The Legislative Review of Export Development...

December 2008

The Legislative Review of Export Development Canada

World Exchange Plaza 100 Queen Street, Suite 1350. Ottawa. Ontario. K1P 1J9. Canadatel: 1.613.742.7829 fax: 1.613.742.7099 www.i-financialconsulting.com [email protected]

Focus:

Our Approach

The Changing International Trade Scene

Export Credit Agencies

Other Countries’ Relevant Institutions

Short-Term Business

Medium/Long-Term Business

Domestic Financing

Governance

Civil Society

Other Issues

Recommendations

Mandate and Regulation Changes

The Legislative Review of Export Development CanadaSubmitted to: Minister of International Trade

December 2008

International Financial Consulting Ltd.

iTable of Contents

Table of Contents

Executive Summary vii

1. Introduction 1

2. Our Approach 3

2.1 Introduction 32.2 Raising Awareness of the Review 42.3 Optimizing Stakeholder Engagement 5

3. The Changing International Trade Scene 7

3.1 Introduction 73.2 What Constitutes an Export? 83.3 Financing and Risk Management Needs 93.4 How the Business of Exporting is Evolving 93.5 Exporting is Less Predictable and More Complex 103.6 Looking Ahead 103.7 The Dynamics of Fragmegration and What This Means for Exporters and Their Needs 123.8 The Impact on Canadian Firms 123.9 Recent Financial Market Instability 133.10 Conclusions 13


ii Table of Contents

4. Export Credit Agencies 15

4.1 Introduction 154.2 Recent Events and Changes 16

5. Other Countries’ Relevant Institutions 19

5.1 Introduction 195.2 Japan 205.3 Germany 215.4 Czech Republic 215.5 United States 215.6 Other Countries 215.7 Concluding Observations 22

6. Short Term Business 23

6.1 Background 236.2 Some Relevant Statistics 246.3 The 1998 Review 246.4 Does EDC Operate Only in a “Market Gap”? 256.5 Public Policy Considerations 256.6 Competition and “Unfair” Competition 266.7 Difficult Times: Large Limits and Staying on Cover 296.8 Should EDC have an “Exit Strategy”? 306.9 Should EDC Set-Up a Subsidiary to Handle Short Term Business? 316.10 Is EDC Making Losses on its Short Term Business? 316.11 Operating as Insurer of Last Resort 336.12 Small and Medium Sized Enterprises 346.13 Increasing Total Capacity: Co-operation between EDC and Private Insurers 356.14 Conclusions: Should EDC Withdraw From or Significantly Reduce its ST Activities? 366.15 Summary of Recommendations 39

7. Medium and Long Term Business 41

7.1 Background 417.2 MLT Facilities 427.3 Recent Developments 437.4 EDC’s Objectives 437.5 Higher Risk Business 457.6 Non-OECD Countries 487.7 Summary of Recommendations 49

8. Domestic Financing 51

8.1 Introduction 518.2 Commercial Market Considerations 52


iiiTable of Contents

8.3 Public Sector Financing Support 528.4 Business Development Bank of Canada 538.5 Public Policy Considerations 538.6 EDC’s Position on Domestic Financing 548.7 Overlaps Between EDC and BDC 558.8 Conclusions 558.9 Summary of Recommendations 59

9. Governance 61

9.1 Introduction 619.2 EDC’s Governance Environment 619.3 Legislative Instruments 639.4 External Factors 659.5 Governance Activities 659.6 Evaluation of EDC’s Governance 689.7 Conclusions 699.8 Summary of Recommendations 70

10. Civil Society 73

10.1 Developments Since the Last Review 7310.2 Current Civil Society Concerns 7410.3 Conclusions 7410.4 Summary of Recommendations 76

11. Other Issues 77

11.1 Introduction 7711.2 Offices Overseas 7711.3 Taxation 7911.4 Government Guarantees 7911.5 Portfolio Management 7911.6 Canada Account 8011.7 Summary of Recommendations 81

12. Recommendations 83

12.1 Recommendations Relating to ST Credit Insurance 8312.2 Recommendations Relating to Medium and Long Term Business 8412.3 Recommendations Relating to Domestic Financing 8412.4 Recommendations Relating to Governance 8512.5 Recommendations Relating to Civil Society 8612.6 Recommendations Relating to Other Issues 86


iv Table of Contents

13. Mandate and Regulation Changes 87

Annexes

Annex A: Review Team 88Annex B: ED Act and Regulations 90Annex C: Statement of Work — Scope of the Review 110Annex D: Communication and Engagement Strategy 113Annex E: Bibliography 122Annex F: Summaries of Town Hall Meetings 127Annex G: Town Hall Meeting Participants 134Annex H: List of Stakeholders Consulted 138Annex I: List of Written Submissions 142Annex J: List of Berne Union Members 143Annex K: List of Prague Club Members 150Annex L: Locations of Current EDC Overseas Representative Offices 154

List of Figures

Figure 1: Phases of the Legislative Review 3Figure 2: Characteristics of an Export 8Figure 3: Segmentation of Production 11Figure 4: Further Segmentation of Production 11Figure 5: EDC’s Governance Environment 62

List of Tables

Table 1: Breakdown of Claims and Expenses Ratio 33Table 2: New MLT Official Export Credit Volumes 48


v

Glossary

Glossary

AIG American International Group Inc.

Arrangement See Consensus

BDC Business Development Bank of Canada

Berne Union International Union of Credit & Investment Insurers

CAP Capital Adequacy Policy

CBA Canadian Bankers Association

CCC Canadian Commercial Corporation

CEAA Canadian Environmental Assessment Act

CEB Czech Export Bank

CIDA Canadian International Development Agency

Consensus OECD agreement on terms of medium & long term export credit

CRA Canada Revenue Agency

DFAIT Foreign Affairs & International Trade Canada

DFI Development Finance Institution

DOF Department of Finance Canada

ECA Export Credit Agency

ECGC Export Credit Guarantee Corporation (Indian ECA)

ECGD Export Credit Guarantee Department (UK ECA)

EFIC Export Finance & Insurance Corporation (Australian ECA)

EGAP Export Guarantee and Insurance Corporation (Czech ECA)

EXIM Bank Export-Import Bank

FAA Financial Administration Act

GAAP Generally Accepted Accounting Principles

GDP Gross Domestic Product

ICT Information and Communications Technology

IFRS International Financial Reporting Standards

IT Information Technology

JBIC Japan Bank for International Co-operation

KfW-IPEX KfW IPEX-Bank GmbH (German export & project finance bank)

