The Arrangement and the System of International Rules for (Public) Export Credit Insurance.
On July 15, 2023, the Modernized Arrangement entered into force and all Participants are now able to offer export credit insurance on expanded terms. Wait a minute... What are the Participants and what about the non-Participants? Reason enough to take a step back and reflect on the question: what exactly is this Arrangement and what is the system of rules. For it is a veritable triptych: World Trade Organization (WTO) or more precisely ASCM, Arrangement, EU.
Back to the beginning
Back to the beginning. In 1978, a number of countries concluded the first "gentlemen's agreement" with rules for public export credit insurance. The reason for doing this was to prevent a so-called - in proper Dutch - race to the bottom. Whichever way you look at it, the purpose of export credit insurance is to promote a country's exports, and if you do that without rules, each country can be tempted to offer slightly more favourable conditions than the others do, and that's the end of it. In principle, by setting rules you achieve that buyers, when buying, say, an airplane, make a choice based on the price and quality of the plane and not on the most favourable financing terms. After all, the latter are more or less equalized by the rules. Since I graduated from a prosperity-theoretical study in the distant past: kudos! This will make us all better off.
The Arrangement is a gentleman's agreement between a group of countries we call the Participants. In 1978, they were Australia, Canada, the European Economic Community (EEC), Finland, Greece, Japan, Norway, Portugal, Spain, Sweden, the U.S. and Switzerland. The EEC at that time consisted of Belgium, Denmark, Germany, France, Ireland, Luxembourg, the Netherlands and the UK. Some other European countries mentioned naturally later became members of the EEC or EU and thus lost their status as (individual) Participants. The UK, as we know, went the opposite way in 2020. It is really an agreement between countries, so unlike with the EU, there is no supranational body and no legal mechanism to enforce compliance. However, transparency is a fundamental principle: Participants report to each other what they insure or finance. Always afterwards but sometimes in advance, called notifications. For example, if a country wants to insure a transaction in which 40% of local costs are co-financed, this must be reported in advance. It is an effective mechanism in practice.
But how does it actually work?
The Arrangement consists of an introduction with some general principles and three sections. By far the most important is chapter 2: the terms and conditions. Then we have Chapter 3 on tied aid, which we do not do in the Netherlands and Chapter 4 with procedures. Moreover, there are the Sector Understandings, which deserve their own explanation.
Therefore, those terms and conditions are what it is all about. They are the most favourable conditions a Participant may offer to a foreign buyer of a good or service from the Participant's country. Note: less favourable conditions are always allowed! Suppose now the maximum credit term is 10 years, then of course it may always be seven, five or three years. Less than two years is also allowed, but then the Arrangement no longer applies because it starts at two years. Or another example: the Arrangement stipulates that standard payments must be made in six-month linear instalments. Therefore, a schedule where the repayments get higher towards the end is not allowed, which is seen as more favourable to the buyer. But additional repayments in the first few years are allowed. There are minimum premiums but higher premiums are always allowed. And so on. We have rules about credit terms, how much can be financed or insured, premiums, repayment patterns, fixed interest rates and some other related provisions. Therefore, most of them are being broadened as of July 15, 2023.
Back to the triptych, of which we have now covered the middle one because it is the oldest. In 1995, however, something fundamentally changed. That was when the WTO was created and the so-called Agreement on Subsidies and Countervailing Measures (ASCM) came into force. In addition, what is at the heart of that treaty? "Thou shalt not provide export subsidies." Moreover, export credit insurance provided by a government, those are basically an export subsidy. Because yes, a government does it, and so it could just be on non-market terms.
However, in the ASCM, in an appendix, there is the famous clause "k. In addition, that stipulates that if governments provide export credit insurance on the terms laid out in the Arrangement or any successor to it, it will not be considered an impermissible export subsidy. Are you still following me? Of course, that clause is not accidental. What was actually done is that the Participants enforced that the rules agreed between them would be "grandfathered. In other words: we have been doing this for twenty years, and it works, why fix it if it ain't broken? We call this the safe harbour or safe haven operation of the Arrangement under the ASCM Convention. If you comply with the Arrangement, then you are safe under the ASCM. Because note: that treaty does have sanctioning capabilities and the WTO has legal institutions.
Okay, so the Participants cheerfully kept going and the Arrangement itself became more and more extensive, for example by adding premium rules. However, the interesting thing is that the vast majority of countries are members of the WTO. And thus are not allowed to provide export subsidies. Unless they comply with the rules of the Arrangement. By the way, this also means that any (proposed) amendment to the Arrangement must ensure that the safe harbour is not jeopardized.
Therefore, the ASCM Treaty is now the top of the triptych and the Arrangement is the middle part. Then we have the bottom part: the EU. Because what has the EU, then EEC, been doing since the first Arrangement? Those rules are turned into European regulations, into a so-called Regulation. Anyone who has ever taken a basic course in European law knows that regulation has a direct effect - once adopted, it is immediately effective throughout the EU. For enthusiasts, we are talking about 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. Like all European regulations, it is translated into all 24 EU languages. Thus, there is also a Dutch-language Arrangement, just click on the link.
European member states
For European member states, the Arrangement is not a gentlemen's agreement anyway but European regulation and thus legally enforceable. It also explains why the EU attaches just a little more importance to the Arrangement negotiations.
This story is already too long, but still: there is actually a fourth part. Because all those international rules are of course then converted back into national rules, or at least they get their own national application. For example, there may well be countries that say ' nice that this Arrangement now allows credit terms of 15 years, but we're not going to do that'. What we in the Netherlands, for example, have been doing since time immemorial is applying the Arrangement's premium rules to the Ship Sector Understanding (where they do not apply) or applying the Arrangement to military transactions, which as a whole fall outside the rules.
Finally, there are also the EU State Aid rules. How these relate to the European export credit insurance rules, a lawyer could do a PhD on that. About the relationship between Arrangement, EU Regulation and ASCM for that matter. So are you a law graduate looking for a nice PhD subject? Give me a call!
Senior Advisor Products and International Relations at Atradius DSB