Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States

EXPORT-IMPORT BANK
of the UNITED STATES

REPORT TO THE U.S. CONGRESS
ON EXPORT CREDIT COMPETITION AND
THE EXPORT-IMPORT BANK OF THE UNITED STATES

FOR THE PERIOD
JANUARY 1, 2005 THROUGH DECEMBER 31, 2005

JUNE 2006

2005 Competitiveness Report
Table of Contents
Executive Summary .............................................................................................................. 1
PART I. EVALUATING CORE COMPETENCIES
Chapter 1:

Introduction .................................................................................................... 3

Chapter 2:

Competitiveness Framework
Section A: Factors Influencing Export Finance.............................................. 7
Section B: ECAs’ Mission and Place in Government...................................... 11

Chapter 3:

Core Business Policies and Practices
Section A: Cover Policy and Risk-Taking ....................................................... 13
Section B: Interest Rates................................................................................. 17
Section C: Risk Premia.................................................................................... 19
Section D: Ex-Im Bank’s Core Competitiveness............................................. 21

Chapter 4:

Comparison of Major Program Structures
Section A: Large Aircraft................................................................................. 23
Section B: Project Finance .............................................................................. 29
Section C: Co-Financing “One-Stop-Shop” .................................................... 33
Section D: Foreign Currency Guarantees ....................................................... 37
Section E: Ex-Im Bank’s Major Program Competitiveness ........................... 43

Chapter 5:

Economic Philosophy and Competitiveness
Section A: Trade-related Tied and Untied Aid ............................................... 45
Section B: Market Windows ........................................................................... 51
Section C: U.S. Philosophy and Ex-Im Bank Competitiveness ...................... 55

Chapter 6:

Public Policies – Stakeholder Considerations
Section A: Introduction................................................................................... 57
Section B: Economic Impact........................................................................... 59
Section C: Foreign Content ............................................................................. 63
Section D: Local Costs..................................................................................... 67
Section E: U.S. Shipping Requirements ......................................................... 71
Section F: Ex-Im Bank’s Public Policy Competitiveness................................ 75

Chapter 7:

Results ............................................................................................................ 77

PART II: EMERGING ISSUES
Chapter 8: Commercialization of the ECAs
Section A: Overview ........................................................................................ 79
Section B: Portfolio Management................................................................... 81
Section C: High Income OECD Markets......................................................... 83
Section D: National Content v. National Interest (Made in vs. Made by) .... 85
Chapter 9:

Emerging Market ECAs of China ................................................................... 87

PART III: APPENDICES
Appendix A: Calculation of Ex-Im Bank Grade.............................................. 99
Appendix B: Purpose of Ex-Im Bank Transactions........................................ 101
Appendix C: Exporter and Lender Survey Results......................................... 103
Appendix D: G-7 Export Credit Institutions .................................................. 107
Appendix E: Ex-Im Bank Foreign Content Support ...................................... 109
Appendix F: Tied Aid Report .......................................................................... 113
Appendix G: Human Rights and Other Foreign Policy Considerations ........ 127
Appendix H: Equal Access for U.S. Insurance ............................................... 129
Appendix I: Trade Promotion Coordinating Committee (TPCC) .................. 131
Appendix J: Efforts to Promote Renewable Energy Exports ......................... 133

Executive Summary
Overview
The 2005 Competitiveness Report provides a comprehensive evaluation of the
competitiveness of the Export-Import Bank of the United States (Ex-Im Bank) in its
medium- and long-term programs during calendar year 2005. This evaluation is based
on information gathered from a variety of sources, including a survey of, and focus
group discussions with, exporters and lenders. The assessment also uses data from
sources such as the Organization for Economic Cooperation and Development (OECD),
the G-7 export credit agencies (ECAs), and selected non-OECD export credit agencies in
reaching its conclusions.
The format and content has changed slightly from previous reports. This year’s report is
divided into three parts. As in the past few years, it retains the grading of the Bank’s
core programs and policies, that are discussed in Part I. A new section, which is devoted
to emerging issues, appears in Part II. The appendices that appeared in previous
reports follow in Part III.
Major trends that the Report identified in 2005 include:
•
•

•

Globalization and economic growth in emerging markets are creating
powerful change in the sources of export financing, reducing the role of ECAs.
Emerging economies are increasingly becoming suppliers of capital goods.
China’s exports of capital goods, in particular, have grown by over three-fold
since 2000. This trend is leading some emerging countries to become
important suppliers of official export credits.
Traditional ECAs are becoming more flexible and focusing on supporting
exports “made by vs. made in” which is adding a new competitive dimension.
Also, ECAs are redefining their mission and how they do business—in many
ways behaving like private sector entities.

Emerging Issues
For the 2005 Report, a new part has been devoted to identifying emerging issues in the
traditional ECA business. This part includes a chapter relating to changes in how ECAs
are doing business (Commercialization of the ECAs) and another chapter that continues
last year’s introduction of three emerging market ECAs, by focusing on the policy
objectives and program details of the largest of these economies: China. The purpose of
this part is to provide an early look at the developments that may have a significant
impact on Ex-Im Bank’s competitiveness in the future.

1

Figure 1: Definition of Grades
Grade
A+

A
A-/B+
B
B-/C+
C

D

F
NA

Definition
Fully competitive compared to other ECAs. Consistently equal to the (or is the
sole) ECA offering the most competitive position on this element. Levels the
playing field on this element with the most competitive offer from any of the
major ECAs.
Generally competitive compared to other ECAs. Consistently offers terms on this
element equal to the average terms of the typical major ECA. Levels the playing
field on this element with the typical offer from the major ECAs.
Level of competitiveness is in between grades A and B.
Modestly competitive compared to other ECAs. Consistently offers terms on this
element equal to the least competitive of the major ECAs. Does not quite level
the playing field on this element with most of the major ECAs.
Level of competitiveness is in between grades B and C.
Barely competitive compared to other ECAs. Consistently offers terms on this
element that are a notch below those offered by any of the major ECAs. Puts
exporter at financing disadvantage on this element that may, to a certain extent, be
compensated for in other elements or by exporter concessions.
Uncompetitive compared to other ECAs. Consistently offers terms on this element
that are far below those offered by other major ECAs. Puts exporter at financing
disadvantage on this element so significant that it is difficult to compensate for and
may be enough to lose a deal.
Does not provide program (Note: The Exporter and Lender Survey included a
grade of “F” in the event no Ex-Im Bank program was available.)
Does not have experience with policy/program.

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Chapter 1: Introduction
Background
Pursuant to its Charter (the Export Import Bank Act of 1945, as amended), Ex-Im Bank
is mandated to provide U.S. exporters with financing terms and conditions that are
competitive with those made available by foreign governments to their exporters. The
purpose of this report, which is required by Section 2(b)(1)(A) of the Charter, is to
measure the effectiveness of Ex-Im Bank’s programs and policies in meeting the
competitiveness mandate during calendar year 2005.
Scope
This report compares Ex-Im Bank’s competitiveness with that of the other G-7 ECAs, as
these ECAs historically have accounted for roughly 80% of medium- and long-term
official export finance. In addition, the Competitiveness Report focuses on mediumand long-term export credits, which comprise the bulk of official export finance and
therefore are subject to the most intense international competition. Finally, Ex-Im Bank
is one of only a few official ECAs that continues to provide short-term financing. Hence,
any comparison would be extremely limited.
Quantitative comparisons and
information on each of the G-7 ECAs can be found in Chapter 2.
Methodology
Using the “report card” methodology that was introduced in 2002, this year’s
Competitiveness Report provides a grade for the competitiveness of Ex-Im Bank
support. The intention of this approach is to individually evaluate the essential
components of an Ex-Im Bank financial program and to compare these results with the
capabilities of our primary foreign ECA competitors.
In addition, the survey of exporters and lenders provides respondents the opportunity to
evaluate Ex-Im Bank’s competitiveness on individual program factors and public policy
issues as they relate to our G-7 ECA counterparts (see below for information on the
survey). However, because the economic philosophy and public policy issues do not
affect every case – and because not all of them can be evaluated on a comparable basis
with other ECA policies – the Report only notes the direction of the potential
competitiveness impact on an individual transaction when one or more of these factors
is rated noticeably different than our ECA counterparts.
Consistent with previous years’ Competitiveness Reports, the Bank’s analysis and
competitiveness grades draw upon: 1) objective policy, programmatic and procedural
information about other ECAs obtained from a variety of sources; and 2) subjective

3

information provided by the survey of the U.S. exporting community and focus group
discussions with exporters and lenders.
Survey Methodology
The Bank is required by its Charter to conduct an annual survey of exporters and
lenders to determine their experience in competition supported by official export
finance during the last calendar year. Ex-Im Bank revised its survey in 2003 to mirror
the grading methodology adopted in the 2002 Competitiveness Report. This provided
survey recipients the opportunity to provide an assessment of Ex-Im Bank’s
competitiveness in different financing programs by selecting defined grades from A+
(fully competitive) to F (does not provide program). In addition, survey recipients were
asked to note whether certain public policies had a positive or negative impact on the
Bank’s competitiveness. After each section, recipients had space to provide qualitative
comments on each of their responses. Finally, for the third year, the Bank expanded its
distribution mechanism by sending the survey to recipients over the internet with the
capability of respondents to complete and return the survey in the same manner.
Recipients could also complete and return the survey either by mail or facsimile if the
internet option was not available or desirable. By using the internet distribution, Ex-Im
Bank has tried to reach a greater number of Bank customers as respondents to the
survey with the explicit goal of gathering a broader and more representative population
of Bank customers.
Ex-Im Bank conducted a careful process to evaluate the quality of each survey response.
Some specific responses were discarded if a respondent graded a program with which it
clearly had no – and was not trying to get -- experience (the large aircraft and project
finance questions were the areas where this most frequently occurred). Additional
responses were discarded if they were based on something other than a comparison of
Ex-Im Bank’s medium- and long-term programs with those of other ECAs. Appendix C
provides specific information regarding the survey.
Focus Groups
In addition to the annual survey of the export community, this year’s report also
incorporates the results from two focus group discussions – one with commercial
lenders and another with exporters. The focus groups provided a venue for members of
the export community to supplement their survey responses with anecdotal experience,
as well as more comprehensive information on market trends. The results of these
discussions are included in the “exporter and lender survey results” section of each
chapter.

4

Structure of the Report
This year’s report has adopted a different organizational and presentational structure.
This new format is intended to provide a concise assessment of Ex-Im Bank’s
competitiveness on the standard specific program features in Part I. (core business
policies and practices, major program structures, economic philosophy and
competitiveness, and public policies). In addition, a new section has been added: Part
II, which identifies several key emerging issues which, when taken together and
combined with the findings of Part I, yields a broader, more comprehensive vision of the
present, and a possible predictor of the future.
Incorporated in the new Part II, and as a follow-up to the Emerging Market ECAs
section that was presented in last year’s Competitiveness Report (as Appendix F), Ex-Im
Bank has included a report that focuses exclusively on the Chinese ECAs (The ExportImport Bank of China, Sinosure and the China Development Bank) and provides a more
detailed view of the Chinese export promotion strategies and the roles these various
government financing entities are playing to support the country’s overall objectives.
Given the growing prominence of the Chinese ECAs, this presentation has been moved
from an Appendix to an independent “in the body of the report” chapter.
Report
The Report proceeds as follows: Part I describes the international framework within
which official ECAs operated in 2005 and the philosophies and missions of competing
G-7 ECAs. In Part I, Chapters 3 – 6 consists of separate sections evaluating Ex-Im
Bank’s competitiveness in the core financing elements of official export credit support.
Next, the report provides a comparative assessment of how well the financing elements
are packaged into major programs (i.e., aircraft, project finance, co-financing and the
foreign currency guarantee). Further, the evaluation of competitiveness addresses U.S.
economic philosophy and competitiveness regarding tied and untied aid and market
windows. Finally, the report evaluates stakeholder considerations embodied in public
policies and the long-term competitive implications of these policies on Ex-Im Bank
activity.
Part II is entitled “Emerging Issues” and contains chapters regarding the
Commercialization of ECAs and its components followed by a chapter that focuses on
the Chinese ECAs. The Executive Summary which precedes Part I provides an overview
of the major findings of the Report, incorporating the standard features with the
Emerging Issues, with an overall competitiveness report card grading Ex-Im Bank
against its G-7 ECA counterparts. The appendices follow the body of the Report, and
include a list of the purposes for Ex-Im Bank support, Ex-Im Bank efforts to support
renewable energy, and other materials intended to provide greater detail and insights.

5

6

Chapter 2: Competitiveness Framework
Section A: Factors Influencing Export Finance
Introduction
This chapter describes the world in which export credit agencies (ECAs) operate.
ECAs are facing a dramatic shift in how trade and business in general is being
conducted, driven largely by continuing globalization and robust growth in a number
of emerging markets. Further, the world-wide business climate, especially in certain
key emerging markets is affecting the nature and levels of financing from multiple
non-ECA sources, which in turn affects the nature and level of demand for ECA
export credit support, and how individual ECAs respond to these shifts.
International
Figure 2: World Exports of Goods and Capital Goods ($Bn)
Exports of Goods
World
OECD
Rest of World
Exports of Capital Goods
World
OECD
Rest of World

2000

2001

2002

2003

2004

2005

$6,447
$4,264
$2,183

$6,186
$4,104
$2,082

$6,481
$4,245
$2,236

$7,546
$4,885
$2,661

$9,124
$5,766
$3,358

$10,145
$6,095

$2,626

$2,474

$2,560

$2,894

$3,474

$3,855*

$2,015

$1,896

$1,919

$2,147

$2,504

$2,737*

$611

$578

$641

$747

$969

$1,118*

66%
77%

65%
75%

65%
74%

63%
72%

60%*
71%*

OECD Exports as % of
World Exports
Goods
66%
Capital Goods
77%
Source: WTO On-line Statistics Database
* Preliminary

$4,051

Figure 2 shows the growth in global trade of goods over the last five years, as
worldwide trade has increased in every year except 2001. While trade in goods has
increased in nearly every year for the OECD countries, the rest of the world has been
taking an increasing share of worldwide trade in goods (shown by the decreasing
percentage of OECD exports as a share of world exports). For example, in 2000, the
OECD accounted for 66% of all trade in goods. However, in 2005, OECD countries
accounted for an estimated 60% of all goods trade.
A similar trend with regard to OECD capital goods exports appears to be occurring as
well, with the OECD capital goods exports share of total world capital goods exports
going steadily downward from a high in 2000 of 77% to an estimated 71% in 2005.
This trend is important because it shows the emergence of the developing economies
7

in gaining the know-how and the equipment that produces goods—which at one time
was the province of the developed countries. Indeed, the exports of capital goods
from Brazil, China and India have nearly doubled over the last five years. China’s
exports of capital goods, in particular, have grown by nearly three-fold from $82.6
billion in 2000 to $268.3 billion in 2004 (and an estimated $350 billion in 2005).
Export Financing Trends
Figure 3 shows that G-7 new Medium and Long term official export credit volumes
increased during 2005 as compared to 2004 using estimated data.
Figure 3: G-7 New Medium- and Long-Term Official Export Credit Volumes
($Bn)
Canada
France
Germany
Italy
Japan
U.K.
U.S.
Total G-7
U.S. % G-7

2000
$4.7
$4.5
$10.3
$3.3
$10.8
$5.8
$9.6
$49.0
19.6%

2001
$8.7
$6.1
$5.7
$1.9
$9.2
$3.1
$6.8
$41.5
16.4%

2002
$8.4
$5.3
$5.9
$1.8
$5.7
$4.7
$7.7
$39.5
19.5%

2003
$8.1
$5.1
$5.7
$3.6
$11.5
$3.7
$8.6
$46.3
18.6%

2004
$8.6
$7.9
$9.5
$5.5
$10.8
$5.3
$8.8
$56.4
15.6%

2005*
$9.9
$9.8
$11.3
$6.8
$9.5
$3.7
$8.7
$59.7
14.6%

Source: 2000 through 2004, OECD Statistics on Export Credit Activity. 2005, *Estimated from
publicly available sources.

On the other hand, during the same time period, the levels of private capital flows to
emerging markets have also risen.
Figure 4: Private Capital Flows into Emerging Markets ($Bn)
2000

2001

2002

2003

2004

2005

Private
Lending

$ 38.1

-$17.9

$1.6

$94.0

$147.2

$180.0

Investment
Direct
Portfolio

$161.9
$144.6
$ 17.3

$148.4
$139.9
$8.5

$118.8
$117.7
$1.1

$134.7
$97.6
$37.1

$182.1
$143.8
$38.3

$219.6
$157.9
$61.7

Total

$200.0

$130.5

$120.4

$228.7

$329.3

$399.6

Source: Institute of International Finance, “Capital Flows to Emerging Market Economies”, March 2006.

As shown in Figure 4, a significant factor impacting ECA activity levels during 2005
was the high degree of private sector involvement with respect to emerging markets,
with private capital flows reaching an all-time high of $400 billion compared to the
8

previous high of $329 billion in 2004. In fact, overall capital flows to the emerging
markets as a percentage of their GDP are four times greater than net official aid flows.
The overall increase in private capital flows to the emerging markets stems from a
number of factors. Specifically, greater overall stability, ongoing structural reforms
(legal, banking, regulatory), higher than normal liquidity including local currency
financing, lower world-wide interest rates and the pursuit of higher yields, and strong
economic fundamentals have together served to create a highly favorable climate.
Trends in 2005: Focus Group Discussions
Both the lender and exporter focus groups identified very similar trends during 2005
that they believed impacted their ability to successfully conclude export transactions
vis-à-vis their foreign competition. The essence of the discussions was a perception
that – compared to Ex-Im Bank -- the major G-7 ECAs have much greater autonomy
and flexibility to work with their respective exporting communities in a streamlined
and effective way. Moreover, there also exists a broad and mutual understanding
regarding, and willingness to cooperate on practices and transactions, that leads
toward a common goal by all parties involved, both private and public.
A key trend has been the rise in the number of multi-sourced transactions among
competitor countries in which a single “consortium” contract with the buyer is
possible but with capital goods being sourced from two to four and sometimes five
markets. Further, both groups acknowledged having observed a shift in a number of
ECAs’ flexibility and focus on supporting exports “made by vs. made in” and that this
new dimension seems to be adding yet another competitive factor to the landscape.
Market Overview
2005 was a year of significant growth in the emerging markets with China, Brazil,
India, and Russia commanding much of the attention as these countries’ economic
situations improved and the need for rehabilitation and/or creation of infrastructure
projects dominating the scene. It was also noted that these countries are not only
recipients of export credits from the major ECAs, they are also becoming more
important players as providers of export credits, with China mentioned most often in
the power, telecommunications, transportation/railways sectors. In addition, the
need for traditional export credits was supplanted by an abundance of private and
local financing in these markets, whereas the need for ECA participation was more
concentrated in the higher risk markets.

9

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Chapter 2: Competitiveness Framework
Section B: ECAs’ Mission and Place in Government
The Role of Export Credit Agencies
The central purpose of an export credit agency (ECA) has been to finance domestic
exports, and there are numerous ways for an ECA to accomplish its mission. There are
two influences on how an ECA will set its strategy to meet its purpose. The first
influence is the OECD Arrangement, which sets the most favorable terms and conditions
that may be offered for official export credit support. Within these multilateral rules, or
parameters, individual ECAs have latitude to pursue their own national policies in
support of their country’s exports. The second influence is the ECA’s mission as defined
by its sponsoring government, which also impacts an ECA’s ability to adapt to changing
market circumstances. Both of these factors affect how ECAs will compete with each
other in promoting their respective governments’ national interests.
Ex-Im Bank’s Mission and Place in Government
Ex-Im Bank is the official U.S. government export credit agency. Ex-Im Bank’s mission
and governing mandates are codified in its Congressionally approved Charter (ExportImport Bank Act of 1945, as amended). Ex-Im Bank’s core mission is to support U.S.
exports and jobs by providing export financing that is competitive with the official
export financing support offered by other governments. The public policy goal of this
mandate is to enable market forces such as price, quality and service to drive the foreign
buyer’s purchase decision, not government intervention or the temporarily exaggerated
perceptions of risk by private market participants. This mandate effectively directs ExIm Bank to fill market gaps that the private sector is not willing or able to meet, namely
competitive financing (e.g., interest rates and repayment terms) and the ability to
assume reasonable risks that the private sector is unable to cover at a moment in time.
To support its core mission, Congress has also legislated that Ex-Im Bank’s financing be
conditioned on:
• Supplementing, not competing with, private sector financing, and
• The finding of reasonable assurance of repayment.
Decisions on transactions should be based solely on commercial and financial
considerations, unless the transaction:
• Fails to comply with Ex-Im Bank’s Environmental Procedures and Guidelines;
• Causes an adverse economic impact on the U.S. economy; or
• Does not meet various statutory and executive branch parameters.

11

All of these directives aim to achieve a public policy goal and reflect the interests of ExIm Bank stakeholders, such as NGOs, other U.S. government agencies, labor and
financial intermediaries. Hence, Ex-Im Bank is required to strike a fine balance among
multiple, sometimes competing, goals and objectives. At the same time, Ex-Im Bank is
expected to provide the U.S. exporting community with financing that is competitive
with officially supported offers made by our foreign government counterparts –
institutions that most often have fewer public policy constraints to evaluate when
deciding whether to provide financing support. Given the G-7 ECAs’ widely varying
missions, the formula with which to compare Ex-Im Bank’s competitiveness against
these ECA counterparts is neither simple nor direct.

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Chapter 3: Core Business Policies and Practices
Section A: Cover Policy and Risk-Taking
Introduction
As OECD Arrangement negotiations have leveled the playing field in most technical
areas such as interest rates, fees and repayment terms, the willingness of a particular
ECA to take a variety of risks across a broad spectrum of countries has become a critical
competitive aspect of an ECA’s product offering. An ECA’s willingness to provide risk
support in a particular market is generally referred to as “cover policy.” The extent to
which an ECA has a relatively liberal or restrictive cover policy can have a significant
impact on an exporter’s ability to provide financing support in their target markets: if
the ECA is not open to providing cover in the exporter’s market, the exporter may be
unable to offer a competitive sales and financing package. ECAs determine cover policy
by assessing the degree of political and commercial risk in a market and then adjusting
the extent of their appetite for such risk consistent with their underwriting approach.
The tools for that calibration include parameters such as transaction size limits,
repayment term limits, and/or volume limits.
ECA’s further refine the availability of their support by adjusting their cover policy
depending on the type of borrower risk they are being asked to assume. For example, in
some markets an ECA may be comfortable with the risks of the banking sector, but not
comfortable to the same degree with the risks of corporate borrowers. Therefore, the
ECA would have a cover policy that required a commercial bank guarantee for all
corporate borrowers. As the pace of privatization in the developing world accelerates,
ECAs are increasingly being asked to cover non-sovereign borrower risk.
Ex-Im Bank’s Policy and Practice
Ex-Im Bank generally will support transactions without limitation as long as there is a
reasonable assurance of repayment for each transaction as required by Ex-Im Bank’s
Charter. One key exception to that requirement occurs when Ex-Im Bank is statutorily
prohibited from doing business in a particular market, generally as a result of official
sanctions. In 2005, Ex-Im Bank was legally prohibited from providing support in nine
countries (Cambodia, Cuba, Iran, N. Korea, Laos, Libya, Myanmar, Sudan, and Syria).
Statutory prohibitions excepted, Ex-Im Bank’s restriction on provision of cover in a
given market pertains to the creditworthiness of a transaction, not portfolio controls.
Thus, U.S. exporters and lenders enjoy a competitive benefit from the absence of
country and sector ceilings on Ex-Im Bank’s cover policy. Further, Ex-Im Bank is
generally open in more markets with fewer restrictions than most other ECAs. For
example, Ex-Im Bank is open without restriction (or with limited restrictions) in 60% of
the applicable countries.

13

In its willingness to take risk in a broad range of countries, Ex-Im Bank is one of the
most aggressive and shares this “title” with several of the other ECAs.
G-7 ECAs’ Policies and Practices
Historically, Ex-Im Bank has been highly competitive in its willingness to take risk
across a broad spectrum of borrowers and countries. In recent years, however, this
competitive advantage has begun to erode, both in terms of the extent to which Ex-Im
Bank is open in important markets and in the willingness of Ex-Im Bank to take private
sector risks.
In 2004 and 2005, a number of our G-7 competitors attained rough comparability in
terms of the general availability of cover, with one ECA taking the lead as the least
restrictive ECA. Moreover, most of the G-7 ECAs were open with no or limited
restrictions in several key markets in which Ex-Im Bank was closed or heavily restricted.
In addition to Iran and Libya 1 in which Ex-Im Bank was closed for statutory reasons,
other ECAs were open in Algeria, Pakistan, and Venezuela, while Ex-Im Bank was closed
for at least part of the year. (Ex-Im Bank opened in Pakistan in March of 2005 and in
Algeria in September of 2005). Several of these markets are among the most active
markets for the G-7 ECAs, including Algeria, Iran and Venezuela.
Another area where Ex-Im Bank has historically shown a greater willingness and ability
to take risk has been with private obligors. However, whether by number of
transactions or by total amount financed, three G-7 ECAs are actively taking the risk of
private obligors, and can be considered to have “caught up” with Ex-Im Bank in this
area.
The one area where the other G-7 ECAs have not yet gained on Ex-Im Bank is in the
extent to which ECAs are willing to take the risk of average and small-sized corporate
borrowers. Further dividing the private sector borrowers into three categories – bank
guaranteed and large corporates, average-sized corporates, and small corporate
borrowers – yields insight into the extent to which ECAs are willing to take the higher
risk of smaller private sector borrowers. Of the four G-7 ECAs that take a significant
amount of private sector risk, Ex-Im Bank is the only ECA that predominately takes the
risk of small corporate borrowers. Nonetheless, 2 of the 3 other G-7 ECAs are actively
taking the risk of average-sized corporate borrowers.
Exporter and Lender Survey Results
In 2005, the exporters and lenders focused their comments on their perception that ExIm Bank has become relatively (to previous years and some other ECAs) more “risk
averse” with respect to country risk and, to a certain extent, borrower risk. The data
shows that several other ECAs are making significant strides in this area and the
1

Ex-Im Bank opened for cover in Libya on March 23, 2006, which was outside the scope of this 2005 Report.

