Salvation or sellout? EU aid in spotlight over export credits

Here’s a three-word phrase you’re likely to hear a lot in the coming year: Export credit agencies. They’re a key part of the European Commission’s plan to “take [the] Global Gateway [strategy] to the next level,” according to its president, Ursula von der Leyen — a way of “aligning” development finance and the private sector to beat China in the global investment race. However, to critics, the plan is evidence of the European Union’s neocolonial path in its relations with the global south — raising worrying questions about aid money wrongly used to underwrite domestic firms, secret practices, and broken promises to pull out of fossil fuel projects. This battle over the role of export credit agencies, or ECAs, in the EU’s development work has been potentially given a turbo boost by the fresh “mission” von der Leyen has set for her new commission. So why has a seemingly dull term sparked such controversy? What are export credit agencies? ECAs are bodies that stimulate otherwise risky commercial financing, normally by guaranteeing or insuring cross-border purchases of goods or services that companies might not otherwise take a chance on. Most EU member states operate one — requiring, typically, that most benefits flow to those countries' own exporters, overseen by the EU’s common commercial policy. Over the five years to 2020, about 21.7% of ECA support from the EU — worth €30.6 billion ($31.5 billion) — was directed to low- and lower-middle-income countries, including nearly €6 billion to the lowest-income nations. Some was tied aid that qualified as official development assistance, or ODA, because it met the Organisation for Economic Co-operation and Development rules requiring at least 35% of a concessional loan to qualify as a “gift.” This sizable share of ECAs’ total work taking place in low-income countries happened despite the agencies having no formal development mandate. What is their role within EU development finance? There is no Brussels-run ECA — yet. A 2023 feasibility study examined whether and in what form such a facility could be established, noting development finance institutions, or DFIs, and ECAs need to work better together. Some participants argued for a new EU instrument with “both a development finance and a European business support mandate,” or for ECAs to have access to European Fund for Sustainable Development Plus, or EFSD+, guarantees. While debate continues, member state ECAs were invited to finance Global Gateway projects, and three pilots were chosen: vaccine manufacturing in Ghana, electric buses in Costa Rica, and critical raw materials. The EU also staged a January 2024 summit on “Export Credit Agencies and Development Finance Enhanced Coordination.” Why are ECAs in the news? As part of her successful bid to retain the commission presidency last year, von der Leyen argued the agencies should form part of a beefed-up “integrated offer to our partners — with infrastructure investment, trade, macro-economic support part of the package.” The EU should be “mobilising” ECAs, alongside “public development banks and development finance institutions,” she wrote. The new EU development commissioner, Jozef Síkela, called for “a Team Europe approach” involving “European credit agencies, development finance institutions and the private sector” – while former European Central Bank President Mario Draghi's blueprint to restore EU competitiveness argued for export agencies to be part of “pooling scattered resources” to secure critical raw materials, often from low-income countries. A commission spokesperson told Devex that work on “enhancing the coordination of external financial tools” included “some form of EU financial instrument that would work with national export credit agencies to support their ability to intervene in strategic situations where they would otherwise lack capacity.” Why is the commission so keen to expand their use? The 2023 feasibility study screams out near-panic that the EU has been left in the slow lane by a wall between aid and export credits that simply does not exist in China. This “creates obviously great benefits for Chinese exporters and competitive disadvantages for EU exporters,” the document stated. And it’s not only China. The document argued India’s use of tied aid to finance infrastructure in lower-income countries probably breaches OECD rules, while pointing out tied aid rose in Japan, South Korea, and the United States in the last decade even as the EU and its member states scaled it back. In discussing a “potential” EU ECA, it suggested: “It would not be unreasonable to consider a budget for EU tied aid equal to 30% of the bilateral aid provided by the EU.” What’s the problem with entwining ECAs and aid? Put simply, EU law requires that development funds support development goals — while the credit agencies have the very different mission of boosting domestic exporters. The Global Gateway initiative is already under fire for using aid to benefit EU big businesses. A 2024 report by the Counter Balance coalition of nine EU NGOs demanded “no role” for ECAs within development finance, condemning the way they have been allowed to “operate in secrecy and escape adequate democratic scrutiny.” Only 13 of the 23 EU ECAs are abiding by an EU pledge to end financing for fossil fuel projects, its research argued. Alexandra Gerasimcikova, head of policy and advocacy at Counter Balance, told Devex: “The Commission’s push to increase the role of the EU’s export credit agencies in development projects will further channel the bloc’s aid into supporting one-off projects of European businesses, eroding the EU’s credibility as an actor financing local needs or sustainable productive capacity in the Global South.” Would it be lawful to put ECAs at the heart of development finance? The commission itself set out the potential legal obstacles in a 2023 document which stated: “Aid must not operate as an export credit. If it did, it could not be acknowledged as ODA and according to the rules of the World Trade Organization (“WTO”), it could constitute a prohibited export subsidy.” The document added: “It appears that the enhanced coordination cannot mix export credit support and the Commission development investment support in a way that would make provision of development aid contingent upon sourcing from EU exporters.” However, it then went on to argue for “information exchange” leading to ECAs “participation” in EU aid projects “while still respecting international rules.” This appeared to open the door to joint working that might be of questionable legality. What’s the solution? The Counter Balance report demanded a public “review” of coordination between ECAs and EU DFIs, to examine whether it complies with both “international frameworks” and the legal requirement for “at least 93%” of spending through the EU’s Neighbourhood, Development and International Cooperation Instrument, or NDICI, to qualify as development aid. It also called for a rewriting of the EU’s export credit regulation to reflect new climate and human rights objectives, and for “a regular reporting agreement” with the European Parliament to lift the veil of secrecy over the details of individual Global Gateway projects. However, in his November pre-appointment hearing, Síkela – facing members of the European Parliament protests that the details of schemes are kept under wraps – gave the very careful answer that he would reveal “all the things I can report without violating the EU interest.”