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Document 52021PC0268
Proposal for a COUNCIL DECISION on the position to be taken on behalf of the European Union regarding the envisaged decision of the Participants to the Arrangement on Officially Supported Export Credits
Proposal for a COUNCIL DECISION on the position to be taken on behalf of the European Union regarding the envisaged decision of the Participants to the Arrangement on Officially Supported Export Credits
Proposal for a COUNCIL DECISION on the position to be taken on behalf of the European Union regarding the envisaged decision of the Participants to the Arrangement on Officially Supported Export Credits
COM/2021/268 final
EUROPEAN COMMISSION
Brussels, 31.5.2021
COM(2021) 268 final
2021/0131(NLE)
Proposal for a
COUNCIL DECISION
on the position to be taken on behalf of the European Union regarding the envisaged decision of the Participants to the Arrangement on Officially Supported Export Credits
EXPLANATORY MEMORANDUM
1.Subject matter of the proposal
This proposal concerns a decision establishing the position to be taken on the European Union's behalf by the Commission in the context of the Arrangement on Officially Supported Export Credits (the ‘Arrangement’) regarding an envisaged decision to amend the Arrangement’s interest rate provisions. These provisions set the minimum Commercial Interest Reference Rates (‘CIRRs’) that apply to official financing support for export credits. The envisaged decision would harmonise practices among adherents to the Arrangement and ensure terms and conditions that reflect those of private financial markets.
2.Context of the proposal
2.1.The Arrangement on Officially Supported Export Credits
The Arrangement is a gentlemen's agreement between the EU, the US, Canada, Japan, Korea, Norway, Switzerland, Australia, New Zealand and Turkey, which aims to provide a framework for the orderly use of officially supported export credits. In practice, this means establishing a level playing field (whereby competition is based on the price and quality of the exported goods and services and not on the financial terms provided), while working to eliminate subsidies and trade distortions related to officially supported export credits. The Arrangement entered into force in April 1978, it is of indefinite duration and although it receives the administrative support of the OECD Secretariat, is not an OECD Act 1 .
The Arrangement is subject to regular updates, taking into account financial market and policy developments affecting the provision of officially supported export credits. The Arrangement has been transposed, and hence been made legally binding in the EU by Regulation (EU) No 1233/2011 of the European Parliament and of the Council 2 3 . Revisions of the terms and conditions of the Arrangement are incorporated into EU law through delegated Acts pursuant to Article 2 of this Regulation.
2.2.The Participants to the Arrangement on Officially Supported Export Credits
The European Commission represents the Union in meetings of the participants (the ‘Participants’) to the Arrangement, as well as in the written procedures for decision-making by the Participants to the Arrangement. Decisions on all amendments of the Arrangement are taken by consensus. The position of the Union is adopted by the Council and is discussed by Member States in the Council Working Group on Export Credits 4 .
Article 63, point (a), of the Arrangement provides that "The Participants shall periodically review the system for setting CIRRs in order to ensure that the notified rates reflect current market conditions and meet the aims underlying the establishment of the rates in operation. Such reviews shall also cover the margin to be added when these rates are applied".
2.3.The envisaged act of the Participants to the Arrangement on Officially Supported Export Credits
A review of the CIRR system has been ongoing since the beginning of 2014. The CIRRs are fixed minimum interest rates that may be offered as part of a government-backed export finance contract. CIRRs are fixed for each currency of the Participants to the Arrangement. In the 127th meeting of the Participants, held in June 2014, the Participants tasked the Technical Experts to the Participants (‘TEP’) with reviewing the disciplines in the Arrangement on CIRRs.
The CIRR reform would constitute a comprehensive reform covering operational aspects (e.g. modalities such as holding and fixing the interest rates), as well as structural aspects (e.g. base rates, margins and surcharges). The aim of the CIRR reform is to harmonise lending practices among Participants and bring the CIRRs closer to market rates. The envisaged provisions on CIRRs would be applicable to all transactions, except transactions covered by the Sector Understanding for Ships and the Sector Understanding for Civil Aircraft.
At the 141st Participants’ Meeting held in June 2019, the Chair of TEP presented a draft Chair’s proposal on the CIRR reform that seeks to strike a balance between divergent interests and standpoints expressed in the course of the technical work. The Chair’s draft proposal received broad general support by the Participants, while a number of minor issues, still had to be resolved. In the November Participants’ meeting of last year, the views of the Participants converged. The Participants to the Arrangement are to adopt a decision on the draft compromise proposal by written procedure.