14

exporters and lenders are concerned that Ex-Im Bank is not committed to maintaining
this competitive advantage.
Conclusion
As illustrated, Ex-Im Bank’s overall competitive dominance in cover policy among the
G-7 ECAs has diminished somewhat as: (a) many of the other ECAs have closed the gap
on taking country risk; and (b) some are closing the gap on taking borrower risk. The
net outcome is that Ex-Im Bank is generally competitive in its cover policy.

15

16

Chapter 3: Core Business Policies and Practices
Section B: Interest Rates
Introduction
The interest rate charged to the buyer is one of the most important components
of an export finance contract’s competitiveness. The OECD Arrangement sets
minimum fixed interest rates for export transactions that receive official
financing support in the form of direct loans or an interest rate makeup program
(IMU) in order to ensure a level playing field for all ECAs. These minimum
interest rates, or Commercial Interest Reference Rates (CIRRs), are fixed,
market-related rates that are calculated using a government’s borrowing costs
plus a spread of 100 basis points and are set for each currency based on the
borrowing costs of the government that issues the currency. All contracts offering
financing in this currency should utilize the same CIRR rate. Consistent with the
trend identified in 2004, the attractiveness of fixed rate official financing support
in 2005 declined in favor of pure cover (e.g., insurance or guarantee) where
private lenders set their own interest rates, generally on a floating rate basis.
Ex-Im Bank’s Policy and Practice
Ex-Im Bank sets its fixed interest rate CIRR monthly using the CIRR procedures
outlined in the OECD Arrangement. In fiscal year 2005, Ex-Im Bank did not
authorize any direct loans under the direct loan program. Because of the
attractiveness and flexibility of Ex-Im Bank’s guarantee and insurance programs
and the relatively lower floating rate achieved by private lenders in the market, all
buyers preferred this option to direct loans.
G-7 ECAs’ Policies and Practices
All G-7 ECAs offer both fixed (CIRR support) and floating (pure cover) rate
financing. There is no competition between the G-7 ECAs on standard fixed rate
financing because the rates are uniform. However, there is some variability in the
rates offered under floating rate financing that is attributable both to the quality
of the cover and market movements (floating interest rates change constantly
based on investor appetite and availability of funds in the market). For example,
Ex-Im Bank’s pure cover products are generally attractive due to the fact that
they cover 100% of all risks, thus leading to lower interest rates charged by the
private lenders. On the other hand, some of the G-7 ECAs cover only 90 or 95% of
the risks, thus leading to higher interest rates charged by the private lenders as
the means to compensate for their risk retention. Overall, the trend in 2005 for
the G-7 ECAs was towards an increasing use of floating rate financing as
compared to fixed rate financing due to the ability of private lenders to find

17

innovative techniques to reduce the interest rates charged to the buyers (shown
in Figure 5).
Figure 5: Long-Term Export Credits by Type of Credit (all OECD
member states) ∗
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1998

1999

2000

2001

Pure Cover

2002

2003

2004

CIRR Rate Support

Exporter and Lender Survey Results
None of the survey respondents, or any of Ex-Im Bank’s customers, used the
Direct Loan program in 2005. Instead, the exporting community used the
insurance and/or guarantee products, which generate better rates on a floating
rate basis.
Conclusion
Consistent with previous years’ results, competition between G-7 ECAs on the
basis of interest rates was not a significant factor in 2005 due to the OECD
mandated floors. Additionally, there is an ever-increasing preference among the
exporting community for the insurance and guarantee products, which generate
lower interest rates for the borrowers. Overall, Ex-Im Bank is generally
competitive in the area of interest rates as compared to other G-7 ECAs.

∗

Source: 2004 Report on Export Credit Activities. TD/ECG(2005)13.

18

Chapter 3: Core Business Policies and Practices
Section C: Risk Premia
Introduction
Risk premia, or exposure fees, are charged by Export Credit Agencies (ECAs) as
compensation for the risk they assume when they lend directly, guarantee or
insure a loan. In 1999, the OECD adopted the Knaepen Package which defined
the elements for the determination of sovereign fees and set Minimum Premium
Rates (MPR) for sovereign transactions. Those rates also serve as the floor in
determining the fees for non-sovereign transactions.
Several factors influence the level of the MPR. These factors are the percentage of
cover, the quality of the product (i.e. unconditional guarantee vs. conditional
insurance) and the claims payment policy. The latter two factors determine
whether a product is considered “above standard,” “standard” or “below
standard.” Because they provide different degrees of cover and have different
claims payment policies, the three types of products are priced differently with
“above standard” being the most expensive and “below standard” the least
expensive. The surcharges/discounts that correspond to each of the three
products ensure a level playing field among the different ECAs and are known as
the “related conditions surcharges” at the OECD. There are also
surcharges/discounts that are applied when the cover differs from the 95% level.
For example, for 100% cover, there is a surcharge between 5.3% and 14.3%,
depending on the risk level of the country, and for 90% cover there is a discount
of 5.4%. The Knaepen Package establishes only a floor for the fees ECAs may
charge. Each ECA may add other surcharges to the MPR according to their
individual risk assessment process.
Ex-Im Bank’s Policy and Practice
For sovereign transactions Ex-Im Bank charges the MPR as set by the OECD. For
non-sovereign transactions, Ex-Im Bank uses a rating methodology similar to the
one used by credit rating agencies to arrive at a particular rating for each
borrower. If the borrower is rated the same as or better than the sovereign, then
the applicable fee will be the MPR. If the borrower is rated worse than the
sovereign, an incremental surcharge is added to the MPR.
G-7 ECAs’ Policies and Practices
The G-7 ECAs generally charge the MPR for sovereign transactions. However,
with regard to non-sovereign transactions, there are fairly significant differences
in both the risk rating methodologies and pricing by the G-7 ECAs which leads to

19

a divergence in the fees charged for this borrower class. Many of those
differences stem from different underwriting processes, as well as different
claims experience, that lead to different ratings and differences in pricing for the
same borrower.
Exporter and Lender Survey Results
Exporters and lenders are generally satisfied with the premia Ex-Im Bank
charges.
Conclusion
Although the introduction of the Knaepen package in 1999 provided all OECD
members with access to a level playing field on premium, differences in
underlying financial goals have led several ECAs to treat the minimum premium
more as a reference point (to which significant surcharges are applied for any
type of non-sovereign risk) then as a benchmark. As Ex-Im Bank’s very healthy
financial situation is strongly supported by the MPR, Ex-Im Bank has historically
priced at or near the MPR for a majority of cases. Hence, again in 2005, Ex-Im
Bank rates as fully competitive on risk premia.

20

Chapter 3: Core Business Policies and Practices
Section D: Ex-Im Bank’s Core Competitiveness
Overall, Ex-Im Bank’s core business policies and practices were graded an “A”,
generally competitive, meaning that Ex-Im Bank consistently offered terms that
were equal to the average terms offered by the typical ECA such that the core
programs level the playing field with the standard ECA offer. Figure 6
illustrates how Ex-Im Bank fared competitively on sub-elements of each
program, in addition to an aggregate grade for each program. Of particular note
is that no element received less than an A- and 1/3 of the elements received an
A+. The grades are derived from both the survey results and the Bank’s analysis
of how it performs in comparison to its G-7 counterparts.
Figure 6: Grading of Ex-Im Bank’s Core Competitiveness, 2005
Key Elements
Cover Policy
Scope of Country Risk
Depth of non-sovereign risk
Breadth of availability (e.g., restrictions)
Interest Rates
CIRR
Risk Premium
Sovereign
Non-sovereign
Total Average Grade

21

Grade
A
AA+
A
A
A
A+
A
A+
A

22

Chapter 4: Comparison of Major Program Structures
Section A: Large Aircraft 1
Introduction
Since the early 1980s, Annex III of the OECD Arrangement called the Sector
Understanding on Export Credits for Civil Aircraft (ASU) has embodied the guidelines
that apply to ECA-supported aircraft financings. Designed to address an industry with
significant economic and strategic importance within the United States and Europe, the
ASU has generally facilitated a “level playing field” for the official OECD export credit
agencies that support their domestic aircraft manufacturers. Despite significant changes
in the aircraft manufacturing industry, the aircraft finance industry and the airline
industry, these guidelines have not changed since they were first agreed. As a result, a
concerted effort is currently underway at the OECD to update the ASU, which if
successful, may have a significant impact on the activity of the ECAs that support aircraft
exports.
The section of the ASU that pertains to large aircraft is known as the Large Aircraft Sector
Understanding, or LASU. Today there are two primary producers of large aircraft in the
world: Boeing in the United States and Airbus in Europe. Accordingly, the Participants
that are active under the LASU are the United States and the European Union, which, in
this context, represents the interests of France (Coface), Germany (Hermes) and the
United Kingdom (ECGD), collectively known as the “Airbus ECAs”. The LASU sets a
minimum cash payment of 15%, an interest rate structure for ECA direct loans and a
maximum 12-year repayment term. In implementing the LASU, Ex-Im Bank and the
Airbus ECAs have agreed not to provide support for large aircraft into those producer
country markets that do not have a government supported import program (also known
as “home market countries”, which currently includes the United States, France,
Germany, the United Kingdom and, as a result of a separate agreement between the
Airbus ECAs and Ex-Im Bank, Spain).
In recent years, both Embraer in Brazil and Bombardier in Canada have begun producing
and delivering regional jets with more than 70 seats in addition to smaller aircraft.
Neither Canada nor Brazil routinely follow or apply the ASU guidelines, in part because
the Canadian ECA, EDC, believes it is not compelled to follow the OECD Arrangement
when supporting aircraft through its market window, and in part because Brazil is not a
member of the OECD. In 2004, the United States, the European Union, Canada and
Brazil began discussions on revising the ASU.

1

“Large aircraft” are defined as airplanes with 70 seats or more. Comparably sized aircraft configured for cargo
operations also are included in the defined term “large aircraft”.

23

Ex-Im Bank’s Policy and Practice
Ex-Im Bank supports large aircraft transactions through its guarantee loan program, in
which the Bank provides a 100% unconditional payment guarantee of the repayment of
principal plus interest at the contractual rate. In addition to U.S. dollar financings, Ex-Im
Bank will also guarantee loans denominated in foreign currencies. In 2005, Ex-Im Bank
guaranteed foreign currency loans for eight (8) aircraft transactions (please see Chapter
4D for further information on Ex-Im Bank’s foreign currency guarantee program).
Finally, during 2005, Ex-Im Bank co-financed four (4) large aircraft transactions with
three different export credit agencies (ECGD of the United Kingdom, NEXI of Japan and
KEXIM of Korea). Please see Chapter 4C for further information on Ex-Im Bank’s cofinancing of large aircraft.
In 2005, Ex-Im Bank extended its offer, through September 30, 2006, for airlines and
aircraft operating lessors based in countries that adopt, ratify and implement the Cape
Town Treaty (including certain optional provisions) (i) to reduce by one-third (1/3) Ex-Im
Bank’s exposure fee on asset-backed large aircraft transactions and (ii) to provide a longer
repayment term and lower exposure fee on asset-backed spare engine transactions. The
Cape Town Treaty is an international treaty that will facilitate asset-backed financing and
leasing of aircraft and aircraft engines by reducing the risk in cross-border asset-backed
aircraft financing. Ex-Im Bank believes the decrease in risk due to the improved legal
environment resulting from the adoption and ratification of the Cape Town Treaty
justifies the exposure fee reduction and/or the extended repayment term. Since Ex-Im
Bank first adopted this initiative in 2003, airlines in Panama, Ethiopia, Pakistan, Oman
and Senegal have qualified for improved financing terms with respect to the export of a
total of 15 aircraft and 10 spare engines.
Airbus ECAs’ Policies and Practices
The Airbus ECAs provide support for large aircraft transactions that is very similar to that
provided by Ex-Im Bank. Since 2003, all three of the Airbus ECAs offer a 100%
unconditional guarantee for large aircraft financings and generally charge an upfront fee
of at least 3%, as does Ex-Im Bank. Accordingly, the Airbus ECAs and Ex-Im Bank now
compete on a basically “level playing field”.
Summary Data
2005 was a significant year for orders of large aircraft, with both Boeing and Airbus
dramatically increasing their orders over 2004 orders (see Figure 7). In fact, the total
number of orders for large aircraft more than tripled from 2004 to 2005, with Airbus
maintaining its slight advantage over Boeing in terms of number of aircraft ordered (but
not in terms of value of aircraft ordered). Most of these orders were from airlines outside
the United States, France, Germany and the United Kingdom and therefore will result in
exports for either Boeing or Airbus. Due to an expected significant increase in air travel
to, from and within China and India, a significant number of the orders for large aircraft

24

during 2005 were from airlines in China and India. 80% of Boeing’s 2005 orders were to
overseas buyers.
Figure 7: Orders of Large Commercial Jet Aircraft
1 2 0 0
1 0 5 5
1 0 0 2

1 0 0 0
8 0 0
6 0 0
4 0 0

3 3 4

3 6 6

3 7 5
2 5 1

3 0 0

2 5 0

2 8 4

2 7 7

2 0 0
0
2 0 0 1

2 0 0 2

2 0 0 3

B o e in g

2 0 0 4

2 0 0 5

A ir b u s

As indicated in Figure 8, since 2001, exports (by number of aircraft deliveries) have
accounted for a growing portion of the aircraft delivered by Boeing, exceeding 50% in
each of 2003, 2004 and 2005. During the five-year period since 2001, the percentage of
such exports supported by Ex-Im Bank has averaged 36% (ranging from a low of 27% in
2001 to a high of 44% in 2003).
Figure 8: Deliveries of Boeing Commercial Jet Aircraft

Domestic
Foreign
Foreign
supported
by Ex-Im
Bank
Total

2001
#
%
370
70%
157
30%

2002
#
%
199
52%
182
48%

2003
#
%
127
45%
154
55%

2004
#
%
142
50%
143
50%

2005
#
%
135
47%
155
53%

43
527

72
381

68
281

53
285

52
290

27%

40%

44%

37%

34%

Total
#
%
973 55%
791 45%

288
1,963

36%

As previously noted, the regional jet manufacturers in Canada (Bombardier) and Brazil
(Embraer) have recently begun producing large aircraft (i.e., regional jets with 70 or more
seats). Although to date the primary market for the smaller regional jets manufactured by
Bombardier and Embraer has been U.S.-based airlines, the larger regional aircraft
manufactured by Bombardier and Embraer are expected to appeal to a much more
geographically diverse group of airlines. Both regional jet manufacturers have received
orders for their larger regional jets from European based airlines, as well as from airlines

25

in Asia, South America, Africa and the Middle East. This is because some of the same
factors that caused U.S.-based airlines to acquire small regional jets (i.e., bringing
passengers from smaller cities to hub airports and more point-to-point flights between
smaller city pairs) apply to airlines outside the United States. However, because many
foreign airlines do not have “scope clauses” in their pilots’ contracts (which limited the
size of the regional jets that could be acquired by U.S.-based airlines), foreign airlines are
expected to be more interested in acquiring the larger regional jets. While the largest
regional jets available today still do not generally compete with the smallest commercial
aircraft sold by Boeing and Airbus, occasionally there is competition among
manufacturers of large aircraft and manufacturers of regional jets. As a result, in the
future, in some sales campaigns, it is possible that all four aircraft manufactures will be
competing for the same order as the large regional jets will be competing with the smallest
U.S. and European manufactured large aircraft. Figure 9 indicates the aircraft models
that could generate such competition, and Figure 10 shows orders for these aircraft.
Figure 9: Aircraft Models That May Result in Four-way Competition, 2005
Manufacturer
Boeing
Boeing
Airbus
Embraer
Embraer
Bombardier
Bombardier

Model
B-737-600
B-717 2
A-318
ERJ-190/195
ERJ-170/175
CRJ-900 3
CRJ-700

Maximum Range
(nautical miles)
3,050 nm
2,060 nm
2,850 nm
2,200 nm
2,000 nm
1,798 nm
2,000 nm

Seats
110 – 145
106 – 125
107 – 129
94 – 106
70 – 86
86 – 90
70 – 75

Figure 10: Orders of 70–130 Seat Jet Aircraft
2 0 0

1 5 0

1 0 0

5 0

0
2 0 0 1

B o e in g

2 0 0 2

2 0 0 3

A ir b u s

E m b ra e r

2 0 0 4

2 0 0 5

B o m b a r d ie r

Production scheduled to end 2006.
In early 2006, Bombardier announced that it would postpone production of the CSeries, a proposed new
aircraft with 110-130 seats. Instead, Bombardier will devote resources to its turboprop aircraft and possibly
explore enhancements to its existing family of large regional aircraft or developing a new aircraft in the 80100 seat range.

2
3

26

Exporter and Lender Survey Results
Exporters and lenders find Ex-Im Bank’s aircraft finance program to be very competitive.
Conclusion
Ex-Im Bank’s aircraft financing support continues to be competitive with the financing
offers provided by the Airbus ECAs. Exposure fees, foreign currency guarantees, cofinancing, and an aggressive risk posture all contribute to this assessment. The U.S.
exporting community believed that Ex-Im Bank remained very supportive of U.S. aircraft
exports during 2005.

27

28

Chapter 4: Comparison of Major Program Structures
Section B: Project Finance
Introduction
Project Finance (or limited recourse project finance) is one of the major
programs offered by Ex-Im Bank. Under this program structure, the lender has
recourse only to the assets and revenue generated by the borrower (i.e., covered
project), and cannot access the assets nor the revenue of the project sponsor to
repay the debt. This structure normally covers relatively large, long-term
infrastructure and industrial projects that benefit from ECA support because
financing terms in the private market (e.g. commercial banks) are often
unavailable or unfavorable due to the risk associated with such projects in
developing countries and the longer repayment period required to make these
projects economically feasible.
Private lenders often insist on ECA participation in project finance (PF)
transactions in order to share the risk with OECD government-backed ECAs.
ECAs are an important aspect of PF transactions, as they bring value to the
negotiation process between the PF lending consortium and the foreign buyer’s
government, and throughout the debt repayment period. Many private lenders
are unwilling to assume a project’s risk without ECA support. Therefore, ECAs
occupy a special niche in the field of project finance as an enhancer to a
transaction, especially in developing countries. Figure 11 shows the relative
importance of ECA project finance support in developing countries, where –
based on dollar volume – ECA participation represents approximately 10% of all
PF loans, as opposed to developed countries where ECA supported PF loans
constitute less than 1% of total PF loans.
Despite their added value to PF transactions, with increasing commercial bank
and other liquidity sources in the market, ECAs have seen a decrease in the total
dollar volume of the financing requests over the past years. (Figure 11 1 shows
the dominance of non-ECA financing in both developed countries (99.6% of total
PF financing) and developing countries (89.7%) However, the number of
requests to ECAs for PF support has remained constant due to the desire of
private lenders to benefit from the inclusion of ECAs in sharing the risk in these
transactions.

1

Source: Project Finance International, January 2006. (Note: The ECA project finance deals identified are
as reported by the OECD ECAs and may not include all ECA project finance deals completed in 2005. The
total volume of project finance deals comes from the Project Finance International and includes also
brown-field projects and refinancing deals).

29

Figure 11: Distribution of PF Loans by Level of Development and Share of
Total Market (in million $US), 2005
Other OECD
US Ex-Im
ECAs
Developed
countries

$304.5

$0.0

Developing
$928.0
$4,727.0
(84% of ECAs) (16% of ECAs)
countries

All ECAs

Non-ECA

Total

$304.5
$85,378.0 (99.6%) $85,682.5 (100%)
(less than .4% of DC)
$5,655.0
(10% of total DC)

$48,968.3 (89.7%) $54,623.3 (100%)

Ex-Im Bank’s Policy and Practice
Ex-Im Bank’s project finance program was created in 1994. In the developing
countries that represent Ex-Im Bank’s traditional markets, Ex-Im Bank is an
important player. Out of the total OECD ECA support for project finance in 2005
($5.655 bn), Ex-Im Bank’s share accounted for 16% of total dollars in developing
countries. (See Figure 11).
While ECA support in PF transactions is relatively small overall, it does have a
more important role to PF transactions to particular industries, which is the
reason why Ex-Im Bank support is continuously sought. (See Figure 12). In
particular, the petrochemicals and mineral resources/mining industrial sectors
use a relatively larger share of ECA backed PF support than the other six major
industry categories.

30

Figure 12: Distribution of PF Loans by Sector, 2005
100%
80%
60%
40%
20%

d
an
n

M

us
t ry
In
d

G
er
gy
En

an
d

ra
t io
en
e

C

ly
Pe
t
ro
in
ch
er
em
al
Re
ic
al
so
s
ur
ce
s
an
d
M
To
in
in
ur
g
ism
an
d
Tr
Pr
an
op
sp
er
or
try
ta
tio
n
an
W
d
at
St
er
or
Su
ag
pp
e
ly
an
d
Sa
ni
ta
tio
n

Su
pp

ns
m
un

om

an
d
re
Ag

ric
u

ltu

tio
ica

Fo
r

es
try

0%

Non-ECA

ECA

Overall, there are five main factors that characterize Ex-Im Bank’s competitive
posture in project finance. Those include: (1) 100% (of 85% of the US supply
contract) U.S. government-guaranteed support for all risks (political and
commercial) during both the construction and repayment periods, (2) willingness
to utilize the project finance flexibilities provided by the OECD Arrangement on
Officially Supported Export Credits with respect to pricing and repayment terms,
(3) financing of local costs (up to 15% of total financing), (4) availability for
capitalization of interest during construction and, (5) Ex-Im Bank’s commercial
approach to project analysis and risk mitigation.
G-7 ECAs’ Policies and Practices
G-7 ECAs offer similar coverage for project finance transaction with some
differences in the quality of the coverage. For example, Ex-Im Bank and ECGD
provide unconditional guarantees, EDC and JBIC provide direct loans, and the
other four G-7 ECAs provide conditional insurance. While Ex-Im Bank provides
a 100% unconditional guarantee cover for political and commercial risks, other
ECAs provide less than 100% cover. Insurer ECAs generally provide 90% to 95%
cover of the political and commercial risks. (Note: SACE now provides 100%
cover insurance product on a case-by-case basis.) Included in all the ECAs’ cover
is support for local costs up to the amount of the down payment (typically 15%)
and cover for capitalized interest that accrues during the construction period.

31

In 2005, the total dollar volume ($2.42 billion) of project finance deals notified
(as required by the OECD Agreement for project finance deals that apply certain
modifications to the standard repayment structure) was lower than in 2004
($2.85 billion). However, the total number of project finance deals notified has
remained unchanged from 2004 (20). This is a reflection of the increase in
market liquidity, which has led to a decrease in the dollar volume of financing
requests made to ECAs.
Exporter and Lender Survey Results
Of the survey respondents who had experience with Ex-Im Bank’s project finance
program in 2005, the reviews were more mixed than in previous years, but with
most offering highly positive comments. However several respondents noted the
need for faster response times, more flexibility and more effective eligibility
criteria. On balance, the project finance program was rated highly.
Conclusion
Despite decreasing dollar volumes in ECA-backed PF transactions, ECAs still play
a valuable role in terms of enhancing PF negotiations with their governmental
status and their relative importance to particular industries. With regard to ExIm Bank’s project finance program, it is generally competitive with those offered
by the other G-7 ECAs.

32

Chapter 4: Comparison of Major Program Structures
Section C: Co-Financing “One-Stop-Shop”
Introduction
“Co-financing” or “reinsurance” are terms used to refer to financing arrangements that
allow an exporter to market a single ECA financing package to a buyer interested in
procuring goods and services from two (or more) countries. Without co-financing, the
U.S. parties would need to secure separate financing contracts with each ECA to ensure
support for exports from various countries. The location of the largest share of the
sourcing and/or the location of the main contractor will generally determine which ECA
leads the transaction.
The lead ECA provides the applicant (buyer, bank or exporter) with export credit
support for the entire transaction. Behind the scenes, the follower ECA provides
reinsurance (or a counter-guarantee) to the lead ECA for its share of the procurement.
Thus, the lead ECA is able to provide a common documentation structure, one set of
terms and conditions, and one set of disbursement procedures for the entire
transaction. All parties benefit from the administrative ease of a streamlined financing
package. The growth of intra-European and international co-financing agreements
evidences that availability and ease of ECA co-financing have become important and
measurable competitive issues.
Ex-Im Bank’s Co-Financing “One-Stop-Shop” Arrangements
During 2005, Ex-Im Bank approved 11 transactions totaling $900 million, of which 3
were co-financed with EDC; 3 were co-financed with ECGD; 2 were co-financed with
NEXI 1 ; 1 was co-financed with SACE; 1 was co-financed with Korea Exim; and the
remaining 2 were co-financed as one-off transactions with ASHRA (formerly
IFTRIC/Israel). (See Figure 13 for a listing of specific transactions).

1

Note that one transaction was co-financed with ECGD and NEXI.

