direct loans. The short-term aspects of ECGD's business were privatised in 1991. ECGD's main areas of business are buyer and supplier credits; supplier credit insurance and overseas investment insurance. Thirty-nine guarantees were issued in 2001-02.

9. The potential for ECGD to promote responsible overseas trade and investment has been recognised in various Government policy statements. The UK Sustainable Development Strategy makes it clear that the Government's drive towards sustainable development is intended to have both domestic and international fronts and that foreign investment on the part of UK companies could be an important feature of the latter:

"the Government will promote responsible business behaviour by UK companies overseas, including in the poorest countries… responsible behaviour will take account of environmental, social and local economic impacts of business, including human rights and corruption… meeting these challenges will enhance the reputation and success of our business abroad and well as benefiting people overseas".[3]

This theme was taken up in the 2000 White Paper on International Development, Eliminating World Poverty: Making Globalisation Work for the Poor.[4]

Mission and status review

10. In July 1999 the then Secretary of State for Trade and Industry announced a review of ECGD's mission and status. The purpose of the review was to ensure that ECGD could continue to support UK firms effectively and at the same time "become more consistent with the Government's wider objectives",[5] including the promotion of sustainable development, human rights and good governance throughout the world.

11. The report of the review argued, and the Government accepted, that it was in ECGD's own interest to promote projects which offer a long-term benefit to the country concerned: badly executed projects can have negative implications for the environment and for local inhabitants and represent a higher level of risk for ECGD. Commenting of the outcome of the review, the Secretary of State stated that

"ECGD can assist the Government's multilateral initiative to help the poorest countries emerge from debt and poverty burdens, and developing countries achieve sustainable development by supporting productive projects ".[6] It was also stated that "The UK will take the lead multilaterally in promoting a similar approach by other Export Credit Agencies".[7]

Our inquiry

12. Our purpose has been to determine the extent to which ECGD has successfully incorporated the Government's commitment to sustainable development and multilateral action into its policies and operations and to identify the need and the scope for further reform and further integration of sustainable development principles.

13. During our inquiry we took oral evidence in May and June 2003 from a range of non-governmental organisations (NGOs) including Friends of the Earth, WWF-UK and The Corner House[8] in addition to ECGD themselves. We also received several written memoranda. We are grateful to all those who assisted our inquiry.

1 Horst Kohler, Reforming the International Financial System, Berne Union Year Book 2001, February 2001. Back

2 Dr Sue Hawley, Turning a Blind Eye: Corruption and the UK Export Credits Guarantee Department, June 2003. Back

3 A Better Quality of Life: A Strategy for Sustainable Development for the United Kingdom, CM 4345, May 1999, para 6.41. Back

4 Department for International Development, Eliminating World Poverty: Making Globalisation Work for the Poor, Cm 5006, December 2000, paras 206-8. Back

5 Department of Trade and Industry, Review of ECGD's Mission and Status, July 2000, Cm. 4790, Foreword. Back

6 Department of Trade and Industry, Review of ECGD's Mission and Status, July 2000, Cm. 4790, Foreword. Back

7 Department of Trade and Industry, Review of ECGD's Mission and Status, July 2000, Cm. 4790, Foreword. Back

8 The Corner House is a not for profit research and advocacy organisation working in the fields of human rights and development. Back