Creating a level playing field
The German export promotion schemes are integrated into in a tight network of international rules and agreements.
Since 1978, the OECD-Consensus, which is binding on all OECD countries, has set uniform minimum standards for export credits supported by a state export credit agency or financed from public funds. The objective is to ensure that competition is driven by the price and quality of the export products and not by the scope and conditions of state support.
The Consensus covers all state-supported export credits with a minimum repayment term of two years. It does not apply to exports of military equipment and agricultural produce.
It defines minimum requirements for credit periods, repayment profiles, down-payments, the inclusion of local costs as well as premiums and minimum interest rates for cover of political and commercial risks. The country risk classifications in the OECD are also harmonised.
Besides, the OECD Consensus defines the demarcation line between commercial export credits and trade-related development aid loans. Certain types of goods are governed by so-called Sector Understandings, which stipulate differing minimum requirements:
Overview of the minimum requirements
The permissible terms of payment for credit periods of up to 5 years are also determined by the decision-making practice of the Interministerial Committee for Export Credit Guarantees and the guidelines of the Berne Union, the world’s largest association of private and state export credit and investment insurers from OECD and non-OECD countries; here the type of goods and the export value are decisive.
In addition, officially supported export credits in EU countries are governed by the decisions of the EU. In order to prevent distortions of competition with the private market, the European state export credit agencies are not allowed to grant short-term cover for exports to other EU member states and the core countries of the OECD. Every few years the EU reviews and updates its definition of marketable and non-marketable short-term risks.
Governance and sustainability issues are the focal point of international cooperation. On OECD level the state export credit agencies therefore agreed on uniform procedures, which go beyond laying down financing conditions:
- Common Approaches for environmental and social due diligence in connection with officially supported export credits
- The Recommendation on Bribery and Officially Supported Export Credits establishes the framework for preventing and combating corruption.
- Sustainable Lending: In the past, many low-income countries benefited from a debt relief through one of the multilateral initiatives. For the Heavily Indebted Poor Countries (HIPC) these initiatives, in particular the activities at the G8 Summit at Cologne in 1999, were an important step. Since then, the International Monetary Fund (IMF) and the World Bank have sought to prevent renewed over-indebtedness and to promote sustainable development in these countries. The state export credit agencies in the OECD member states support the IMF and the World Bank in their efforts by means of introducing appropriate guidelines for the provision of export credits guaranties.
International Working Group
These days German exporters increasingly compete with companies from countries such as Brazil, Russia, India, China or South Africa, which are not bound by the rules and regulations of the OECD. In order to restore a level playing field for all market participants worldwide, an International Working Group (IWG) was set up in 2012, whose members include, in addition to the EU, all other OECD countries as well as, among others, Brazil, China, India, Malaysia, Russia and South Africa. The objective of the IWG is to develop new global standards for officially supported export credits. We regularly report on any concrete progress made in our Annual Report.
Cooperation – reinsurance/coinsurance
German exporters are faced with intensified global competition and try to improve their position by means of relying more and more on international procurement, production and distribution structures. In particular capital goods transactions increasingly involve several exporters from different countries. This international division of labour has resulted in an increased demand for the inclusion of foreign goods and services and/or supplies from foreign subcontractors in Hermes Cover.
Normally, foreign content can be included in an export credit guarantee issued by the Federal Government without problem provided that certain limits are not exceeded. Nevertheless, in connection with multi-sourcing projects with elevated portions of foreign supplies, it may be necessary to consider also other options for the inclusion of foreign content. Depending on the contractual terms and conditions of the respective export contract, the mandatary of the Federal Government will chose the appropriate, customised insurance model (coinsurance or reinsurance). When it comes to covering multi-sourcing projects reinsurance plays a particularly important role.
Overview over the cooperation models
The Federal Government offers exporters the possibility to make an initial inquiry in order to find out whether the granting of Hermes Cover will be possible even if the share of foreign content exceeds 49%. For this, the exporter can – before filing the proper application for cover – submit an informal project outline, which should basically provide a description of the project, the planned supply structure and an explanation as to why the high portion of foreign content is necessary and how important the project is for him and his German plants. After examining the documents submitted, the Federal Government informs the exporter with a non-binding letter indicating whether and up to what amount foreign content will permissible for the transaction in question. The examination of the initial inquiry is free of charge and not a mandatory step in the application procedure.