REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Annual Report on negotiations undertaken by the Commission in the field of export credits, in the sense of Regulation (EU) No 1233/2011
Date: 2014-05-28
Institutions: European Commission
Subjects: OECD, agreement (EU), export credit, revision of an agreement, sectoral agreement













EUR-Lex - 52014DC0299 - EN











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52014DC0299

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Annual Report on negotiations undertaken by the Commission in the field of export credits, in the sense of Regulation (EU) No 1233/2011 /* COM/2014/0299 final */









1.
Introduction:
 
Regulation (EU)
No 1233/2011 of the European Parliament and of the Council of 16 November 2011
on the application of certain guidelines in the field of officially supported
export credits and repealing Council Decisions 2001/76 EC and 2001/77/EC[1] foresees in its Annex I
that the European Commission "according to its competencies shall provide
to the European Parliament an annual report on negotiations undertaken, where
the Commission has negotiating authorisation in the various forms of
international cooperation, to establish global standards in the field of
officially supported export credits."
The present
report covers the period March 2013 to March 2014.  
2. Major
developments in export credits in 2013:
Traditionally,
most of the Commission’s negotiation activities in this policy area take place
in the Organisation for Economic Co-operation and Development (OECD), which so
far remains the only international body which has developed detailed technical
rules for export credits. The European Commission, in the framework of its
responsibility to carry out trade negotiations, represents the EU in all
negotiations concerning the OECD Arrangement on Officially Supported Export
Credits[2]
and its Sector Understandings (which cover special financing rules for
specific industrial sectors), namely:
·      
the Sector Understanding on Export Credits for
Ships
·      
the Sector Understanding on Export Credits for
Nuclear Power Plants
·      
the Sector Understanding on Export Credits for
Civil Aircraft
·      
the Sector Understanding on Export Credits for
Renewable Energy, Climate Change Mitigation and Water Projects. 
The negotiation work in the OECD continues, leading during the
reporting period inter alia to the adoption of a new Sector
Understanding on Export Credits for Rail Infrastructure and to talks on
expanding the scope of the Sector Understanding on Renewable Energy, Climate
Change Mitigation and Water Projects (for details see section 4). 
The OECD Arrangement has in general been effective in providing a
level playing field between the export credit programs of its Participants.
However, major emerging export credit providers like China, India or Brazil[3] are not parties to it. 
The establishing of the International Working Group on Export
Credits (“IWG”) – following a joint initiative by President Obama and then
Vice-Premier Xi Jinping in February 2012 – has created a strategic opportunity
for OECD Participants and non OECD Participants to work together on a new set
of disciplines on export credits in a completely new environment. The European
Union has therefore fully supported the IWG process from the start. In 2013,
the IWG remained an essential priority, relevant activities taking an even
bigger proportion in the EU’s export credit work than in 2012 (for details see
section 3 below).
3. The
International Working Group on Export Credits:
It will be
recalled that at the outset, altogether 18 “major providers of export
credits” were invited to join the new International Working Group on
Export Credits (“IWG”): All 9 Participants to the OECD Arrangement on
Officially Supported Export Credits (EU, US, Canada, Japan, Korea, Norway,
Switzerland, Australia and New Zealand) as well as China, Brazil, the Russian
Federation, South Africa, India, Indonesia, Malaysia, Turkey and Israel. It was
agreed that a Steering Group – composed of the US, the EU, China and Brazil – would meet in advance of the plenary sessions of the IWG. The IWG has
no permanent chair, secretariat or venue. Meetings are hosted on a rotating
basis by the members of the Steering Group.
As mentioned in
the Commission’s previous report, initial discussions in the First official
meeting of the IWG (held in Washington in November 2012) had not
been easy. Most of the IWG participants would have liked to immediately focus
on general, horizontal rules applicable to all export credits, China however insisted on a “sectoral approach”, i.e. that the IWG should first look
at export credit practices in specific industrial sectors and only in a second
phase focus on horizontal rules. While the principle of the sectoral approach
as such was eventually accepted as a working method by the IWG, the choice of
the sector(s) to be looked at proved to be controversial: China insisted on the
ship sector, although it was well known that the US and several other IWG
Members have no export credit activities in that sector at all. Proposals to
identify at least a second sector (so that all IWG Members could actively
participate) were not immediately successful. 
In order to find
a way out of this stalemate, the EU Delegation offered to host an
informal meeting, in which Delegations could continue discussions at an
expert level. This event, organised in Berlin in March 2013, had a very
positive effect on the working environment in the IWG (technical experiences
made by the various participants in various industrial sectors were discussed
in a constructive mood). At the Second Official Meeting of the IWG,
hosted by China in Beijing in May 2013, it was
subsequently possible to agree on a second sector – medical equipment. While
medical equipment is usually not considered a sector of massive export credit
intervention, the absence of specialised export credit practices in this sector
makes it a suitable proxy for discussions on general, horizontal rules. The
Chinese Delegation has repeatedly acknowledged that the sectoral approach is
not supposed to lead to the formal conclusion of Sector Understandings (like
they exist for example under the OECD Arrangement), but that the IWG would move
to horizontal talks as soon as discussions on the ship and medical equipment
sectors have sufficiently matured.
The Third
Official Meeting was hosted by the EU in Brussels in September
2013. The EU tabled a detailed technical discussion paper addressing such fundamental
issues as the potential overall objectives of the IWG process as well as the
role of the discussions on the ship and medical sectors as building blocks for
a future horizontal agreement on export credits. Moreover, the paper presented
detailed considerations and questions to IWG participants on how to define the