KfW-DEG German development finance institution


vi Glossary

MLT Medium & Long Term (credit or loans L/T maturities over 2 years)

NEXI Nippon Export and Investment Insurance (Japanese ECA)

NGO Non-government organization

OAG Office of the Auditor General of Canada

OECD Organisation for Economic Co-operation and Development

OPIC Overseas Private Investment Corporation

OSFI Office of the Superintendent of Financial Institutions Canada

Prague Club An association of credit and investment insurers not yet eligible to join the Berne Union

SBA Small Business Administration (US)

SCFAIT Standing Committee on Foreign Affairs & International Trade

Sinosure Chinese ECA

SME Small & Medium Size Enterprise or Exporter

SRC Strategic Risk Capital

ST Short Term (Credit less then 2 years)

TBS Treasury Board Secretariat

US EXIM Export-Import Bank of the United States

WTO World Trade Organization

viiExecutive Summary


Executive Summary


In considering the global and competitive landscape, both since the time of the last review and looking forward, one could almost say that nothing has changed yet everything has changed. Businesses have the same basic goals that they have always had: stay in business, overcome competition, increase revenues, and minimize costs. What is changing — rapidly so in some cases — is the complexity and predictability of the environment in which businesses pursue their goals.

Increasingly, businesses activities can be located anywhere in the world. The rise of emerging economies like India, China, and Brazil creates new competitors, but also offers ready and able sources of highly-skilled workers. All of this change has fundamental and far-reaching implications for how global commerce is conducted today.

Despite this rapid evolution, much of the recent popular talk of a totally “borderless world” still appears to be more theoretical than real. Countries are still defined by national boundaries; imports and exports still have to flow across these boundaries; and the nature and magnitude of these flows still are important to national governments.

That said, the world of exporting has changed considerably, including the types of goods and services being exported, the kinds of entities involved in export transactions, and the financial and risk management services being more routinely provided. In short, exporting activity has become less predictable and more complex.

A decade ago, this change was noticeable, as firms explored the emerging possibilities of doing business in a more integrated, globalized world. Today’s exporting environment is marked by the ever-increasing granularity of production processes leading to the final export transaction. The kinds of flows of intermediate


viii Executive Summary

goods and services into or out of various companies, and the frequency with which these flows can occur, are growing day by day, as exporters grow more intricately linked into global supply chains. More and more, a firm’s commercial success is driven by its ability to tap into or to construct these international networks. And as production processes and exporting activities continue to evolve, so to do the associated financing and risk management needs.

In some cases, entities requiring support may be only indirectly or tangentially related to a particular export transaction. But even though parts of the chain may become remote from the original export activity, each part of the chain must succeed in obtaining support in order for the original export (and all other exports in the chain) to be realized. For Canadian exporters, this is giving rise to financing and risk management needs that are driven as much by the dynamics of the supply chains they find themselves involved in as by the specifics of a particular export transaction.


Most exporting countries now have export credit agencies (ECAs); however, the ECAs are very different in a number of important ways. Some ECAs do only credit insurance, some do only political risk insurance and some do both. Some only do insurance and some do both insurance and various kinds of financing. Their status, size, scale of business, and organization are very different in that some are government departments, some are government companies or corporations, and some are private companies who write part of their business on government account.

Against this background, it is very dangerous to generalize about the ECAs — there is, put simply, no such thing as a typical ECA. Further, there is danger in trying to copy others or follow fashion. The most successful ECAs have been — and still are — those whose facilities and status/structure most precisely and cost effectively meet the changing and, often, particular needs of their exporters and, importantly, of their banks and financing institutions.

In this regard, there can be no doubt that Export Development Canada (EDC) is increasingly different from most ECAs. In some ways it is in a category of one. EDC does a number of things that most other ECAs do not, such as being able to invest in overseas companies and projects and invest in domestic exporters. This is not to say that other countries do not concern themselves with these activities; however, government support in these areas is provided via institutions or programs separate from ECAs.

Short Term Business

There can be no doubt that EDC operates outside any “market gap”, however defined, in the ST export credit insurance area, given the extent of overlap with the private insurers and the fact that EDC still has a very substantial market share. In addition, there can be no doubt that EDC actively competes with private insurers for export credit insurance business. However, this is not to say that, in either case, EDC is in any sense operating outside its mandate or acting in an “improper” way or contrary to Government policy.

It was put to the Review Team by private insurers and some others that competition between EDC and private insurers is inherently unfair. Various reasons were put forward in support of this view, including the fact that EDC pays no taxes, has less demanding shareholders, and is not required to report information to the same extent as the private insurers.


ixExecutive Summary

Nevertheless, we find it difficult to accept, at least at face value, the point put to us by some of the private insurers that, if EDC were to withdraw from its role as a direct insurer in the ST area, there would then be more competition. The short-term credit insurance market is dominated by three global players — “the Big 3”. These Big 3 global insurers already operate in Canada and are increasing their market share, while EDC’s share is reducing. And, importantly, the whole market is growing.

There can be little doubt that, if EDC were to withdraw from the ST area or significantly reduce its activities, then this would be good for the private insurers. What is a good deal less clear is whether such a development would be good for Canadian exporters or for Canadian taxpayers. While it is clear that competition is taking place, we believe such competition benefits Canadian companies and contributes to overall market capacity, so long as EDC does not compete in any kind of predatory way.

It has been suggested that EDC should have an “exit strategy” for ST business, which appears to mean that conditions should be set down under which EDC should either withdraw as a direct insurer from the ST credit insurance market or significantly reduce its activities. On balance, we are not persuaded by this suggestion, not least since it appears to presuppose that decisions have already been taken about EDC’s continuation in the ST market and/or that at some stage EDC should withdraw from the market (at least in its present role). There appears to be little benefit to anyone in setting out theoretical and impractical scenarios for EDC to withdraw from market. Indeed, postulating such a scenario risks producing an unattractive situation of uncertainty and concern for exporters, false expectations for private insurers, and the belief that decisions have been taken when they have not, with a resulting loss of motivation and morale for EDC staff.

We also received a suggestion that EDC set up a subsidiary company to handle its ST credit insurance business. This would be a complicated and expensive step and the benefits of doing so remain unclear to us, certainly at this stage and in the immediate future. As such, no steps like this should be taken until the objectives of doing so had been carefully clarified and analyzed in detail.

