OECD: APRIL EXPORT CREDITS MEETINGS FURTHER

UNCLAS SECTION 01 OF 05 PARIS 003296

SIPDIS

FROM USOECD

STATE FOR E
EB/IFD - GREENWOOD, GARBER, LYNG, BROWN AND KEAT
OES/ENV
WHA/BSC - EDWARDS
EUR/ERA - FELDMAN
STATE PLEASE PASS USTR FOR MALMROSE
TREASURY FOR TVARDEK, DRYSDALE AND EPSTEIN
COMMERCE FOR LENZ AND BEADLE
STATE PASS EXIM BANK FOR SABA, CRUSE, KUESTER,
SCHWEITZER AND FIRESTONE
BRASILIA RIO AND SAO PAULO FOR ECON AND FCS

E.O. 12958: N/A
TAGS: EFIN ETRD SENV ETRD BR OECD
SUBJECT: OECD: APRIL EXPORT CREDITS MEETINGS FURTHER
USG ANTIBRIBERY AND AIRCRAFT FINANCE GOALS


1. SUMMARY: The Participants to the Arrangement on
Officially Supported Export Credits and the Export
Credit Group (ECG) of the Organization for Economic
Cooperation and Development (OECD) met April 18-22,
2005 at OECD headquarters in Paris. Informal and
formal aircraft meetings with Brazil made progress on
clarifying the issues for a future aircraft sector
finance agreement. The Consultations group met on the
afternoon of April 22. Substantial progress was made
on several issues, including an agreement on an
Outreach Strategy for both the Participants and the
ECG, an agreement on a revised mandate for the Working
Group of Experts on Premium and Related Conditions, an
ad ref agreement on extended repayment terms for
renewable energy and water projects, and an agreement
in substance on revisions to the Arrangement on
flexible repayment and project finance terms. The ECG,
agreed to schedule a special meeting on the anti-
bribery issue, in October, and to allow more time at
the November meeting during which it hopes to conclude
an agreement on an updated action statement. End
Summary.

Participants and Consultations Meetings


2. The Participants to the Arrangement on Officially
Supported Export Credits met on in Paris on April 18,
19, and 21. The Participants spent the first two days
electing a new Chair, Nicole Bollen (Netherlands),and
a new Bureau, in addition to holding technical
discussions on the implications of the United
States/Cotton and Korea/Shipbuilding WTO panel dispute
cases for the Arrangement, non-standard repayment
structures (the article 13 issue),renewable
energy, and an outreach strategy. The Participants
reached agreement on an Outreach Strategy for the
Participation of Non-Member Economies. In addition,
the Participants agreed in the framework of the agreed
Outreach Strategy, to hold its annual consultations for
2005 with Stakeholders on October 3 (NGOs and the
OECD's Business and Industry Advisory Council [BIAC]
and Trade Union Advisory Council [TUAC]) and on October
4 (non-member economies).


3. Comment: The election of the Chair and Bureau, in
contrast with 2004's contentious sessions, went
smoothly. This reflects the U.S.-European Union (EU)
compromise that elected an Australian Chairman and a
Dutch Bureau member last April. This compromise
supported the U.S. position that smaller countries
(i.e., non-G-7) should fill the role of Chairman, and
positioned a small-country EU member to be elected
Chairman this year. End Comment.


4. Other than Canada, the Participants reached
agreement in principal in respect of Arrangement text
to accommodate non-standard repayment profiles
(including project finance) on the basis of the
Secretariat proposal, as revised by various proposals

SIPDIS
from Participants. With respect to the final text that
will be integrated into the Arrangement, the
Participants agreed that the Secretariat would review
this for clarity and consistency, taking into account
any drafting suggestions from Participants, and
circulate a final text by the end of May 2005.


5. The Participants agreed in principle to a revised
European Commission proposal to provide 15-year
repayment terms (vice the standard 12-year terms for
non-nuclear power projects) for renewable energy and
water projects for a two-year trial period commencing 1
July 2005. Three Participants required more time to
consider the proposal and, therefore, the proposal was
adopted ad referendum until May 6, 2005 for Canada,
Japan and Norway. (Japan agreed to the proposal on May
2 and Norway on May 3.)


6. Some NGOs lobbied for hydropower to be excluded.
Despite their efforts, the proposal does include
hydropower projects, but implementation was postponed
until November. Two representatives of the World Bank
arrived unannounced at the meetings to support the
inclusion of hydropower projects in the agreement on
extended repayment terms. The Participants have tasked
their relevant experts to examine "whether extant
guidelines for assessing large hydropower projects,
i.e. as set out in the OECD Recommendation, are
sufficient to comply with the relevant international
standards, criteria and guidelines, or whether or not
these need to be augmented." The experts meetings will
be held on June 23-24 and September 6-7, 2005.


7. Finally, the Participants agreed on a text that
provides the Premium Group with a mandate on future
work related to buyer risk.