33

Figure 13: Ex-Im Bank "One-Stop-Shop" Co-Finance Transactions in 2005
Ex-Im Bank & Co-financing ECA
ECGD: United Kingdom

Market
Kenya

SACE: Italy
Russia
ECGD: United Kingdom
Kenya
K-EXIM: Korea
Korea
ECGD & NEXI: United Kingdom & Japan New Zealand
ASHRA: Israel

Brazil

ASHRA: Israel
NEXI: Japan
EDC: Canada
EDC: Canada
EDC: Canada
TOTAL

Brazil
Ethiopia
Brazil
Mexico
Brazil

Project
Aircraft
Heavy
Equipment
Aircraft
Aircraft
Aircraft
Medical
Equipment
Medical
Equipment
Aircraft
AG Equipment
Small Aircraft
AG Equipment

Amount
$115 million
$8.5 million
$115 million
$303 million
$225 million
$1.2 million
$1.2 million
$120 million
$875,000
$1.5 million
$460,000
$891,735,000

G-7 ECAs’ Policies and Practices
As shown below in Figure 14, the bulk of co-financing agreements exist among the G-7
European ECAs who have signed multiple framework agreements among themselves
and have been processing co-financed transactions since 1995. These agreements were
originally designed to help European ECAs manage their exposure. That is, EU ECAs
would seek reinsurance for third country content rather than cover it on its own book
for exports (a) to riskier markets; or (b) to markets where the ECA was close to reaching
its country limit.
Today, the utility of co-financing agreements to European ECAs is largely as an efficient
mechanism to deal with increased multi-sourcing and globalization. In addition, many
ECAs are addressing globalization by introducing flexible domestic content policies that
allow the ECAs to directly cover greater proportions of third country content in their
standard financing package (see Foreign Content Chapter). Moreover, ECA trends to go
into better markets (where they could capture greater profits and/or break even) make
co-financing less necessary from an exposure management perspective (because an ECA
doing business in a low risk market may be more willing to cover third country content
on its own instead of seeking co-financing/reinsurance from another ECA).
Nevertheless, current anecdotal and public data continues to show that co-financing and
reinsurance are used by G7 and other ECAs to facilitate financing for larger and high
profile transactions. In light of the foregoing, Ex-Im Bank will monitor the possible
competitive impact of these ECA policy shifts on co-financing activity of foreign ECAs.

34

Unlike most other ECAs, Ex-Im Bank does not require a formal bilateral framework
agreement before considering co-financing transactions. For those ECAs where Ex-Im
Bank has not been able to conclude a bilateral agreement, Ex-Im Bank will process
transactional co-financing requests on a case-by-case basis. However, the same
technical issues that prevented Ex-Im Bank from signing the bilateral framework
agreements (that include issues such as following the lead ECA’s claims and recovery
practices in the event of a default), have led some ECAs to reject Ex-Im Bank requests
for co-financing on a one-off basis. Moreover, transactional time constraints sometimes
discourage exporters or applicants to pursue co-financing on a one-off basis.
Figure 14: G-7 Co-financing “One-Stop-Shop” Agreements in 2005
Ex-Im
Ex-Im
ECGD
EDC
Hermes
Coface
SACE
NEXI

X
X
X
X

ECGD
X
X
X
X
X

EDC
X
X
X
X

Hermes

Coface

X
X

X
X
X

X
X
X

X
X

SACE
X
X

NEXI
X

X
X

X
X
X

X

Exporter and Lender Survey Results
Survey respondents who commented on co-financing indicated that Ex-Im Bank’s lack
of signed bilateral agreements makes the co-financing program less competitive than its
foreign counterparts. In particular, several exporters and lenders remarked that the
lack of co-financing arrangements has resulted in “Ex-Im Bank falling behind instead of
leading as European ECAs continue to aggressively expand co-financing agreements”
with non-OECD and some riskier ECAs.
Conclusion
Ex-Im Bank’s co-financing program is less available, and, to that extent, not quite
generally competitive with the programs of most of the other G-7 ECAs. The lack of
signed bilateral agreements with insurer ECAs is the main contributor to the Bank’s
disadvantage vis-à-vis foreign export credit agencies.
However, transactional
circumstances sometimes allow Ex-Im Bank to temper the competitive disadvantage by
pursuing co-financing on a one-off basis.

35

36

Chapter 4: Comparison of Major Program Structures
Section D: Foreign Currency Guarantees
Introduction
Officially supported export credits may be denominated in any currency. Since
international guidelines do not put any limits on currencies eligible for cover,
each ECA independently determines its own currency cover policies. In practice,
medium- and long-term export credits are usually denominated in U.S. dollars
and Euros. In each of the past five years, about 95 percent of officially supported
export credits with a repayment term of five-years or more were denominated in
U.S. dollars and Euros (see Figure 15). The remaining five percent were
denominated in a variety of currencies. Over time, ECAs have expanded the list
of currencies eligible for support. In 2000, ECAs supported only three non-G-7
country currencies (the Norwegian kroner, Danish kroner and the Swiss franc).
Since then, several currencies have been added, including the Algerian dinar, the
South African rand, the Czech koruny, the Colombian peso, the Malaysian ringgit,
the Mexican peso and the Thai baht (see Figure 16).
Figure 15: Long-Term OECD Export Credit Financing by Currency
Number of LT deals by Currency of Credit
90%
80%
70%
60%
50%

US dollar

40%
30%

All Other Currencies

Euro

20%
10%
0%
2000

2001

2002

2003

2004

Source: OECD Statistics on Export Credit Activities

Emerging market borrowers are increasingly interested in obtaining financing
where the obligation to repay is denominated in the borrower’s local (or
domestic) currency. Debt denominated in local currency enables borrowers to
reduce financing costs and limit exchange rate risks. The IMF and others

37

regularly cite these benefits when they advise emerging market borrowers to
incur debt in the same currency in which they earn revenue. Some ECAs are
responding to this increased demand by “testing” the local currency waters and
offering limited coverage for credits denominated in soft local currencies.
Figure 16: Currencies Covered by Export Credit Agencies
2000

2001

2002

Australian dollar
Canadian dollar
Colombian peso
Czech koruny
Danish kroner
X
X
Euro/Former ECU
X
X
Japanese yen
X
X
Malaysian ringgit
Mexican peso
Norwegian kroner
X
South African rand
Swedish Kroner
X
Swiss franc
X
X
UAE dirham
UK pound
X
X
US dollar
X
X
Source: OECD 2004 Report on Export Credit Activities

X

2003
X
X

2004
X
X
X

X

X
X
X

X
X

X

X

X

X

X
X

X
X

X

X
X
X
X
X

Ex-Im Bank Policy and Practice
Ex-Im Bank’s foreign currency guarantee program was introduced in 1980 in
response to the significant interest rate differential (commonly referred to as “the
interest rate illusion”) that existed between the U.S. dollar (a relatively high
interest rate currency at that time) and other low interest rate foreign currencies,
such as the German mark and Japanese yen.
Ex-Im Bank offers foreign currency support through its guarantee and insurance
programs by backing loans denominated in a foreign currency that are extended
by a lender (usually a commercial bank). In the event of a default, Ex-Im Bank
purchases the foreign currency to pay the claim to the lender and then converts
(or “crystallizes” 1 ) the obligation to U.S. dollars equal to the amount that Ex-Im
Bank paid to obtain the foreign currency. This policy effectively shifts the postclaim exchange rate risk from Ex-Im Bank to the obligor. In addition, Ex-Im
Bank retains the right to either pay the claim under foreign currency guarantees
as a single lump sum payment or installment-by-installment. Typically, on fixed
rated notes, Ex-Im Bank elects to pay claims on an installment-by-installment
Crystallization: the requirement that the depreciation (of the currency) risk must remain with
the borrower who will need to pay sufficient local currency to ensure that the costs the ECA has
incurred in meeting a local currency claim are met in full.

1

38

basis. However, on floating rate notes Ex-Im Bank typically accelerates the debt
and pays the claim in a single lump sum payment. However, paying claims in
installments is attractive to lenders who want to maintain the original repayment
schedule (e.g., to facilitate a securitized structure).
Details of Ex-Im Bank’s Foreign Currency Guarantee Activity
In 2005, Ex-Im Bank supported 10 transactions, valued at more than $1.3 billion,
where the repayment was in a currency other than the U.S. dollar. The majority
of foreign currency business was denominated in currencies traditionally covered
by Ex-Im Bank, such as the Euro (six transactions, valued at $550 million) and
the Canadian dollar (one transaction, valued at USD $400 million). In addition,
Ex-Im Bank guaranteed the New Zealand dollar (one transaction, valued at USD
$225 million), the Mexican peso (one transaction, valued at $130 million), and
the Australian dollar (one transaction, valued at USD $65 million). Of the 10
foreign currency guarantee transactions, all but two were on behalf of foreign
airlines for large aircraft purchases. The two non-aircraft transactions were Euro
denominated loans for buyers in Turkey and Albania.
G-7 Policies and Practice
All G-7 ECAs are willing to provide cover in foreign currencies; however, certain
distinctions exist. For example, Ex-Im Bank is the only G-7 ECA that pays the
entire outstanding amount of the claim once the lender demands payment under
the guarantee. The other G-7 ECAs usually maintain the original repayment
schedule by paying claims on an installment-by-installment basis. In addition,
most ECAs draw distinctions between cover for hard currencies and soft
currencies.
Hard Currency Cover: Like every other G-7 ECA, Ex-Im Bank provides support
for export credits denominated in hard currencies. However, Ex-Im Bank is the
only G-7 ECA that consistently converts hard currency obligations into U.S.
dollars after paying a claim. The ECAs in Canada (EDC), Italy (SACE), Japan
(NEXI), and the UK (ECGD), do not convert the obligation post claim payment
since they have the capability to assume and manage the foreign exchange rate
risk. The German ECA (Hermes) is willing to bear the exchange rate risk for a
higher fee.
Soft Currency Cover: With respect to coverage for soft currencies, distinctions
are beginning to emerge among ECAs with respect to: (1) offering cover for “soft”
local currencies; and (2) taking the associated foreign exchange risk (defined as
paying claims and accepting recoveries in the local currency without using any
hedging mechanism) (see Figure 17). Discussions with G-7 ECAs reveal an
increase in the number of requests for ECA support of credits denominated in

39

soft local currencies, with some ECAs providing flexibility to accommodate these
requests. For example, one G-7 ECA reported providing support in 2005 for a
long-term transaction denominated in Mexican pesos without a conversion
clause 2 . Another G-7 ECA reported that it is willing to cover local currency
receivables on credit terms on a case-by-case basis and recently supported two
local currency transactions without requiring a conversion clause: a mediumterm transaction denominated in the Dominican Republic peso and a long-term
transaction denominated in United Arab Emirates dirham. This ECA added a
10% premium surcharge to cover the incremental exchange rate risk.
ECAs’ willingness to cover soft currencies (with or without a conversion clause)
hinges on a variety of criteria, such as:
•

Limiting the transaction size.

•

Providing cover for currencies with stable and relatively low interest rates.

•

Limiting soft currency cover to borrowers with relatively good credit
standings.

•

Restricting soft currency cover to transactions with floating interest rates.

•

Pricing incremental risk (mark-to-market).

•

Confirming that the legal regime in the local market is sufficiently
developed (e.g., so as to not interfere with implementation of conversion
clauses in the event of a claim).

•

Sufficient depth and liquidity in the market so as to enable the ECA to
purchase the local currency without moving the market.

Conversion clause: A clause in the legal documentation of an export credit that permits ECAs to
convert post-claim debt into the national currency of the ECA. In the case of Ex-Im Bank, postclaim debt is converted to a U.S. dollar obligation equal to the amount of U.S. dollars Ex-Im Bank
expended to acquire foreign currency to pay the claim.

2

40

FIGURE 17: G7 ECA Foreign Currency Attitude: Willingness to Accept
Exchange Rate Risk and Activity

EDC
Coface

Exchange Risk Accepted?
Hard Currency
Soft Currency
Yes
n/a
Case-by-case
No, fix rate at time
of default, but 10%
surcharge lifts cap
Yes
Yes

Currencies1 of Approved Transactions
(2001-2005)
Hard Currency
Soft Currency
USD
none

Case-by-case
USD, AUD, JPY
No, fix rate at time
of default, but 10% USD, GBP, CHF, AUD,
Hermes
JPY
surcharge lifts cap
SACE
n/a
USD, CHF, GBP, JPY
NEXI
n/a
USD, EUR
No, convert
obligation to Sterling
ECGD
Yes
USD, EUR, JPY
at time of payment
No, convert
No, convert
obligation to dollars obligation to dollars EUR, JPY, AUD, CND,
Ex-Im Bank at time of payment at time of payment
NZD

EGP, MXP
AED, DOP2
none
none
none3
MXP, COP, ZAR4

1Currency Key: USD – U.S. dollar, EUR – Euro, GBP – United Kingdom pounds, JPY – Japanese yen, AUD –
Australian dollars, CHF – Swiss francs, EGP – Egyptian pounds, MXP – Mexican pesos, DOP – Dominican
Republic peso, ZAR – South African rand, AED -- United Arab Emirates dirham, and COP – Colombian peso.
2Hermes

will cover the following currencies on a case-by-case basis: Hong Kong dollars, Indian rupees, Malaysian
ringitts, Mexican pesos, Singapore dollars, South African rand, Yuan renminbi, Taiwan dollars, Turkish lira.

3ECGD will cover the following currencies: Egyptian pounds, Indian rupees, Mexican pesos, Singaporean dollars,
Czech korunas, Polish zlotys, and Thai baht.
4Ex-Im

Bank will cover the following currencies: Brazilian real, British pound, CFA franc, Moroccan dirham,
Philippine peso, Russian ruble, Swedish krona, Thai baht and Swiss franc.

Exporter and Lender Survey Results
Ex-Im Bank’s foreign currency guarantee program was among the top four
priorities identified by the export community where changes in Ex-Im Bank
current policy could yield noticeable improvements in U.S. exporter
competitiveness. The respondents to the survey identified two specific changes to
the foreign currency guarantee program Ex-Im Bank could consider:
Drop the conversion requirement - Do not convert post-claim debt into a U.S.
dollar obligation.
Explore options that would allow Ex-Im Bank to
assume/manage foreign exchange risk. If this proposal is not possible for all
currencies, at least implement a program without the conversion feature for
certain hard currencies (e.g., the euro and yen). Alternatively, limit nonconversion for small-sized transactions.
•

Drop the conversion requirement - Do not convert post-claim debt into a
U.S. dollar obligation. Explore options that would allow Ex-Im Bank to
assume/manage foreign exchange risk. If this proposal is not possible for
41

all currencies, at least implement a program without the conversion
feature for certain hard currencies (e.g., the euro and yen). Alternatively,
limit non-conversion for small-sized transactions.
•

Allow an installment-by-installment claim procedure – Do not accelerate
the entire outstanding debt in the event of a claim. This flexibility is
particularly important for fixed-rate loan structures that would have to be
unwound (at considerable costs) if the entire outstanding debt is
accelerated.

In sum, the export community perceives Ex-Im Bank’s foreign currency
guarantee program to be slightly less competitive relative to G-7 ECAs.
Conclusion
Ex-Im Bank’s current foreign currency program has been in place since the early
1980’s. Since that time, the number of currencies eligible for Ex-Im Bank cover
has expanded from a handful of hard currencies to several hard and soft
currencies.
On the other hand, Ex-Im Bank’s foreign currency program has not evolved as
much as the foreign currency programs provided by other G-7 ECAs. Exporters
and banks would like Ex-Im Bank to exercise more flexibility with respect to: (1)
not converting post claim debt into U.S. dollars; and (2) paying the lender by
installments according to the original amortization schedule rather than paying
the entire claim in a single payment. On the first point, other G-7 ECAs have
shown very limited flexibility; and on the second point, no other G-7 ECA
consistently requires acceleration.
The objective data and the survey response data imply that Ex-Im Bank’s
competitive position is slightly below generally competitive.

42

Chapter 4: Comparison of Major Program Structures
Section E: Ex-Im Bank’s Major Program Competitiveness
Ex-Im Bank’s major program structures were graded “A-” which translates into the
Bank being a step below competitive with its G-7 counterparts. While Ex-Im Bank’s
aircraft and project finance programs are rated as competitive with our foreign ECA
counterparts, the co-financing and foreign currency guarantee programs came out less
than fully competitive. Figure 18 shows how Ex-Im Bank’s major programs were
rated on individual aspects as well as overall. The grades are based on the survey results
and Ex-Im Bank’s analysis of how it performs in relation to its G-7 ECA counterparts.
Figure 18: Grading of Ex-Im Bank’s Major Program Competitiveness, 2005
Key Elements
Large Aircraft
Interest Rate Level
Percentage of Cover
Risk Capacity
Project Finance
Core Program Features
Repayment Flexibilities
Co-Financing
Bilateral Agreements
Flexibility in one-off deals
Foreign Currency Guarantee
Availability of Hard Cover
Availability of Soft Cover
Accepts Exchange Rate Risk
Pricing
Total Average Grade

Grade
A
A
A
A+
A
A
A
B
BA-/B+
AA
A
B+
A
A-

43

44

Ch. 5 Economic Philosophy and Competitiveness
Section A: Trade-related Tied and Untied Aid
Introduction
U.S. government efforts to discipline aid at the OECD have resulted in rules that have
(a) helped limit the trade distorting effects of tied aid; and (b) redirect tied aid flows to
bona fide aid projects. The OECD tied aid rules (also known as the “Helsinki
Agreement”) govern aid that has the greatest potential to be trade distorting, i.e., “tied
aid” or aid tied to procurement from the donor’s country. Since their inception in 1992,
the OECD tied aid rules have helped reduce tied aid to an average of about $4-4.5 billion
annually, from an average of $10 billion a year previously. In 2002-3, Helsinki-type tied
aid had reached its two lowest levels on record of approximately $2.1 and $2.6 billion.
In 2004, Helsinki-type tied aid was $4.1 billion (see Figure 19), and in 2005 it crept up
to $6.1 billion, an almost 50% increase over 2004 levels. With respect to sector
distribution, tied aid business continued to evidence an overall shift away from sectors
generally considered to be commercially attractive – like energy and industry. This
continued in 2005, with remaining tied aid activity concentrated primarily in the
transport and storage sectors (principally rail and water transport), and water and
health sectors (both of which tend to be considered commercially non-viable), although
the number of tied aid notifications for the energy sector increased substantially in
2005.
Nevertheless, several foreign tied aid programs maintain a level of vitality within the
OECD disciplines. Specifically, in 2005, Japan and Spain significantly increased their
tied aid notifications over 2004 levels and accounted for over 60% of the volume of tied
aid notifications. Some projects supported by these programs continue to contain a
considerable portion of capital goods that may have commercial implications. In fact,
over the past few years, U.S. exporter allegations of foreign tied aid competition have
predominantly been related to specific capital goods (e.g., locomotives, harvesters) that
are included in large projects considered to be commercially non-viable (e.g., railways,
agriculture). Experience has shown that some U.S. exporters are periodically at a
competitive disadvantage when bidding on the sale of capital goods equipment against
foreign exporters benefiting from tied aid associated with commercially non-viable
projects.
With respect to untied aid, in the mid 1990s (when Japanese untied aid rose to about
$15 billion a year), fears of foreign efforts to redirect tied aid flows into (potentially and
equally) trade distorting untied aid (or “de facto tied” untied aid) led the U.S. to present
a series of proposals to the OECD geared towards disciplining foreign untied aid offers.
Since that time the U.S. has sought to extend the principles of the tied aid disciplines to
untied aid. However, these discussions have met opposition from certain untied aid
donors and the donor community at large, who claim that untied aid poses no serious
threat to free trade. These donors argue that disciplines for untied aid would only serve
45

to reduce much needed aid to developing countries. Moreover, the total annual volume
of untied aid had dropped to about $2-3 billion a year since 2000).
Nevertheless, in 2004 the OECD Members accepted the United States proposal to
enhance transparency of untied aid offers by agreeing to make their offers public to
allow for competitive international bidding and to report the nationalities of bid
winners. The transparency agreement should allow OECD Members to: (1) access
information that will help all exporters (not just exporters from donor countries)
compete for sales financed with foreign untied aid; and (2) compile any evidence of de
facto tying of “untied” aid to procurement from the donor country. During 2005, as
untied aid rose from $4.7 billion in 2004 to $8.1 billion, up $3.5 billion from 2004 levels
0r 75%. Members began implementing the transparency agreement and data is now
being compiled and being made available to exporters.
Data
Although tied and untied aid activity levels rose noticeably in 2005, the resulting levels
are roughly where both stood in the 1999-2000 timeframe. Hence, it is not clear
whether recent trends are part of an up-tick or just a return to normalcy after a
depressed period in 2001-2003. Within the tied aid market, however, there does appear
to be movement and trends. For example, after nearly a decade of recovering from the
Asian financial crisis, Indonesia is again a prominent tied aid recipient along side
countries as varied as Algeria and Vietnam. Meanwhile, in what is likely a long-run
trend, China continues to drop from its historical lead recipient position.

46

Figure 19: Aid Credit Volume by Type

15,000.00

U.S. $ millions

10,000.00

5,000.00

0.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Untied Aid

Non-Helsinki Tied Aid

Helsinki-Type Tied Aid

Note: Consistent untied aid data reporting began in 1994.

Definitions 1
“Helsinki-type” tied aid is subject to three principal disciplines: (1) no tied aid for
commercially viable projects; (2) minimum 35% concessionality; and (3) country
limitation (no country recipients with a per capita income above $3,255, but the figure
may change annually as it is based on annual World Bank lending criteria; see
Appendix F, Annex 1). OECD Participants determine commercial viability based on
the potential cash flows of the project, a feasibility study presented by the donor, and, if
needed, a “consultations” meeting held to discuss the commercial viability of the project.
“Non-Helsinki-type” tied aid includes: stand-alone de minimis projects (valued at less
than approximately $3 million), grants or near-grants (at least 80% concessionality),
and partial grants (at least 50% concessionality) offered to the poorest countries (the
UN declared Least Developed Countries, or LDCs). These types of tied aid offers are
normally not considered to have serious trade-distorting effects and, therefore, are
exempt from the Helsinki rules regarding commercial viability and the consultations
process (although all tied aid is subject to notification requirements). In addition to
1

See Appendix F for a more detailed list of definitions of the various types of aid.

47

notification, stand-alone de minimis projects are also subject to minimum
concessionality and country eligibility requirements. De minimis tied aid can be tradedistorting but, given its small size, does not typically impact the competitive position of
U.S. exporters.
“Untied aid” refers to aid credits that are not contractually conditioned upon the
purchase of goods and/or services from any particular country. However, tradedistorting implications result when untied aid is “de facto tied” (e.g., through informal
understandings) to procurement from the donor’s country.
Competitive Situation
During 2005, Ex-Im Bank did not authorize any tied aid use and therefore did not
expend any of the $263.2 million in the Tied Aid Capital Projects Fund (TACPF).
Although the volume of tied aid notifications increased significantly in 2005, they were
directed at projects in sectors considered to be financially non-viable (see Appendix F
for definitions of financial and commercial viability) and for countries eligible for tied
aid. Nevertheless, the inclusion of capital goods procurement in these projects (e.g.,
tractors) continues to cause competitive concerns among certain U.S. exporters.

U.S. Government and Ex-Im Bank Policy
The U.S. favors aid that represents bona fide development assistance. The U.S. only
seeks to reduce and ideally eliminate aid that is trade distorting because it:
•
•

Disadvantages U.S. exporters, i.e., redirects business away from U.S. and
other suppliers whose products are superior in quality, price, and service.
Closes markets and misallocates both international and developing country
resources. Furthermore, it results in higher contract prices, a capitalintensive development bias, skewed technology choices, and an increased debt
burden.

Consistent with long-standing U.S. export financing policy, Ex-Im Bank does not initiate
tied aid. Instead, Ex-Im Bank and the U.S. Treasury Department work together to
determine whether to match a foreign tied aid offer. The decision to match is made on
the basis of largely objective criteria used to determine whether or not: (1) tied aid is
useful for enforcement of existing disciplines; or (2) an otherwise OECD-legal tied aid
credit will distort commercially-financed trade in favor of donor country firms (rare
occurrence in recent years).
In a special effort to facilitate small business access to
competitive financing, the U.S. Government would generally not require multiplier
criteria to match de minimus tied offers for commercially viable projects.

48

Exporter and Lender Survey Results
Similar to last year, in 2005 most of the respondents were not familiar with tied aid
offers from foreign ECAs or the U.S. However, the few that had encountered foreign
tied aid reported losing sales to their competitors in a variety of sectors including road
infrastructure (e.g., bridges) and agriculture equipment sales (particularly in China)
(i.e., for capital equipment that could be used in projects considered by the OECD as
financially non-viable). These losses resulted in these respondents rating Ex-Im Bank’s
tied aid program as having a negative impact on U.S. exporter competitiveness.
Conclusion
Although tied aid appears to be a $4-4.5 billion/year market, very little of it seems to
compete with potentially commercial sales of U.S. exporters. The untied aid market has
no adverse record of impact although the new transparency agreement may shed more
light on the uses of the growing untied aid. Hence the weight of these components in
the overall competitiveness grade is minimal. Nevertheless, some U.S. exporters of
product-specific goods do episodically encounter foreign tied aid that displaces
commercial sales. In those few instances, the exporters consider that Ex-Im Bank’s
matching procedures do not typically provide a competitive response.