As well, there is an assumption, especially amongst the private insurers, that EDC’s activities in the ST area are producing deficits. Some speculation and assumptions are inevitable due both to the sensitivity of this area and to the fact that EDC does not publish any figures on the financial results of its ST business.

We were given some broad figures from EDC showing that over a run of years their ST scheme did not operate at a loss. Nevertheless, we believe that the absence of more detailed information in this area is not helpful to anyone.

A point which was made to us with some frequency was that EDC should become the insurer of “last resort” in the ST area. If EDC were to operate only in the “last resort” area, it would likely have a poor spread of risk and significant concentration of risk. It would also likely have a low and irregular premium income which would make it difficult to keep any kind of infrastructure in place to assess and monitor risks and to provide any kind of quality service to exporters. Those ECAs that have moved towards a “last resort” role have experienced just these kind of problems. Thus, for this and the other reasons mentioned, any proposals for such moves for EDC should be treated with great caution.

One area of some consensus among stakeholders is that an important objective should be to increase the overall capacity available in Canada’s ST market. One way of trying to achieve this is by co-operation between EDC and private insurers. The joint insurance policy between EDC and Coface embracing both


x Executive Summary

domestic and export risks is a significant example of such partnering. We believe it would be useful for both EDC and the private insurers actively to look for new and additional ways of co-operating, recognizing that the most successful co-operative arrangements are likely to be those which offer mutual benefits. Examples of co-operation should be monitored with a view to reporting on the actual business done, and in particular any extra capacity actually generated for the benefit of Canadian companies.

In sum, while we acknowledge that private insurers would like a bigger share of the market, we are not persuaded that EDC’s withdrawal from the market would either lead to more competition or to better service and improved products for exporters. And this is surely the key test.

Medium and Long Term Business

EDC told us that, since the last review they have made significant efforts to produce a guarantee facility which is both more attractive to the banks and is also structured so as to make it directly comparable with the guarantee facilities available to banks from other ECAs. However, some banks still expressed concern to us over the terms of EDC’s guarantees and EDC’s policy towards guarantees. The banks also saw EDC as having a clear preference to lend directly and, for this and other reasons, they tended to regard EDC as a competitor.

In our view, EDC, should have two objectives in the area of MLT financing. First, to meet the full range of needs of Canadian MLT exporters and to provide world class and internationally competitive facilities, operated with flexibility and expertise. Second, to act so as to maximize the financing capacity available to Canadian MLT exporters, especially by co-operating with other financing institutions.

Generally, no one we met suggested that EDC was in any sense failing to meet the first objective. The second objective is more difficult.

In our view, it is in no one’s interest — especially Canadian exporters — for the banks to see EDC as a competitor in the MLT area or for them to use such capacity as they have available on cases involving exports from other countries and in partnerships with other ECAs, rather than for Canadian exports and in partnership with EDC. However, our discussions with both the banks and EDC suggested that there are likely to be no easy or quick solutions.

Finally, numerous exporters stressed to us the need for EDC to be able to undertake higher risk business and for EDC not to apply only the same kind of credit standards and requirements as the banks. In looking at this area, it should be stressed that it would not be sensible or desirable for EDC to become involved in business producing unduly hazardous or irrational risks.

Domestic Financing

We considered whether EDC should provide domestic financing and, if so, in what circumstances. Currently, the Regulations pertaining to the Export Development Act (ED Act) stipulate that EDC may enter into a domestic financing transaction only with the approval of both the Minister of International Trade and the Minister of Finance. This is a challenging matter, in that it involves many dimensions, ranging from private sector capacity to public sector policy, which need to be taken into account and reconciled.


xiExecutive Summary

The commercial banks, not surprisingly, have strong views in this area. While they acknowledge EDC’s existing activities in support of catalyzing financing capacity for smaller Canadian exporters, they express concern about EDC expanding into areas that could overlap with the banks’ existing markets and clients.

In considering this area, attention must also be paid to the Business Development Bank of Canada (BDC), given that EDC and BDC serve customers in areas which can overlap. DFAIT confirmed to us that any competition between Crown Corporations was contrary to Government policy. In addition, such overlap, duplication, and uncertainty is not helpful to SMEs.

In EDC’s view the existing Regulations create two main problems. First, regardless of the likelihood that exports will arise from EDC’s support, unless an actual export contract is in place at the time of EDC’s support then the deal is considered a domestic transaction and thus subject to the Regulations. Second, the process for seeking Ministerial approval lacks clarity, predictability, and timeliness. As a result, EDC reports that most potential domestic transactions are never brought forward to the Government for approval.

There appears to be a legitimate case for reviewing EDC’s ability to provide support for domestic financing transactions. However, the Review Team believes that any EDC activity in this area should be restricted to filling gaps and to complementing the activities of private and public sector financing entities, such as the banks and BDC. The objective should clearly and explicitly be to increase and to enhance the capacity of the banks and other financial institutions and not to compete with them.

Governance

Broadly speaking, EDC’s governance framework is influenced in two ways. First, and most directly, by certain legislative instruments, principally Acts of Parliament — such as the Financial Administration Act and the ED Act — and the regulations relating thereto. Second, and less directly, by a host of external influences in Canada and abroad.

The legislative instruments and external influences give rise to an array of attributes which, taken as a whole, build a picture of EDC governance environment. These attributes comprise at least seven types of mechanisms or activities: appointments, planning, target setting, reporting, oversight, compliance and audit.

The Corporate Plan plays a central role in terms of EDC’s operations and governance. Similarly, performance targets play an important role across EDC’s operations, not only as regards the implementation and monitoring of strategies and priorities, but also in the context of remuneration.

We specifically asked both DFAIT and Department of Finance if they were satisfied with the extent and manner in which EDC met its governance responsibilities towards them. They both confirmed that they were satisfied.

One question which did arise during the consultations is the possibility of Government officials serving — again — on the EDC Board. We have carefully considered this issue.

On a related note, concern was expressed to us about the amount of information available to Government officials. It is perfectly understandable that officials in DFAIT and the Department of Finance may require more, and more detailed, information than may be available in the public arena. It would also seem


xii Executive Summary

sensible that this should be provided on a regular basis and in a structured way which reflects commercial confidentiality.

Finally, we considered the matter of whether, given the importance of EDC’s activities and the substantial financial implications which are involved, DFAIT’s oversight posts should be filled by rotational staff. This is an important issue for governance and oversight to work effectively.