8. The Participants Consultations Group met on the
afternoon of April 22 to discuss a Canadian tied aid
project in China that Japan had challenged as being
commercially viable and, therefore, not eligible for
tied aid. Canada presented a feasibility study that
was substantially lacking in detail. The group was
left unconvinced of the Canadian arguments for
commercial non-viability and found the project to be
commercially viable. As a result, the project is not
eligible for tied aid.

Aircraft Meetings


9. Technical experts from the Participants and Brazil
met informally on 18-19 April to discuss several papers
submitted by Brazil, Canada, and the European
Commission (EC),and a letter from the Aviation Working
Group (AWG) sent in response to questions posed by the
Participants in February. These informal technical
discussions on an aviation sector agreement were
productive. The Brazilian presentation was well
reasoned, showing a significant degree of technical
sophistication and demonstrating that Brazil is taking
the talks seriously.

Informal Sessions with the Airbus ECAs and Brazil


10. The United States and representatives of the
Airbus countries met the evening of the 18th. The
Europeans pushed hard for the United States to agree to
work to conclude a Europe/U.S. agreement on risk-
adjusted fees prior to and irrespective of negotiations
on a new sectoral agreement. The USDEL was clear,
however, that while EXIM and the European export
credits agencies (ECAs) could discuss details of such
an agreement, the United States would not be willing to
commit to agree to something prior to consulting
adequately with Brazil and Canada. The USDEL expressed
concern at the European ECA approach (no European
Foreign Ministry representatives were present) and said
it did not want to conclude a side agreement in a
manner that would inflame the Brazilians, and,
potentially, complicate U.S./Brazil bilateral
relations, undermine the status of the Arrangement
under the WTO, and have negative implications for the
WTO Doha Round.


11. The Europeans at the meeting also reiterated long-
standing concerns that EXIM's fee discount for airlines
from countries that have signed on to the Capetown
Convention distorted the market. The USDEL, both in
these meetings and in a private conversation the next
day with the lead UK aircraft expert, defended the
discounts and called on the Airbus ECAs to join EXIM in
offering them. In conversations on the 19th, the UK
expert agreed to talk further to EXIM about the
discount, although he clearly would prefer a smaller
one than that the United States currently offers. The
UK rep indicated that he would be willing to try to
achieve a common view among the Airbus countries on the
ideal magnitude of such a discount.


12. Brazil/U.S. bilateral talks the morning of 19 April
were positive, building on previous discussions in
Paris and Brazil. The Brazilian delegation presented
its views on key elements of a risk-adjusted fee
system. The U.S. delegation noted that the EU was
pressing for an EU-U.S. fee system ahead of a
comprehensive multilateral aircraft agreement. In
response, the Brazilian delegation noted that, while
Brazil cannot interfere with EU-U.S. relations, such a
bilateral agreement would not be helpful. Brazil noted
that it would like to see a final, comprehensive
agreement as soon as possible.


13. The Participants and Brazil held the 20th meeting
of the Sector Understanding on Export Credits for Civil
Aircraft on 20-21 April in follow-up to the informal
technical meeting. Based on the feedback from the
technical experts, the Participants agreed to send
another letter to the AWG with additional questions and
clarifications. The United States, the European
Commission (EC),Brazil, and Canada all volunteered to
draft new papers for review at further technical
aircraft meetings due to be held in June. EXIM will be
drafting a paper on risk, as will Canada, with the
topics of the EC and Brazilian papers still to be
determined. Other delegations agreed with Brazil that
if an aircraft sector understanding were reached, it
would be de facto or de jure stand alone from the
Arrangement on Export Credits and that Brazil would not
be expected to adhere to changes in the Arrangement
text that stem from discussions in which Brazil had not
participated. The Group agreed to meet again in June
with the AWG on the morning of the 20th, for informal
technical sessions the afternoon of the 20th through
the morning of the 22nd, and formally on the afternoon
of the 22nd.

Export Credit Group Meetings


14. The OECD Working Party on Export Credits and Credit
Guarantees (ECG) met on the afternoon of April 21 and
the morning of April 22. The ECG reached agreement on
an outreach strategy for the participation of non-
member economies and on an agreement to expand the
mandatory reporting under the Export Credits and
Unproductive Expenditure to Heavily Indebted Poor
Countries (HIPCs) transparency exercise to all
countries that are eligible for IDA-only financing.

Anti-Bribery


15. Background: The ECG adopted in 2000 an Action
Statement on Bribery and Export Credits. NGOs,
especially Transparency International (TI),have been
critical of the Action Statement, asserting that it
does not go far enough in preventing bribery and
corruption that distorts trade. Germany, Belgium, and
the Czech Republic submitted to the ECG a paper in
September 2004 that proposed an update to the Action
Statement. The United States, feeling the proposal did
not go far enough, and after an extensive process of
interagency consultation, submitted its own paper in
April 2005. End Background.