49

50

Chapter 5: Economic Philosophy and Competitiveness
Section B: Market Windows
Introduction
Market windows are government-owned institutions that claim to offer export credits on
market terms and therefore are not required to apply Arrangement rules, although these
institutions may also manage an “official window” that offers Arrangement terms for
riskier transactions. While they may operate on a profit-maximizing basis, market
windows have traditionally received government benefits that are not available to
commercial banks. These benefits include implicit or explicit government guarantees,
tax exemptions and equity capital provided by the government. In addition, these
institutions condition support on national benefit which typically involves some portion
of domestic content. Without being subject to the Arrangement constraints of an official
ECA or the market limitations of a true commercial bank, market windows pose a
potential competitive challenge to both. As the Arrangement has increasingly codified
export credit rules over the last decade, market windows’ ability to offer flexible terms –
such as longer repayment periods or cash payment financing – has enabled them to
provide financing on terms that official ECAs may not offer. Should U.S. exporters not
find terms in the market for a specific buyer at a specific time similar to those available
from a market window entity, the playing field would be tilted in favor of foreign
competitors with access to market window financing.
Market window institutions have avoided disciplines in the OECD for years because
there has never been an empirical case made of specific harm (due, at least in some part,
to lack of functional transparency). In addition, there has been little pressure for the
United States to pursue such disciplines in recent years. U.S. exporters, some of which
now benefit from market window financing (either through a foreign subsidiary or
through foreign sourcing), have provided no recent evidence of competitive harm from
these institutions.
Ex-Im Bank Policy and Practice
Ex-Im Bank does not operate a market window. All of Ex-Im Bank’s medium- and longterm transactions comply with the terms and conditions of the Arrangement. In its reauthorization in 2002, however, Ex-Im Bank was given permission by the U.S. Congress
to match the terms and conditions offered by market windows, regardless of whether
such terms are consistent with the Arrangement and even if the market window does
not provide sufficient information for Ex-Im Bank to exactly match the terms of
financing. Ex-Im Bank’s matching authority has not yet been used because there have
been no cases where U.S. exporters have sought matching due to an inability to obtain
similar financing terms after facing market window competition.

51

G-7 ECAs’ Policies and Practices
Only two of the G-7 countries provide market window support: Canada through EDC
and Germany through KfW. It is important to note that other G-7 ECAs (particularly
Japan) could become market window players should they perceive a competitive
advantage to doing so. Moreover, a variety of forces (e.g., WTO panel decisions and
domestic imperatives to make a profit) create incentives for ECAs to act like market
windows by, for example, increasing activity in developed markets with significant
private banking capacity and charging “market” prices. However, the recent action by
the EU to impose market disciplines on KfW may act as a counterforce to the incentives
to create market windows.
However the future evolves, today there are only two formal market windows. The rest
of this chapter addresses recent activities and changes in these two institutions.
EDC
Export Development Canada (EDC) is a Canadian crown corporation that operates on
private commercial bank principles (i.e., seeks to maximize profits) while providing
export credits for Canadian exporters. EDC also operates Canada’s official ECA and
allocates business between its official and market windows without effective
transparency.
In the recent past, Ex-Im Bank estimates that approximately 90% of EDC’s mediumand long-term export credit business has been offered through its market window,
although the percentage may vary from year to year. Applying the general ratio to EDC’s
medium- and long-term activity over the last five years yields the following Figure 20:
Figure 20: EDC Medium- and Long-Term Activity 2001-2005 ($Bn)
MLT export credits
Market window
Official window

2001
8.7
7.8
0.9

2002
8.4
7.6
0.8

2003
8.1
7.3
0.8

2004
8.6
7.7
0.9

2005
9.9
8.9
1.0

KfW
KfW Bankengruppe is a multi-purpose financial institution that is owned by the German
government (80%) and the federal states (20%). Founded shortly after World War II to
support Germany’s reconstruction, KfW continues to promote the growth of the German
economy in a variety of ways, primarily focusing on domestic investment such as
housing finance and support to small businesses. Historically, from 10% to 25% of
KfW’s annual financing activity fell under the category “export credits and project
finance,” which includes export credits as well as corporate finance and investment
guarantees both inside and outside Germany.

52

Concern that Germany’s state banking system (of which KfW is a part) was putting
European commercial banks at a competitive disadvantage led to an investigation by the
European Commission. In 2002, as part of a settlement with the Commission, Germany
agreed to separate KfW’s economic support activities from its commercial business.
Starting in 2004, KfW began conducting much of its export credit and project finance
activity through KfW IPEX-Bank, a newly-created, 100% KfW-owned, arms-length
subsidiary. IPEX-Bank will be subject to taxation and German banking regulations, and
it must earn a risk-adjusted return on capital (RAROC) of 13%. Currently, that 13%
RAROC is judged against IPEX-Bank’s hypothetical funding costs with a risk rating of
AA- or A+. It will support exports from Europe, not just Germany, and will build its
ability to lead syndicated underwritings. It anticipates doing EUR8-10 billion of total
business volume annually. Until 2008, IPEX-Bank will operate as a “bank-in-a-bank,”
i.e., an independent unit of KfW Bankengruppe.
Over 60% of IPEX-Bank’s $15.1 billion business volume in 2005 consisted of
commitments outside Germany, of which one-third, or $3.2 billion, was export credit
business. Consistent with expectations that IPEX-Bank will function more like a private
sector entity, over 65% of its 2005 export credit business was in support of entities in
Europe or North America. In contrast, these markets consisted of 50% of IPEX-Bank’s
new business in 2004. The three largest sectors receiving IPEX-Bank export credit
support were basic industries (32%), ships (25%), and power and water (17%).
Historically, KfW’s support for aircraft concerned U.S. exporters, as KfW would often
provide the cash payment financing to supplement the officially supported financing, in
effect providing Airbus with 100% financing from government-backed sources.
However, IPEX-Bank’s support for aircraft declined significantly in 2005 to only 12% of
its new business, down from nearly 25% in 2004.
IPEX-Bank’s export credit business includes transactions booked on its own account as
well as transactions on KfW’s accounts, although both types of transactions must meet
KfW’s 13% RAROC requirement. If a transaction meets one or more of the following
criteria, it will be placed on KfW’s books, although it will be administered through
IPEX-Bank: 1) a fixed rate loan priced at CIRR; 2) co-financing with a multilateral
development bank; or, most commonly, 3) a buyer in a country with an OECD risk
category of 5 through 7. Only 25% of IPEX-Bank’s export credit transactions in 2005
met those criteria and were placed on KfW’s books, down from 40% in 2004.
IPEX-Bank’s export credit business is provided both on Arrangement terms, with
official export credit insurance coverage by Hermes, and on market window terms. The
market window support is considered exempt from OECD rules.
In 2005,
approximately 60% of IPEX-Bank’s total export credit support was provided without
official ECA cover, although some of these transactions may also comply with the
Arrangement. Sixty-six percent of IPEX-Bank’s “book” was provided without official
ECA cover, while only 40% of KfW’s “book” was provided without official ECA cover.
Figure 21 below provides a breakdown between the market window and official
window support provided by IPEX-Bank in 2004 and 2005 and compares it with the
equivalent support provided by KfW prior to the creation of IPEX-Bank.

53

Figure 21: KfW/IPEX Medium- and Long-Term Activity 2001-2005 ($Bn)
MLT export credits
Market window
Official window

2001

2002

2003

2004

2005

5.6
3.7
1.9

3.3
2.1
1.2

2.0
1.3
0.7

3.0
1.8
1.2

3.2
1.9
1.3

Summary Data
Combining the two estimates for EDC and KfW yields an average total market window
volume of approximately $10 billion per year over the last five years (see Figure 22).
The majority, by dollar volume, is destined for the United States and Western Europe.
Nonetheless, from year to year there is $1-$2 billion in traditional Ex-Im Bank markets,
where market windows potentially have a negative impact on Ex-Im Bank
competitiveness.
Figure 22: Market Window Activity 2001-2005 ($Bn)
EDC
KfW
Total

2001

2002

2003

2004

2005

7.8
3.7
11.5

7.6
2.1
9.7

7.3
1.3
8.6

7.7
1.8
9.5

8.9
1.9
10.8

Exporter and Lender Views
Exporters and lenders note EDC’s and KfW’s flexibility with respect to issues such as
eligible foreign content, as well as the two institutions’ proactive marketing strategies.
Indeed, one multi-national U.S. exporter indicated that both EDC and KfW aggressively
sought its business. However, there were no allegations of any business lost to either
EDC or KfW.
Conclusion
Consistent with recent history, U.S. exporters have not highlighted any competition
from market window institutions for Ex-Im Bank’s attention. Both EDC and IPEX-Bank
appear to be transitioning away from activity that is likely to compete with Ex-Im Bank,
with EDC shifting its activity towards non-export credit support and IPEX-Bank
progressing with its separation from KfW. Nonetheless, there remains the potential that
either one of these institutions could offer more attractive terms than Ex-Im Bank in
head-to-head competition; thus, market window institutions in general have a neutral
impact on the Bank’s competitiveness with the potential to have a negative impact in
specific cases.

54

Chapter 5: Economic Philosophy and Competitiveness
Section C: U.S. Philosophy and Ex-Im Bank Competitiveness
The U.S. government philosophy regarding official export credit activity is that ECAs
should be able to compete on a level playing field, should not compete with the private
sector, and should operate at a minimum cost to the taxpayer. These parameters define a
framework within which Ex-Im Bank offers export credit support to U.S. exporters. The
United States has worked very hard at ensuring this framework and those principles are
adopted by our official ECA counterparts within the OECD and are accurately and fully
depicted in the OECD Arrangement. For the most part, the competitiveness issues
necessary to form the basis of a level playing field are in place. However, there are a few
areas in which several ECAs do not share the same philosophical approach and, in practice,
do not abide by the spirit of a level playing field. These areas are “de facto tied” untied aid,
tied aid and market windows. When any of these forms of financing are present in an
individual transaction, they can have an adverse effect on the competitiveness of Ex-Im
Bank and the U.S. exporter. Figure 23 shows the span of impact that these financing
features are likely to have on Ex-Im Bank’s competitiveness on individual cases when
similar terms and conditions are not available to U.S. exporters.
During 2005, there was tied aid activity. However, there has been no documented
existence of any “de facto tied” untied aid or instances when market windows have
undercut both the market and ECAs, nor even reasonable allegations. The U.S. exporting
community continues to believe that when U.S. exporters face any one of these forms of
financing (the details of which are next to impossible to obtain or criteria are difficult to
meet), their competitive position can be undermined.
Figure 23: Grading of Ex-Im Bank’s Competitiveness When Confronted with
Differing Government Financing Philosophies and Programs, 2005
Program

Ex-Im Bank has
program (Yes/No)

Tied Aid (direct or “de
facto”)

Yes*

Market Windows

No**

Impact on Competitiveness
Neutral to Negative (infrequently
encountered)
Neutral (would likely be negative if
encountered)
Negative (on what appears to be a very
limited number of transactions)

Overall Assessment

* Ex-Im Bank could use TACPF to match “de facto tied” untied aid
** In Ex-Im’s 2002 Charter Reauthorization, Ex-Im Bank was granted the authority to provide financing
terms that are inconsistent with the Arrangement when a market window is providing such terms that are
better than those available from private financial markets.

55

56

Chapter 6: Public Policies – Stakeholder Considerations
Section A: Introduction
Ex-Im Bank is the official export credit agency of the U.S. government. In this role,
Congress has given the Bank a mission to provide export financing assistance to the U.S.
exporting community that is competitive with, and serves to neutralize, financing offered
by the major foreign government ECAs. The basis for this mission is that government
intervention is in the national interest when necessary to ensure that purchase decisions
are made on the basis of market factors such as price, quality and service.
As a U.S. government institution, Ex-Im Bank is entrusted with public funds to carry out
its mission. As such, Ex-Im Bank is expected to consider broader U.S. policies in how it
carries out its core mission of providing export finance to U.S. exporters. Sometimes these
broader U.S. policy objectives conflict with the Bank’s main objective of facilitating
exports, and, consequently, may impact its competitiveness. Some of these other policy
objectives are specified in Ex-Im Bank’s Charter or other legislation (e.g., economic impact
and PR 17 on U.S. shipping). Other issues, such as content requirements, reflect the clear
intent of Congress expressed over the years regarding the support of U.S. jobs. The impact
of these other policy objectives on Ex-Im Bank’s competitiveness can be magnified in
specific cases because, in general, other G-7 ECAs have few such broad public policy
considerations.
The following sections of this chapter present a contextual description of selected public
policies and an analysis of the competitive implications related to each issue.

57

58

Chapter 6: Public Policies – Stakeholder Considerations
Section B: Economic Impact
Introduction
Ex-Im Bank’s Charter requires Ex-Im Bank to assess whether its financial support for a
transaction would likely cause substantial injury to U.S. industry or would result in the
production of a good that is subject to a relevant trade measure. 1 A finding that would
lead to either of these outcomes could result in a denial of Ex-Im Bank support. In
response to the Congressional mandate, Ex-Im Bank revised its economic impact
procedures in 2003 to ensure that all of the transactions the Bank supports meet this
requirement. While all cases seeking Ex-Im Bank support are subject to economic
impact scrutiny, only cases that include capital equipment transactions that enable
foreign buyers to establish or expand production capacity of an exportable good are
subject to more detailed analysis.
Ex-Im Bank’s Policy and Practice
An economic impact constraint was first incorporated into Ex-Im Bank’s Charter in
1968 and has been subsequently modified seven times (the most recent change to the
economic impact section of Ex-Im Bank’s Charter occurred in June 2002). Ex-Im
Bank's Charter requires the Bank to assess whether the extension of its financing
support would:
•

Result in the production of substantially the same product that is the subject of
specified trade measures (i.e., transactions resulting in the production of a good
subject to an anti-dumping (AD) or countervailing duty (CVD) order, a Section
201 injury determination under the Trade Act of 1974 or a suspension agreement
from an AD/CVD investigations); or

•

Pose the risk of substantial injury to the U.S. economy. Ex-Im Bank's Charter
defines the substantial injury threshold to be transactions that establish or
expand foreign production capacity by an amount that equals or exceeds 1% of
U.S. production. Transactions over $10 million that meet the substantial injury
threshold require a detailed economic impact analysis in which Ex-Im Bank staff
analyzes the global supply and demand situation of the product in question, and
assesses the broad competitive impacts on U.S. industry arising from the new
foreign production (e.g., whether U.S. production could be directly or indirectly
displaced as a result of the new foreign production).

The relevant trade measures are: anti-dumping (AD) or countervailing duty (CVD) orders; Section 201
injury determinations under the Trade Act of 1974; and suspension agreements from an AD/CVD
investigations.

1

59

If a transaction meets these legislatively specified standards, then economic impact can
be the basis for denial of Ex-Im Bank support. However, the economic impact
legislation provides that the economic impact prohibition will not apply in any case
where the Ex-Im Bank Board of Directors determines that the benefits of the transaction
outweigh the costs.
G-7 ECAs’ Policies and Practices
Although many ECAs have a broad mandate that the transactions they support should
benefit their domestic economies, only Ex-Im Bank is required – on a case-by-case basis
-- to weigh the potential economic costs to domestic industries with the benefits
associated with a specific Ex-Im Bank-financed export. In addition, only Ex-Im Bank
considers the relevance of trade measures to a transaction.
Summary Data
In 2005, Ex-Im Bank acted on 850 medium-term insurance and medium- and longterm loan and guarantee transactions. Of these transactions, 397 were applications for
loans and guarantees at the Preliminary Commitment (PC) and Final Commitment (AP)
stages, and 453 were applications for medium-term insurance. Forty-percent (344
cases) of total transactions acted upon were reviewed for economic impact relevance
because they supported a foreign buyer’s production of an exportable good.
Of these 344 transactions, six required a detailed economic impact analysis. Four of the
analyses yielded a net positive economic impact outcome and were subsequently
approved by the Board of Directors. The other transactions that required a detailed
economic impact analysis were eventually withdrawn before the case came to fruition.
The remaining 338 transactions were subject to a post-authorization review to ensure
that there were no aggregations of more than $10 million to a single buyer that would
have required a detailed economic impact analysis.
Because the economic impact policy prohibits Ex-Im Bank from supporting any
transactions that would result in the production of a good subject to a relevant trade
measure, applicants did not pursue Ex-Im Bank financing for 14 potential transactions
after learning about the existence of an applicable trade measure. Of these 14 potential
transactions, 13 (or 93%) involved the export of steelmaking equipment, which is a
natural result of the fact that iron and steel products account for over half of all current
AD/CVD orders (see Figure 24). A review of G-7 ECA data show that the other G-7
ECAs supported approximately $390 million worth of steelmaking machinery exports
during 2005.

60

Figure 24: Anti-dumping and Countervailing Duty Orders by Sector, 2005
All Other
Categories
12%

Metals &
Minerals
11%

Agricultural
9%

Chemicals &
Pharmaceuticals
15%

Iron & Steel

Products
53%

Exporter and Lender Survey Results
Lenders and exporters consider the economic impact issue to be among the most serious
facing Ex-Im Bank today. Many respondents to the survey expressed particular concern
that the economic impact issue needs greater transparency and predictability. Said one
respondent, “If your company is a manufacturer of anything, they will think long and
hard about coming to Ex-Im Bank.” Another noted that the unpredictability of the
economic impact process hurts U.S. sourcing in projects, and that project sponsors are
being warned by their technical advisers to “find a non-U.S. alternative and source of
financing” if the project would be subject to economic impact analysis.
Conclusion
Although the economic impact policy affected only 5-10% of medium- and long-term
activity, nearly 20% of non-aircraft cases going to the Board went through the detailed
analyses. Moreover, the prospects of the process appear to be having a “chilling effect”
on users’ willingness to approach Ex-Im Bank when the economic impact issue would
arise. The observable effect of this policy was to create the risk of denial (which
increased uncertainty for stakeholders in transactions) and/or increase case processing
time. The less measurable effect of the policy is that some applicants have avoided
pursuit of Ex-Im Bank financing because of the existence of the economic impact policy.
Because no G-7 ECA other than Ex-Im Bank has a similar requirement to review
transactions for trade measures and potential injury to the domestic economy, the
economic impact element can have a negative impact on Ex-Im Bank’s competitiveness
in specific transactions.

61

62

Chapter 6: Public Policies – Stakeholder Considerations
Section C: Foreign Content
Introduction
Foreign content is the portion of the export that originates outside of the seller’s and the
buyer’s countries. For example, a $10 million U.S. export contract may include a $1.5
million component sourced from a third country. In this case, the foreign content is the
$1.5 million portion of the export. The U.S. content is the $8.5 million portion of the
export that originates in the United States. Since eligibility and cover criteria for
foreign content is not governed by international agreement, each ECA establishes its
own guidelines. Thus, foreign content is an area where ECA policies and practices have
the potential to diverge.
Ex-Im Bank’s Policy and Practice
In keeping with Ex-Im Bank’s objective of maintaining or supporting U.S. employment
through the financing of U.S. exports, Ex-Im Bank has adopted a foreign content policy
to ensure that its export financing targets the U.S. content associated with goods and
services exported from the United States. To accommodate U.S. export contracts that
contain goods and services that are not entirely U.S.-produced, Ex-Im Bank’s policy
allows inclusion of some foreign content within the U.S. export contract with certain
restrictions and limitations. Although Ex-Im Bank’s foreign content policy derives from
the purpose and objectives referenced in its Charter, there are no specific statutory
requirements per se relating to non-U.S. content. Rather, the policy reflects a concerted
attempt to balance the interests of labor and industry.
For all medium- and long-term transactions, Ex-Im Bank’s foreign content policy
restricts the scope of its financial support to cover only those products that are shipped
from the United States to a foreign buyer, and then it limits the level of its support to the
lesser of: (1) 85% of the value of all eligible goods and services contained within a U.S.
supply contract; or (2) 100% of the U.S. content of that export contract.
G-7 ECAs’ Policies and Practices
In general, all export credit agencies have designed their programs in such a way as to
maximize the national benefit for their respective activities. However, the context for
evaluating domestic impact varies widely and has led to very different ECA content
policies.
OECD Participants recognize that each country has developed its content policy to
further unique domestic policy goals. Hence, the OECD Participants have not pursued
common ECA rules on foreign content, and there are no OECD Arrangement guidelines
governing the scope or design of foreign content in an officially supported export credit.
63

Thus, given the vastly different sizes of the G-7 economies and their respective views of
national interest, it is not surprising that foreign content policies vary widely and
substantially.
There is a growing and accelerating tide of change (particularly in Europe) in the focus
of the content policies of ECAs. The shift effectively copies the long-standing approach
in Japan and Canada to focus on national companies and their long-term benefit to the
economy rather than on the direct labor/job impact of specific transactions. The shift is
known as a move from “made in “X” (by national label) to “made by “X” (national
corporation somewhere in the world).
In the past, the “Made in” approach allowed only products manufactured in the ECA’s
country to be treated as eligible national content. The new “Made by” approach allows
products manufactured by companies located outside of the ECA’s country, but
headquartered in the ECA’s country, to qualify as eligible national content. This
approach is similar to the longstanding “Made by Japan” philosophy. Presently, all but
three G-7 ECAs (U.S., UK and France) have adopted this approach, but recent
information indicates that France is steadily moving to the more “flexible” approach.
Figure 25 compares the main aspects of the content policies of the G-7 ECAs in 2005.
The data illustrate that Ex-Im Bank’s content requirements are more restrictive than its
G-7 counterparts.
Figure 25: Comparison of Content Policies of the G-7 ECAs in 2005
Ex-Im Bank
Is there a requirement
to ship foreign content
from ECA’s country?
Will the cover
automatically be
reduced if foreign
content exceeds 15%?
Is there a minimum
amount of domestic
content required to
qualify for cover?

EDC (Canada)

European
ECAs

JBIC & NEXI
(Japan)

Yes

No

No

No

Yes

No

No

No

No

Yes

Yes

Yes

64

Ex-Im Bank is the only G-7 ECA that requires all goods be shipped from its country to
be eligible for support. Moreover, Ex-Im Bank has the lowest “foreign content
allowance” (i.e., 15). In contrast, the European ECAs generally don’t reduce cover for
transactions that include up to 30-40% EU content and the Japanese ECAs are even
more flexible in that cover is not reduced for transactions that include up to 70% foreign
content. While Ex-Im Bank doesn’t have a minimum amount of domestic content
requirement, Ex-Im Bank limits its support to cover the lesser of (1) 85% of the value of
all eligible goods and services contained within a U.S. supply contract or (2) 100% of the
U.S. content of that export contract.
Ex-Im Bank Summary Data
As shown below in Figure 26, 42% of all Ex-Im Bank transactions contain foreign
content. The average percent of foreign content per transaction has stayed within the
10-12% range for the last five years. Moreover, the export value (as a percentage) for
transactions containing foreign content remains significant due to the prevalence of
large aircraft activity, which constituted approximately 40% of Ex-Im Bank’s mediumand long-term activity. Large aircraft transactions are typically high dollar value and
include, on average, 12% eligible foreign content. Conversely, smaller value transactions
tend to include smaller percentages (e.g. under 10%) of foreign content. Approximately
55% of the total number of transactions supported by Ex-Im Bank contained no
reported foreign content.
Figure 26: Recent Trends in Ex-Im Bank Support for Medium- and Long-Term
Activity Containing Foreign Content*
Authorizations
Total activity

Transactions
containing
foreign
content

Foreign
content

2001

2002

2003

2004

2005

$7,109

$8,212

$8,386

$8,935

$9,341

227

222

232

241

262

$5,757

$7,842

$7,823

$7,821

$6,713

Percentage of
total value

81%

95%

93%

88%

72%

Number of
transactions

80

96

85

95

111

Percentage of
total number

35%

43%

37%

39%

42%

Volume ($MM)

$631

$836

$814

$904

$691

Average per
transaction

11%

11%

11%

12%

10%

Export value
($MM)
Number of
transactions
Export value
($MM)

*These figures exclude medium-term insurance

65

Appendix E provides a more detailed listing of foreign content contained in Ex-Im
Bank’s medium- and long-term transactions in 2005 at the time of authorization.
Exporter and Lender Survey Results
The vast majority of survey respondents indicated that Ex-Im Bank’s foreign content
policy had a negative effect on Ex-Im Bank’s competitiveness. Several exporters urged
Ex-Im Bank to consider shifting to a “national interest” policy as a way to meet the
competition. In multiple instances, survey respondents indicated that Ex-Im Bank’s
requirement to identify the origin of all components puts “US exporters at a
disadvantage in a global environment.”
Conclusion
As foreign ECAs increasingly adopt a “national interest” policy and lower the minimum
threshold of required domestic content, Ex-Im Bank’s foreign content policy appears
increasingly less competitive. Though Ex-Im Bank’s approach to foreign content is
more transparent and predictable than the approaches taken by our G-7 counterparts, it
is the flexibility -- both in definition and direct support of foreign content – that could
result in a negative impact on Ex-Im Bank’s competitiveness in specific cases.

66

Chapter 6: Public Policies – Stakeholder Considerations
Section D: Local Costs
Introduction
Local costs are goods and services originated or manufactured in the buyer's country.
Local costs are historically related to goods and services that, from a practical
perspective, would not be sourced from the U.S. (e.g., cement, construction workers,
etc.). In contrast to foreign content, the OECD Arrangement sets the basic parameters
on official local cost support. The OECD parameters allow ECAs to provide support for
local costs up to the amount of the down payment, which according to OECD
Arrangement rules is at least 15%.
Ex-Im Bank’s Policy and Practice
When Ex-Im Bank provides medium- or long-term guarantee, loan or insurance support
for U.S. exports, it may also provide up to 15% of the value of the U.S. exports (including
eligible foreign content) for locally originated or manufactured goods and services. ExIm Bank’s local cost policy reflects the premise that there is some amount of local labor
and raw materials necessary to efficiently build or assemble the end product of the U.S.
export.
For medium-term transactions, Ex-Im Bank may provide local cost support as long as
the local costs are related to the U.S. exporter’s scope of work and the U.S. exporter can
demonstrate either: (1) the availability of local cost support from a competitor ECA; or
(2) that private market financing of local costs is difficult to obtain for the transaction.
For long-term transactions, automatic local cost support is generally available provided
the local costs are related to the U.S. exporter’s scope of work. Automatic local cost
support is also available for all environmentally beneficial exports, the engineering
multiplier program, medical equipment exports, and exports of products related to
transportation security projects (also known as the Transportation Security Export
Program), regardless of term.
For project finance transactions only, the local costs need not be related to the U.S.
exporter’s scope of work, although the local costs must be beneficial to the project.
G-7 ECAs’ Policies and Practices
All G-7 ECAs adhere to the basic local cost parameters set forth in the OECD
Arrangement. That is, ECAs may provide support for local costs related to officially
supported export transactions up to the amount of the down payment, which is typically
15%.

