EDC

A tale of two export banks

The Ottawa Citizen
May 14, 2000

The U.S. Export-Import Bank posts details of its transactions on behalf of American companies on the Web for the entire world to see. Its Canadian counterpart, however, conducts its business behind closed doors.

It takes about four Internet minutes to log on to the Web site database of the U.S. Export-Import Bank, which discloses details on billions worth of export deals it has financed on behalf of American companies.

Eximbank is the counterpart of Canada’s Export Development Corporation: Both are taxpayer-backed federal agencies that bankroll export trade deals. Both are also — unofficially — used by politicians to bolster political capital at home and foreign policy objectives abroad. ..

But the similarities stop there.

The Eximbank does all of its deals in the daylight. The EDC does virtually all of its deals behind closed doors.

By logging on to the Eximbank Web site (www.exim.gov/), any computer-literate citizen of the United States — or the planet — can find out, at no cost:

– What foreign deals the Eximbank has completed or has pending;

– how much money is involved in each deal;

– the repayment schedule on loans or other financing;

– which foreign country or state agency received the financing;

– which U.S. companies will benefit from the Eximbank loans;

– the U.S. products being supplied to the foreign projects being financed, and their place of manufacture. ..

If the foreign project appears to have significant environmental impacts, the U.S. companies must pay for and provide a scientific report that verifies the project will meet pollution standards equal to those in the United States.

These reports are posted on the Eximbank Web site, where they can be obtained and critiqued by citizen groups in the U.S., or in the country where the project is located.

Then a contract must be signed, confirming the U.S. company will meet those pollution standards. Only then is the money released.

Finally, the Eximbank is subject to U.S. federal access-to-information laws, which allow citizens to obtain government documents showing how and why the deals were approved.

The bedrock premise behind all this is that U.S. citizens have a right to know how and where money is being spent in their name, and that they are entitled to assurances that they are not underwriting dirty, dangerous projects abroad.

..

None of this occurs in Canada. The EDC is exempt from federal access-to-information laws. Its budget and annual operations are not debated in Parliament. Few details about past or pending financing deals are available on its Web site, or in its annual report.

And few know precisely who owes the $22 billion in cumulative unpaid receivables administered by the EDC.

Neither the public nor Parliament can find out where billions more are lent each year, which country will receive the money, what interest rates will apply, or which Canadian companies will benefit.

No environmental reports on foreign projects are posted — not even for a Three Gorges dam in China, or a proposed Candu nuclear reactor sale to earthquake-prone Turkey.

In a study produced last year for the House of Commons committee reviewing the EDC’s mandate, Ottawa law firm Gowling, Strathy, Henderson noted that “public disclosure obligations are almost non-existent under current (Export Development Corporation Act) legislation.”

.. The Gowlings report recommended that revised EDC legislation include virtual carbon-copy disclosure practices of the Eximbank.

“The EDC should be required to post, on a regular basis, specific information regarding transactions it has supported. Such information might include the name of the borrower, country, name of exporter, amount and type of financial support, term, and brief description of the goods, services or project involved.”

The EDC flatly opposes that recommendation.

“We can’t commit to that because that would mean we would be in breach of some commercial confidentiality agreements, which would be either … legally inadvisable or we wouldn’t do that level of transaction support,” says EDC vice-president Eric Siegel.

“We do seek to maximize the amount of disclosure that we can. In many cases, that achieves comparable, if not more disclosure, than what the Eximbank has.”

Peter Allen, the EDC chief financial officer, says decisions on what can be disclosed “starts with the applicant. Applicants make .. requests for financing, and submit information to financial institutions so they can make a judgment as to whether they will lend or not, based on the understanding that that information will remain confidential to the parties that need to know.

“If EDC were required to disclose everything that was submitted, people would not seek out the corporation. Companies insist that we agree to maintain that commercial confidentiality before we can even get access to that information.”

The Alliance of Manufacturers and Exporters Canada, whose members include the major beneficiaries of EDC funding, told the parliamentary committee that it opposes greater disclosure on EDC transactions. “The line between what is market sensitive and what is not is not always clear. We would strongly object to any requirement for public disclosure of confidential or market-sensitive information.

“We are also concerned that more stringent disclosure provisions than those required by other financial institutions or export financing agencies would erode client confidence in EDC as a commercially oriented agency.” ..

The EDC says it cannot disclose details about the deals it finances because that would harm the competitive position of Canadian companies they assist.

“The majority of the business that EDC conducts is commercial business,” says Mr. Siegel.

“Its operations would be constrained, if not rendered impossible, if it was expected to fully disclose — because companies could not then have assurance that they could proceed without reasonable commercial confidentiality.”

Both Mr. Siegel and EDC chairman Patrick Lavelle say they are looking at ways to disclose more information.

