Financial Times; 24-Feb-2000
COMMENT & ANALYSIS
Trading in dubious practices
OECD countries must stop export credit agencies funding environmentally damaging and immoral projects, says Bruce Rich
The post-Seattle debate on trade has given little attention to government-sponsored agencies that, in some respects, dwarf the World Trade Organisation in their financial clout and real world impact. But this is likely to change.
The damaging impact on the environment of export credit agencies (ECAs) will today be discussed at an Organisation for Economic Co-operation and Development meeting in Paris. The aim will be to draw up a set of common environmental approaches and guidelines for export finance.
ECAs such as the US and Japanese Export-Import Banks, Germany's Hermes Guarantee, France's Coface and Italy's Sace subsidise almost 8 per cent of annual world trade. Government-supported loans, guarantees and insurance schemes back up more than Dollars 400bn worth of annual exports. . And more than Dollars 50bn 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. By helping national champions conquer export markets, they pursue what is in essence a mercantilist strategy. Their strategy contradicts the advocates of economic globalisation, who promise benefits for all involved, including the poor and the environment. The frictionless global economy is as much an ideological Utopia as the other great economic folly of the 20th century, communism.
ECAs habitually ignore the social and ecological consequences of their dealings. According to Transparency International, a corruption- monitoring agency, ECAs have supported many projects associated with large-scale corruption and mismanagement. Unlike international institutions like the World Bank, with its public disclosure policy, ECAs conduct their business in secrecy. They have financed economically unsound projects on a huge scale, largely to the detriment of the poor in developing countries.
Arms exports are a top priority for many European ECAs. The British Export Credits and Guarantee Department (ECGD), for example, has guaranteed more than Dollars 1bn of arms sales to Indonesia. Hermes scored a coup several years ago when it managed to sell off a fleet of obsolete East German naval vessels to Suharto's Indonesia.
ECA-backed projects account for more than a quarter of developing country debt, and for 56 per cent of what is owed to international agencies. Much of this debt stems from rather 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 were scrambling for the chance to finance what the World Bank and US Export Import Bank had refused to support on environmental grounds.
In Turkey, seven ECAs are considering handing out more than Dollars 850m for the proposed Ilisu dam. The latter will affect the Tigris River, near the Syrian and Iraqi border, and will displace 20,000 Kurdish refugees.
Some governments are now showing a growing sense of responsibility for these agencies. Gordon Brown, the British finance minister, recently announced that the ECGD 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.
At the 1999 Group of Eight summit in Cologne, governments agreed to work towards common environmental guidelines for export finance within the OECD framework and to complete the task within two years. Today's OECD meeting in Paris must deal with this mandate.
But the chances of significant reform are slim, given the entrenched national interests. The OECD's trade directorate, which oversees the negotiation process, is now close to stumbling into a repeat performance of last year's debacle - the collapse of the Multilateral Agreement on Investment.
One of the results of the Seattle protests is that governments and international organisations have realised the need for more transparency and further collaboration with environmental groups and trade unions. But many ECAs are still far from such a change of mind.
Meanwhile, the legality of ECA subsidies has been placed beyond debate. The Uruguay Round trade agreement explicitly exempts those ECAs that have agreed to common standards on loan interest rates.
There is no reason why these agencies could not also agree to put an end to their reckless competition in financing ever larger social-ecological debacles.
Around the world, a growing number of environmental, development, church and human rights groups have a message that must be heard. The lack of common environmental and social standards for ECAs has led to a misuse of public resources, and has undermined the long-term interests of everyone living on this planet.
The author is director of the international programme at Environmental Defense, a US environmental organisation
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