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New publication! In @RIPEJournal, @jonasbunte, Alexa Zeitz ( @Concordia) and I analyze the faltering global export credit regime. A thread with some key findings 1/ https://www.tandfonline.com/doi/full/10.1080/09692290.2021.1916776
For decades, public export credit agencies (ECAs), such as @EximBankUS, have cooperated through an informal agreement at the OECD to set standardized terms on the price and maturity of export credits. 2/
This (a) helped governments from spending too much in an export credits arms race, and (b) created a level playing field for exporters, where buyers’ purchase decisions are made on basis of quality and price, not financing terms. Historically it worked well. 3/
So, eg, if French and German companies were competing to win the same procurement project in a developing country, both backed by ECA financing, these financing terms would be nearly identical, and not influence who wins the contract 4/
Today however this cooperative regime is coming under pressure. A few quotes we heard from various public + private officials:
• “War has broken out among ECAs”
• “a system that has functioned well and delivered as intended is at risk of disintegrating” 5/
• “War has broken out among ECAs”
• “a system that has functioned well and delivered as intended is at risk of disintegrating” 5/
More quotes:
• “a trade war has been simmering for the last three or four years, and it has been quite covert, under the surface”
• “What we have seen changing is the element of creditors supporting their local companies through ECAs” 6/
• “a trade war has been simmering for the last three or four years, and it has been quite covert, under the surface”
• “What we have seen changing is the element of creditors supporting their local companies through ECAs” 6/
So what happened? The starting point is, not surprisingly, the rise of China. Since China doesn’t follow the rules and norms of the OECD agreement, it can compete aggressively with other ECAs. See @KristenHopewell ’s excellent analysis https://onlinelibrary.wiley.com/doi/abs/10.1111/rego.12253 7/
But as we show in our paper, the story is a bit more complicated. China’s emergence prompted several ECAs to adjust their policies to compete more aggressively, deviating from the norm of a level playing field in export credit. 8/
But these initial defections then sparked further responses from other ECAs, who are not necessarily responding to threat of Chinese competition, but rather to competition from *within the agreement*. So competition is transmitted from outside to inside the regime. 9/
As one exporter put it, ECAs “are not breaking the rules, they’re just bending them tremendously” – introducing new financing products, liberalizing loan requirements, and aggressively looking for a competitive edge. 10/
A few more quotes: “One way for OECD participants to keep competing with these new players has been to adapt and develop new products, so we are seeing competition inside, within the participants,” 11/
The initial defections from OECD members “increase pressure on other members to create their own Arrangement breaching programs, and therefore, further jeopardize the level playing field” 12/
And as more and more members respond to this pressure looking for a competitive edge, the remaining members face higher costs of continued compliance, and thus higher incentives to defect – a dynamic we call cascading noncompliance 13/
The end result is that today, purchasing decisions are swayed by the (increasingly differentiated) financing terms of ECAs – undermining a key objective of the regime. 14/
And even if you don’t care about export credit, we think this case has interesting implications for broader questions of international cooperation, and specifically the *process* through which cooperation unravels. Check it out! 15/15 https://www.tandfonline.com/doi/full/10.1080/09692290.2021.1916776