scope of discussions (i.e. how to delineate the two economic sectors in
question, how to define the official support mechanisms to whom the new
guidelines should apply) and how to address specific non-price related aspects
(such as down payments, maximum and minimum credit length, repayment profiles
and security packages) as well as price related elements of export credit
transactions (base interest rates, credit risk premium and fees). This
contribution was well received by the other IWG Participants and the Group had
very productive discussions in the plenary meeting. There were also a lot of
high quality presentations, notably from other OECD Participants, but the
non-OECD Participants like China also engaged themselves actively in the
discussions. In general, the Brussels Meeting marked a clear step forward, as
was the start of genuine technical discussions in the Group.
The Fourth
Official Meeting was hosted by Brazil in Brasilia in January 2014.
Discussions on the two sectors continued (still on the basis of written answers
to the questions included in the EU discussion paper tabled at the Third IWG
Meeting). It was concluded that the IWG would move from the phase of exchanges
on current export credit practices to more specific text-based discussions
(i.e. Delegations would table papers with specific draft financing modalities
for the two sectors, in order to allow more concrete discussions). This
approach will be applied at the Fifth Official IWG Meeting, which the US is going to host in Washington on 20-22 May 2014).
If we were to
draw a provisional balance of the IWG process at this stage, the picture
is a mixed one:
On the positive
side, it has to be stressed that already the successful establishing and
continued operation of such a forum, in which OECD and non-OECD providers of
export credits regularly meet to discuss regulatory issues is in itself no
small achievement. It must be kept in mind that all previous efforts to notably
engage China in similar talks at bilateral or multilateral level were not
successful. Among the most important non-OECD export credit providers, only India has so far not formally joined the process, but participated as an observer to the Fourth
Meeting.
The EU, although
not among the immediate initiators of this process, has asserted itself as a
major player, having organised two successful meetings and contributed with a
lot of substantial contributions and a paper that still seems to shape IWG
discussions.
A real problem
at this stage is however the fact that the activities of the IWG are for the
time being very much driven by its OECD participants. With the exception of South Africa and Turkey, many non-OECD participants are rather cautious when it comes to making
active contributions (e.g. presentations). Written papers have so far almost
entirely been provided by OECD Participants. 
The meetings to
be held in 2014 will certainly be crucial for an assessment whether all IWG
Members are seriously committed to the process and whether the latter is likely
to develop beyond the level of preliminary talks. In case that the IWG process
is likely to enter into a phase of formal negotiations, the Commission would
seek the necessary authorization in line with the Treaties.
4.
Developments in the OECD during the reporting period:
The participants
to the OECD Arrangement finalised a two-year negotiation for the Sector
Understanding on Export Credits for Rail Infrastructure (“RSU”) in November
2013. The RSU, which was a big ambition of the EU, establishes some specific
financing conditions for the exports of rail infrastructure assets essential to
operating trains, including rail control, electrification, tracks, rolling
stock and related construction work. The RSU foresees extended repayment terms
for such export credit transactions[4],
differentiating between exports to High Income OECD countries (for which the
maximum repayment term is 12 years) and to all other countries (for which the
maximum repayment term is 14 years) as well as some flexibilities on the
repayment profile. In order to achieve this deal, some concessions had however
to be made to accommodate concerns that private market financing available
concerning High Income OECD countries would not be undercut. RSU based export
credits to these countries are subject to prior notification to the other OECD participants
(including a comprehensive explanation). If notably export credits account for
the majority of the financing of an export to a High Income OECD country, a
waiver has to be requested. Globally, Europe is both the biggest market for
rail products and has the highest concentration of railway equipment
industries. 
The EU is also
the driving force behind two add-ons to the 2012 Sector Understanding on
Export Credits for Renewable Energies and Climate Change Mitigation (CCSU).
The sectoral extensions currently under negotiation concern climate change
adaptation projects and electricity smart grids. The EU is home to several key
industrial players in these areas. The Climate Change Adaptation dossier
has been discussed longer and is a bit more advanced than the electricity
smart grids dossier (on which the OECD has now entered a phase of technical
discussions about basic definitions). Not all participants seem to have an
active interest of their own in these dossiers. 
At the last
export credit meetings of the OECD, a joint proposal by the EU and Canada was tabled on climate change adaptation. The US delegation announced that they would
comment on the proposal in due course. OECD participants remain in principle
open to working further on smart grids, but it will be necessary to propose a
generally acceptable definition of the term as well as a sound justification
for the need to use export credit financing in this area. The various climate change
dossiers will be taken up again by the OECD in the next meetings on export
credits in 2014.
An area of strategic importance is the review of the interest
rate provisions of the OECD Arrangement: The Arrangement includes minimum
fixed interest rates provisions agreed on in the 1980’s. Participants are
currently working on the modernization of these provisions, as well as on the
inclusion of rules defining minimum floating interest rates. This overall review
has been triggered by changes in banking markets in the aftermath of the
financial crisis, which put into question the non-distortive character of
existing rules. The EU is probably the participant whose export credit system
is the most reliant on commercial banks and should as such play a crucial role
in the negotiation. 
While several
other participants have no official position yet, the Commission has managed to
obtain the consensus of the Member States on four guiding principles on
the interest rate review: 