“In terms of exposure of financial information, I think the EDC has done a pretty good job. Have we done the optimum job? No,” acknowledges Mr. Lavelle. “We had a discussion at the last board meeting about how we might make more information available. The question for EDC is that we are dealing on a commercial basis with a lot of companies who are very, very concerned in dealing with a .. government agency and that confidential information is not made public.”

He said the EDC has to balance the public’s right to know with the concerns of the companies. Mr. Lavelle says the EDC is “in the process of evolution” when it comes to transparency.

Even Mr. Lavelle has shown frustration with the secrecy that surrounds the EDC. When a Citizen request for the CVs of board directors was being held up by the EDC, Mr. Lavelle said it was “bullshit” that the information was not being provided more quickly.

The Citizen later submitted a list of several dozen companies in which current EDC directors have interests as either directors or shareholders or both, asking the EDC to identify which companies also have current business dealings with the Crown corporation.

The EDC responded: “Consistent with the practice of commercial corporations, EDC does not reveal details about its customers without first obtaining their permission, in the same manner as you would not want your bank revealing information about you to the .. media. We invite you to contact those companies bilaterally.”

The EDC also declined repeated requests by The Citizen to identify which five customers have outstanding combined loans of $4.2 billion.

“In order not to compromise the competitive position of its customers,” the agency wrote, “the EDC does not release details about individual transactions.”

Asked for detailed information on which three customers were responsible for $105 million in loans classified as impaired in 1999, Mr. Allen responded: “It would not serve our customers to precipitate their failure by disclosing the problem, when we’re working the problem through. And it could bring the liability on to us for having disclosed it.”

Mr. Lavelle rejects suggestions that the Eximbank should be the EDC’s model for transparency.

“We would argue that perhaps Eximbank is providing subsidized funding to its client base, where we are not doing that. So .. therefore, perhaps, a greater degree of exposure or information is required there than in Canada.”

Eximbank receives about $800 million U.S. annually in government subsidies as a lender of last resort, according to Jayne Watson, EDC’s director of corporate communications.

“But,” says Mr. Lavelle, “nobody is trying to be secretive at the EDC. We are attempting to respond to what people want to know about what we are doing with finances at the corporation.”

The EDC points to the fact that the federal auditor general has recognized the corporation’s annual report three times out of the last five years for its award of excellence in annual reporting.

However, while the award recognizes “integrity” in terms of balance in positive and negative results, Joanne McDuff, a spokeswoman for the auditor general, acknowledged that the reports are not judged for “transparency.”

It wasn’t always this way at the EDC. Until the mid-1980s, annual reports of the EDC revealed the financing amount, the full list of .. borrowers, and the principal Canadian exporters involved in transactions. Included in the list of 1982 loans, for example, were ones for $294 million, made to the Metropolitan Transportation Authority in the U.S. for the purchase of subway cars from Bombardier; $119 million to the Arab Republic of Egypt for the purchase of airplanes from de Havilland Aircraft of Canada; $108 million to OK Tedi Mining Ltd. in Papua New Guinea for various Canadian exporters for “mining and townsite facilities”; $49 million to Empresa Minera del Peru in Peru for Wright Engineers Ltd. for the purchase of mining equipment and services.

However, the lists disappeared from the annual reports shortly afterwards.

The EDC must list its parallel “Canada account” loans in the annual Public Accounts of Canada report. The 1999 report reveals that it has given $685 million in long-term, interest-free loans to 10 developing countries, including $210 million to China. The loan terms span decades, and feature low interest rates.

However, the EDC will not reveal which Canadian companies benefited from these loans, claiming confidentiality with the corporations .. prevents it from telling taxpayers how the money was used.

Elizabeth May, executive director of the Sierra Club, is engaged in a Federal Court of Appeals lawsuit triggered by EDC-arranged financing of $1.5 billion to back Candu reactor sales to China.

The Sierra Club has tracked the EDC’s lack of transparency for years. Ms. May says that the U.S. Eximbank became more open about the release of information after President Bill Clinton took office in 1992. She said there was pressure for more transparency at the Eximbank from banks and insurance companies, as well as from environmental and human rights groups.

Since then, U.S. companies have complied with the Eximbank disclosure practices because they know that is the price they must pay for access to taxpayer-backed funds.

Ironically, some of the very companies that oppose open EDC disclosure in Canada — on the grounds that it will impair their competitive export position — routinely disclose details in the United States in order to obtain Eximbank funding.

.. Companies such as General Electric, Pratt and Whitney and SNC-Lavalin, which have operations in both Canada and the U.S., have made applications to both the EDC and Eximbank for financing. The Canadian proposals were made in secret; the U.S. funding requests were publicly posted.

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Categories: EDC, Export Credit, News, Secrecy

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