Trade Above All
June 27, 2001News & Politics
Editor's Note: This is an updated version of an article that was first published in the Financial Times on February 24, 2000.
Recent anti-globalization protests have sparked greater debate on trade, but the spotlight on the roles of the World Trade Organization, the IMF and World Bank is incomplete. Much more attention needs to be focused on export credit agencies.
Export credit agencies (ECAs) -- like the U.S. and Japanese Export-Import Banks, Germany's Hermes Guarantee, France's COFACE and Italy's SACE -- use government funds to subsidize development projects around the world. ECAs dwarf international institutions like the World Bank in aggregate financial clout and real-world impact.
ECAs subsidize almost 8 percent of annual world trade. Government-supported loans, guarantees and insurance schemes back up more than $400 billion worth of annual exports. And more than $50 billion a year is devoted to big infrastructure projects in developing countries. This exceeds the combined financial assistance of all multilateral and bilateral aid agencies.
Much like the WTO, ECAs have a single-issue agenda: trade above all. Advocates of economic globalization promise benefits for all involved, including the poor and the environment. With ECAs, the opposite is true. These agencies promote projects that in many cases development agencies won't support because they are economically unsound and environmentally unsustainable, projects that have the primary goal of benefiting corporations in rich countries, not the residents of the country receiving assistance. It's a classic mercantilist strategy.
According to Transparency International, a corruption-monitoring agency, export credit agencies have supported many projects associated with large-scale corruption and mismanagement. Unlike international institutions like the World Bank, with a public disclosure policy, ECAs conduct their business in secrecy.
Arms exports are a top priority for many European ECAs. In the decade of the 1990s, about a third of the exports guaranteed by the British Export Credits and Guarantee Department (ECGD) and France's COFACE were weapons sales. Germany's Hermes scored a coup several years ago when it managed to help sell off a fleet of obsolete East German naval vessels to Suharto's Indonesia.
ECA-backed projects account for a quarter of all developing-country debt, public and private, and for 56 percent of the public, official debt owed to governments and international agencies. Much of this debt stems from dubious investments that aid agencies have refused to support. A well-known example is the Three Gorges Dam in China. In 1996, the German, Swiss, Swedish, Canadian and French ECAs all competed for the chance to finance this project, which the World Bank and U.S. Export Import Bank had refused to support on environmental grounds.
Meanwhile, in Turkey, eight ECAs are considering handing out more than $850 million for the proposed Ilisu Dam, a project widely criticized for its environmental and human rights impacts. It will affect the Tigris River, near the Syrian and Iraqi border, and will displace as many as 75,000 Kurdish refugees.
Some governments are now showing a growing sense of responsibility for these agencies. Gordon Brown, the British finance minister, announced last year that the British Export Credits and Guarantee Department would halt guarantees for arms sales to some of the world's poorest countries. Several ECAs have begun to put in place rudimentary environmental reviews.
But reform has been slow. Over the last five years, at the Organization for Economic Co-operation and Development (OECD) in Paris, ECA representatives from the 26 rich industrialized countries have been unsuccessfully attempting to agree on a set of common environmental approaches and guidelines for export finance.
At the 1999 meeting of the eight leading industrialized countries (G8) in Cologne, the G8 heads of state committed to working towards common environmental guidelines for export finance within the OECD and to completing the task within two years. The ECA representatives will be meeting once again in Paris on June 7 and 8, but they are more deadlocked than ever on basic issues of granting public access to environmental information and common international environmental standards. Over the past 20 years, the agencies have managed to set detailed standards for interest rates and fees. Therefore, there is no reason why they could not also agree to put an end to their reckless competition in financing social-ecological debacles.
The G8 is scheduled to meet in Genoa, Italy, this year on July 20. More pressure is needed from the U.S. and other major countries at the summit to break the OECD deadlock.
This is one international environmental issue on which the United States has exercised and can continue to exercise notable international leadership. Since the mid-1990s, the U.S. Export-Import Bank has had environmental procedures in place that ensure some degree of transparency and high international environmental standards for its projects. By supporting common environmental standards for export finance, President Bush could gain much needed credibility in the wake of his decision to renege on the Kyoto protocol.
One of the results of the anti-globalization protests in Seattle, Prague and Quebec is that governments and international organizations have realized the need for more transparency and collaboration with environmental groups and trade unions. But many ECAs are still far from such an understanding.
Around the world, a growing number of environmental, development, church and human rights groups want their message to be heard: The lack of common environmental and social standards for export credit agencies has led to a misuse of public resources, and has undermined the long-term interests of everyone on this planet.
