on the position to be taken on behalf of the European Union regarding the envisaged decision of the Participants to the Arrangement on Officially Supported Export Credits

EXPLANATORY MEMORANDUM

1.Subject matter of the proposal

This proposal concerns a decision establishing the position to be taken on the European Union's behalf by the Commission in the context of the Arrangement on Officially Supported Export Credits (the ‘Arrangement’) regarding an envisaged decision to amend the Arrangement’s local cost provisions. These set the maximum percentage of a supported export contract’s value that can consist of products and services sourced locally, i.e. in the destination country, as opposed to the exporting country or a third country. The envisaged decision would raise this maximum percentage, providing greater flexibility in line with market realities.

2.Context of the proposal

2.1.The Arrangement on Officially Supported Export Credits

The Arrangement is a gentlemen's agreement between the EU, the US, Canada, Japan, Korea, Norway, Switzerland, Australia, New Zealand and Turkey, which aims to provide a framework for the orderly use of officially supported export credits. In practice, this means establishing a level playing field (whereby competition is based on the price and quality of the exported goods and services and not on the financial terms provided), while working to eliminate subsidies and trade distortions related to officially supported export credits. The Arrangement entered into force in April 1978, it is of indefinite duration and although it receives the administrative support of the OECD Secretariat, is not an OECD Act.

The Arrangement is subject to regular updates, taking into account financial market and policy developments affecting the provision of officially supported export credits. Regulation (EU) No 1233/2011 of the European Parliament and of the Council provides that the guidelines set out in the Arrangement shall apply in the Union, and hence, it has been made legally binding in the EU. Revisions of the terms and conditions of the Arrangement are incorporated into EU law through delegated Acts pursuant to Article 2 of this Regulation.

2.2.The Participants to the Arrangement on Officially Supported Export Credits

The European Commission represents the Union in meetings of the participants (the ‘Participants’) to the Arrangement, as well as in the written procedures for decision-making by the Participants to the Arrangement. Decisions on all amendments of the Arrangement are taken by consensus. The position of the Union is adopted by the Council and is discussed by Member States in the Council Working Group on Export Credits.

Article 62 of the Arrangement provides that "The Participants shall review regularly the functioning of the Arrangement. In the review the Participants shall examine, inter alia, notification procedures, implementation and operation of the Differentiated Discount Rate system, rules and procedures on tied aid, questions of matching, prior commitments and possibilities of wider participation in the Arrangement".

2.3.The envisaged act of the Participants to the Arrangement on Officially Supported Export Credits

At the 141st Meeting of the Participants to the Arrangement that took place in June 2019, the Participants discussed an EU draft proposal to increase official support for local costs. The draft proposal was well received with positive responses from other Participants, however, one delegation reserved its position and asked the EU to provide further background information and clarifications.

At the following meeting of the Participants to the Arrangement in November 2019, increasing official support for local costs was again discussed. The discussion concerned potential amendments to the draft proposal, inter alia ring fencing local cost coverage to specific sectors or countries. However, the Participants did not reach common ground and discussions were postponed to future meetings. At the 144th Meeting of the Participants to the Arrangement in June 2020 the delegation, which did not support the EU draft proposal, tabled a counterproposal on local cost support. This proposal did not win support from other Participants, but compromise solutions and amendments to resolve outstanding issues were offered and discussed.

The EU reviewed its draft proposal taking note of views expressed in previous meetings of the Participants to the Arrangement and tabled a draft compromise proposal at the 145th meeting of the Participants that took place on 17 November 2020. Some Participants suggested minor amendments to the draft compromise proposal. After some discussion, all Participants expressed support for the draft compromise proposal combined with the suggested amendments. The Participants to the Arrangement are to adopt a decision on the Union’s draft compromise proposal by written procedure.

3.Position to be taken on the Union's behalf

The main principles for official support for local costs are set out in Article 10 of the Arrangement. It stipulates that official support for local costs may not exceed 30 % of the export contract value (national content and third country supply). These provisions were introduced in 2006, when the maximum level of official support was increased from 15 % to 30 % of the export contract value. In the last decades, global trade and production patterns have evolved significantly. The emergence of global value chains has changed how exporters source supply: companies that used to have their primarily production in one country now optimise their sourcing on the basis of cost efficiency and geographical availability and a single finished product is often the result from manufacturing and assembly lines in multiple countries. The EU’s export industry has long called for greater local cost flexibility. The current limitation on local cost support imposes a competitive disadvantage on EU exporters in relation to exporters in countries not bound by the Arrangement.

The envisaged decision on increasing official support for local costs would mean that the maximum level of local cost is raised to 40 % of the export contract value in high-income countries (country category I in the Arrangement) and to 50 % in middle- and low-income countries (country category II in the Arrangement). The local cost provisions in the sector understanding on export credits for renewable energy, climate change mitigation and adaptation, and water projects would be aligned with the local cost provisions in the main body of the Arrangement. Furthermore, a review clause, providing for a review to take place three years after the entry into force of the new local cost provisions, would be added to the Arrangement.

Therefore, it is recommended that the position of the Union is to approve the envisaged decision of the Participants to the Arrangement by written procedure to increase official support for local costs.

4.Legal basis