Civil Society

During the current Review process, relatively few civil society organizations have expressed concerns or issues. Indeed, certain civil society organizations have recognized and commended EDC’s efforts to date in responding to civil society concerns and giving consideration to corporate social responsibility and human rights principles in its operational policies and business practices. However, certain organizations have argued that more could still be done in the areas of disclosure and accountability, protecting human rights, and environmental and social standards.

By common consent, EDC has done much in recent years to address key areas of concern to civil society. It would probably be fair to say that EDC has done more and gone further than any other ECAs. The Corporation appears to be an informed and engaged party in relation to civil society developments both within the Canadian Government and internationally.

We would in principle agree with the view that EDC, as a public institution and entity of the Canadian Government, shares in Canada’s international human rights and other civil society obligations. However, this does not mean that EDC should be asked to define Canada’s obligations in this area; this is a matter of concern to the Government itself within the context of overall domestic and foreign public policy.

Other Issues

A number of other issues arose during our work.

On the matter of EDC offices overseas, EDC representatives are currently located in Canadian diplomatic missions. For a variety of reasons, this may not always be the optimum or most practical arrangement, and some flexibility in this area seems desirable.

As well, the fact that EDC is not subject to either Federal or Provincial tax was raised with us on a number of occasions.

Another possibility raised with us was that EDC should somehow pay the Government for the use of its guarantee.

EDC made the point that their portfolio management activities are governed under certain Sections of the ED Act and that, while the language of these provisions is sufficiently broad to cover the type of activities which EDC would use so as prudently to manage risks, the use of these powers is tied to EDC’s mandate. EDC feels that this linkage can be problematic as many of their portfolio management activities are not directly linked to new financing transactions and may apply to a range of existing exposure.


xiiiExecutive Summary

A somewhat similar point arose in connection with the restructuring and debt work-out activities which EDC may be called upon to carry out in the management of Canada Account transactions, and in particular the clarity on EDC’s authority in this regard.


The ED Act and the EDC mandate contained in this Act have stood the test of time very well, in spite of many significant changes in the international trading world in which EDC operates. The problems discussed in our Report, and summarized above, most importantly relate to the Regulations rather than to the ED Act itself.

In light of recommendations made, only minor changes to the ED Act would be involved.


1Introduction

Introduction

This report has been prepared by International Financial Consulting Ltd. in connection with the 2008 Legislative Review of Export Development Canada (EDC). The Minister of International Trade has a statutory obligation to conduct periodic legislative reviews of the provisions and operations of the Export Development Act (ED Act), EDC’s governing legislation.1 As such, the objective of this Legislative Review is to assess how EDC is evolving, and should continue to evolve in the future, to address the competitive dynamics and demands of international trade on behalf of its stakeholders, and to make recommendations where appropriate, including possible changes to the ED Act.

International Financial Consulting Ltd. (hereinafter referred to as the “Review Team”) has been engaged by the Minister of International Trade to prepare this report, which aims to inform the Minister’s assessment of the mandate, future direction and public policy issues related to EDC and, thereby, forms a key part of the 2008 Legislative Review process. The composition and qualifications of the Review Team are outlined in Annex A.

The Legislative Review is structured along four main themes, as follows:

The changing global and competitive environment;•

Canadian business needs: ensuring EDC’s ability to meet them;•

Canadian private-sector financial capacity for trade and risk management: is there a role for EDC to •play to increase this capacity? and

EDC’s place within government.•

1 The ED Act and Regulations relating thereto are presented in Annex B. Section 25 of the ED Act provides that “five years after the coming into force of this Section and every ten years thereafter, the Minister shall cause a review of the provisions and operation of this Act to be undertaken in consultation with the Minister of Finance”. The last such legislative review was conducted in 1998.


2 Introduction

Further details regarding the objective, background, and scope of the Review are provided in Annex C. In conducting its activities and preparing this report, the Review Team has been guided by the above main themes and the defined scope of the Review.

The report comprises the following chapters and annexes:

Chapter 2 discusses the Review Team’s approach and activities in connection with this report, including •stakeholder engagement activities.

Chapters 3 to 5 address the international context within which EDC’s role and mandate is •appropriately considered, including the changing international trade scene, the evolving role of export credit agencies, and other means by which countries support international business activity.

Chapters 6 to 11 review the business areas in which EDC operates, and the public policy considerations •relating thereto, including short term business; medium and long term business; domestic financing; governance; EDC offices overseas; civil society; and other issues.

Chapter 12 summarizes the recommendations presented throughout the report and Chapter 13 •considers potential changes to EDC’s mandate and regulations arising from the recommendations.

A report of this scope and magnitude could not have been successfully completed without the participation, support, and engagement of many parties. The Review Team would like to acknowledge in particular the support provided by officials at Department of Foreign Affairs and International Trade (DFAIT), especially Paul Thoppil, Martin Jensen, Alexandra Dostal and Leigh Wolfrom. We are also grateful for the support from Department of Finance’s International Finance Division, namely Peter Cameron, Lise Carrière, Stephanie Burnett-Landry and Jennifer Purves. We would like to recognize EDC’s engagement throughout our project activities, responding to information requests in a timely and professional manner. Finally, we would like to express our gratitude to the many stakeholders — companies, organizations, departments, agencies, and individuals — that have contributed to and participated in the Review Team’s activities.


3Our Approach

Our Approach

2.1 Introduction

The Legislative Review comprises four phases, as shown in Figure 1 below. The Review Team’s activities, including this report, cover Phases 1 to 3 of the Review. Following receipt and review of this report, the Minister of International Trade will submit a report on the Review to Parliament.

Figure 1: Phases of the Legislative Review

PHASE 2:

Stakeholder Consultations

Receive and analyze views of stakeholders and interested parties on the four themes of the Review

PHASE 1:

Background Research and Awareness Raising

Background information review and stakeholder awareness activities

PHASE 3:

Analysis of Key Findings and Recommendations

Prepare and present a final report for delivery to the Minister

PHASE 4:

Minister’s Report on the Review

Minister will submit a report on the Review to Parliament

Four Phases of the Review


4 Our Approach

2.2 Raising Awareness of the Review

In conducting its activities in connection with this report, an overriding objective of the Review Team was to ensure the broadest possible awareness of the Legislative Review and to provide a wide range of channels and mechanisms by which interested stakeholders could provide their input.