Bruce Rich is director of the international program at Environmental Defense, a U.S. environmental organization.
Recent anti-globalization protests have sparked greater debate on trade, but the spotlight on the roles of the World Trade Organization, the IMF and World Bank is incomplete. Much more attention needs to be focused on export credit agencies.
Export credit agencies (ECAs) -- like the U.S. and Japanese Export-Import Banks, Germany's Hermes Guarantee, France's COFACE and Italy's SACE -- use government funds to subsidize development projects around the world. ECAs dwarf international institutions like the World Bank in aggregate financial clout and real-world impact.
ECAs subsidize almost 8 percent of annual world trade. Government-supported loans, guarantees and insurance schemes back up more than $400 billion worth of annual exports. And more than $50 billion a year is devoted to big infrastructure projects in developing countries. This exceeds the combined financial assistance of all multilateral and bilateral aid agencies.
Much like the WTO, ECAs have a single-issue agenda: trade above all. Advocates of economic globalization promise benefits for all involved, including the poor and the environment. With ECAs, the opposite is true. These agencies promote projects that in many cases development agencies won't support because they are economically unsound and environmentally unsustainable, projects that have the primary goal of benefiting corporations in rich countries, not the residents of the country receiving assistance. It's a classic mercantilist strategy.
According to Transparency International, a corruption-monitoring agency, export credit agencies have supported many projects associated with large-scale corruption and mismanagement. Unlike international institutions like the World Bank, with a public disclosure policy, ECAs conduct their business in secrecy.
Arms exports are a top priority for many European ECAs. In the decade of the 1990s, about a third of the exports guaranteed by the British Export Credits and Guarantee Department (ECGD) and France's COFACE were weapons sales. Germany's Hermes scored a coup several years ago when it managed to help sell off a fleet of obsolete East German naval vessels to Suharto's Indonesia.
ECA-backed projects account for a quarter of all developing-country debt, public and private, and for 56 percent of the public, official debt owed to governments and international agencies. Much of this debt stems from dubious investments that aid agencies have refused to support. A well-known example is the Three Gorges Dam in China. In 1996, the German, Swiss, Swedish, Canadian and French ECAs all competed for the chance to finance this project, which the World Bank and U.S. Export Import Bank had refused to support on environmental grounds.
Meanwhile, in Turkey, eight ECAs are considering handing out more than $850 million for the proposed Ilisu Dam, a project widely criticized for its environmental and human rights impacts. It will affect the Tigris River, near the Syrian and Iraqi border, and will displace as many as 75,000 Kurdish refugees.
Some governments are now showing a growing sense of responsibility for these agencies. Gordon Brown, the British finance minister, announced last year that the British Export Credits and Guarantee Department would halt guarantees for arms sales to some of the world's poorest countries. Several ECAs have begun to put in place rudimentary environmental reviews.
But reform has been slow. Over the last five years, at the Organization for Economic Co-operation and Development (OECD) in Paris, ECA representatives from the 26 rich industrialized countries have been unsuccessfully attempting to agree on a set of common environmental approaches and guidelines for export finance.
At the 1999 meeting of the eight leading industrialized countries (G8) in Cologne, the G8 heads of state committed to working towards common environmental guidelines for export finance within the OECD and to completing the task within two years. The ECA representatives will be meeting once again in Paris on June 7 and 8, but they are more deadlocked than ever on basic issues of granting public access to environmental information and common international environmental standards. Over the past 20 years, the agencies have managed to set detailed standards for interest rates and fees. Therefore, there is no reason why they could not also agree to put an end to their reckless competition in financing social-ecological debacles.
The G8 is scheduled to meet in Genoa, Italy, this year on July 20. More pressure is needed from the U.S. and other major countries at the summit to break the OECD deadlock.
This is one international environmental issue on which the United States has exercised and can continue to exercise notable international leadership. Since the mid-1990s, the U.S. Export-Import Bank has had environmental procedures in place that ensure some degree of transparency and high international environmental standards for its projects. By supporting common environmental standards for export finance, President Bush could gain much needed credibility in the wake of his decision to renege on the Kyoto protocol.
One of the results of the anti-globalization protests in Seattle, Prague and Quebec is that governments and international organizations have realized the need for more transparency and collaboration with environmental groups and trade unions. But many ECAs are still far from such an understanding.
Around the world, a growing number of environmental, development, church and human rights groups want their message to be heard: The lack of common environmental and social standards for export credit agencies has led to a misuse of public resources, and has undermined the long-term interests of everyone on this planet.
Bruce Rich is director of the international program at Environmental Defense, a U.S. environmental organization.