67

Over the past five years, pressure from both a globalizing world and content regulations
in many buyer countries have been forces leading to a large expansion in the existence of
local subsidiaries around the world. As a consequence, local capacity has dramatically
improved, which has led to a change in the nature of the local goods and services ECAs
are being requested to support. Traditionally, ECAs have provided local cost support for
local labor and basic materials; however, due to a combination of the legal requirement
to procure locally and improved local capacity, ECAs are being requested to provide
support for locally manufactured capital goods.
There is growing interest among some ECAs (especially smaller ECAs) and exporters in
enlarging the scope of official local cost support to cover more non-domestic content.
ECAs are increasingly tempted to use expanded local costs support as a way to secure a
“piece of the pie”.
The primary way ECAs have responded to pressure for expansion of local costs is to
offer what is allowed more frequently. From broad information available, it appears
that most ECAs now offer more local costs support fairly regularly.
Another way the pressure for enhanced local costs support shows up is in an ECA’s
official proposal to eliminate local costs restrictions from the OECD Arrangement. That
is, local cost support would no longer be restricted to the amount of the down payment
(typically 15%), but rather, local costs could be financed up to 85% of the exporter’s
contract. The essence of this proposal is gaining momentum within the context of the
exporter agenda. Exporters argue that the OECD local cost limitations increase the cost
to the buyer unnecessarily because to receive maximum ECA support, exporters are
being forced to intentionally divert sourcing to a third country when the goods could
actually be sourced locally.
A final way the pressure shows up is in the increased flexibility some ECAs are
exhibiting in the definition of national content. For example, many foreign ECAs
sometimes consider import duties and value added taxes as part of the domestic supply;
in contrast, Ex-Im Bank always considers those costs as eligible for local cost cover only.
Summary Data
Figure 27 illustrates recent trends in Ex-Im Bank’s support of local costs. Since the
Bank’s 2001 local cost policy revisions allowing greater flexibility for local cost support,
there has been an overall increase in Ex-Im Bank support of local costs. The increase
(from 18 transactions in 2000 to 88 in 2005) can be attributed to the fact that the
revised procedures provided more small and medium-sized U.S. exporters with greater
certainty that local costs support would generally be available. Although the dollar
volume of local costs dipped in 2003, the dollar volume more than doubled from 2003
to 2004 and again doubled from 2004 to 2005, which has surpassed historical levels.
The increase may be the result of applicants requesting the maximum local cost support
in 2005. In 2005, three-quarters of local cost financing supported installation costs, on-

68

site construction, and labor costs. The remaining one-quarter was generally comprised
of import duties and value-added taxes.
Figure 27: Recent Trends in Ex-Im Bank Local Costs Support
Authorizations
Export value
Total medium- ($MM)
and long-term Number of
activity
transactions
Medium- and
Number of
long-term
transactions
activity
Percentage of
containing local total number of
costs
transactions
Volume ($MM)

Local costs

Percentage of
total mediumand long-term
activity

2001

2002

2003

2004

2005

$7,417

$8,554

$8,873

$10,949

$7,791

494

525

569

757

587

17

33

57

79

88

3%
$200

6%
$184

10%
$123

10%
$312

15%
$669

3%

2%

1%

3%

9%

Exporter and Lender Survey Results
Though the majority of survey respondents indicated that Ex-Im Bank’s local costs
policy was generally competitive when compared to its counterparts, exporters and
lenders alike indicated that Ex-Im Bank’s local costs policy needs to go even further.
Exporters have urged Ex-Im Bank to consider extending the “project finance flexibility”
(i.e., the local costs need not be related to the U.S. exporter’s scope of work, but rather
be beneficial to the project as a whole) to all programs.
Conclusion
Based on both comparative information regarding our G-7 ECA counterparts and on the
exporting community’s actual experience with Ex-Im Bank’s revised local costs support
policy, Ex-Im Bank’s local costs policy is considered to have a neutral impact on
competitiveness.

69

70

Chapter 6: Public Policies – Stakeholder Considerations
Section E: U.S. Shipping Requirements
Introduction
In accordance with policies implementing Public Resolution No. 17 (PR 17) of the 73rd
Congress, certain ocean-borne cargo financed by loans or credit guarantees from a U.S.
government entity, such as Ex-Im Bank, must be transported on U.S. flag vessels, unless
a waiver of this requirement is obtained from the U.S. Maritime Administration
(MARAD).
Exports financed through Ex-Im Bank’s direct loan and long-term
guarantee programs are subject to the U.S. flag vessel requirement.
The stated goal of PR-17 and other cargo preference legislation is to support the
continued viability of the U.S.-flagged commercial fleet, which among other things,
serves as an essential national security asset during times of war or national emergency.
However, from the perspective of U.S. exporters, cargo preference requirements can
make U.S. exports less competitive vis-a-vis foreign competitors, since foreign
competitors have no similar requirements and U.S.-flagged shippers generally charge
higher rates than their competitors.
Policy and Practice
In October 2004, Ex-Im Bank and MARAD negotiated a new Memorandum of
Understanding on PR-17 shipping requirements that raised the threshold for the
application of the requirement to Ex-Im Bank’s guarantee program from $10 million to
$20 million. The Memorandum, which includes the language below, went into effect on
October 26, 2004.
“For transactions that are greater than $20 million or are of terms greater than 7
years (even if the transaction is for less than $20 million), exporters are still required
to follow the traditional process. Specifically, exporters are responsible for ensuring
that they comply with Ex-Im Bank policy implementing PR 17. Pursuant to PR 17,
upon request, MARAD may waive the U.S. flag vessel requirement on a case-by-case
basis.”
If a waiver is obtained, Ex-Im Bank may provide financing for goods shipped on vessels
of non-U.S. registry. Since 2002, and including 2005, 100% of all waivers requested
have been approved, except in the category of Statutory Waivers, which has a 90%
approval rate. Statutory waivers may be granted if MARAD determines that a U.S.flagged vessel will not be available within a reasonable amount of time or at a reasonable
rate.

71

G-7 ECAs’ Policies and Practices
None of the other G-7 ECAs have similar cargo preference restrictions.

Summary Data
Figure 28: Number of PR17 Waivers Approved and Denied

Waiver Type
General
Waivers
Statutory
Waivers
Compensatory
Waivers
Conditional
Waivers

2002
Approved
Denied
Approved
Denied
Approved
Denied
Approved
Denied

2003

3
0
22
1
10
0
0
0

0
0
29
5
11
0
0
0

2004
0
0
26
2
5
0
0
0

2005
1
0
19
2
3
0
1
0

Total
4
0
96
10
29
0
1
0

Percentage
of Waivers
Approved
100
90
100
100

Source: MARAD

Figure 28 shows the status waiver applications to MARAD for the years, 2002-2005.
According to MARAD, all applications for statutory waivers that were denied were due
to a determination by MARAD that U.S.-flagged vessels were available to carry the cargo
within a reasonable amount of time and/or at a reasonable rate.
Exporter and Lender Survey Results
Exporters noted that the MARAD requirement is a factor that places them at a
competitive disadvantage. Reasons for the disadvantage may include higher costs
associated with shipping via U.S.-flagged vessels. Further compounding the problem
coordinating shipping on these vessels may be relatively more difficult. One exporter
stated that customers refuse to buy its equipment or use Ex-Im Bank financing because
of the MARAD requirement. This exporter also noted recent MARAD program changes
in support of small business have not been implemented despite Ex-Im Bank Board
approval. (The program is to be implemented in 2006.)
Lenders claim that MARAD is not consistent in how it applies waivers. Several lenders
note that the MARAD process has recently become more problematic. One lender
provided the example of a deal in Brazil where the buyer wanted Ex-Im Bank as a
participant in a seven-ECA transaction. However, because of the difficulty in obtaining
MARAD waivers, the deal closed without Ex-Im Bank’s participation. This hurts Ex-Im
Bank’s opportunity (and U.S. exporters) to participate in subsequent transactions.

72

A couple of recent oil and gas transactions illustrate the potential increased costs
imposed by the MARAD requirement and its competitive implications to U.S. exporters.
In a transaction that closed in December 2004 with shipments occurring in 2005, the
borrower needed highly specialized ocean vessels to transport the required equipment.
The borrower noted that the ocean freight price differential between a U.S. flag vessel
and a foreign flag vessel was about $3.6 million, where the U.S. flag vessel was more
expensive. The project required about 8 more shipments of this kind and the borrower
indicated to Ex-Im Bank that the MARAD requirement had created a financial burden
on the project. Additionally, in a similar transaction that closed in December 2005, the
borrower has so far not drawn any funds from Ex-Im Bank as the project is now reevaluating the use of Ex-Im Bank due to the added financial burden caused by the
required compliance with MARAD.
Conclusion
As a condition of Ex-Im Bank’s direct loan and long-term guarantee financing, U.S.
exporters are required to comply with U.S. flag vessel requirements. The cargo
preference rules appear to present a competitive disadvantage for U.S. exporters
because none of the other G-7 ECAs have similar requirements related to shipping.
However, although the MARAD waiver data appear to present the waiver process as an
effective means of addressing any potential hardship or limitation placed on exporters
by PR 17, the requirement remains a negative factor affecting Ex-Im Bank’s
competitiveness.

73

74

Chapter 6: Public Policies – Stakeholder Considerations
Section F: Ex-Im Bank’s Public Policy Competitiveness
The public policy requirements imposed on Ex-Im Bank are largely unique to the Bank as
compared to the other G-7 ECAs. The exceptions are (i) local costs support where Ex-Im
Bank has traditionally been fully competitive with its ECA counterparts, and (ii) foreign
content where Ex-Im Bank is rated to be more restrictive than its counterparts. The other
public policy factors which are shown below in Figure 29 are areas, when present in a given
transaction – and this appears to be happening more frequently -- that have a negative effect
on Ex-Im Bank’s competitiveness, as no other G-7 ECA has a comparable requirement.
Figure 29: Grading of Ex-Im Bank’s Public Policy Competitiveness, 2005
Policy
Economic Impact
Foreign Content
Local Costs
PR 17
Overall Assessment

G-7 ECAs Have
Similar Constraint?
(Yes/No)
No
Yes
Yes
No

Potential Impact on
Competitiveness
Negative
Negative
Neutral
Negative
Negative

75

76

Chapter 7: Results
For 2005, Ex-Im Bank’s overall competitiveness as compared to its G-7 ECA
counterparts is deemed to be an “A”, meaning that the Bank was generally competitive
with the other ECAs. This rating is the same as in 2004. Specifically, for 2005, Ex-Im
Bank is rated as consistently offering terms equal to the average G-7 ECA. Figure 30
shows that the core financing elements of premia, interest rate, and cover policy are
important areas in which Ex-Im Bank met its competition. Overall, the Bank performed
slightly less well against the average G-7 ECA in the major program structures, but still
within the “generally competitive” range. While the aircraft and project finance
programs are on par with competitors’ programs, the foreign currency guarantee and
co-financing programs were not considered as favorably.
Figure 30: Grading of Ex-Im Bank’s Overall Competitiveness, 2005
Structural Elements
Core Business Policies and Practices
A. Cover Policy and Risk Taking
B. Interest Rates
C. Risk Premia
Major Program Structures
A. Large Aircraft
B. Project Finance
C. Co-Financing
D. Foreign Currency Guarantee
OVERALL COMPETITIVENESS GRADE

Grade
A
A
A
A+
AA
A
B
AA

In addition to the core structural elements of Ex-Im Bank’s financing, there are
philosophical/policy aspects to the Bank’s support of transactions that may impact its
competitiveness (see Figure 31). Chapters 5 and 6 described the Economic Philosophy
and Public Policy objectives of Ex-Im Bank in comparison to its G-7 competition. With
respect to Tied Aid and Market Windows, the U.S. position may have a negative (or
neutral) impact on the competitiveness of Ex-Im Bank transactions—although the
overall impact to competitiveness is minimal as these types of cases are infrequently
encountered. With regard to the Bank’s public policy requirements, the Bank’s
Economic Impact, Foreign Content and Shipping policies have always been considered
to have a negative impact to competitiveness, while the Bank’s Local Costs policy’s
impact on competitiveness was considered to be positive. However, in 2005, because
other ECAs have changed to make local costs support more broadly available than in
prior years, the Bank’s own Local Costs policy was considered to have a neutral impact
on competitiveness.

77

Figure 31: Direction of Case-Specific Competitive Impact of U.S. Economic
Philosophy or Public Policy on Certain Official Export Credit Activity,
Procedures or Practices, 2005
Areas Affected by U.S. Economic
Philosophy or Public Policy
Economic Philosophy
A. Tied Aid (direct or “de facto”)
B. Market Windows

Potential Case-specific Impact on
Competitiveness
Negative (infrequently encountered, therefore,
a modest overall competitive impact)
Neutral (would likely be negative if
encountered)

Public Policy
A. Economic Impact
B. Foreign Content
C. Local Costs
D. Shipping – PR 17

Negative
Negative
Neutral
Negative

78

Ch. 8: Emerging Issues - Commercialization of ECAs
Section A: Overview
Purpose
The purpose of this chapter is to identify and broadly describe an emerging trend
that could soon have a major impact on Ex-Im Bank’s competitiveness. This
trend is referred to here as the “commercialization” of ECAs – a short handed
description that depicts the transformation of a steadily increasing number of
ECAs from government/public policy focused organizations to entities that
increasingly resemble private sector, profit oriented financial entities. There are
three primary developments that seem to reflect this evolution toward
commercialization:
•
•
•

The introduction of portfolio management capabilities,
The shift in focus toward high income/mature markets by ECAs, and
The move from “national content” to “national interest”/”made in” vs. “made
by”

While the latter development (made in vs. made by) may not necessarily fit neatly
within the “commercialization” banner, the characteristics associated with this
shift reflect private sector practices. Hence, this broad topic is included in this
chapter.
This overview provides a broad framework of ECAs commercializing their
operations by explaining:
•
•
•

Why these developments are occurring
How these developments relate to commercialization, and
What the overall implications of these developments are that constitute this
emerging trend called “commercialization.”

Elements of “Commercialization”
Portfolio Management: The introduction of a portfolio management
approach by ECAs reflects their attempt to better manage risks in such a way that
the overall portfolio facilitates achievement of financial objectives. In a world of
WTO mandates to run at a break-even and to price at market, as well as budget
pressures to avoid any drain on national finances, portfolio management is a
logical tool.
The importance of portfolio management to competition is that by substituting
overall financial consideration of a portfolio for individual case “need/credit”
79

considerations as the determinant of ECA engagement on a specific case, the
appetite of an ECA for transaction specific risk is likely to be different. Most
particularly, it is possible that an ECA aggressively taking on “upside” business
(in which “need” is little or none) could stretch a little further for individual
“downside” business than a traditional case-by-case ECA.
High Income Markets: The shift in focus to high-income markets by the
major ECAs represents an important mechanism with which to achieve and
support a portfolio management and balancing objective. It may also reflect a
desire on the part of these ECAs to expand their reach into riskier markets that
they may not otherwise venture with the move toward high-income markets as
the balancing component of such a strategy. Data to date strongly indicate that
ECAs are putting a portion of activity in high-income markets. Whether the shift
is facilitating “downside” expansion has yet to be determined.
“Made By vs. Made In”: The shift from national content to national interest
is driven in large part by the compartmentalization of production/supply chains
associated with globalization and the desire of many ECAs to keep their relevance
by following their principal companies offshore. Hence, the rationalization is
that it is better to win part of a contract rather than none at all. The competitive
implications of a race to the bottom on content (both 3rd country and local) are
obvious and substantial.

80

Ch. 8: Emerging Issues - Commercialization of ECAs
Section B: Portfolio Management

The term portfolio management (PM) is a short hand reference to the explicit
undertakings (e.g., strategy and tools) used to manage the risks of a set of
financial assets. Within the context of export credits, PM refers to actions ECAs
take to evaluate, assume, manage and monitor the foreign commercial and
political risks associated with a pool of credit risks they are asked to assume. The
underlying theory and benefit of portfolio management is that when the assets
(typically heterogeneous and diversified) are pooled together, the better risks
help to offset the higher risks, yielding a portfolio that is “balanced.” The theory
further states that as new assets are presented to be considered for inclusion in
the portfolio and with a PM approach in place, the likelihood of a higher risk
asset being undertaken improves because its effect (higher risk) on the overall
portfolio is likely to be marginal/minimal (unless it is a very large dollar amount
that distorts the balance in the portfolio) and therefore more acceptable as a risk
to be taken. Simply put, PM is a strategy that requires the accumulation of low
risk assets to create opportunities to assume higher risk assets leading to a
balanced spread of risk.
Portfolio management is becoming a competitive issue. As explained in the
Chapter regarding Cover Policy and Risk Taking (Chapter 3, Section A), cover
policy describes whether and to what extent an ECA is willing to accept risk in a
particular market and, if so, to what extent. Thus, an ECA’s willingness and
ability to assume risks can have a significant impact on the overall
competitiveness of a transaction. In an environment where most competitive
factors, such as the terms and conditions involved in a given transaction are
governed by the OECD Arrangement, the edge that an ECA can achieve in cover
capacity, e.g., via “portfolio management,” has become a more important
competitive factor.
Within this context of a rapidly evolving framework of export credits
characterized by changing buyer risk profiles and the emergence of more and
different tools to mitigate them, combined with the new pressures that are being
brought to bear on ECAs, a number of the ECAs, as part of their more private
sector-oriented approach to handling their business, have adopted new business
models that include PM as an integral tool.
Portfolio Management Strategies and Tools for the Medium/Long
Term
Traditionally, most ECAs, in addition to using cover policy as a risk management
tool (open or closed and, if open, under what conditions?) have used
country/buyer/sector exposure limits, credit standards, risk rating systems, and

81

exposure fee/pricing-to-risk models. Over time, the tools available to ECAs have
become more sophisticated and allow ECAs to more precisely manage and
monitor their portfolios on a real time basis. Figure 32 is an indication of the
range of differences in the underlying philosophies and the strategies and tools
being used by a number of ECAs.
Figure 32: Risk Mitigation Techniques used by Major ECAs, 2005
ECA
EDC
COFACE
ECGD
EFIC
EKN
EKF
SACE
Hermes
Atradius
ERG
Finnvera
US Exim

LT BE
/profit 1
Y2
Y2
Y2
Y2
Y2
Y2
Y2
Y2
Y2
Y2
Y1
LTBE

Budget
flexibility 2
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N

Pricing/risk
models
Y
Y
Y
Y
Y

Y
Y

Portfolio
Management
Y
Y
Y
Y
Y
Y
Y

PM IT
systems 3
Y
Y
Y
Y
Y

Y

Y

NIA 4
Y

Y

Reinsurance/
risk sharing 5
Y

Y
Y

FE:
swaps 6

Y
Y

Y
Y
Y
Y

Y

N

N

N

Y
N

N

Blank cells = unknown
1 Y/N: ECA has either or both an explicit goal of a LT Break Even and/or to make a profit.
1-2: 1= only one of these objectives; 2= has both objectives
2 Budget Flexibility: refers to the accounting standards used by ECAs’ and their ability to capture
repayments and other income to offset losses and administrative expenses.
3 Portfolio Management IT systems: The development and implementation of risk and portfolio
management systems technologies has greatly facilitated, expanded, streamlined, and elevated
ECAs’ capabilities in this field to an entirely new level with access to comprehensive and real time
knowledge about the nature of their portfolios. Moreover, with this knowledge, ECAs now have
the added ability to adjust exposure limits, credit standards, cover policy, exposure fees, and risk
rating systems in order to proactively rebalance their portfolios in a time-responsive manner like
never before.
4 NIA: National Interest Account: Several ECAs have the option of creating and placing certain
high risk or “national interest” transactions into a “National Interest Account” in which the ECA
manages but does not bear the risk of any losses that may arise. A NIA provides a venue for ECAs
to shift the high risk transactions from their balance sheet to their government’s balance sheet.
5 A number of ECAs actively pursue private sector reinsurance as a means to spread the risk with
other participants in the market generally on a facultative basis (one-off deals) but also on a treaty
basis (portfolio). Reinsurance however tends to be limited in tenor, availability and in scope and
does carry a cost. Several ECAs have also developed relationships with other lending
organizations such as the multilateral development banks, private lenders, as well as with other
ECAs.
6 FE: Examples of Financial Engineering such as ECA swaps, credit default swaps, creation and
use of a Risk Sharing House, and syndications.

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Ch. 8: Emerging Issues - Commercialization of ECAs
Section C: High-Income Markets
Background
As ECAs face a variety of pressures in a changing environment, one approach
many are taking is to redirect their focus to operating in developed markets,
particularly in high-income OECD countries such as the United States and
Europe. The pressures driving ECAs in this direction include WTO findings that
ECAs must break-even in order to avoid being considered a prohibited subsidy,
as well as domestic demands to increase exports and to not drain limited
budgetary resources. ECAs believe that by increasing their support into
developed markets, they can increase profits and balance out the risks of their
portfolios.
Rationales
ECAs pursuing a strategy of increased business in developed markets argue that
they are complementing the private markets rather than competing with them.
They contend that much of their support (based on number of transactions) goes
to small buyers who would otherwise have difficulty finding financing for their
purchases. ECAs’ justification for their support of larger transactions is that they
believe they are necessary due to banks’ internal lending limits or other limits
(e.g., sector concentrations). Finally, these ECAs claim that such business is fully
compliant with OECD and WTO obligations because they require minimal
subsidy, if any at all, and the premiums charged are market-based, do not
undercut the private market, and are sufficient to break-even or make a profit.
Practices
This strategy is directly yielding a reallocation of ECA activity. While support to
buyers in high-income OECD countries comprised only 20% of total ECA activity
in the late 1990s, almost one-third, or $21 billion, of all official export credits
went to wealthy countries in 2004 (the last year for which data are available).
Support for aircraft and ships comprise the largest portion (78%) of this activity
by dollar volume, and a distant third being telecommunications projects
estimated to represent roughly 6% (based on data from 1999 – 2005). The vast
majority of transactions by number are spread across diverse industries.
While several ECAs have noted that they have specific quantitative criteria to
determine whether a high income/mature market transaction can be financed
with official ECA support (e.g., minimum dollar thresholds, minimum repayment
terms), others have more qualitative standards such as whether the transaction is

83

worthy of, or requires state support, the acceptability of the risk, and finally,
whether the transaction contains OECD compliant repayment terms as well as
market benchmark premium/exposure fees.
The trend suggests that Ex-Im Bank's official ECA competitors are behaving more
like private export credit providers by offering official export credit support in
markets that are traditionally serviced by the private sector. As a result, Ex-Im
Bank has seen an increase in requests to match competing ECA offers in highincome countries, and expects more such activity in the future. In light of its
additionality policy, Ex-Im Bank will always be reactive rather than proactive in
these markets.

84

Ch. 8: Emerging Issues - Commercialization of ECAs
Section D: National Content v. National Interest

There is a growing and accelerating tide of change (particularly in Europe) in the
focus of the content policies of ECAs. The shift effectively copies the long-standing
approach in Japan and Canada in which the focus is on national companies and
their long-term benefit to the economy rather than on the direct labor/job impact
of specific transactions. The shift is known as a move from “made in “X” (by
national label) to “made by “X” (national corporation somewhere in the world).
This new vector is reflective of a more comprehensive change in approach by an
ever-growing cadre of ECAs regarding the issue of “content” and the location of the
source of that content, and the amount of financing support that an OECD ECA
can provide.
An important starting point regarding the issue of content is the current
distinction of local cost/content and foreign content in the OECD Arrangement.
“Local cost” is defined as an “expenditure for goods and services in the buyer’s
country that are necessary either for executing the exporter’s contract or for
completing the project of which the exporter’s contract forms a part.” The OECD
Arrangement sets the terms allowable for local cost support that effectively
translates into a maximum local cost support of 15%. For transactions in Category
I countries, local cost support is limited to pure cover only. Over the past year or
so, an effort has been underway to gradually relax the local cost limitation. The
proposal is on the Participant’s formal agenda and momentum is growing among
ECAs to address this concern.
“Foreign content” is neither defined nor governed by the OECD Arrangement. In
Ex-Im Bank vernacular, foreign content is defined as content that originates in a
3rd country not including the buyer’s country (with the latter being “local cost.”)
The ultimate goal of those pushing the local cost issue (who are also moving
toward a “made by” foreign content approach) is to eliminate the difference in
treatment between local cost and foreign content, leaving only the 85% of “contract
value” constrained. In fact, the line between “local cost/content” and “foreign
content” has gotten blurred in specific cases over the past year or so. This opaque
treatment is most pronounced within the context of the components of the good or
project that are sourced from a foreign subsidiary (i.e., of the ECA’s country) in the
buyer’s country and treated as either domestic or foreign content.
Although the underlying driving force of the content issue is the legitimate ECAs’
desires (perhaps need) to follow the fortunes of their national champion
companies as globalization pushes them offshore, the net result is the creation of a
totally “unregulated” component of official export credit that is both significant in
its competitive implications and subject to widely varying philosophical
applications within the Arrangement members. Such a development seems to set
the stage for exactly the type of “race to the bottom” that the OECD Arrangement
was created to deter.
85

As ECAs agree to stretch beyond their borders and Ex-Im Bank continues to
confine its support to domestic production, the playing field is likely to become
more uneven. U.S. exporters are likely to find themselves competing against
foreign ECA-backed financing packages that extend cover to a larger share of the
contract when third country content exceeds 15%. The ability to access this
additional ECA financing to support goods and services that originate outside the
ECA country may influence procurement decisions away from the U.S., which
would leave U.S. exporters at a competitive disadvantage.