EDC’s stakeholders are many and varied. Some carry responsibility for EDC within government; some rely on EDC’s products and services as a customer, or represent those who do (i.e., associations); some offer financial and risk mitigation services in support of Canadian businesses operating internationally; some operate as partners with, or in competition to, EDC; some represent the interests of civil society.

In seeking to optimize stakeholder interest and engagement, three core objectives underpinned the Review Team’s orientation, and served as core principles throughout its activities. First, that stakeholders found the Review Team to be easily accessible and highly responsive. Second, that stakeholders had both knowledge of the Review process and equal access to the Review Team. Third, that stakeholders found the context and scope of the Review fully and consistently explained and the input processes clear and efficient. The Review Team’s full Communication and Engagement Strategy adopted is presented in Annex D.

During Phase 1, the Review conducted several activities to identify stakeholders and raise awareness, including:2

1. Bilingual public information notices were prepared and distributed in a wide spectrum of print and online communication sources operated by both government and private sector organizations. The notices highlighted the objectives of the Review, how stakeholders could participate, and where they could source additional detailed information. The Review was given a particularly high profile in key communications channels of DFAIT such as CanadExport and www.InfoExport.gc.ca.

2. The Review Team communicated with each of DFAIT’s Regional Offices across the country, obtaining their support in distributing information notices and otherwise maximizing awareness of the Review among their private sector contacts and those of their provincial or regional “trade team” partners.

3. The Review Team communicated directly with all the major horizontal industry associations and all of the sectoral industry associations registered with DFAIT.

4. The Review Team met with a number of government-industry groups to promote the Review.

5. A dedicated website (www.edcreview2008.ca) was established, and served as a primary source of information for all stakeholders. Between February and July 2008, the website recorded 165,454 hits, 15,554 visits, and 3,459 downloads. The website provided: background information on the Review; the schedule of Town Hall events; Town Hall meeting reports and attendee lists; and submissions presented for public consumption. The website also enabled stakeholders to indicate their interest in speaking or meeting with a member of the Review Team, register their attendance at a Town Hall meeting, and upload written submissions.

2 Also during Phase 1, the Review Team researched and reviewed various documents, reports, studies, and other publicly-accessible information relevant to the four themes of the Review. A listing of this material is provided in Annex E.


5Our Approach

6. Publicity about the Review and links to the official Review website were also included on several other websites, such as EDC, DFAIT, and Agri-Food and Agriculture Canada.

7. Dates and locations for Town Hall meetings were advertised in newspapers in each of the host cities. Shortly in advance of each Town Hall meeting, the Review Team also obtained the support of local government trade officials, chambers of commerce and other relevant business groups to generate publicity for the event and the Review process generally.

2.3 Optimizing Stakeholder Engagement

Multiple channels were established for stakeholders to access and engage with the Review Team during Phase 2. The main stakeholder consultation mechanisms are described below.

1. Public Town Hall Meetings: Town Hall meetings were one of the main consultation mechanisms employed by the Review Team, providing stakeholders with an opportunity to express their views publicly. During May and June 2008, these meetings were held in Toronto, Vancouver, Calgary, Winnipeg, Montréal, Kanata, Halifax, and Ottawa. In all, these meetings attracted some 125 stakeholders. Annex F presents the Town Hall Reports and Annex G is the corresponding lists of attendees.

2. Face-to-face Meetings and Telephone Interviews: The Review Team responded to all requests for meetings within 48 hours. As the Review Team traveled to the various Town Hall events across the country, ample time was set aside for private consultations with stakeholders in the cities visited. Annex H lists the individual meetings conducted by the Review Team in person or via telephone.

3. Video Presentations of Town Hall Meetings: The Toronto and Montréal Town Hall meetings were recorded and posted to the review website in both official languages. This enabled those unable to attend a Town Hall event, including stakeholders in remote or isolated regions of Canada, to view the issues raised and subsequently to present their own views. At the date of this Report, 80 registered visitors had viewed the Toronto video, and another 91 had viewed the Montréal video.

4. Internet Submissions: The website offered stakeholders the ability to transmit their submissions to the Review Team. The Review Team received numerous written submissions via the dedicated website. Others were submitted to the Review Team by fax and mail. Stakeholders were given the opportunity to make their submissions public by means of a link to their own website from the official Review website. A list of submissions received is provided in Annex I.

In addition to the above mechanisms, stakeholders were able to provide input to the Review by means of email, fax, or regular mail. Further, the Review Team established a toll-free phone number to facilitate contact with the Review Team.

The number and variety of awareness raising and stakeholder engagement channels resulted in a strong level of interest and participation throughout Phase 2, including from across Canada and internationally. The high quality and broad range of submissions — both written and verbal — received by the Review Team were crucial to the completion of this report and to the successful outcome of the Review process.


7The Changing International Trade Scene


3.1 Introduction

In considering the global and competitive landscape, both since the time of the last review and looking forward, one could almost say that nothing has changed yet everything has changed.

Businesses have the same basic goals that they have always had: stay in business, overcome competition, increase revenues, and minimize costs. They strive to achieve these goals by creating products and services that people want to buy, and then finding willing customers. They do all this either on their own or with partners that have complementary capabilities.

What is changing — rapidly so in some cases — is the complexity and predictability of the environment in which businesses pursue their goals. Increasingly, businesses activities — especially service-type activities — can be located anywhere in the world. The cost and speed of information and communication technologies enable businesses to conduct activities in new and nimble ways by disaggregating the production process into a greater number of discrete parts and through outsourcing more of these parts of the production process to lower cost centres. The rise of emerging economies like India, China, and Brazil creates new competitors, but also offers ready and able sources of highly-skilled workers.

All of this change has fundamental and far-reaching implications for how global commerce is conducted today. Firms that can take advantage of this evolving business environment can gain ground on their competitors by being able to increase productivity, grow their operations faster, and mitigate market risks. By extension, this also impacts how businesses think and act in the areas of trade and investment. These implications will be further considered below.


8 The Changing International Trade Scene

3.2 What Constitutes an Export?

One point needs to be made clear: despite the rapid evolution described above, much of the recent popular talk of a totally “borderless world” still appears to be more theoretical than real. Countries are still defined by national boundaries; imports and exports (as well as inward and outward direct investment) still have to flow across these boundaries; and the nature and magnitude of these flows still are important to the concerns of national governments. As such, consideration needs to be given to the matter of what constitutes an export and whether this notion has changed recently, or is expected to change in the coming years.

