OECD disciplines at a crossroad

New players, from countries outside the OECD Arrangement on Officially Supported Export Credits, are increasingly challenging OECD member countries bound by regulations. EKN, the Swedish export credit agency, recently held a seminar addressing this emergence of unregulated financing.

Juliette Schleich at the EKN seminar. Photo: Oskar Omne.

The OECD’s Arrangement on Officially Supported Export Credits is increasingly being threatened by the emergence of unregulated financing, coming from China and the other BRIC countries in particular. Exporters from OECD countries are now often at a disadvantage when competing with countries that are not bound by the same regulations.

At an EKN seminar held in Stockholm in February, OECD’s Juliette Schleich, policy analyst in the Export Credits Division, spoke about the challenges that are changing how government financing is offered. She referred to these challenges as “the three Cs” as in Crisis, Content and Competition, which have shifted the way trade finance and export credits are being done.

The impact of regulations and global value chains

The financial crisis and subsequent banking regulations have impacted the Arrangement, increasing governments’ involvement in direct lending as compared to working with commercial banks through insurance and guarantees, says Schleich. “In addition, export credits were originally meant as a tool to support domestic employment but with the emergence of global value chains we see a shift towards more domestic economic benefits and with that we see that ECAs are having to support more third country supply.”

In response, governments have had to increase the flexibility of their export credit programs with respect to minimum national content requirement and they have relaxed their views about supporting more local content, Schleich adds.

A new playing field

The emergence of many countries outside of the OECD has changed the playing field. “One way for OECD participants to keep competing with these new players has been to adapt and develop new products so we are seeing competition inside, within the participants with the development of new products that are on the margins of OECD principles,” says Schleich.

The Arrangement worked well in the past because of its comprehensive rules, transparency and flexibility for the disciplines to evolve, says Schleich. “The minute you take one of these components out you risk making the disciplines irrelevant.”

She points out that not enabling the disciplines to evolve, for example, would encourage export financing to take place outside the scope of the rules. This in turn would increase the potential for market distortions and an un-level playing field.

The way forward

The OECD and its member countries are working on ways to evolve and solve the new challenges, says Schleich, outlining a way forward.

“Instead of trying to make the rules more sophisticated and complicated to cater to all of the needs, there is another option to make them simpler but enhance the transparency of the disciplines because with all of the products – the market windows, the import credits, investment loans, aid – a solution could be found if everyone knew what was being done. Then the players would know what they could do to compete,” she says.

“It cannot just be focused on export credits themselves or investment loans though, it would have to be for all official cross-border regulated financing for it to make sense so there is no development of another tool to lead to an un-level playing field. Basically that’s how we see it but as you know, the OECD is a consensus-based organisation and this is something that has to be brought forward by the members!”

Facts

The OECD’s Arrangement on Officially Supported Export Credits was established back in 1978 as a Gentleman’s Agreement among the participants to provide a framework for the orderly use of officially supported export credits and provide a level playing field for official support. This was done to encourage competition among exporters based on quality and price of goods and services exported, rather than on the most favourable officially supported financial terms and conditions.

The Arrangement is among most OECD countries, including countries within the EU and it applies to credits of two years or more. The terms outline the most generous conditions that an Export Credit Agency (ECA) can support. These conditions apply to payment, interest rates and premium rates.

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