Export credits are financing arrangements designed to mitigate risks to buyers and sellers associated with international transactions. Export credits generally take the form of direct loans, loan guarantees, and export credit insurance, and may be short-term (0-1 year), medium-term (1-7 years), and long-term (7 plus years). (See textbox below.) Buyers and sellers in international transactions face unique risks, such as foreign exchange risk, difficulties in settling disputes when damages to shipments occur, or instability in the buyer’s country. For these reasons, lenders may be reluctant to finance a buyer’s purchase of foreign goods. Export credit products are meant to facilitate international transactions by mitigating these risks. Official ECAs are organizations that provide export credits with explicit government backing, where either the government, or the government-owned ECA, assumes the risk and is financially liable for reimbursing the exporter or the lending institution if the buyer fails to pay. ECA Export Credit Products Defined Export credit insurance: An insurance policy that protects the exporter from the risk of nonpayment by foreign buyers for commercial and political reasons. Loan guarantee: An ECA guarantees a lender’s financing to an international buyer of goods or services, promising to pay the lender if the buyer defaults. Direct loan: The ECA makes a fixed-rate loan directly to an international buyer of goods and services. Interest make-up: In lieu of making direct loans, an ECA pays a lender the difference between the OECD minimum interest rate and commercial interest rates. Ex-Im, the official export credit agency of the United States, is an independent government agency operating under the Export-Import Bank Act of 1945, as amended. Ex-Im currently has about 400 employees. Its mission is to support U.S. exports and jobs by providing export financing on terms that are competitive with those of official export credit support offered by other governments. Since fiscal year 2008, Ex-Im has been “self-sustaining” for appropriations purposes, financing its operations from receipts collected from its borrowers.insurance, direct loans, and loan guarantees in support of U.S. exports. In fiscal year 2011, Ex-Im authorized $32.7 billion: $7.0 billion in export credit insurance, $6.3 billion in direct loans, and $19.4 billion in loan guarantees. Ex-Im has a risk exposure limit of $100 billion, meaning that the total outstanding value of all loans, guarantees, and insurance contracts cannot exceed this number; at the end of fiscal year 2011, Ex- Im had a total exposure of $89.2 billion. The other G-7 countries, which include some of the largest exporters, all have at least one ECA. See figure 1. G-7 ECAs differ in the magnitude and types of their activities. All offer medium- and long-term officially supported export credits. According to Ex-Im, this financing is subject to the most intense international competition, where the support of an ECA can influence who wins overseas deals. Ex-Im’s annual competitiveness reports compare ECAs on the basis of their medium- and long-term export credit support programs. ECAs also can provide other products and services in addition to these medium- and long-term officially supported export credits; some of the G-7 ECAs offer short-term export credits, market-based export credits (called “market windows”), and other non-export credit products such as investment insurance. This can complicate comparisons among institutions, as some ECAs offer products that are also offered by other types of institutions, such as development or finance institutions, in other countries. ECAs do not typically compete with one another in the area of short-term credits. Figure 2 shows each ECA’s total new business in 2010, providing a comparison between medium- and long-term officially supported export credits and other new business in that same year. Germany was the largest provider of medium- and long-term export credits, followed by France and the United States. Japan’s two ECAs, combined, had the largest amount of total new business in 2010, but only a very small portion was for officially supported medium- and long-term export credits; the remainder included other products such as overseas investment loans, untied loans, and overseas untied loan insurance. This was also true of Canada’s ECA, EDC, which had the second highest volume of total new business. A large proportion of the new business was attributable to short-term credit insurance. The G-7 ECAs have historically accounted for the majority of medium- and long-term officially supported export credits, according to Ex-Im. The share of national exports financed by official export credit agencies is not large; on average, medium- and long-term ECA financing as a share of total exports for each of the G-7 countries in 2008 was 0.6 percent. The United Kingdom’s (UK) share was lowest at 0.1 percent, and Italy’s was the highest at 1.2 percent; the remaining G-7 countries ranged between those values. However, ECAs do play a large role in certain sectors, such as aircraft. According to Ex-Im, at its peak in 2009, ECA financing represented about 40 percent of the total worldwide market for aircraft financing. In addition, the recent financial crisis has increased the amount of ECA support for exports; most G-7 ECAs saw notable increases in the volume of their medium- and long-term officially supported export credits starting in 2008 or 2009 because private sector lenders and insurers were either unwilling or unable to support transactions on their own. See figure 3 for estimates of the volume of medium- and long-term officially supported export credits provided by each G-7 country over the past 5 years. The OECD Arrangement on Officially Supported Export Credits is a set of nonbinding rules among some OECD countries concluded in 1978 amid increases in ECAs’ provision of officially supported export credits. The purpose of the Arrangement is to provide a framework for the use of officially supported export credits; to promote a level playing field, where competition is based on the price and quality of the exported goods and not the financial terms provided; and to provide transparency over programs and transactions. Participants to the Arrangement are Australia, Canada, the European Union (EU), Japan, South Korea, New Zealand, Norway, Switzerland, and the United States. Other countries may join following invitation and OECD membership is not required. In addition, countries may belong to one or more of the Arrangement’s sector agreements—for example, Brazil is a member of the Aircraft Sector Understanding—without being a full-fledged participant. The Arrangement applies to officially supported export credits with repayment terms of 2 years or more. It places limitations on the terms and conditions, such as interest rates, length of repayment terms, and risk fees, of export credits that benefit from official support, and it also contains a variety of reporting requirements to ensure transparency. Another requirement is a down payment of 15 percent of an export contract’s value. The Arrangement and its various sector agreements are negotiated among participants and updated on an as-needed basis. In addition to the OECD Arrangement, another export credit committee at the OECD, the Working Party on Export Credits and Credit Guarantees (Export Credit Group), was set up in 1963. Its general objectives are to evaluate export credit policies, identify and resolve problems by multilateral discussion, work out common guiding principles, and improve cooperation between countries. To date, the Export Credit Group has been the venue for important export credit agreements on antibribery, environmental screening, and sustainable lending. All OECD countries except Chile and Iceland are members. The U.S. Department of the Treasury’s Office of Trade Finance has lead responsibility within the U.S. government for the development, implementation, and enforcement of international trade and aid finance policy, and its primary goal is to create and maintain a market-based, competitive environment in which governments’ financing of national exports contains minimal subsidies. The Office of Trade Finance leads the U.S. delegation to the OECD Arrangement. Other members of the delegation include Ex-Im, the Departments of Commerce and State, the Office of the U.S. Trade Representative, the U.S. Agency for International Development, the U.S. Trade and Development Agency, and other agencies whose programs or roles might be affected by the negotiations. Ex-Im is different from other G-7 ECAs in several significant ways, including its mission, which is explicitly focused on creating domestic jobs through exports. It is similar in its role as a lender/insurer of last resort to four other ECAs, while Canada and Italy have commercial market orientations and are not restricted from competing with the private market. As an independent government agency, Ex-Im’s governance and organization type differ from those of other ECAs, which range from government departments to private companies contracted by governments. Ex-Im and other G-7 ECAs offer a different mix of export credit and other financing products, which provides them with different tools to help exporters. Ex-Im has an advantage over some of the other ECAs because it offers direct loans, which were useful during the financial crisis. Ex-Im’s mission strongly emphasizes supporting domestic jobs through exports, which is unique among the G-7 ECAs (see table 1). This aim underlies certain Ex-Im policies, such as its economic impact analysis requirement and its domestic content policy. Other ECA missions range from promoting and supporting domestic exports to securing natural resources. Along with its mission is the ECA’s “market orientation”—whether an export credit agency supplements or competes with private markets for export credit support.