Figure 2 below presents the characteristics of an export. Any export comprises at least three elements: a seller of a good or service, a buyer of the good or service, and a national boundary across which the good or service passes. An export can be a final export or an intermediate export. In the case of a final export, the seller (in Country B below) provides a good or service to the buyer and end user (shown in Country C below) and receives a corresponding payment. In the case of an intermediate export, the seller in Country A provides a good or services to a buyer in Country B (the intermediate export), which in turn provides a good or service to a buyer and end user in Country C (the final export).

Figure 2: Characteristics of an Export

A growing number of export transactions involve intermediate exports of goods and services, and so it is important to understand the various dynamics at play in these transactions. For instance, the intermediate export may be between two separate entities, or it may be between two parts of the same (i.e., transnational) entity. Some exporting firms may be primarily or exclusively intermediate exporters, some may be primarily or exclusively final exporters, and some may engage in both intermediate and final exporting activities. In some cases, the country at the start of the intermediate export chain may be the same country at the end of the chain. For instance, Canada exports aircraft components to the U.S. which are incorporated into aircraft, some of which may be sold back into Canada.

Characteristics of an Export

Intermediate Export Final Export

National Border National Border

Seller

Country A Country B Country C

Buyer/Seller BuyerPAYMENT

GOOD/SERVICE

PAYMENT

GOOD/SERVICE



3.3 Financing and Risk Management Needs

Just as export transactions have changed, so too have the financing and risk management requirements for exports. The changes will depend on various factors, such as the size and strength of the seller and buyer, the risks inherent in the selling and buying countries, the nature of the good or service being exported, the terms of sale, and a range of other considerations.

The need for insurance and bonding services, such as credit insurance, performance bonds, and political risk insurance, tends to arise among sellers of goods or services. Requirements for financing and investment, such as medium/long-term debt and private equity, can arise equally among sellers and buyers of goods and services. In some cases, a seller may require financing or equity in order to expand its capacity to enter into larger supply chains. The provision of all of these financial services may occur several times along a supply chain, and they may be provided by the same or different parties.

3.4 How the Business of Exporting is Evolving

Compared to a decade ago, the world of exporting has changed considerably, including the types of goods and services being exported, the kinds of entities involved in export transactions, and the financial and risk management services being more routinely provided. These all will be considered in later chapters within the context of the Review. Suffice to say here that since the time of the last Review, exporting activity has become less predictable and more complex. Two areas which are particularly instructive in this regard are the role of SMEs and the rise of emerging economies.

A decade ago, SMEs had gained profile as an important and recognized contributor to the export performance of most countries. However, their typical role in the exporting environment was fairly consistent. They generally resided in one location, began exporting as an adjunct to domestic sales, and supplied goods or services either to larger home country exporters or directly to end buyers or projects in other countries. Their financial and risk management needs largely occurred in the same sequence and focused on working capital and insuring accounts receivable; occasionally, other needs might arise, such as vendor financing to end buyers.

By comparison, today’s SMEs are more dynamic and flexible. While a SME may reside in one country, its virtual capacity may extend far beyond its national borders. Many SMEs still act as sub-suppliers to larger firms, but many others seek out larger (domestic or offshore) firms to sub-supply to them. It is not unusual for SMEs to find their first sales offshore, returning to their home market once they have established a track record abroad. Many are just as likely to have relatively complex financing and investment needs as insurance needs. The nature and timing of working capital needs are therefore more complicated. For SMEs involved in advanced technologies (such as ICT and clean-tech), their own capacity to export products and services may depend on their success initially in importing technical know-how from another country.

Similarly, the role played by emerging economies has become more textured and complex. A decade ago, emerging market economies in regions such as the Pacific Rim, Central & Eastern Europe, and Latin America were viewed by Western firms primarily as major destinations for export sales. Despite the negative effects of various economic crises, significant commercial opportunities abounded in these markets, owing to privatization, deregulation, and infrastructure development initiatives.



Today, many of these same markets have thriving economies and modern infrastructure, such as ports, highways, and telecom networks. As a result, countries in these regions are not only consuming goods and services, but also producing them for export in direct competition with Western firms. Their government’s financial resources are robust, and most have established state-owned enterprises to promote trade and investment activities. At the same time, their well educated, well trained, and low cost workforces — combined with their transportation and communication infrastructure — provide attractive alternatives for Western firms to outsource various activities ranging from software engineering and design, to customer support centres, to tax and accounting services.

3.5 Exporting is Less Predictable and More Complex

What does all this mean for the changing nature of exporting? As noted earlier, exporting is becoming less predictable and more complex. This is not a sudden change, but a steady progression. A decade ago, this change was noticeable, as firms explored the emerging possibilities of doing business in a more integrated, globalized world. As shown in Figure 3, more and more exporting firms began segmenting their production processes by building their own or tapping into others’ international supply chains.

This may have involved some aspects of outsourcing, importing, or exporting intermediate goods and services, either to external parties or to foreign affiliates, all with the ultimate aim of delivering a final good or service to a buyer in another country. Financing and risk management needs were likewise growing in complexity; however, the nature and scope of these needs were relatively transparent, straightforward, and finite.

Today’s exporting environment is marked by the ever-increasing granularity of production processes leading to the final export transaction, as shown in Figure 4. The kinds of flows of intermediate goods and services into or out of various companies, and the frequency with which these flows can occur, are growing day by day.

The Development of Global Production Chains

Offshoring & Outsourcing

National Border

Country A Country B

BuyerPAYMENT

GOOD/SERVICE

Figure 3: Segmentation of Production



Most exporters are now intricately linked into global supply chains from which they import or to which they export intermediate goods and services. Counterparties for intermediate exports and imports may include foreign affiliates, sub-suppliers, outsourcing partners, original equipment manufacturers, and many others. More and more, a firm’s commercial success is driven by its ability to tap into or to construct these international networks, which are becoming commonly known by such terms as “global value chains” and “integrative trade”. As production processes and exporting activities continue to evolve, so to do the financing and risk management needs.

3.6 Looking Ahead

The complexity and variety of export activity will no doubt continue to grow, as firms continue to adapt creatively to new challenges and new ways of doing things, and to changes in relative costs and prices. In many ways, this development is a natural evolution of the traditional notion of comparative advantage or international specialization.

In the next few years higher energy prices and transport costs are likely to compel firms to seek new production, distribution, and information efficiencies which have the effect of reducing fuel consumption. This could include establishing production facilities nearer to end buyers, or upgrading ICT capabilities in order to reduce travel costs.