 Further
     harmonisation of export credit practices concerning the selection and
     holding of fixed interest rates.  
 The
     predictability currently embedded in the fixed rate system of the
     Arrangement should be maintained, but be priced more adequately. 
 The basic
     construction of the fixed interest rate system (the “CIRR”) should be
     maintained for reasons of preserving the compliance with the Agreement on
     Subsidies and Countervailing Measures’ (“ASCM”) “safe haven”, but the
     margin charged on top of the base rate (currently a fixed number of basis
     points) should become more reflective of the level of rates charged by
     commercial banks.
 Floating rates
     should be included in the OECD Arrangement.

On the basis of
these principles, the Commission is now working on a more substantial proposal,
which the EU could table in the OECD later in 2014.
Aircraft traditionally has been
the most important export credit sector in commercial terms. In recent time,
there have however been no major new developments. Implementation of the 2011
OECD Sector Understanding on Export Credits for Civil Aircraft (the “ASU 2011”)
continues (nominally, a review is foreseen for 2015). 
The Commission
will duly keep the European Parliament informed on new developments.
[1]. OJ L 326, 8.12.2011, p. 45.
[2] The "Arrangement" is a Gentlemen's Agreement between the
EU, the United States, Canada, Japan, Korea, Norway, Switzerland, New Zealand and Australia that exists since 1978 and has the main objective of ensuring a level
playing field between the export credit programs of its Participants. The
Arrangement and its subsequent modifications have regularly been transformed
into EU law.
[3] A particular case is Brazil, which is only a Participant to the
Sector Understanding on Civil Aircraft, but shows no interest to join the
general Arrangement as such.
[4] The Arrangement’s general rule on maximum repayment terms is 5
years (under certain circumstances 8,5 years) for exports to OECD High Income
countries and 10 years for exports to all other countries, The Arrangement
however contains more extended  maximum repayment terms for a number of
industrial sectors and specific transactions (the most far-going rule being 18
years under the Nuclear Sector Understanding and for certain transactions under
the Sector Understanding on Renewable Energies, Climate Change Mitigation and 
Water Projects)