16. The German head of delegation and his deputy spoke
privately on April 19 with the State Rep, expressing
concern over the U.S. paper. The Germans were
particularly concerned over proposed U.S. language that
would increase the scope of instances that would
require enhanced due diligence by ECAs and other
language that would place a greater obligation on
applicants and/or exporters to disclose bribery-related
information. The State Rep pointed out that the U.S.
goals, aside from the obvious one of reducing bribery,
are to maintain the distinction between an ECA and an
enforcement agency and to place the responsibility of
compliance clearly on the applicant and/or exporter.


17. In contrast to the Germans, French delegates
responded positively to the U.S. proposal. The French
particularly liked the U.S. ideas that there be an
obligation for an ECA to report suspicions of bribery
to the competent authorities and to place the legal
responsibility for informing the ECA of "red flags" on
applicants and exporters. They also accepted the U.S.
view that other issues should be explored further
during November ECG meetings, particularly questions on
how to deal with commissions and other payments.
France saw the merits of exploring the issue of ECAs
and bribery at the G-8, especially if the ECG fails to
adopt appropriate measures.


18. Canada, while expressing general support for U.S.
goals, was concerned about how to implement them, and
indicated it was unlikely to join a consensus before
November. The UK anticorruption expert indicated that
the UK would have only limited formal comments given
controversy over its own standards.


19. The European Commission (EC) indicated to the
United States that the EC would support the U.S. paper,
but that it was not sure if it could overcome the
objections of Germany and some like-minded
delegations. During the course of the meetings, the EC
worked closely and constructively with the United
States, submitting on the final day compromise language
that the United States was able to vet in advance with
some Washington experts.


20. The ECG allotted most of the morning of its April
22 meeting to discussion of export credits and bribery.
A representative from the OECD's Anti-Corruption
Division (i.e., the Secretariat for the Working Group
on Bribery (WGB) in International Business
Transactions),and from the WGB's Bureau, informed
Members that while the WGB was not yet in a position to
provide any input on key terms, it would do so once its
Members had a chance to consider the issue further. A
representative from TI presented a paper on the issue
of key terms related to the ECG's anti-bribery
undertakings (this was in response to the ECG's request
for TI's views. Another presentation was made by
Transparency International on Preventing Corruption in
Construction Projects. The Berne Union also made a
presentation on a survey it undertook of its members on
the issue of agent's commissions. Finally,
representatives from the OECD's Anti-Corruption
Division provided an update on the status of Phase II
reviews under the OECD Convention.


21. Germany presented an updated version of the
proposal that it, Belgium, and the Czech Republic had
first presented at November 2004 ECG meetings. The
United States presented a proposal that goes
significantly further than the German/Belgian/Czech
one. Most delegations indicated that they needed more
time to study the US proposal. France was perhaps the
most supportive. It became clear that delegations
require significant lead time to coordinate positions
in capitals prior to reaching any final agreement to
amend the ECG's Action Statement. As a result, the
Chair concluded that the proposals had generated a
significant level of support and that the ECG should
hold a Special Session (10-11 October) before
finalizing enhancement of the Action Statement at the
plenary ECG Meeting in November 2005. The Chair gave
all delegations until May 30 to submit further papers
on the subject. The Chair also suggested members
consider making the Action Statement the subject of an
OECD Recommendation, to demonstrate the political
intent of the ECG Members to actively combat bribery.


22. Comment: The United States intends to continue to
press to raise ECA antibribery standards, including
through a paper that will be prepared by the May 30
deadline aimed at reaching final agreement on an
enhanced Action Statement in November. The USG would
like to see a revised Action Statement that goes
further to prevent bribery and corruption. Following
this revision, the United States will continue to put
forward proposals to increase progressively ECAs' anti-
bribery procedures and practices. Bribery
disadvantages U.S. and other firms that comply with
high anticorruption standards, such as those required
under the U.S. legal and enforcement framework. The
United States also advanced its goals for including
Brazil in a future aviation sector finance agreement
during these meetings, an issue that we will continue
to make a priority. End Comment.

--------------
The U.S. Delegation
--------------


23. The U.S. Delegation was:

Head of Delegation

Steve Tvardek, Director, Office of Trade Finance,
Treasury

Advisors

Robert Beadle, International Trade Specialist,
Department of Commerce

James Cruse, Senior Vice President, Policy, EXIM

David Drysdale, Deputy Director, Office of Trade
Finance, Treasury

Cory Firestone, Policy and Planning, EXIM

Stephen K. Keat, Financial Economist, Office of
Development Finance, Economic Bureau, Department of
State

Eric Lenz, International Trade Specialist, Department
of Commerce

Robert Morin, Vice President, Transportation Division,
EXIM

Helen Recinos, Economic Officer, U.S. Mission to the
OECD

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