Two other likely factors are the continued growth in the competitive strength of emerging economies and the growing involvement of more and more developing and low-production-cost countries. This will give rise to more intense export competition not only from these countries directly, but also among OECD countries themselves as each strives to keep pace internationally. In addressing this challenge, firms and countries will need to maintain strong trade and investment support networks both at home and abroad.

The Development of Global Production Chains

Offshoring & Outsourcing

National Border

Country A Country B

BuyerPAYMENT

GOOD/SERVICE

Figure 4: Further Segmentation of Production



3.7 The Dynamics of Fragmegration and What This Means for Exporters and Their Needs

There is a growing tension between globalization and the need for more localization to address the expected challenges in international trade in the future. Professor James Rosenau described this tension as “fragmegration”, which he explains “has the virtue of capturing the pervasive interactions between the fragmenting forces of localization and the integrative forces of globalization.”3

It is clear that firms are actively participating and seeking to participate in others’ supply chains as well as setting up or operating their own international networks. These networks embrace a wide variety of intermediate goods and services which may cross several borders (or the same border several times) before a final good or service is sold to an end buyer.

As a result, the notion of “Made in Canada” is becoming harder to quantify and define. The more relevant concept is “Made by” or indeed “Designed by”. Such distinctions are not inconsequential in considering the financial, risk management, and other needs of exporters and related parties. These needs inevitably arise in more countries than simply the home country; indeed, they are likely to arise throughout the global supply chain, from initial export to ultimate end sale. This could include any of the investment, financing, and risk management services described earlier. It may also entail market or other information needed to make good commercial decisions.

In some cases, entities requiring support may be only indirectly or tangentially related to a particular export transaction. Further, the final sale may have limited national content from the original exporter. The important point to consider is that although parts of the chain may become remote from the original export activity, each part of the chain must succeed in obtaining investment, financing, risk management, and information in order for the original export (and all other exports in the chain) to be realized. Put another way, a company may not be able to operate effectively as part of a supply chain unless it is actively involved in the other parts of the chain.

3.8 The Impact on Canadian Firms

It is undeniable that international trade and investment play a crucial role in sustaining Canadian prosperity. Thus, one would expect that Canadian exporters are very much involved in the global supply chains and related developments in global commerce described above. It is worth noting that some of the recent literature on Canadian trade — from both public and private sector sources — increasingly recognizes and acknowledges these trends. Moreover, much of the input from stakeholders consulted during the Review process confirms this.

The exporting activities of Canadian firms are evolving rapidly, and this is giving rise to financing and risk management needs that are driven as much by the dynamics of the supply chains they find themselves involved in as by the specifics of a particular export transaction.

3 Distant Proximities: Dynamics beyond Globalization, James N. Rosenau.



An important question is whether any market gaps exist, and what is EDC’s position in relation to any such gaps. We did not find any significant market gaps but there are a number of developing and potential gaps. An example of a potential gap is financing for domestic transactions that cannot be linked directly or indirectly to one specific export transaction, but that would help give rise to exports over time as part of a broader international supply chain. Another is the need for Canadian firms to establish a presence and, perhaps, a sales operation in another country, the equity and financing requirements of doing this, and the risk management requirements in relation to sales made from the operation. Obviously, all needs everywhere cannot be met by EDC or any single financial institution (public or private), so the key in this area — as in other areas — is the need for complementary and catalyzing activities so as to generate new or incremental financing and risk management capacity.

3.9 Recent Financial Market Instability

It is still not clear what the impact of the recent developments in financial markets will be in a number of contexts. Banks in a growing number of countries have been affected — some severely — and an inevitable consequence will be shortages of credit and finance. This comes at the same time as increases in prices for food and energy and raw materials, with many countries experiencing escalating levels of inflation. Business confidence and general economic activity are likely to stall and, in some instances, to fall. The situation would be made worse if a protracted recession were to be experienced in the USA. Few of these difficulties are likely to be very short term in duration.

Against this background, some ECAs would expect to experience increased demand for their facilities. However, whether this results in firm business would depend on the extent to which the levels of international trade move. This, in turn, is likely to vary between sectors and countries. But there would be a more immediate and significant impact on large projects and big capital goods contracts which could be cancelled or postponed for reasons which go wider than short term shortages of finance from equity or banks or capital markets. In addition, as mentioned in Chapter 6, to the extent that actual and potential insolvencies increase, then private insurers would face growing claims and losses which could lead them to underwrite new business in a more cautious way. In addition, the ECAs, in reacting to the developments discussed in Chapters 3.5–3.7, have put more focus on multisourcing, e.g. support for local costs and foreign goods, as well as local currency finance.

These are very important issues for Canadian exporters and for EDC. While it is too early draw any firm conclusions or to make any definite predictions, these issues have been taken into account in this Report and, especially, in its Recommendations.

3.10 Conclusions

As will be clear from later parts of this Report, stakeholder consultations have revealed no substantial gaps at present but some developing gaps that need to be examined. To a significant degree, this Review is about anticipating new gaps which may arise rather than “back-filling” gaps that exist today or existed yesterday. In this regard, careful consideration needs to be given to the rapidity of change in the exporting environment. A key challenge here is to ensure a system in Canada that is flexible enough to address relevant exporter needs as they arise, including needs which at this stage cannot be identified.



In other words, a system which only meets the needs of today, or even tomorrow, is not sufficient. The system needs to be flexible enough to permit solutions to deal successfully with the unexpected problems and challenges which will inevitably arise over the next few years.


15Export Credit Agencies


4.1 Introduction

Most exporting countries now have Export Credit Agencies (ECAs). This is true both of OECD countries and a growing list of emerging markets.

However, as shown in Annexes J – Berne Union and K – Prague Club, the ECAs are very different in a number of important ways. Some ECAs do only credit insurance, some do only political risk insurance and some do both. Some only do insurance and some do both insurance and various kinds of financing. Their status, size, scale of business, and organization are very different in that some are Government departments (as in the UK), some are government companies or corporations (as in Canada, Japan, and the US), and some are private companies who write part of their business on the “state account” on behalf of the Government (as in Germany and France).4

Against this background, it is very dangerous to generalize about the ECAs — there is, put simply, no such thing as a typical ECA.

One other general point is important and that is the danger of trying to copy others or follow fashion. The most successful ECAs have been — and still are — those whose facilities and status/structure most precisely and cost effectively meet the changing and, often, particular needs of their exporters and, importantly, of their banks and financing institutions.