3.Position to be taken on the Union's behalf
The WTO Agreement on Subsidies and Countervailing Measures (‘ASCM’) provides a carve out for the Arrangement in the illustrative list of export subsidies, providing that an export credit practice which is in conformity with the provisions of the Arrangement is not considered a prohibited export subsidy prohibited by the ASCM. This means that if a WTO member is a party to the Arrangement and its export credit practice is in conformity with the Arrangement or if in practice a WTO Member applies interest rate practices in conformity with the provisions of the Arrangement, the export credit practice is not considered an export subsidy. This gives the provisions in the Arrangement on interest rates particular significance.
The provisions on the CIRRs have remain unchanged for a long time and are in need of comprehensive reform. Trade finance has become increasingly decisive in sourcing decisions in global trade and this has led to a wide range of financial products and contract structures being offered in private financial markets. To ensure conformity, the interest rates provisions of the Arrangement periodically need to be adapted to evolving market practices. The Arrangement merely outlines the general principles when providing government-backed lending at fixed interest rates and focuses on structural aspects. Since Member States provide CIRRs to a greater extent than most other Participants do and in order to converge practices within the EU, Member States have informally agreed to a set of rules that covers operational aspects of the CIRR system, as a complement to the provisions in the Arrangement. In addition to the Arrangement and the informal EU guidelines, most Member States have adopted national CIRR regulations.
The envisaged decision on the CIRR reform would provide for more detailed and comprehensive update of ANNEX XVI of the Arrangement. These would cover both the costs incurred by the lender before an export contract has been signed by a buyer (e.g. rules on minimum fees charged for offering and fixing the interest rate), as well as rules on how to calculate the interest rate, which corresponds to the yield on a government bond plus a margin covering other funding costs. By incorporating components that affect the funding costs, the CIRR reform aims to render greater coherence in the terms and the conditions offered by ECAs and thereby ensure a level playing field among Participants to the Arrangement. By doing so, the reform would narrow the scope for EU Member States to adapt the provisions of the CIRRs at national level to the specific needs of domestic industry. A transition period of two years is envisaged to allow time for export credit agencies offering direct lending to adapt to the new guidelines.
In sum, the envisaged decision on the CIRR reform involves rules on both operational and structural aspects that would provide greater policy coherence and enhance the level playing field among Participants. Therefore, it is recommended that the position of the Union is to approve the envisaged decision of the Participants to the Arrangement by written procedure to adopt new guidelines on CIRRs.
4.Legal basis
4.1.Procedural legal basis
4.1.1.Principles
Article 218(9) of the Treaty on the Functioning of the European Union (TFEU) provides for decisions establishing ‘the positions to be adopted on the Union’s behalf in a body set up by an agreement, when that body is called upon to adopt acts having legal effects, with the exception of acts supplementing or amending the institutional framework of the agreement.’
The concept of ‘acts having legal effects’ includes acts that have legal effects by virtue of the rules of international law governing the body in question. It also includes instruments that do not have a binding effect under international law, but that are ‘capable of decisively influencing the content of the legislation adopted by the EU legislature’ 5 .
4.1.2.Application to the present case
The envisaged act is capable of decisively influencing the content of EU legislation, namely Regulation (EU) No 1233/2011 of the European Parliament and of the Council of 16 November 2011 on the application of certain guidelines in the field of officially supported export credits and repealing Council Decisions 2001/76/EC and 2001/77/EC. This is because by virtue of Article 2 of this Regulation, which states that "[t]he Commission shall adopt delegated acts in accordance with Article 3 to amend Annex II as a result of amendments to the guidelines agreed by the Participants to the Arrangement".
Therefore, the procedural legal basis for the proposed decision is Article 218(9) TFEU.
4.2.Substantive legal basis
4.2.1.Principles
The substantive legal basis for a decision under Article 218(9) TFEU depends primarily on the objective and content of the envisaged act in respect of which a position is taken on the Union's behalf. If the envisaged act pursues two aims or has two components and if one of those aims or components is identifiable as the main one, whereas the other is merely incidental, the decision under Article 218(9) TFEU must be founded on a single substantive legal basis, namely that required by the main or predominant aim or component.
4.2.2.Application to the present case
The main objective and content of the envisaged act relate to export credits, which is within the scope of the common commercial policy. Therefore, the substantive legal basis of the proposed decision is Article 207 TFEU.
4.3.Conclusion
The legal basis of the proposed decision should be Article 207(4), first subparagraph, TEFU in conjunction with Article 218(9) TFEU.
2021/0131 (NLE)
Proposal for a
COUNCIL DECISION
on the position to be taken on behalf of the European Union regarding the envisaged decision of the Participants to the Arrangement on Officially Supported Export Credits
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 207(4), first subparagraph, in conjunction with Article 218(9) thereof,
Having regard to the proposal from the European Commission,
Whereas:
(1)The guidelines contained in the Arrangement on Officially Exported Export Credits (the ‘Arrangement’) have been transposed, and hence been made legally binding in the EU by virtue of Regulation (EU) No 1233/2011 of the European Parliament and of the Council 6 .
