Export Finance and the OECD

The Organisation for Economic Co-operation and Development (OECD) plays a crucial role in shaping the landscape of export finance through its “Arrangement on Officially Supported Export Credits,” often simply referred to as the Arrangement. This Arrangement, established in 1978, aims to provide a level playing field for exporters and prevent unfair competition arising from subsidized export credits. It does so by setting minimum terms and conditions for officially supported export credits, such as government-backed loans, guarantees, and insurance.

The core objective is to ensure that export finance decisions are driven by commercial considerations rather than government subsidies. This promotes efficient allocation of resources and avoids distorting international trade. The Arrangement covers a wide range of sectors, including aircraft, ships, and large infrastructure projects. It sets parameters for interest rates, repayment periods, and premiums to be charged by export credit agencies (ECAs).

Key aspects regulated by the Arrangement include:

• Minimum Interest Rates: The Arrangement establishes minimum interest rates that ECAs must charge, based on market-related interest rates and the risk profile of the borrowing country.
• Maximum Repayment Terms: It defines maximum repayment periods, varying by sector and country, to prevent excessively long repayment schedules that could constitute a hidden subsidy.
• Premium Rates: The Arrangement sets minimum premium rates for guarantees and insurance provided by ECAs, reflecting the risk involved in the transaction.
• Environmental and Social Due Diligence: A critical aspect of the modern Arrangement is the emphasis on environmental and social due diligence. Projects receiving officially supported export credits must meet certain environmental and social standards, promoting sustainable development.

While the Arrangement is not legally binding, its principles are widely adhered to by member countries, which include most of the world’s leading economies. Non-compliance can lead to reputational damage and potentially trigger disputes. The OECD continuously monitors and updates the Arrangement to reflect changes in the global economic environment and to address emerging issues, such as climate change and sustainable financing.

The impact of the OECD Arrangement is significant. By standardizing export finance terms, it fosters transparency and predictability in international trade. It encourages exporters to compete on the basis of product quality and innovation, rather than relying on subsidized financing. Furthermore, the focus on environmental and social standards promotes responsible export practices and contributes to sustainable development goals. The OECD’s ongoing efforts to refine and strengthen the Arrangement are essential for maintaining a fair and efficient global trading system.