86

Chapter 9: Emerging Issues - Emerging Market
ECAs of China
I. Introduction
Over the course of the last several years, three emerging market export credit
agencies (ECAs) outside of the OECD have surfaced as potentially significant
players in the ECA world. The countries are China, India, and Brazil. Of the
three, China and its ECAs have shown the most dramatic increase in terms of
activity levels: China Eximbank is the lending ECA; Sinosure is the
insurer/guarantor ECA, and most recently, the China Development Bank has
become an export credit lender in addition to its more traditional international
role in the foreign direct investment field. However, none of China’s ECAs are
members of the OECD and are under no obligation to follow the OECD
Arrangement on Export Credits which sets the rules for official export credits
(e.g., credits offered by governments). On the other hand, the insurer/guarantor
ECA, Sinosure, is a member of the Berne Union that offers guidelines and general
principles for export credits.
The balance of this chapter concentrates on the strategies, programs, and
practices of the Chinese ECAs. Collectively, the published reports by China
Eximbank, Sinosure, and to a lesser degree, China Development Bank, offer clear
evidence that their activity levels are surging dramatically higher. At this pace,
the Chinese ECAs, as a collective entity, will become the single largest export
credit provider among all countries by 2010. While Sinosure and China
Eximbank each note in their annual reports that they generally abide by the
Berne Union Guidelines (Sinosure) and the OECD Arrangement (China
Eximbank), the latter also acknowledges in the same report that they offer
financing on preferential terms through their Concessional/Preferential Loan
program and their buyer’s export credit program. However, details regarding
specific financing offers in these two programs are not published. Thus, the best
information Ex-Im Bank has been able to collect regarding China’s export credit
financing practices is a combination of US exporter and/or lender allegations,
information from other OECD ECAs regarding their own experiences, and press
reports both before and after the contract award process.
The purpose of this special analysis chapter is to provide (1) a more detailed
understanding of the objectives, goals, programs, and approaches that the
Chinese ECAs have adopted on behalf, and in support, of the Chinese
government’s economic and growth strategy, and (2) where these strategies and
intent take them in terms of their breadth and incidence as a US competitor if
one extrapolates to 2010.

87

II. Chinese Strategy
A. Background
In 2001, China joined the World Trade Organization (WTO), and as part of
that accession, agreed to implement policies and reforms that would lead
to broad access to the Chinese market place by other countries. Since
then, China has made steady progress towards these goals. One observer
characterized this transformation as a methodical pacing of reforms that
allows the Chinese industrial and services sectors time to adapt to the
pressures of the international competitive marketplace. Accordingly, the
balance of this chapter concentrates on the Chinese government’s strategy,
programs and practices particularly regarding Chinese exports and the
official export credit support for its most important industrial sectors.
B. Chinese Strategy
Key to understanding the vision of China as it applies to its strategy
regarding exports and export credit financing is recognizing that export
credit strategies are an integral component of an overarching Chinese
economic strategy. Specifically, in the 10th 5 Year Plan announced in 2001,
the theme was a “going out/going global” strategy in which companies of
all types (and the agencies designed to assist them) were strongly
encouraged to identify and pursue international recognition and markets
where Chinese economic interests could best be served. The recently
adopted 11th 5 Year Plan, while very similar to the 10th Year Plan, reflects
the recognition that this strategy will require a substantive and timely
response to the growing perceptions of inequality (e.g., wages/income,
education, employment opportunities) among the population, especially in
the rural and less developed provinces in the western and northeastern
parts of the country. Accordingly, the current strategy is to broaden and
deepen the beneficial impact of the “going out” strategy to all sectors,
regions and populations within China’s borders.
One aspect of the overall strategy is to put special support on activities
where China benefits from both sides of the “equation”/activity. Hence,
an example might be a case in which China gives special financing support
to the Indonesian rail sector to both help Chinese exports of locomotives
get a foothold in a major market and simultaneously, assist financially in
the development of an improved rail system that facilitates the shipments
of Indonesia’s many resources to China.

88

C. Organization of “Export China”
1. Oversight
The State Council (of the People’s Republic of China), also known as the
Central People’s government, is the highest executive body of State power.
The State Council is chaired by the premier and comprised of the vice
premiers, State counselors, and ministries – in total about 50 individuals
representing key government agencies/ministries. The State Council is
comparable to our cabinet, although the SC is much larger. The three
ministries that are members of the State Council, and are directly relevant
to and have varying degrees of oversight responsibilities for the two
Chinese ECAs, China Eximbank (CXM) and Sinosure, include the Ministry
of Commerce (MOFCOM), the Ministry of Finance (MOF), and the
Ministry of Foreign Affairs (MOFA). The role that the ministries play in
the ECAs is described in more detail in the ECA sections below.
2. Export Credit Agencies
The Chinese agencies that support Chinese exports are the China
Eximbank, Sinosure, and the China Development Bank (CDB). Each has a
specific responsibility with China Eximbank and, more recently, CDB
assigned the task of providing direct lending to foreign buyers. Sinosure
provides export credit insurance, assuming the risks of the foreign buyer
on behalf of private lenders willing to extend the actual funding.
Notwithstanding the discrete functions assigned to each agency, there is
the potential for significant overlap among them. This cadre of ECAs as
organized today is modeled after the Japanese export credit structure.
a. China Eximbank
China Eximbank (CXM) was formed in 1994 as the official export credit
financing agency of the Chinese government, is wholly owned by the
Government of China (GOC), and operated as a policy bank. As such,
CXM implements the policy of the GoC (as opposed to making it). CXM
has a Board of Directors comprised of various members of the State
Council and reports directly to the State Council with “authority” over its
activities loosely governed by the Ministry of Commerce (MOFCOM) –
and, to a lesser degree, the Ministries of Finance and Foreign Affairs. Most
recently, the Chinese banking regulators (Chinese Banking Regulatory
Commission – CRBC) announced that a special department is being
created to provide greater supervision of “policy-oriented banks,” with a
special focus on the risk profile of these lending agencies. Supervision of
China Eximbank and China Development Bank will fall within this new
department.
CXM officials noted that it focuses its support to promote the export of
Chinese mechanical and electronic products, complete sets of equipment,

89

high and new tech products, and to support Chinese companies with
comparative advantages to go abroad for overseas construction contracts
and offshore investment projects. Further, the implementation of a new
five point proposal is under consideration in which CXM committed to
help developing countries by providing $10 billion of preferential credits
within 3 years, another $5 billion preferential credits for the ASEAN
countries, as well as the implementation of the $900 million preferential
export buyer’s credit for other Shanghai Cooperation Organization (SCO) 1
member states. (See also China Development Bank section.) However, it is
not clear under which of the existing programs these commitments would
be pursued.
Figure 33: China Eximbank Activity 2000-2005 (in $mns)*
China
Eximbank
M- &
term

2000
L-

NA

2001
NA

2002

2003

2004

$4,560

$ 8,690 $10,100

2005**

2010***

$15,000

$40,000

* These data are based on the China Eximbank annual report and/or their press releases.
It should be mentioned that the M/LT data is probably overstated by $1 billion or more
because it includes investment loans.
** Estimate: In 2005, CXM portion of Chinese exports supported = 2%.
***2% of estimated Chinese exports of $1.720.6 bn in 2010 = $34 bn.

In 2004, CXM reported a commitment level of roughly $10 billion for its
medium and long-term export credit business and for 2005, an estimated
$15 billion. Based on these figures, CXM is claiming to be the 3rd largest
ECA in the world. Also, it intends to keep growing at a rapid clip, and if
CXM achieves its goal of supporting a larger share of Chinese exports -for example a 5% share -- its volume of medium and long term activity
could reach $85 billion by 2010.

1 Shanghai Cooperation Organization (SCO) is an intergovernmental international organization
founded in Shanghai on June 15, 2001 and is comprised of 6 countries: China, Russia,
Kazakhstan, Tajikistan, Krygystan, and Uzbekistan. The main purposes of the SCO include
strengthening mutual trust, friendship among member states, developing effective cooperation in
political affairs, the economy and trade, science and technology, culture, education, energy,
transportation, environmental protection, and working together to maintain regional peace,
security and stability and promoting the creation of a new international political and economic
order featuring democracy, justice and rationality. As part of the economic cooperation strategy,
the SCO also adopted a “Process of Trade and Investment Facilitation” and in 2002, mechanisms
for economic and trade cooperation were established.

90

CXM currently offers three primary products: (1) export credit (buyer and
supplier), (2) concessional loans to other governments, and (3)
guarantees. 2
CXM’s buyer credit program is available for medium and long-term tenors
to creditworthy foreign borrowers to support the export of Chinese capital
goods, services and overseas construction projects in amounts greater than
$2 million. According to CXM, these credits are normally in dollars (US $)
or other hard currencies and carry a “competitive interest rate” which they
define as either a fixed rate based on the OECD CIRR for the currency or a
floating rate of LIBOR + a spread. There also appears to be another
category of loans within the buyer credit program defined as “special
cases” in which the interest rate can be negotiated and decided between
the lender and the borrower, possibly on a “preferential” basis. In
addition, the buyer credits carry a longer repayment period than supplier
credits (e.g. 15 years – 20 years according to the CXM information). A
management fee of .5% is charged. In addition, a commitment fee and
exposure fees are charged, but it is unclear on what basis.
Regarding CXM’s concessional loan program, CXM provides only an
outline of information and does not publish either the overall amount of
preferential loans they had made during recent years, nor do they provide
the specific terms and conditions (e.g., interest rate, repayment term
tenor) that are offered. According to their annual report, these loans are
medium and long term, low interest rate renminbi /Yuan credits extended
typically to foreign governments to purchase Chinese mechanical and
electrical products, sets of equipment, high tech products, services and
other materials.
This program is typically used when Chinese benefits can occur on both
sides of the transaction. An example would be the sale of Chinese
manufactured locomotives and an improved rail system in the buyer’s
country. These transactions also generally involve infrastructure
development (e.g., energy, transportation and telecommunications),
industrial development (e.g., manufacturing and mining), and social
welfare (e.g., health care, housing). Discussions with CXM officials
revealed that these loans typically are at interest rates in the 2-4% range
(RMB) and repayment terms generally at 10 years (but can be up to 20-30
years).
CXM will only provide support to Chinese-owned and domiciled
companies. Accordingly, their exporter profile consists of large state
owned enterprises (SOEs) or large wholly private or partially government
CXM also offers an on-lending program to domestic projects with foreign government loan
funds and foreign direct investment financing, and in 2006, they intend to offer import credits to
support the development of certain industry sectors of strategic importance.

2

91

owned companies in certain key sectors: ship building, telecom, power,
and high technology.
When compared with the OECD Arrangement, CXM’s terms and
conditions for its products are:
•
•

•
•

Similar with regard to the minimum fixed rate CIRR lending rate for
“standard” buyer credits.
Probably a little less than the CIRR for the “special”/”preferential rate”
cases within the Buyer Credit and the concessional loan programs as
the OECD Arrangement does not permit the flexibility for negotiated
rates lower than the CIRR.
Probably a little longer as 15 years is only available for nuclear power
plants and renewable energy within the OECD.
Generally the OECD Arrangement has a protocol for the minimum
exposure fees allowable.

During 2004 and 2005, CXM undertook a number of lines of credit and/or
loan commitments on behalf of several of the large companies, most of
which are SOEs in a range of countries/regions. (NB: the information and
specific details provided below are based on information from press
reports and other sources deemed highly reliable.)
Country or region-specific export credits:
•

2004/2005: Philippines: CXM extended a concessional loan of
$400 million to support the development of Phase 1, Section 1, of
the North Rail project. 20 year repayment, including a 5-year
grace, 3% interest rate. China National Machinery and Equipment
(CNMEG) was awarded the contract.

•

2005: Tunisia: CXM offered 13 years repayment including 3 years
grace period at 2.5% $US 3 loan for telecommunications equipment.

•

2005: Uzbekistan: CXM offered a loan with 25 years total maturity,
including 5 years grace at 2% interest for computer equipment

•

2002/2004: Indonesia: CXM offered an export credit package of
approximately $400 million for three projects of which one
involved the construction of a bridge and tied to Chinese exports.

, 4 While the information obtained states that these loans were in $US, CXM’s concessional loan
program information notes that CXM lends only in RMB in this program whereas the Buyer
Credit program can lend in other currencies. Thus, it is not entirely clear under which program
these credits were extended or the actual currency of the loan.

3

92

The financing offer included a $US 4 loan with a repayment term of
15 years with a 7 year grace period at 3%.
Exporter-specific “going global” credits 5
•

December 2005: CXM signed agreements totaling 10.3 billion RMB
with Beijing Construction Engineering Group Corporation
(BCEGC), the Founder Group and CGC Overseas Construction Co.
Ltd. to support their “going global” strategies.

•

December 2005: CXM signed an export credit financing agreement
on behalf of Hunan Valin Steel and Iron valued at RMB 5 billion
($620 million) for world wide exports.

•

December 2005: CXM signed an export credit agreement with
China Machinery Group (CMGC) for $3 billion to support its
exports of electronics and hi tech products and overseas
investment.

•

March 2005: World-wide: CXM provided RMB 6 billion ($750
million equivalent) export credit support to TCL Group for their
exports of mechanical and electronic products, high and new tech
products, overseas investment projects and offshore contracting
projects and other “going global” activities.

•

August 2005: World wide: CXM and China Huaneng Group signed
a Strategic Cooperation Agreement for a $5 billion line of credit for
3 years to finance Huaneng Group’s “going global” activities that
includes both exports and foreign investments.

b. Sinosure
Sinosure is the official export credit insurance agency of the Government
of China, is wholly owned by the GoC, and is operated as a policy agency of
the GoC; that is, Sinosure does not develop policy, rather, it implements
policy. Sinosure was created in 2001 when PICC, the-then export credit
agency that included China Eximbank, was dissolved and China Eximbank
and Sinosure were formed as separate entities reporting to different
authorities. Sinosure’s primary guardian authority is the Ministry of
Finance but the Ministries of Commerce (industrial policy) and Foreign
Affairs (diplomatic/political policy) have a tangential relationship with
Sinosure as well. Sinosure states that it operates on commercial terms and

The exact CXM program, the specific terms and conditions that have been used to fund these
credits, and the specific uses of these credits are not known.

5

93

abides by the guidelines of the Berne Union and the OECD 6 (although it is
not a member of the latter).
According to Sinosure, their authority to make independent decisions on
transactions is limited primarily to the short-term area and smaller sized
deals. In the medium and long term export and investment insurance
areas, any (including short term) transaction greater than $30 million
requires the Ministry of Finance approval. Moreover, the MoF also plays a
more hands-on role in the medium and long-term area, often participating
in transaction decisions and setting policy and guiding practices. Sinosure
has operated primarily as a short term export credit support institution,
with the majority of its medium and long term assistance provided for
CXM transactions/projects.
Figure 34: Sinosure Activity 2000-2005 (in $mns)
Sinosure

2001

Short term
M- &
term
TOTAL

L-

2002

2003

$1,430

$1,750

$4,260

$940

$ 820

$1,360

$2,370

$2,820

$5,620

2004

2005*

2010**

$10,640

$17,777

$90,000

$2,060 $3,423
$12,700

$30,000

$21,200 $120,000

* Estimate
** Projection based on a conservative estimate factoring in the average rate of growth
over last 5 years.

As shown in Figure 34, Sinosure’s book of business has grown
dramatically: from a low of $ 2.4 billion in 2001 to an estimated $21
billion in 2005 representing roughly 6.4% of Chinese exports. Of that
amount, roughly 86% (in dollar volume) is short-term business spread
across 160 countries in the developing and developed world (e.g., US,
Hong Kong, the EU, South Korea representing the top country exposures).
The remaining 14% is spread across the other product lines, with a little
over half being medium/long term (while investment finance accounts for
the remainder).

The Berne Union is an international membership organization comprised of public and
private sector export credit insurance providers with 52 members from 42 countries. Its focus
is to promote the international acceptance of sound underwriting principles of export credit
insurance and the establishment and maintenance of discipline in the terms for international
trade and foreign direct investment. To this end, the Berne Union has a set of guidelines
which contains guidance regarding repayment terms, form of repayment, lines of credit and
down payments.

6

94

The medium/long term portfolio however has a very different and higher
risk profile: Sudan, Cuba, Angola, Nigeria, Iran, Philippines, Brazil, and
Pakistan. Sinosure’s management has stated that they intend to increase
its new business commitments to $30 billion in 2006, increase its share of
Chinese exports to 10% by 2007, which could mean an annual volume of
$170 billion by 2010 (with a medium/long term volume of $45 billion at
the current proportion of 25%).
In its capacity as a credit insurer, Sinosure works closely with the private
banking community which is currently dominated almost entirely by
foreign banks operating in China, namely Societe Generale, BNP Paribas,
and Citigroup as the largest players. Sinosure has also entered into a
number of cooperative financing agreements with other ECAs with the
most recent being EDC/Canada (others include: Euler Hermes/Germany,
Sace/Italy, MIGA/World Bank).
According to Sinosure, it cooperates with China Eximbank and most
recently, but to a lesser degree, China Development Bank. Sinosure does
provide insurance for transactions funded by China Eximbank and thus
far, reportedly roughly 60% of Sinosure’s medium/long term activity is
risk cover for transactions originated and funded by China Eximbank.
Sinosure indicated that this business is evaluated on the same basis as
non-Eximbank directed business – i.e., on commercial terms.
The exporter/sectoral composition of Sinosure’s current portfolio is
apparently dominated by large SOEs as well as a number of private or
minority government share companies in certain key sectors:
Telecommunications (both Huawei which is employee-owned and ZTE,
state owned); Sinopec (petroleum); forestry (mainly in Russia); and
hydropower.
Sinosure’s medium and long term export credit product is in the form of
export credit insurance in which Sinosure assumes the risk of nonpayment by the foreign buyer due to either/or both commercial and
political events. Sinosure charges an exposure fee but their fee system and
details regarding the levels of fees are not published. Sinosure is a
member of the Berne Union and states that its programs operate on a
commercial basis and are in compliance with the Berne Union guidelines.
When compared with the Berne Union (and by reference, the OECD
Arrangement as previously noted), Sinosure’s terms and conditions for its
product are generally:
•
•
•

Similar with regard to total repayment term and form of repayment
Similar with regard to down payments (15% minimum)
Unclear with regard to minimum exposure fees as required by the
OECD

95

However, anecdotal information regarding Sinosure’s practices suggests
that there have been a limited number of situations in which their
financing has not exactly matched the Berne Union Guidelines. However,
because sufficient information/documentation has not been provided, the
specific transactions cannot be cited as examples of not matching the
Berne Union Guidelines.
c. China Development Bank (CDB)
CDB was formed in 1994 and is under the jurisdiction of the State Council.
Similar to CXM and Sinosure, the CDB is a policy bank that has
traditionally focused primarily on internal domestic economic
development with special emphasis on infrastructure and pillar industries.
Given this focus, CDB’s financial support has been concentrated in rural
development in the western and northeastern regions of China, all areas
around the Yangtze River where efforts are being made to revitalize old
industrial bases as well as facilitating the development of new and efficient
industries, especially in those sectors of critical importance, e.g., energy
independence (oil, coal, electricity), transportation (railways, highways)
and telecommunications. More recently, CDB has expanded its focus in
several areas considered essential to establishing and maintaining China’s
long term competitiveness: R&D/innovation and the development of
Chinese high quality “brand name” industries/companies; SME’s; and
support for certain companies in their overseas expansion in the form of
foreign investments and trade of a “developmental nature.”
CDB offers loans which are divided between short term (less than one
year), medium term (1-5 years) and long-term (> than 5 years). For large
infrastructure projects, the maturity can be extended based on the needs
of the industry and project. The loans are available in RMB and in foreign
currencies with interest rates set according to the People’s Bank of China.
Based on available information, it appears that export credits in the form
of direct loans are available primarily in foreign currencies and are held
for CDB’s account. Finally, none of the published information regarding
CDB addresses whether an exposure fee is charged for the risks the Bank is
assuming.
Activity levels for CDB’s foreign lending for the purposes of “going global”
show that during 2004, CDB approved $780 million, and by 2005 yearend, the cumulative total amounted to roughly $8 billion. Recent
examples of CDB funded overseas projects are noted below:
•

January 2006: Uzbekistan: CDB to open by mid 2006 a $20
million credit line for Uzbek National Bank for Foreign Economic

96

Activity to support the deliveries of Chinese-made equipment and
technology on 9 year terms, 2 year grace period.
•

August 2005: World wide: CDB agreed to provide a RMB 8 billion
(approximately $1 billion) for TCL’s overseas expansion projects
involving multi-media terminals, mobile handsets, accessories and
parts and household appliances and as noted by CDB “ a non
commercial strategic cooperation intended to promote the Chinese
company’s competitiveness in international markets.”

III. Summary
Figure 35: Total Chinese Officially Supported Export Finance (in $mns)*
China

2000

M- & Lterm

$1,770

2001
$ 940

2002

2003

2004

$5,380

$10,050 $12,940

2005

2010**

$18,423+

$70,000

* This probably overstates the total business done by China Eximbank and Sinosure. This is due
to the fact that Sinosure insures a portion of China Eximbank’s business. As mentioned above,
the extent to which the two agencies work together is uncertain. ** Projected & does not include
any estimate for CDB.

China has defined and is implementing its short and long-term strategy to ensure
a prominent position. Export credits play a major and integral role in this
strategy. Some implications include:
•

China intends to use export credits aggressively and expansively on
a global basis as they represent critically useful instruments in
achieving an improved position for the country’s key industries.

•

To the extent possible, the use of the financing instruments will
comport with international guidelines and standards; however if
necessary to consolidate this position, the financing offered may be
extended on terms and conditions that give them a competitive
advantage.

97

98

Appendix A: Calculation of Ex-Im Bank Grade
In the body of this report, Ex-Im Bank graded its policies and programs. In the sections
of the report pertaining to the core financing programs and practices, grades were
assigned to each program and practice. In order to aggregate and average these grades
for the determination of the overall competitiveness grade in Chapter 7, values were
assigned to each grade that are comparable to those used in a typical U.S. university.
First, Figure A1 provides the meaning and score of select grades. Averaged subcategory grades determined a category’s grade, and Figure A2 illustrates the range of
possible averaged scores that defined each grade. If a survey respondent did not have
experience with a program or policy (i.e., response was an ‘NA’), the response was not
calculated into the grade for that program or policy.
Figure A1: Definition of Select Grades
Grade
A+

A
A-/B+
B
B-/C+
C

D
F
NA

Definition
Fully competitive compared to other ECAs. Consistently equal to the
(or is the sole) ECA offering the most competitive position on this
element. Levels the playing field on this element with the most
competitive offer from any of the major ECAs.
Generally competitive compared to other ECAs. Consistently offers
terms on this element equal to the average terms of the typical
major ECA. Levels the playing field on this element with the typical
offer from the major ECAs.
Level of competitiveness is in between grades A and B.
Modestly competitive compared to other ECAs. Consistently offers
terms on this element equal to the least competitive of the major
ECAs. Does not quite level the playing field on this element with
most of the major ECAs.
Level of competitiveness is in between grades B and C.
Barely competitive compared to other ECAs. Consistently offers
terms on this element that are a notch below those offered by any
of the major ECAs. Puts exporter at financing disadvantage on this
element that may, to a certain extent, be compensated for in other
elements or by exporter concessions.
Uncompetitive compared to other ECAs. Consistently offers terms
on this element that are far below those offered by other major
ECAs. Puts exporter at financing disadvantage on this element so
significant that it is difficult to compensate for and may be enough
to lose a deal.
Does not provide program.
Does not have experience with policy/program.

99

Score
4.33

4.00
3.50
3.00
2.50
2.00

1.00
0.00

Figure A2: Range of Averaged Scores for Each Grade
Grade
A+
A
A-/B+
B
B-/C+
C
D
F

Maximum Score
4.330
4.164
3.74
3.24
2.74
2.24
1.49
0.49

Minimum Score
4.165
3.75
3.25
2.75
2.25
1.50
0.50
0

Because the public policies and economic philosophies are not expected to impact the
same volume of transactions as the core financing and program elements, survey
respondents were asked to indicate if the public policies and economic philosophies
would positively, negatively or neutrally affect Ex-Im Bank’s competitiveness. The
following chart in Figure A3 shows the scale that was used by survey respondents to
assess the competitive impact of these policies and philosophies.
Figure A3: Assessing Impact of Economic Philosophies and Public Policies ExIm Bank’s Overall Competitiveness
Effect on
Competitiveness
+

Positive

*

Neutral

-

Negative

Description
Philosophy, policy or program has a positive impact on Ex-Im
Bank’s competitiveness (moves Ex-Im Bank’s competitiveness
grade up one notch).
Philosophy, policy or program has a neutral impact on Ex-Im Bank’s
competitiveness (no impact on Ex-Im Bank’s competitiveness
grade).
Philosophy, policy or program has a negative impact on Ex-Im
Bank’s competitiveness (moves Ex-Im Bank’s competitiveness
grade down one notch).