(2)In accordance with Article 63 of the Arrangement, the participants to the Arrangement (the ‘Participants’) should periodically review the system for setting Commercial Interest Reference Rates (‘CIRRs) in order to ensure that the notified rates reflect current market conditions and meet the aims underlying the establishment of the rates in operation. Such reviews should also cover the margin to be added when these rates are applied.
(3)The Participants are to decide by written procedure on an envisaged decision to amend the provisions in the Arrangement on CIRRs.
(4)The envisaged decision to reform the provisions on the CIRRs should provide greater policy coherence and harmonise lending practices, thereby enhancing the level playing field among Participants. Furthermore, it should bring the fixed interest rates offered in officially supported export credit transactions closer to market rates and ensure they are better adapted to the terms and conditions offered in the private financial market. A transition period of two years should allow the export credit agencies time to adopt and communicate the new guidelines.
(5)It is appropriate to establish the position to be taken on the Union's behalf in the written procedure of the Participants to the Arrangement, as the envisaged decision will be capable of decisively influencing the content of Union law, by virtue of Article 2 of Regulation (EU) No 1233/2011,
HAS ADOPTED THIS DECISION:
Article 1
The position to be taken on the Union's behalf in a written procedure of the Participants to the Arrangement on Officially Supported Export Credits regarding the envisaged decision to amend the provisions on the CIRRs shall be based on the Annex to this Decision.
Article 2
This Decision is addressed to the Commission.
Done at Brussels,
For the Council
The President
EUROPEAN COMMISSION
Brussels, 31.5.2021
COM(2021) 268 final
ANNEX
to the
Proposal for a Council Decision
on the position to be taken on behalf of the European Union regarding the envisaged decision of the Participants to the Arrangement on Officially Supported Export Credits
ANNEX
PROPOSAL
ANNEX XVII
SECTION 1:CONSTRUCTION OF THE CIRR
1.A CIRR shall be established for each Participant’s currency, provided that the required data is made available to the Secretariat. A Participant or a non-Participant may request that a CIRR be established for the currency of a non-Participant. In consultation with the interested non-Participant, a Participant or the Secretariat on behalf of that non-Participant may make a proposal for the construction of the CIRR in that currency.
2.Other Participants shall use the CIRR set for a particular currency should they decide to finance in that currency.
3.The CIRR is composed of a base rate and a margin.
4.The minimum CIRR for any currency shall be no lower than 15 basis points.
I.ESTABLISHMENT OF THE BASE RATE
5.CIRR rates shall be calculated monthly and will take effect on the 15th day of each month.
6.CIRR base rates are computed using government bond yields.
7.The maturity of the government bond to be used for each transaction shall be determined according to the following formula: Drawdown Period + 0.5 Repayment Period + 0.5 Repayment Frequency in years 1 (for standard repayment profiles). For transactions with a non-standard repayment profile, the following formula shall be applied: DP + [∑ (𝑡𝑙𝑖 − 𝑡𝑠𝑝) ∗ 𝐷𝑙𝑖] / ∑ 𝐷𝑙𝑖 𝑛 𝑖=1 𝑛 𝑖=1 ∗ 1/365] 2 . The result will be rounded to the nearest year,capped at ten years and floored at three years.
8.Participants shall compute the bond yields using the arithmetic mean of all the daily yields of the 3,4,5,6,7,8,9 and 10-year government bonds of the previous calendar month for their respective currencies. Those yields shall be reported to the Secretariat no later than five days after the end of each month and shall be made publicly available on a monthly basis.
9.Participants may use linear interpolation in order to achieve the necessary yields as long as it is within the interpolation region of 2-year government bonds up to and including 15-year government bonds. Extrapolation to a lower or higher bond yield shall not be allowed.
10.In the event where the data for one or more of the necessary government bonds could not be obtained (according to Articles 8 and 9), there will be no CIRR in that currency for transactions requiring such maturities (Article 7 refers) unless the missing data concerns shorter maturities and data for higher maturities (up to 10 years) has been provided. In such event, the yields of the nearest higher government bond shall be used to compute the base rates requiring such shorter maturities.
II.ESTABLISHMENT OF THE MARGIN
11.The margin shall be calculated on a quarterly basis (respectively on 15 January, 15 April, 15 July and 15 October of each year) according to the five-year swap spread yields (difference between the five-year government bond rate and the five-year swap rate).
12.The margin shall be computed using the following formula: 0.5 * (three-month average of daily five-year swap spread yields) + 80 basis points. The result shall be rounded to the nearest basis point and capped at a maximum of 120 basis points and floored at a minimum of 80 basis points.
