State aid and export credits: which law applies?
Officially supported export credits are instruments that governments can use to boost or support their exports, either through insurances, loans or guarantees. Most governments provide this support through Export Credit Agencies (ECAs), the first of which were founded in the 1920s (Stephens, 1999).
Today, most ECAs meet under the auspices of the London-based Berne Union, and most are regulated through a particular gentlemen’s agreement known as “the Arrangement”.
Although often misnomered as the OECD Arrangement, after the organization that provides its secretariat and within its framework it was concluded (art. 2 of the Arrangement), the Arrangement is not an OECD act and not all OECD members are Participants (and non-members may be invited to join). The Arrangement regulates official support “for export of goods and/or services (...) which have a repayment term of two years or more” (art. 5 Arrangement). Through Regulation nr. 1233/2011, the Arrangement has the force of law in the European Union (article 1 of the Regulation), meaning that it is hard law within the Union.
Since official export credit support is support (i) by a state (ii) to an individual company, a relevant question that needs to be asked is exactly how the European state aid rules govern the practice of export credits. Although there is at the moment no official communication from the Directorate-General Competition (hereafter: DG-COMP) of the European Commission, there are two schools of thought which are possible.
The first, the one often proposed by state aid experts, is that state aid rules exist alongside the rules for export credits. This situation is a bit like the rules on public procurement within the EU: whilst a well-established procurement procedure might offer some mitigating proof in a state aid case, it does not mean that that the contract that came out of the procurement is state aid-proof. In this line of thinking, the Arrangement simply exists alongside the EU state aid rules, and separate proof of conformity with the rules is needed. This is not the case for the WTO, as item (k) of Annex (i) of the SCM Agreement (ASCM) deliberately carves out a safe harbour (or safe haven) for the Arrangement.
This line of thinking does not wholly seem to reflect the state aid situation in the realm of export credits. Although DG-COMP has shied away from making official statements, there are some clues in their regulatory activity that would support a second, and perhaps more controversial, view that the Arrangement mostly acts as a lex specialis of the state aid rules and thus Arrangement-conformity signals EU state aid conformity.
First, the Arrangement is EU law and provides minimum standards for ECA’s to structure certain transactions. The Arrangement kicks in once such support has a “repayment term of two years or more”. Now, for official support lasting less than two years, the Commission has a so-called “Short term Communication” – there is no communication for any support lasting longer than two years. To be sure, there are communications that are relevant in the export credit community (such as the Guarantees Notice), but above two years, in principle, the Arrangement would apply. ECA’s often (though not always) insure risks for longer (and for bigger sums and risks) than private export credit insurers. The idea of having the Arrangement as a lex specialis would also fit with the (albeit different) “state aid” regime of the WTO, reflected in the SCM agreement. Close to this line of thought (but less convincing) is the idea that support with a payment term over two years is simply outside the realm of the market.
In short, it seems likely that the Arrangement provides a “protective shield” (instead of a safe haven) for state aid rules within the EU, with export credits below two years being governed by the communication of the Commission on short-term export credits, and those over two years by the Arrangement. But will that remain the case if the Arrangement is changed due to international developments? And how do we allow Europe to be competitive if their ECAs (meant to boost exports in a more competitive environment) are bound by stricter rules than others? Another close look to the rules that govern export credits is much needed in the near future – particularly as governments look to ECAs to help boost the post-Covid economy (OECD).
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