100

Appendix B: Purpose of Ex-Im Bank Transactions
Congress requires Ex-Im Bank to include in the annual Competitiveness Report a
breakdown of the purposes for Ex-Im Bank support for transactions. For this report,
the two purposes of Ex-Im Bank support for transactions are to either fill the financing
gap when private sector finance is not available or to meet foreign competition. Figure
B1 shows the number and amount of Ex-Im Bank transactions authorized in 2005 by
purpose and program type.
Figure B1: Ex-Im Bank Transactions by Purpose, 2005
No Private Sector
Finance Available
($MM)
(#)
Working
capital
guarantees
Short-term
insurance
Medium-term
insurance

Meet Competition
($MM)
(#)

Not Identified
($MM)
(#)

$697

339

0

0

$445

202

$3,630

1,855

0

0

0

0

$349

286

$22

18

$0

0

$3,242

236

$3,391

25

$1

1

$0

0

$0

0

0

0

$7,918

2,716

$3,413

43

$446

203

Guarantees
Loans
TOTAL

101

102

Appendix C: Exporter and Lender Survey Results
Introduction
Ex-Im Bank annually surveys exporters and lenders that use the Bank’s medium- and
long-term programs.
This Congressionally mandated survey provides critical
information for the Report, as it encourages respondents to compare Ex-Im Bank’s
policies and practices with those of its G-7 ECA counterparts during the calendar year.
Ex-Im Bank continued its approach of administering the survey on-line, which
permitted the survey to reach a larger number of potential participants. In addition to
the formal on-line survey, Ex-Im Bank conducted focus group discussions with
experienced exporters and lenders of Ex-Im Bank programs to get more detailed
comments about the global market in which they operated in 2005 and the competitive
implications for Ex-Im Bank.
Survey
Ex-Im Bank’s survey consisted of five parts that focused on the following areas:
Part 1:

General information on the profile of the respondent.

Part 2:

Respondent’s experience in both receiving support from and facing
competition from other ECAs, in addition to reasons for using Ex-Im
Bank.

Part 3:

Respondent ratings of and comments on Ex-Im Bank’s competitiveness
with foreign ECAs in the policies and programs in the Competitiveness
Report.

Part 4:

Additional comments.

Part 5:

Outcome of specific cases of competition faced as a result of the above
policies.

Participant Selection
The survey was sent to companies that used Ex-Im Bank’s medium- and long-term
programs during 2005. In total, 53 lenders and exporters were asked to participate in
the survey.

103

Survey Results
Figure C1 highlights the response rate for the survey participants. Overall, the
response rate for the survey was 55%. The response rate for lenders and exporters was
roughly the same, with 57% of lenders responding and 52% of exporters responding.
Figure C1: Survey Response Rate, 2005
Lenders
28
16
57%

Number surveyed
Number responded
Response rate

Exporters
25
13
52%

Total
53
29
55%

Lenders
Figure C2 shows the lender experience levels for both length of time in business and
experience in export finance. All, except for one lender, had been in business for more
than ten years and the vast majority had well over 20-plus years of experience in export
finance. Figure C3 shows the volume of export credits extended during 2005. The
respondents to the survey were roughly split equally between the larger lenders (i.e.,
banks with over $500 million in export credits) and the smaller regional lenders. [Note:
Four of the 16 surveyed lenders did not report information related to their volume of
export credits or the portion of their export credits supported by Ex-Im Bank.]
Figure C2: Lender Experience Levels, 2005
1-3 years
0
0

Time in business
Time in export finance

4-10 years
1
4

11-20 years
3
2

21+ years
12
10

Figure C3: Volume of Lenders’ Annual Export Credits, 2005

Number of
Lenders

Under
$10
million

$10 - $50
million

$51 $100
million

$101 $500
million

$501
million $1 billion

Over $1
billion

1

3

0

3

2

3

Figure C4 shows the percentage of lenders’ export credits extended during 2005 that
were supported by Ex-Im Bank during the year. Six of the reporting lenders noted that
Ex-Im Bank support constituted less than 25% of their export credits extended during
the year. Of those lenders reporting the volume and percentage of export credits, five of
the lenders reported having over 50% of their export credit being supported by Ex-Im
Bank.

104

Figure C4: Percentage of Lender Export Credits That Were Ex-Im Bank
Supported, 2005

Number of lender’s
whose export credits
were supported by ExIm Bank

Less than
10%

10%-25%

26%-50%

51%-75%

Over 75%

3

3

1

3

2

Nearly all of the lenders surveyed (15 of 16) noted that the lack of useful private sector
financing was the reason for pursuing Ex-Im Bank financing, particularly for financing
transactions in Asia and Eastern Europe. Also, nearly all of the lenders (14 of 16) stated
that Ex-Im Bank support was needed to meet competition from foreign companies that
receive ECA financing. The ECAs identified by the lenders as the most “regular”
partners were EDC, Euler-Hermes, and ECGD. Euler-Hermes, EDC and Coface were
cited as the ECAs that lenders most often faced in competition.
Exporters
Figure C5 shows the distribution of exporters by time in business, and Figure C6
shows the size of exporters based on sales and export sales volume, for those that
reported sales volumes. The majority of exporter respondents were long-standing, large
companies. The majority of exporters reported being in business for greater than 21plus years, and nearly all of these have also been involved in exporting for well over 20
years. All exporters that reported sales indicated 2005 sales volumes over $1 billion and
three exporters also had export volumes over $1 billion. [Note: Nine of thirteen
exporters did not report their volume of annual and export sales, yet the majority of
these non-reporting exporters could be considered large businesses.]
Figure C5: Exporter Experience Levels, 2005
1-3 years
0
0

Time in business
Time in exporting

4-10 years
2
1

11-20 years
1
3

21+ years
10
9

Figure C6: Volume of Exporter Annual Sales and Exports, 2005

Total sales
volume
Total export
sales volume

Under
$10
million

$10 - $50
million

$51 - $100
million

$101 $500
million

$501
million $1 billion

Over
$1
billion

0

0

0

0

0

4

0

0

0

0

1

3

105

Figure C7 shows the distribution of exporters by the percentage of export sales that
were supported by Ex-Im Bank. Of the three respondents that indicated using Ex-Im
Bank for less than 10% of export sales, two were larger corporations with annual export
sales greater than $1 billion.
Figure C7: Percentage of Exporters Sales That Were Ex-Im Bank Supported,
2005

Percentage of export
sales supported by ExIm Bank

Less than
10%

10%-25%

26%-50%

51%-75%

Over 75%

2

1

1

0

0

Roughly half of the exporters surveyed (7 of 13) indicated regular experience working
with other ECAs. Two of the exporters indicated that they had worked with every G-7
ECA during 2005. Of the non G-7 ECAs, Sinosure (China) and KEIC (Korea) were most
often cited as a partner with the exporters. However, most of the exporters surveyed (10
of 13) reported facing regular competition from foreign companies that were supported
by their national ECAs throughout 2005. The most commonly identified ECAs were
Euler-Hermes and ECGD.

106

Appendix D: G-7 Export Credit Institutions
Canada

ƒ

Export Development Canada (EDC) is a “Crown Corporation”
(i.e., a government entity that operates on private sector principles)
that provides, among other products, short-term export credit
insurance, medium- and long-term guarantees, and medium- and
long-term direct loans, which may or may not be provided on a CIRR
basis.

France

ƒ

Compagnie Française d’Assurance pour le Commerce
Extérieur (Coface) is a private insurance company that provides, in
addition to short-term insurance that goes on its own book, official
medium- and long-tem export credit insurance on behalf of the French
government.

Germany ƒ

Euler Hermes Kreditversicherungs-AG (Hermes) is a
consortium of a private sector insurance company and a quasi-public
company that provides official export credit insurance on behalf of the
German government, similar to Coface of France. Hermes also
provides short-term export insurance on its own account, according to
standard market practices.
Kreditanstalt für Wiederaufbau (KfW) is a financial institution
that is owned by the German government and the federal states
(Länder). KfW exists to promote the growth of the German economy
in a variety of ways. One of its missions, though not its largest, is the
funding of German export credits, both at market rates and through a
government-supported window to achieve CIRR.
KfW also
administers the provision of German tied aid funds. The decision as to
where and how tied aid should be used rests with another part of the
German government. At the end of 2003, KfW announced that the
majority of its export credit business would be spun off into an
independent, 100%-owned subsidiary called KfW IPEX-Bank (this
spin-off will be finalized by 2008). KfW will continue to offer export
credit support on a limited basis: in a syndicate for less risky markets
and on its own only in the riskiest markets.

ƒ

Italy

ƒ

SACE, or the Istituto per i Servizi Assicurativi del Commercio Estero,
provides official export credit insurance. Pursuant to law enacted in
2003 and effective January 1, 2004, SACE became a limited liability
joint stock company whose shares are wholly owned by the Ministry of
Economy and Finance. Under this new structure, SACE continues
providing medium- and long-term official export credit insurance and
began to provide short-term insurance on its own account.

107

ƒ

Japan

ƒ

SIMEST provides interest rate support to commercial banks in order
to achieve CIRR. SIMEST is a development financier, with public and
private participation, instituted in 1990 for the promotion and
construction of joint ventures abroad. The Ministry of Foreign Trade
is the majority shareholder. The private shareholders consist of Italian
financial institutions, banks and business associations.
Nippon Export and Investment Insurance (NEXI) is an
independent governmental institution responsible for official export
credit insurance operating under the guidance of the Ministry of
Economy, Trade and Industry (METI).
Historically, Japanese exporters were required to insure all of their
short-term business through NEXI, but in 2004 the Japanese
government removed this requirement and began welcoming private
insurers into the Japanese export credit insurance market.

United
Kingdom

ƒ

The Japan Bank for International Cooperation (JBIC) is a
government bank that falls under the Ministry of Finance. In its
capacity as an export credit agency, JBIC provides direct loans in
combination with commercial bank financing. In addition, JBIC
provides untied, investment and import credits.

ƒ

Export Credits Guarantee Department (ECGD) is a separate
department of the U.K. government that provides export credit
guarantees and interest rate support for medium- and long-term
official export credit transactions. ECGD also maintains a “top-up”
reinsurance facility with a private insurance company in the event that
the private sector is unwilling to provide short-term export insurance
to a U.K. exporter who wishes to sell a product to a market where
official export credit support is customarily available from other
countries.
In July 2004 the U.K government announced a series of changes to
ECGD that were designed to provide greater certainty for ECGD’s
future. The most significant of these changes was the announcement
that a pilot ECGD Trading Fund will operate from April 2005 as a trial
for the statutory Trading Fund, which is scheduled to start in April
2007. The Trading Fund will have a specific target rate of return, but
despite fears expressed by U.K. exporters, ECGD’s Chairman of the
Board has stated in ECGD’s 2003-2004 Annual Report that the
Trading Fund “should not result in any increase in premium or
reduction in cover.”

108

Appendix E: Ex-Im Bank Foreign Content Support for
Medium- and Long-Term Transactions in 2005*
Country
Albania
Australia
Austria
Belize
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Canada
Canada
Chile
Chile
Chile
China (Mainland)
China (Taiwan)
China (Taiwan)
Colombia
Costa Rica
Costa Rica
Dominican Republic
Egypt
Ethiopia
Germany
India
Ireland
Ireland
Israel
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan

Product/Project
Air Navigation System***
Large Aircraft***
Large Aircraft***
Transportation Equipment
Generator
Medical Equipment
Medical Equipment
Medical Equipment
Medical Equipment
Transportation Equipment
Large Aircraft
Large Aircraft
Navigation Equipment
Large Aircraft***
Large Aircraft***
Plastic Production Equipment
Large Aircraft
Large Aircraft
Machinery Equipment
Agricultural Equipment
Transportation Equipment
Air Conditioning & Heating Equipment
Ammonia Plant
Large Aircraft
Large Aircraft***
Industrial Machinery
Large Aircraft
Large Aircraft
Chemical Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Telecommunications Equipment & Services
Transportation Equipment
Transportation Equipment

109

Export Value
$42,000,700
$76,339,173
$86,571,017
$10,780,959
$22,287,093
$633,475
$880,388
$886,180
$1,653,965
$6,500,000
$145,831,925
$326,488,091
$388,949
$79,073,307
$178,427,192
$1,112,050
$157,500,000
$332,200,000
$1,479,258
$1,137,325
$777,074
$1,263,680
$181,949,417
$134,706,962
$77,356,805
$1,984,188
$112,000,000
$280,000,000
$35,359,400
$580,000
$2,724,200
$5,540,000
$5,596,800
$5,686,780
$7,328,000
$13,912,800
$15,000,000
$50,400,222
$5,312,287
$19,969,000

Foreign
Content
Percentage**
6%
15%
15%
9%
15%
23%
6%
7%
29%
11%
16%
17%
7%
9%
9%
15%
5%
5%
4%
2%
26%
11%
1%
9%
15%
9%
14%
14%
9%
14%
13%
11%
13%
13%
14%
13%
14%
23%
12%
14%

Country
Kazakhstan
Kenya
Kenya
Korea
Korea
Korea
Korea
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Morocco
New Zealand
Oman
Pakistan
Panama
Peru
Peru
Qatar
Qatar

Product/Project
Transportation Equipment
Large Aircraft
Large Aircraft
Large Aircraft
Large Aircraft
Large Aircraft
Small Aircraft
Air Conditioning & Heating Equipment
Chemicals
Cinema Equipment
Construction Equipment
Commercial Equipment
Computer Equipment
Construction & Mining Equipment
Construction & Mining Equipment
Construction Equipment
Food production equipment
Greenhouses
Heating Equipment
Machine Tool Equipment
Medical Equipment
Mining Equipment
Oil & Gas Equipment
Printing Equipment
Printing Equipment
Radiator Equipment
Small Aircraft
Large Aircraft***
Textile Machinery
Transportation Equipment
Transportation Equipment
Transportation Equipment
Water Purification Equipment
Wood Container & Pallet Equipment
Wood Container & Pallet Equipment
Small Aircraft
Large Aircraft
Large Aircraft***
Large Aircraft
Small Aircraft
Agricultural Equipment
Marine Engines
Construction Equipment
Chemical Equipment

110

Export Value
$21,740,000
$123,938,536
$124,540,593
$136,360,148
$139,369,480
$225,420,000
$7,446,000
$485,880
$343,863,188
$1,356,287
$300,000
$796,812
$458,752,423
$650,500
$4,054,118
$600,000
$1,124,940
$636,488
$685,780
$497,630
$1,144,000
$128,970,614
$16,200,000
$942,375
$1,060,000
$885,000
$5,665,000
$150,000,000
$4,168,177
$300,872
$2,114,000
$312,500,000
$772,827
$1,023,634
$2,625,789
$82,900,000
$192,731,280
$42,200,000
$309,744,209
$5,383,362
$771,949
$2,121,000
$29,763,603
$230,445,956

Foreign
Content
Percentage**
14%
12%
12%
13%
13%
9%
4%
2%
1%
3%
38%
5%
1%
10%
9%
5%
3%
7%
4%
19%
10%
4%
9%
1%
10%
2%
10%
15%
7%
15%
33%
20%
15%
10%
10%
15%
13%
15%
12%
12%
22%
8%
6%
15%

Country
Qatar
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Saudi Arabia
Senegal
Trinidad
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Turkey
Ukraine
Ukraine
Ukraine
Ukraine
United Arab Emirates

Product/Project
Oil and Gas Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Agricultural Equipment
Metal Fabrication Equipment
Transportation Equipment
Industrial Machinery
Large Aircraft***
Computer Equipment
Computer Equipment
Manufacturing Equipment
Medical Equipment
Power Plant
Printing Machine Equipment
Printing Machine Equipment
Transportation Equipment
Turbine Generators
Agricultural Equipment
Agricultural Equipment
Printing Equipment
Telecommunications Equipment
Large Aircraft

TOTAL

$337,500,000
$1,534,499
$2,010,100
$2,075,752
$2,109,109
$2,690,000
$9,869,950
$4,200,000
$6,380,975
$81,300,000
$41,300,000
$564,025
$1,274,980
$440,000
$1,150,000
$10,579,880
$1,605,530
$21,494,025
$16,174,825
$7,199,723
$1,303,850
$2,099,500
$2,900,000
$3,254,702
$302,473,584

Foreign
Content
Percentage**
5%
9%
14%
15%
14%
14%
13%
14%
2%
15%
16%
5%
15%
13%
15%
17%
2%
1%
12%
19%
10%
17%
1%
10%
12%

$6,410,156,121

10%

Export Value

*Preliminary data, excludes Credit Guarantee Facilities
**When eligible foreign content exceeds 15%, the buyer is required to make a minimum cash payment equal to the amount
of foreign content
*** Classification revised from printed publication

111

112

Appendix F: Tied Aid Report
Introduction
This appendix sets forth the annual report on tied aid credits, required by Sections
10(G) and 2(b)(1)(A) of the Export-Import Bank Act of 1945, as amended. This
appendix first addresses the implementation of the OECD Arrangement rules on tied aid
(also known as the Helsinki Package, the Helsinki tied aid rules or the Helsinki
Disciplines) during 2005, followed by a discussion of trends in the use of the TACPF
through 2005.
Implementation of the OECD Arrangement
Tied aid is concessional financing support provided by donor governments in the form
of a grant or a “soft” loan for which capital goods procurement by developing countries
is contractually linked to procurement from firms located in (or in some way benefiting
the economy of) the donor country (see below for “Definitions of the Various Types
of Aid”).
In 1991, the Participants to the Arrangement agreed to OECD rules governing the use of
tied aid (the Helsinki Package). The purpose of the OECD tied aid rules is to reduce the
use of concessional financing for projects that should generate sufficient cash flows to
support themselves, thereby being considered eligible for commercial – rather than
concessional -- financing. The Helsinki Package specifically established the following: 1)
country and project eligibility requirements for the provision of tied aid; 2) rules
requiring notification of tied aid offers; and 3) mechanisms for consulting on (and in
some cases challenging whether) tied aid offers conform to established guidelines. The
Helsinki rules on country and project eligibility basically resulted in two disciplines to
restrict the use of tied aid: 1) no tied aid in “rich” 1 countries; and 2) no tied aid for
“commercially viable” (CV) projects. In addition, since the mid-1980s, the Arrangement
has required that tied aid contain a minimum concessionality level of 35% as measured
with a market-based discount rate 2 .
The OECD tied aid rules went into effect in early 1992. Since that time, the use of tied
aid for commercially viable projects (as defined by the OECD) has significantly declined
(for more details and data trends see Chapter 5). Participants are so satisfied with the
results of the success of the tied aid rules that the OECD Participants have not found it
necessary to change the framework of the rules at all for the past 14 years. However,
1 Gross

National Income (GNI) above $3,035 per annum (based on 2003 data)
The term “concessionality” refers to the total value of the subsidy being provided by the donor to the
recipient country for any one project or purchase. For example, if a country receives a grant of $100
million for a $100 million project, the concessionality level of this aid would be 100%, whereas a grant of
$35 million combined with a traditional export credit for the remaining $65 million would have a
concessionality level of 35%.

2

113

Participants do have a mechanism that allows them to opine on the commercial viability
of projects on a case-by-case basis. The process is known as the Consultations process
and its results are compiled in a document known as the “Ex-ante Guidance” or case law
of projects considered to be commercially viable and non-viable. See below for more
details.
Definitions of the Various Types of Aid
When considering the various forms of aid, it is important to differentiate between
bilateral aid to be used at the discretion of the buyer; trade-related aid that involves
procurement of capital equipment, and trade-distorting aid, which is aid provided with
the intent to favor procurement from the donor’s country. Specific definitions of the
various forms of aid follow:
Official Development Assistance (ODA), or aid, is concessional financial support of
which at least 25% is intended to carry no repayment obligations (i.e., contains 25%
grant element), 3 and the vast majority of it is 100% pure grant. Aid from a donor
government to a recipient developing country government normally supports either
“general” uses (e.g., balance of payments support) or the purchase of specific goods
and/or services (local, donor country and/or third country) necessary for the
completion of an investment or specific project. The latter, with the exception of some
local purchases, is trade-related aid.
Trade-related aid may be either “tied” or “untied” to procurement from the donor
country and can be provided in two forms: grants or credits 4 . However, because
grants involve little or no repayment obligations (i.e., no export leverage), they are
viewed as having a very small potential for trade distortions (see below) and are not
subject to OECD disciplines other than notification.
Tied aid credits refer to concessional loan financing that is trade-related and
contractually conditioned upon the purchase of some or all of the goods and/or
services from suppliers in the donor country or a limited number of countries.
Note: Concessional loans can be provided as mixed credits which are a
combination of an export credit and a grant, or, as soft loans, which are longterm export credits offered with very low interest rates. This type of aid falls
within the OECD Arrangement rules. Such aid credits may only be provided to
eligible countries and for eligible (commercially non-viable) projects. Also, using
the Arrangement’s financial measurement methodology, tied aid to developing
countries must be at least 35% concessional, and tied aid to least developed
countries must be at least 50% concessional.

The DAC’s technique for measuring concessionality (grant element) of ODA is antiquated, using a fixed
10% discount rate, and results in one half of annual ODA levels having a concessionality level below 25%,
and some substantially less.
4 Credits with a concessionality level of 80% or more are viewed as grants and are not considered trade
distorting.
3

114

Untied aid credits refer to concessional loan or credits with a repayment
obligation. Untied aid financing should not be contractually conditioned upon
the purchase of goods and/or services from any particular country. This form of
aid has historically fallen under the purview of the OECD Development
Assistance Committee (DAC) rules, which differ from the OECD Arrangement
rules in that the DAC provides virtually no restrictions on untied aid use.
However, the Helsinki Agreement/Package included some basic transparency
requirements for untied aid. Therefore, there is a wide gap in multilateral
requirements between these two differing forms of aid credits. The resulting
ambiguity has been used for commercial advantage by foreign untied aid
donors. 5
Trade-distorting aid refers to aid credits for which the motivation is largely (or
significantly) connected to promoting the sale of goods from the donor government’s
country. Because tied aid credits by their nature can be trade-distorting, strict OECD
rules discipline their use. For example, it would be considered trade distorting to
provide tied aid credits for projects that can service commercial term financing,
including standard export credit financing (i.e., CV projects). As a result, the
Arrangement prohibits tied aid credits for such projects (unless located in an LDC, or
unless the concessionality level is 80% or greater). The Arrangement also prohibits
tied aid to countries with a per capita income level above $3,035 (again, unless the
concessionality level is 80% or greater), because they are considered to have ready
access to market financing and official export credits for all types of projects.
Current Status of the OECD Negotiations on Tied and Untied Aid
The OECD and the U.S. continue to monitor the effectiveness of the Helsinki tied aid
rules that came into effect in early 1992. In 2005, the data showed that Helsinki tied aid
notifications rose by almost 50% (over 2004 levels of $4.1 billion) to about $6.1 billion 6
The OECD has concluded that although the volume of the Helsinki tied aid notifications
increased in 2005, no material undermining of the Helsinki Disciplines were revealed.
In general, tied aid has been directed at projects in sectors considered financially nonviable and for countries where ECA and commercial sources of financing was either
limited or restricted.
With respect to untied aid, in 2005 the OECD suspended discussions regarding rules to
govern the use of untied aid and instead began implementing a U.S. proposed
transparency agreement accepted by the OECD in 2004. The untied aid transparency
agreement was accepted as a means of developing data that would form the basis for
DAC rules were developed decades ago. The nominal level of grant element that qualifies as Official
Development Assistance (ODA) must be 25%. However, current DAC methodology allows the real level of
concessionality to be much lower than 25% (e.g., untied aid credits have been notified with as low as 6%
real concessionality and theoretically could provide only 4% real concessionality). The United States has
been seeking agreement to update the methodology.
6 Note that one large tied aid notification for about $590 million was subsequently changed by the donor
to untied aid.
5

115

future negotiations on whether to extend the tied aid disciplines to untied aid. The two
year transparency agreement represents a compromise between those countries seeking
to discipline untied aid (as a way of reducing the potential for trade distortions arising
from de facto tied untied aid offers) and donors that believe that untied aid rules are
unnecessary and would limit bona fide developmental aid.
By definition, untied aid should not be trade-distorting because it should be equally
accessible to exporters from all countries. However, through influence exerted
indirectly (e.g., through lack of transparency, special procedures, required designs and
specifications, promises of additional aid, political pressures, gratitude shown by the
recipient, lack of multilateral accountability, etc.), untied aid can become effectively
(i.e., de facto) tied.
The 2004 agreement requires donors to enhance the transparency of untied aid offers
by (a) making their offers public to allow for competitive international bidding and (b)
reporting the nationalities of bid winners. Members began implementing the
transparency agreement on January 1, 2005 and data is now being compiled and made
available to exporters. The U.S. will continue to monitor the untied aid data to evaluate
the magnitude of the competitive threat. The transparency agreement expires at the end
of 2005. The U.S. is seeking to extend it, but is having some difficulty getting Members
to agree.
Figure F1: Helsinki-type Tied Aid Notifications by Region, 2005
Sub-Saharan Africa
6.7%

South Asia
7.6%

East Asia and Pacific
41.1%

Middle East/North Africa
29.4%
Latin America and the
Caribbean
6.7%

Europe and Central Asia
8.4%

Tied Aid Eligible Markets
The OECD rules designate a number of key markets as ineligible for tied aid financing.
Specifically, the Helsinki rules ban tied aid into high or upper middle-income markets,
as defined by the World Bank, and tied aid into Eastern Europe and select countries of
the former Soviet Union, unless the transaction involves outright grants, food aid or
humanitarian aid. See Annex 1 for a list of key markets for which tied aid is prohibited
and Annex 2 for a list of key markets eligible for Ex-Im Bank tied aid support.
116

Figure F1 shows the distribution of Helsinki-type tied aid offers by region in terms of
volume. In 2005, the major beneficiary region was again Asia, as it includes the most
significant recipient – Indonesia - that was offered $1 billion ($1014 million) in tied aid.
Other major recipients in Asia include Vietnam ($670 million) and China ($580
million), although the latter’s prominence as a tied aid beneficiary is waning. Significant
portions of tied aid also went to projects in Iraq (for the first time since 1995) which
amassed $628 million in tied aid offers in 2005.
Although the sub-Saharan Africa region continued to receive relatively low levels of tied
aid, in 2005 the proportion of tied aid to this region has increased significantly as it
doubled (from 3% to almost 7% of total tied aid offers) and amounted to $413 million
(up from roughly $107 million in 2004). The remaining regions registered less
significant changes and remained fairly stable in terms tied aid receipts.
Figure F2 shows the variety of donor countries that offered tied aid in 2005. Japan
continued to surpass Spain – with France, Denmark and the Netherlands trailing far
behind and by a notable margin. Japan notifications more than doubled in 2005,
reaching $2 billion, while Spain’s tied aid almost tripled, reaching $1,729 million
compared to France and Denmark which notified about $385 and $420 respectively.
The United States notified $1,361 million in tied aid in 2005 – and no Helsinki-type tied
aid. Note that U.S. tied aid notifications are 100% grants and are therefore not
considered to be Helsinki-type tied aid.
Figure F2: Tied Aid Notifications by Donor Country, 2005

Other
2%

Belgium
4%

Denmark
7%
Austria
4%

Spain
29%

Netherlands
5%

Japan
34%

Italy
3%
Germany
1%

Korea
5%

France
6%

117

As far as sector concentration, during 2005, Helsinki-type tied aid business continued to
evidence an overall shift away from sectors generally considered to be commercially
attractive – like energy and industry. In 2005, tied aid activity was concentrated
primarily in the transport and storage sectors (principally rail and water transport), and
water and health sectors (all of which tend to be considered commercially non-viable).
Tied Aid Eligible Projects
The Helsinki Package established the principle that tied aid should not be used for CV
projects, defined as revenue-generating projects adequate to service ECA financing and
for which ECA financing is available:
•

Generate operating cash flows sufficient to repay debt obligations on standard
OECD Arrangement export credit terms (referred to as “financially viable
(FV)”); and,

•

Could potentially attract standard export credit financing (at least two OECD
export credit agencies would be prepared to provide export credit) which,
combined with FV determination, leads to a CV conclusion.