13.The three-month average of the daily five-year swap spreads to be used shall be obtained by calculating the arithmetic mean of the daily five-year swap spread of the last three calendar months in the relevant currencies. They shall be reported to the Secretariat no later than five days after the end of each quarter.
14.In the event where the five-year swap spread is not available in the market for a given currency, the margin shall be set at 100 bps.
15.The resulting margins shall be made publicly available at the beginning of each quarter.
SECTION 2:APPLICATION OF THE CIRR
16.Where official financing support is provided for floating rate loans, banks and other financing institutions shall not be allowed to offer the option of the lower of either the CIRR (at time of the original contract) or the short-term market rate throughout the life of the loan.
I.VALIDITY PERIOD OF CIRR
17.A CIRR may be locked in before, at, or after the Date of Financial Contract (DFC).
18.In the case where a CIRR is locked in and held prior to DFC, the Holding Period shall not exceed 12 consecutive months 3 , the length of the Holding Period shall be decided at the latest at the Date of Quote (DoQ), and an additional spread shall be added to the applicable CIRR according to the table below.
|
Holding period (in months) |
Cost of holding period |
|
1 m hold |
20 bps |
|
2 m hold |
20 bps |
|
3 m hold |
20 bps |
|
4 m hold |
20 bps |
|
5 m hold |
20 bps |
|
6 m hold |
20 bps |
|
7 m hold |
23 bps |
|
8 m hold |
26 bps |
|
9 m hold |
30 bps |
|
10 m hold |
34 bps |
|
11 m hold |
39 bps |
|
12 m hold |
44 bps |
19.If the Holding Period lapses prior to the DFC, the CIRR rate may be reset immediately or at a later time and held for a new Holding Period. If the signature of the commercial contract (SCC) has occurred prior to the reset, the reset rate shall not be lower than the latest previously locked-in rate. There is no limit to the number of times a CIRR may be reset.
20.Any change in the Interest Accrual Period prior to or at DFC shall trigger a recalculation of the CIRR base rate. Such recalculation shall be based on the new Interest Accrual Period using the base rates in effect at the initial DoQ; it shall not be considered as a reset or a cancellation of the CIRR rate.
II.COMMITMENT FEE
21.A commitment fee shall be charged for direct credits. If the CIRR was locked in prior to or at DFC, the commitment fee shall be charged immediately following DFC. If the CIRR was locked in after DFC, then it shall be charged immediately following DoQ.
22.Participants shall charge a commitment fee at or above commercial market practices provided that such information is available.
III.VOLUNTARY CANCELLATION AND VOLUNTARY PREPAYMEN
23.If a CIRR rate is voluntarily cancelled, any subsequent CIRR rate that is quoted for the same transaction and the same exporter shall be no lower than the latest previously quoted CIRR.
24.Prior to DFC, there is no cost for cancelling a CIRR rate or switching to a floating rate.
25.Once the DFC has occurred and irrespective of when the CIRR was set, in the event of voluntary cancellation or voluntary prepayment of a loan or any portion thereof, the borrower shall compensate the government institution providing official support for all costs and losses incurred as a result of such early prepayment or voluntary cancellation. This includes the costs to the government institution of replacing the part of the expected fixed rate cash inflow interrupted by the early prepayment or voluntary cancellation.
SECTION 3:REVIEW AND TRANSITIONAL AGREEMENTS
26.The provisions set out in this Annex shall come into force two years after the date of agreement of the reform for transactions committed from that date onwards.
27.The Participants shall undertake a comprehensive review of the CIRR provisions detailed in this annex at the latest four years after the date of agreement of the reform.
II.ADDITIONS TO ANNEX xv (LIST OF DEFINITIONS)
·Date of Financial Contract (DFC): the date at which all parties to the Financial Contract are bound, taking into account any entailing legal obligations.
·Date of Quote (DoQ): the date at which a CIRR is locked-in.
·Holding Period: the period starting at DoQ and ending at DFC.
·Interest Accrual Period: the period during which interest accrues (i.e., from first disbursement until the last repayment of principal: drawdown period + repayment period).
III.MODIFICATION OF ARTICLE 20 UPON ENTRY INTO FORCE OF THE REFORM
20.CONSTRUCTION AND APPLICATION OF CIRRs
(a)The CIRR for official financing support provided under the Arrangement and all of its Annexes other than the Sector Understanding on Export Credits for Ships Civil Aircraft (Annex III) is determined and applied according to the provisions of Annex XVI.
(b)The CIRR for official financing support provided under the Arrangement and all of its Annexes, other than the Sector Understanding on Export Credits for Ships (Annex I) and the Sector Understanding on Export Credits for Civil Aircraft (Annex III), is determined and applied according to the provisions of Annex XVII.