The Cobwebs on Credit
World Press Review correspondent
Nov. 11, 2003
Every once in a while, a major construction project gets a headline or two in the international press. We read about how the Three Gorges Dam is radically changing the landscape in southwestern China, or about ecological concerns over oil and gas pipelines being built on Sakhalin Island, in Russia’s Far East.
What rarely make headlines are the workings of the export finance institutions that make such projects possible. Outside the financial sphere, few people could claim any knowledge of export credit agencies (ECAs), which provide funding for most of the poor world’s mega-construction projects.
But as the issues behind globalization continue to divide the world, ECAs might find that their normally secretive operations are being subjected to public scrutiny. Just a day after the World Trade Organization talks at Cancun collapsed on Sept. 14 over the issue of agricultural subsidies, delegates from the industrialized democracies sat down in Paris to discuss something of vast importance to developing countries: Strengthening ecological and human-rights guidelines for ECAs.
What exactly are export credit agencies? In a nutshell, they are public institutions that use taxpayer money to make it cheaper, and, hypothetically, almost risk-free (through insurance, loans and loan guarantees) for corporations to export or invest overseas. In his 2001 book Export Credit Agencies: The Unsung Giants of International Trade and Finance, author Delio E. Gianturco notes that ECAs finance one out of every eight dollars of world trade. The G-8 industrialized nations all have at least one ECA.
Whether the investments are "risk-free" for the populations of poor countries is another question. Fourteen of 19 nuclear-power plants currently under construction in poor countries are financed by an ECA. Over the years, more than 30 percent of the guarantees provided by ECAs in France and Britain have served to finance international arms sales. And, thanks in large part to export credit contributions from countries like Canada, Germany, Sweden, and Switzerland, construction on China's massive Three Gorges Dam is continuing despite the well-documented potential for ecological damage.
The Sept. 15 meeting in Paris took place at the headquarters of the Organization for Economic Cooperation and Development (OECD), sometimes described as a "rich country club" because its 30 member countries produce two-thirds of the world's goods and services. According to its Web site, the OECD is committed to "enhancing" ECA guidelines between now and the end of the year.
Representatives from many non-governmental organizations (NGOs) were invited to the meeting to make their case to the Working Party on Export Credits and Credit Guarantees, the body responsible for establishing ecological guidelines. The delegation included people from poor countries who wanted to talk about ECA-backed projects in their countries.
"The OECD used to control who could participate in these discussions and what they could say. They didn’t allow us to talk about particular projects or individual countries. But we said we were not coming anymore unless people affected by ECA projects were allowed to speak," Doug Norlen, a policy analyst with the U.S.-based advocacy group Pacific Environment, told World Press Review.
Natalia Barannikova, of the Sakhalin Island-based Sakhalin Environment Watch, hoped to discuss the Sakhalin II oil and gas project in Russia’s Far East. "This project may drive the last of the Western Pacific Gray Whales into extinction, is devastating cod and herring stocks and wild salmon runs, and is compromising the livelihoods and cultural identity of the fishing communities," she told WPR.
Advocates of ECA reform have rallied around the principal of "common, higher standards." The United States Congress took an important first step toward reform in 1992, when it required that the Export-Import Bank of the United States (the country’s ECA) use
In 1996, the Export-Import Bank declined to fund China's Three Gorges Dam, citing the potential for environmental damage as its reason. To finance the dam, China turned to competing ECAs with lower standards.
In May 2000, a declaration signed in Jakarta, Indonesia, added pressure for reform. Signed by 347 non-governmental organizations from 45 countries, the Jakarta Declaration calls for creating binding environmental, social, and human-rights guidelines, canceling the ECA debt of the poorest countries, and ending the secrecy that has hidden many deals from public scrutiny.
At a July 2000 meeting, the G-8 nations responded by agreeing to "develop common environmental guidelines, drawing on [multilateral development bank] experience…." A set of "Common Approaches on Environment and Officially Supported Export Credits" was adopted on December 2001. However, they are not mandatory. The United States did not endorse them, citing their "ambiguous and weak language."
NGO delegates at the Paris meeting were skeptical about the OECD’s commitment to reform. Aaron Goldzimer of the U.S.-based NGO Environmental Defense, told WPR that he had studied a draft of the OECD’s new guidelines, which might take effect at the end of 2003. According to him, they fail to require the public release of information on projects funded by export credit agencies: “Transparency is absolutely critical. Without it, how can citizens hold public institutions accountable?"
The debate over OECD guidelines will intensify as the United States pushes for an oil pipeline across an area stretching from the Russian borders to the Mediterranean Sea. When finished in 2005, the pipeline will snake its way for a thousand miles within a 500-yard corridor from the Caspian Sea port of Baku, in Azerbaijan, via Tbilisi in Georgia, to Ceyhan, in Turkey.
While the guidelines require that companies "contribute to sustainable development and to refrain from seeking or accepting exemptions from environmental, health, safety, labor, taxation and other legislation," they cannot be legally enforced. The United States’ Export-Import Bank is expected to contribute as much as US$600 million of the $2.5 billion required for the project.
Environmental groups say that the Baku-Tbilisi-Ceyhan pipeline poses many risks, from the devastation of sturgeon stocks in the Caspian Sea to the threat of tanker spillage on Mediterranean coasts. In Turkey, the pipeline passes through predominately Kurdish regions and is regarded by many Kurds as part of an ongoing effort to displace them from their villages.
The United Kingdom’s ECA, the Exports Credit Guarantee Department, has not yet approved the project. According to a statement made at the end of last year by U.K. International Trade Minister Baroness Symons, "Cover would only be given if the department were satisfied that the relevant environmental, social and human rights impacts had been properly addressed.”
But despite such encouraging signs, there are existing loopholes that do not encourage accountability where ECAs are concerned. Nick Hildyard, a researcher with Corner House, a U.K.-based environmental and human-rights group, says that the consortium behind the East European pipelineheaded by British Petroleumis registered in the Cayman Islands, a known tax haven. "They are asking for taxpayers' money and not even paying tax in the country where the money’s coming from,” he told WPR.
For now, whether or not ECA reform can be enacted will probably depend on the tenacity of the NGOs and the amount of public awareness they can raise. For the NGO delegates in Paris, there was much at stake. “It could still have a positive impact on Three Gorges if the reforms go through quickly,” said Fraser Reilly-King of the Halifax Initiative Coalition, a conglomeration of human rights, labor, and environment groups. “But I can't say that we feel very confident,” he added.
By the time the Three Gorges Dam is completed in 2013, Reilly-King noted, up to 1.9 million people will have been forcibly displaced from their homes.