The OECD Consultations Group examines projects that have been notified by a
Participant as eligible for tied aid that another Participant may consider ineligible for
tied aid because it appears to be CV. Sovereign guarantees from the buyer do not factor
into the determination of “commercial viability”. The results of the Consultations Group
decisions are compiled in “Ex-Ante Guidance”, which serves as a guide to exporters and
ECAs regarding possible commercial viability of particular projects by sector 7. As
Figure F3 illustrates, the Consultations Group has not examined many projects in
recent years. In 2005, the Consultations Group examined only two projects notified by
Members as eligible for tied aid, reflecting the view that foreign tied aid programs
generally operate within the agreed tied aid rules. Of the two projects examined, one
was found to be commercially viable (and therefore ineligible for tied aid) and one was
found to be commercially non-viable due to lack of commercial and export credit
financing availability in the market (and therefore eligible for tied aid).
Of the 2,453 tied aid projects notified to the OECD from March 1992 to December 2005,
133 projects were examined by the Consultations Group. Of the 133 projects examined,
71 projects were found to be CV or ineligible for tied aid. The remaining cases were
found eligible for tied aid based on a variety of factors, including lack of commercial or
standard export credit term financing in the market and no follow up was subsequently
done. Of the 71 projects deemed ineligible for tied aid, 43 projects proceeded with other

In December 2003, the OECD countries agreed to update the Ex Ante Guidance for Tied Aid, a set of
guidelines which assists export credit agencies, aid agencies, project planners and aid recipients in
judging at the outset whether potential projects will be eligible for tied aid. These guidelines, designed to
avoid the use of official aid for exports that could proceed without aid, encapsulate the body of experience
of the Consultations Group and have been a useful tool.

7

118

financing sources, including tied 8 and untied aid , commercial financing, and standard
export credits. See Annex 3 for a list of projects generally considered CV, for which
tied aid is prohibited. See Annex 4 for a list of projects generally considered
commercially non-viable, for which tied aid is permitted.
Figure F3: Notifications of Helsinki Tied Aid and Consultations Group
Examinations
Year

Number of
Notifications

1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Totals

128
138
262
226
212
195
191
213
181
123
136
128
145
166
2,278

Number of Projects
Examined by the
Consultations Group
39
25
31
14
4
2
5
2
4
2
1
2
0
2
131

Number of Non-compliant
Projects
16
12
21
4
3
2
5
1
4
1
0
1
0
1
71*

*Of the 71 “non-compliant” cases (i.e., cases deemed commercially viable by the OECD
Consultations Group), 19 were abandoned and 33 proceeded within Arrangement procedures or
on commercial terms. The disposition of several cases is presently unknown.

Trends in the Use of the TACPF
Ex-Im Bank, in consultation with Treasury, has established guidelines for the use of the
TACPF. These guidelines have two core components:
1.

A series of multilateral and/or domestic steps (e.g., no-aid agreements,
preliminary offer of matching, actual offer of matching) that attempt to get
competitors to drop consideration of tied aid use and/or let tied aid offers
expire for projects of interest to U.S. exporters.

2.

A set of “multiplier” criteria (e.g., prospect of future sales without the need
for tied aid) that attempt to limit tied aid support to those transactions

The OECD rules require tied aid donors who elect to proceed with a tied aid offer that was “deemed
ineligible for tied aid” to provide a letter from their government to the OECD Secretary General indicating
the Participant’s intent to derogate from a Consultations Group finding. Three derogations have occurred
since 1995.

8

119

with a benefit that would extend beyond the individual tied aid offer and
generate the most benefit to the U.S. economy.
Although in the past, Ex-Im Bank matching policy achieved some limited success in
deterring foreign tied aid offers as part of the overall U.S. tied aid strategy, in recent
years Ex-Im Bank has been faced with fewer opportunities to match due to low levels of
tied aid. From 1994 through 2005, of the 26 cases in which Ex-Im Bank tried to
discourage tied aid use by issuing a “willingness-to-match” indication, seven saw the
competing tied aid offer withdrawn. U.S. exporters won five out of seven cases on
standard Arrangement terms. Nine cases have been lost to foreign tied aid financing,
while ten remain outstanding or have been indefinitely delayed. Notably, however, most
matching success occurred in the years immediately following the Helsinki Package
when the lines between commercial and aid financing were being drawn.
By the end of 2005, Ex-Im Bank had issued 44 tied aid matching offers. As shown in
Figure F4, of the 44 cases where Ex-Im Bank matched, the United States has won 19
and lost 24. One case remains outstanding with no decision. In 2005, Ex-Im Bank did
not issue any new tied aid commitments 9 .
Figure F4: Cumulative Ex-Im Bank Matching of Previously Notified Foreign
Tied Aid Offers
1997

1998

1999

2000

2001

2002

2003

2004

2005

4

2

4

1

2

0

1

0

0

U.S. win

12

13

16

17

19

19

19

19

19

U.S. loss

10

10

21

23

23

23

24

24

24

Outstanding, no
decision

12

13

3

1

1

1

1

1

1

Cumulative total

34

36

40

41

43

43

44

44

44

New matching offers
during year

As shown in Figures F4 and F5, the pace of Ex-Im Bank tied aid matching activity has
slowed dramatically in recent years with the number of tied aid authorizations showing
a similar downward trend and no authorizations in 2005. This tracks with a sharp
increase in compliance with the tied aid rules as evidenced by a reduction in the annual
average number of tied aid consultations, from 23 per year over 1992-1996 to fewer than
3 per year over 1997-2005.

However, in March, 2006 Ex-Im Bank issued a tied aid Willingness to Match offer to a U.S. exporter
competing for tied aid for a rail project (locomotives) in Indonesia.
9

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Figure F5: U.S. Tied Aid Authorizations by Year

Number of Matching
Offers/ Authorizations

Authorizations

10
8
6
4
2
0
1996

1997

1998

1999

2000

2001

2002*

2003

2004

2005

Year
Authorizations

Ex-Im Bank Initiated No Aid Common Lines
Acting upon Ex-Im Bank's request, the OECD Members may approve “no aid”
agreements for particular projects of interest to U.S. exporters that could otherwise
receive tied aid under the OECD rules. With such agreements in place, U.S. exporters
can compete without fear of tied aid competition and without the need for Ex-Im Bank
to provide a matching tied aid offer. When Ex-Im Bank receives an application for
financing in a tied aid eligible country for a project that is commercially non-viable, and
the U.S. exporter has reason to be concerned about the possibility of tied aid financing
competition, Ex-Im Bank may propose a no aid common line in hopes of eliminating
this possibility. If the common line request is accepted, all OECD member countries
agree not to offer tied aid financing for the particular project for a period of two years
(with the possibility of extensions). If the no aid common line request is rejected (any
one Member can reject a common line request, irrespective of their involvement in the
particular project), other OECD member countries may make a tied aid financing offer
for the project. Figure F6 shows the results of the no aid common line requests
initiated by Ex-Im Bank from 1996 through 2005.
Figure F6: U.S. Proposed No Aid Common Lines
1997

1998

1999

2000

2001

2002

2003

2004

2005

Proposed

24

5

13

8

1

0

3

2

1

Rejected

17

5

12

5

0

0

1

1

1

Accepted

7

0

1

3

1

0

2

1(*)

0

U.S. exporters do not want “no aid” common line requests made when they believe that
the buyer will “penalize” the U.S. supplier for their role in seeking to limit concessional

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funds available to foreign buyers (so-called “buyer-backlash” against the U.S exporter
seeking to win the bid on standard - rather than concessional - terms).
(*)For example, in 2004 an accepted U.S. proposed no-aid common line resulted in
subsequent bidding difficulties for the U.S. exporter who lost the sale (despite the fact
that it had previously sold equipment on commercial terms). The U.S. exporter claimed
to be shut out of the market as a result of the U.S. no-aid request. Moreover, the buyer
contacted U.S. Ex-Im Bank seeking assurances that the U.S. would no longer interfere
with bilateral aid offers from third countries.
Nevertheless, in 2005 the U.S. proposed one common line for rail cars (locomotive
sales) to Indonesia. As the common line was rejected, in 2006 Ex-Im Bank issued a tied
aid Willingness to Match offer to the U.S. exporter. The results of the bid are not yet
known.
In sum, U.S. exporter experience with no-aid common lines has been mixed. Common
lines can have negative effects on the competitiveness of U.S. exporters as they can
result in buyer reticence to approach a U.S. supplier (or “buyer backlash” against a U.S.
supplier) who may be seen as limiting concessional funds available to the buyer.
Therefore, common lines are not issued without prior exporter approval.

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Appendix F

Annex 1

Key Markets Where Tied Aid is Prohibited
Americas*
Asia*
Middle East*
Africa*
Eastern Europe

Argentina, Mexico, Venezuela
Hong Kong (China), Korea, Malaysia, Singapore
Bahrain, Israel, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, United
Arab Emirates
Botswana, Gabon
Czech Republic, Hungary, Poland, Slovak Republic, Belarus**,
Bulgaria**, Latvia, Lithuania, Romania**, Russian Federation**, and
Ukraine**.

*These markets are not eligible for tied aid as a result of the fact that their Gross National
Income (GNI) per capita was sufficient to make them ineligible for 17-year loans from the World
Bank for at least two consecutive years (using 2004 data, those countries with a GNI per capita
above U.S.$3,255).
**Article 33. b 5 of the OECD Arrangement states the Participants’ agreement to “try to avoid
tied aid credits other than outright grants, food aid and humanitarian aid as well as aid designed
to mitigate the effects of nuclear or major industrial accidents or prevent their occurrence” to
these markets. Only such projects as described here would be eligible for tied aid in these
markets.

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Appendix F

Annex 2

Key Tied Aid Eligible Markets
Asia

China, India, Indonesia, Philippines, Thailand, Vietnam

Americas

Colombia, Ecuador, El Salvador, Guatemala, Paraguay, Peru

Africa

South Africa, Egypt, Namibia

Middle East

Jordan, Turkey

Note: In addition to OECD tied aid eligibility, additional U.S. Government criteria are applied
to transactions to determine whether tied aid can be made available (e.g., follow on sales criteria
and “dynamic market” evaluation).

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Appendix F

Annex 3

Projects Generally Considered Commercially Viable
(Helsinki-Type Tied Aid Prohibited)
Power

ƒ
ƒ
ƒ
ƒ
ƒ
ƒ

Oil-fired power plants
Gas-fired power plants
Large hydropower plants
Retrofit pollution-control devices for power plants
Substations in urban or high-density areas
Transmission and/or distribution lines in urban or high-density
areas

Energy Pipelines

ƒ
ƒ
ƒ

Gas transportation and distribution pipelines
Gas & oil transportation pipelines
Equipment serving intra and interurban or long-distance
communications
Telephone lines serving intra and interurban or long-distance
communications
Switching equipment serving urban or high-density areas
Radio-communications equipment serving urban or highdensity areas

Telecommunications

ƒ
ƒ
ƒ
Transportation

ƒ

Freight railroad operations (locomotives, cars, signaling)

Manufacturing

ƒ
ƒ
ƒ
ƒ

Manufacturing operations intended to be profit-making
Privately-owned manufacturing operations
Manufacturing operations with export markets
Manufacturing operations with large, country wide markets

125

Appendix F

Annex 4

Projects Generally Considered Commercially Non-Viable
(Helsinki-Type Tied Aid Permitted)
Power

ƒ
ƒ
ƒ
ƒ
ƒ

Power projects that are isolated from the power grid
Distribution lines to low-density, rural areas
Some transmission lines to low-density, rural areas
District heating systems
Renewable energy (e.g., geothermal power plants, small wind
turbine farms, small hydropower plants connected with
irrigation)

Telecommunications

ƒ

Telephone switching equipment serving low-density, rural
areas
Switching equipment serving low-density, rural areas
Radio-communications equipment serving low density, rural
areas

ƒ
ƒ
Transportation

ƒ
ƒ
ƒ
ƒ

Road and bridge construction
Airport terminal and runway construction
Passenger railroad operations (locomotives, cars, signaling)
Urban rail and metro systems

Manufacturing

ƒ
ƒ
ƒ

Highly-localized, small scale cooperatives
Highly-localized, small scale food processing
Highly-localized, small scale construction supply

Social Services

ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ

Sewage and sanitation
Water treatment facilities
Firefighting vehicles
Equipment used for public safety
Housing supply
School supply
Hospital and clinic supply

126

Appendix G: Human Rights and Other Foreign Policy
Considerations
The Export-Import Bank Act of 1945 was amended in 1978 by legislation referred to as
the “Chafee Amendment,” P.L. 95-630, 92 Stat. 3724. The Chafee Amendment, as
amended in 2002 by P.L. 107-189, states “Only in cases where the President, after
consultation with the Committee on Financial Services of the House of Representatives
and the Committee on Banking, Housing, and Urban Affairs of the Senate, determines
that such action would be in the national interest where such action would clearly and
importantly advance United States policy in such areas as international terrorism
(including, when relevant, a foreign nation’s lack of cooperation in efforts to eradicate
terrorism), nuclear proliferation, the enforcement of the Foreign Corrupt Practices Act
of 1977, the Arms Export Control Act, the International Emergency Economic Powers
Act, or the Export Administration Act of 1979, environmental protection and human
rights (such as are provided in the Universal Declaration of Human Rights adopted by
the United Nations General Assembly on December 10, 1948) (including child labor),
should the Export-Import Bank deny applications for credit for nonfinancial or
noncommercial considerations.” 12 U.S.C. § 635(b)(1)(B).
It should also be noted that, pursuant to Executive Order 12166, the President has
delegated his authority to make Chafee determinations to the Secretary of State, who
must consult with the Secretary of Commerce and the heads of other interested
Executive agencies.
Ex-Im Bank has developed procedures with the State Department, including the Bureau
for Democracy, Human Rights, and Labor, for regular consultation regarding human
rights concerns. According to these procedures, Ex-Im Bank periodically receives a list
of countries of human rights concern. Countries not on that list are pre-cleared. Where
a proposed transaction over $10 million dollars involves goods or services to be
exported to a country that has not received “pre-clearance” on such list, Ex-Im Bank
refers the transaction to the State Department for human rights review. In addition, ExIm Bank country economists may work in concert with the State Department to, where
appropriate, examine human rights and other foreign policy considerations in their
assessment of the risks associated with transactions in specific countries.
Various other statutory provisions implicating human rights and other foreign policy
concerns may also impact Ex-Im Bank programs. For example, with respect to Ex-Im
Bank’s approval of support for the sale of defense articles or services for anti-narcotics
purposes, Ex-Im Bank may approve such a transaction only following satisfaction of a
number of statutory criteria, one of which is that the President must have determined,
after consultation with the Assistant Secretary of State for Democracy, Human Rights
and Labor, that the “the purchasing country has complied with all restrictions imposed
by the United States on the end use of any defense articles or services for which a
guarantee or insurance was [previously] provided, and has not used any such defense
articles or services to engage in a consistent pattern of gross violations of internationally
recognized human rights.” 12 U.S.C. § 635(b)(6)(D)(i)(II).
127

128

Appendix H: Equal Access for U.S. Insurance
Pursuant to the Export Enhancement Act of 1992, Ex-Im Bank is required to report in
the annual Competitiveness Report those long-term transactions approved by Ex-Im
Bank for which an opportunity to compete was not available to U.S. insurance
companies.
At the time the legislation was enacted, Ex-Im Bank had neither encountered nor been
informed about any long-term transaction for which equal access for U.S. insurance
companies was not afforded. Consequently, Ex-Im Bank, the Department of Commerce
and the Office of the United States Trade Representative agreed that the establishment
of a formal reporting mechanism was not necessary. It was also agreed that should ExIm Bank identify any long-term transaction in which U.S. insurance companies are not
allowed equal access, a more formalized procedure would be created. As of December
2005, Ex-Im Bank has not identified any long-term transaction in which U.S. insurance
companies were not allowed equal access.

129

130

Appendix I: Trade Promotion Coordinating Committee
(TPCC)
Introduction
The Trade Promotion Coordinating Committee (TPCC) is an interagency
committee that is comprised of 19 U.S. government agencies. 1 Each TPCC
agency plays a key role in advancing the Administration’s goal of maximizing U.S.
export potential. The Export Enhancement Act of 1992 established the TPCC to
coordinate U.S. government export promotion initiatives under the leadership of
the Secretary of Commerce. The President and Chairman of the Export-Import
Bank serves as the Vice-Chair of the TPCC.
Among the responsibilities of the TPCC is to prepare and submit to Congress an
annual report entitled the National Export Strategy (NES) that outlines the
Administration’s trade promotion agenda. The TPCC issued its most recent NES
report to Congress in May 2005 that lays out focused commercial strategies to
help small businesses take advantage of opportunities in China and free trade
agreement (FTA) countries, as well as six commercially significant markets.
TPCC accomplishments during 2005 that pertain to Ex-Im Bank are summarized
below.
Highlights of TPCC Accomplishments during 2005
Highlights of the TPCC’s major accomplishments during 2005 that directly
impact Ex-Im Bank and its competitive position vis a vis foreign export credit
agencies include:
•

•

Expansion of Ex-Im Bank’s City-State Partner program. Ex-Im Bank now
has 45 city-state partnerships with 35 states plus the Commonwealth of
Puerto Rico, with the latest partner added in January 2006 with the signing
of an agreement between Ex-Im and California’s Centers for International
Trade Development (CITD) with 14 offices covering every major economic
region in the state.
During 2005, Ex-Im Bank officials participated in a number of initiatives
designed to support the US government’s efforts regarding Free Trade
Agreements (FTAs). These included:
o A business mission to Central America in support of the CAFTA-DR
agreement that involved Ex-Im Bank Director Linda Conlin along

Members of the TPCC are the following U.S. government agencies: U.S. Departments of
Commerce (Chair), State, Treasury, Agriculture, Defense, Energy, Transportation, Interior, Labor,
the Overseas Private Investment Corporation, Ex-Im Bank, U.S. Agency for International
Development, Small Business Administration, U.S. Trade and Development Agency, U.S. Trade
Representative, Environmental Protection Agency, the Council of Economic Advisors, National
Economic Council and the Office of Management and Budget.

1

131

with OPIC President Robert Mosbacher and USTDA Director
Thelma Askey.
o Ex-Im Bank and Commerce notified their respective exporting
communities regarding the benefits of trade with Mexico.
Ex-Im Bank has participated in several conferences in North Africa
and the Middle East in an effort to facilitate FTAs as well as being
supportive of improvements in the business climate in these
regions. Specifically, in 2005, Ex-Im Bank staff conducted an
International Business Development trip that included stops in
Egypt, Jordan and Bahrain. In Bahrain, Ex-Im Bank participated in
the U.S. – Bahrain FTA Conference.
•

In the energy, energy efficiency and environmental technologies sectors, the
TPCC agencies are more closely coordinating their activities to support the
development of new capacities and capabilities in these areas and to obtain
more private sector involvement. In particular, Ex-Im Bank financing was
supportive of clean coal technology, renewable energy projects and
rural/village energy systems in India and clean coal technology and grid
connected clean energy projects, especially wind power in China.

132

Appendix J: Efforts to Promote Renewable Energy
Exports
In Ex-Im Bank’s 2002 reauthorization process, Congress added to Ex-Im Bank’s Charter
the requirement to report on efforts to promote renewable energy exports.
During 2005, Ex-Im Bank responded to the Congressional mandate in a variety of ways:
First, under the leadership of Ex-Im Bank Director Linda Conlin, Ex-Im Bank supported
an OECD proposal to permit export credit agencies (ECAs) to offer extended repayment
terms (up to 15 years) for renewable energy exports. In 2005, the OECD concluded an
Agreement on Special Financial Terms and Conditions for Renewable Energies and
Water Projects that went into effect on July 1, 2005. In addition, the OECD agreed to
permit the 15-year term for hydropower projects beginning December 1, 2005 1 .
Second, as a means of highlighting Ex-Im Bank commitment to environmental exports
promotion and drawing attention to the extended repayment terms now available to
renewable energy exporters, the Bank launched the new Environmental Export Program
in September 2005 in a one-day interactive workshop entitled -“Sharing Risk, Opening
Opportunities.” More than 50 business, banking, and governmental leaders attended
the seminar.
Third, extensive outreach and marketing efforts – some of which are highlighted below - led Ex-Im Bank to be the first ECA to make use of the special financial terms provided
for under the OECD Agreement. Specifically, in 2005, Ex-Im Bank approved support
for a 1.8 MW solar power project for an Exhibition and Convention Center in Korea
In addition, Director Conlin led an inter-divisional Environmental Exports Team (EET).
The EET met throughout the year to ensure bank-wide coordination and contribution to
the Ex-Im Bank renewable energy promotion efforts. As a result, staff (a) added new,
enhanced information dedicated to the Environmental Program on its website, to
include success stories, events, presentations, press releases and links to relevant
environmental or market sites; and (b) participated in a number of outreach and
marketing events intended to promote renewable energy exports. Participation in these
events involved organizing panels, making presentations, meeting with individual
exporters and meeting potential buyers. Specifically:
1. Presentation at the Hydro Finance Forum in Washington, D.C held in April 2005.

The agreement was accepted for a two-year trial period. Hydro power projects would be eligible for up
to 15 year repayment terms provided that the projects “in all respects meet the requirements of the
relevant aspects of all World Bank Group Safeguard Policies…[recognizing] the value of the relevant
aspects of other international sources of guidance, such as the drat sustainability guidelines produced by
the International Hydropower Association and the Core Values and Strategic Priorities of the World
Commission on Dams report.”
1

133

2. Staff attended the 2005 Renewable Energy and Water Forum in New York City.
3. Ex-Im Bank hosted a strategy session with industry and bank representatives on

extended terms for renewable energy exports in July 2005.
4. Staff attended Infocast's Latin American Renewable Energy Conference that was

held in Miami, Florida on August 17-19. The conference focus was on
development and financing opportunities in the Latin American renewable
energy sector.
5. Director Conlin spoke at the “Financing Environmental Exports” event at the San

Francisco Chamber of Commerce, sponsored by City National Bank, as well as a
environmental breakfast meeting sponsored by HSBC Trade Bank at the City
Club of San Francisco. The trip also included meetings with environmental
companies and lending institutions in the San Francisco area regarding
environmental export opportunities, September 20-22, 2005.
6. Staff attended Solar Power Conference that was held from October 5-9. The Solar

Electric Power Association and the Solar Energy Industries Association presented
this conference in Washington, D.C. The timing of the conference was intended
to coincide with the Solar Decathlon sponsored by the Department of Energy.
Many of the well-known companies in the industry were represented.
7. Staff attended Wind Power Conference, which was in held in Denver, Colorado

on May 19.
8. Staff participated in the Water Environment Federation Trade Show in

Washington, D.C., October, 2005.
Finally, as part of a continuing effort to showcase environmental success stories, in
2005, GT Equipment was named Ex-Im Bank’s Small Business Environmental Exporter
of the Year. GT is a small business designer, manufacturer and assembler of
manufacturing equipment for solar energy.

134