4 This is called either the “state account” or the “government account”. Transactions which are deemed to be “in the national interest” are taken directly on the Governments own balance sheet and thus the Government bears the financial risk and consequences. In Canada, it is covered under Section 23 of the ED Act.


16 Export Credit Agencies

Expensive and (usually) avoidable mistakes have been made in the past by one country seeking to copy the ECA arrangements which are working successfully in another country. It is helpful to look at what goes on in other countries and whether there are any lessons to be learned but, sometimes, the key lesson in this kind of comparison is what not to do.

There is nothing necessarily wrong for arrangements in one country to differ from those in other countries, even in most other countries. And there can be no doubt that EDC is increasingly different from most ECAs. In some ways it is in a category of one. This reflects not only the developing range of its insurance and financing facilities but also its activities in relation to finding markets and potential buyers, as well as its equity capabilities and domestic financing, all in addition to the public policy-driven work it does.

EDC is, in short, a good deal more than a conventional ECA (as more fully discussed in the next Chapter). EDC is often regarded by other ECAs as a market leader or trail blazer. One important example of this is the evolving redefinition of “national content” and the consequent need for updating and flexibility brought about by the supply chain developments discussed in Chapter 3. Another is EDC’s continuing environmental leadership, as evidenced by its recent adoption of the Equator Principles — becoming only the second ECA to do so.

4.2 Recent Events and Changes

The ECA world has changed very significantly in the last decade or so and few ECAs have not been affected. However, the changes have been different and have often been caused by different factors. For example, the short term business of the ECAs within the European Union (EU) have been significantly impacted by changes in EU law and regulations as regards State Aids and Competition, leading to two categories of risk being defined (marketable risks which ECAs are, in general, not allowed to underwrite and non-marketable risks where ECAs are allowed to operate). It is important to note that these kinds of rules and categories have no force or relevance to countries outside the EU.

Thus, once again, it is very dangerous to generalize about changes or to assume that changes in one country or group of countries need or must be followed or copied by another country where the situation might be quite different. In the context of this review, and more generally, it is important to separate fact from myth and to be cautious about sweeping and often inaccurate generalizations. For example, the Review Team was told on a number of occasions during its work that: (i) most OECD ECAs have privatized their short term operations; and (ii) no OECD ECA now had any role in short term business other than, possibly as a contingent reinsurer. In fact, neither of these assertions is true.

Only three ECAs have privatized part of their operations, namely in the UK, Denmark, and Australia. In the UK, and to some extent Denmark, the key driver was not politics but the fact that the EU regulations referred to above would have removed most of the ECA’s short term business and left only an inherently unviable rump of activities. In Australia, the short term business was simply too small to generate the premium income required to put in place the IT and other systems necessary to provide Australian exporters with world class products and internationally competitive service. Neither of these situations applies in Canada.


17Export Credit Agencies

However, it is a fact that in most OECD countries, governments have reduced, often significantly, the ECA activities in short term business. This has been driven partly by changes in EU rules mentioned earlier and partly by significant developments in the private market.

These significant developments have to some extent arisen because credit insurance has always been a labour intensive class of business. However, IT developments have opened up the possibility of more effectively and economically collecting and manipulating huge flows of information and speeding up some of the underwriting processes. But these developments are expensive both to set in place and to keep up to date. In addition, globalization has meant that many of the biggest companies now operate in a range of countries and many want simplified and centralized credit insurance (embracing both domestic and export activities), a product which most ECAs found difficult if not impossible to deliver due to restrictions on the minimum extent of “national content”.

Thus, several concurrent factors are at play in this market. One is the need for enormous IT expenditures, and the largest possible volume of business generating sufficient premium income to pay for it. Another is the preference for “one stop shops” by the biggest and most desirable customers to cover the widest range of risks within and out of the large number of countries in which they operate. A third is the decision of some governments to reduce their ECAs’ short term activities. This combination of factors has led to the present position where the short term market worldwide is now dominated by three large European owned multi-national groups, the so-called “Big 3”, being Euler Hermes, Atradius, and Coface.

It is estimated that these three companies together account for around 85% of global short term premium income. Individually, their scale of operation is illustrated by the fact that Euler Hermes is estimated to have a 36% share of global premium income and to hold information on 40 million buyers worldwide, Atradius is estimated to have a 31% share of global premium income and to hold information on 52 million buyers, and Coface is estimated to have a 19% share of global premium income and to hold information on 50 million buyers. The Big 3 operate in and out of a growing list of countries and, in addition, each operates one “Government Account” scheme (Euler Hermes for Germany, Atradius for the Netherlands, and Coface for France). They are all very good at what they do and offer a growing list of products and associated services such as the sale of credit information on buyers world-wide and debt collection.

The ECAs in the UK, Australia, and Denmark now have little or no involvement, direct or indirect, in short term business (with this business being handled entirely by private insurers, including the business of SMEs), and most EU ECAs have significantly withdrawn from the short term arena. However, it should be noted that in two EU countries (Italy & Belgium) the ECAs have re-entered the short term area through wholly owned subsidiary companies; in fact, these companies recently combined to buy the majority share in the “privatization” of the Czech ECA’s short term business. In addition, in France and Germany some short term business is still done on Government Account (e.g., in 2007 Euler Hermes did $15.73 billion worth of short term business on Government Account).5 In Japan, the bulk of short term business is still done by the ECA (NEXI).

Thus, while there can be no doubt that the activities of private insurers have grown very significantly in the ST area in the last 10 years and that many governments have reduced the ST activities of their ECAs, not all ECAs in OECD countries have totally withdrawn. Indeed, only a few ECAs have taken this step and some are still doing large amounts of ST business (e.g., in Japan and Germany).

5 All references to $ are Canadian dollars unless otherwise indicated.


18 Export Credit Agencies

One further point should be made in the context of ST business. As discussed in Chapter 3, the changing international trading world is witnessing the growing importance of competition to OECD exporters from exporters in emerging markets like China and India. In these countries (as in most emerging markets) the ECA still handles ST business. In China, for example, ST business insured in 2007 was US$30.1 billion and premium income on the business was US$201 million. This is a fact which should not be ignored when considering any changes to EDC’s mandate.

ECAs in all countries are faced with companies that have multi-faceted — and often multi-locational — needs as regards risk management, financing, and equity. One should not expect that any given ECA, EDC included, will be able to meet all of the needs of all exporting or investing entities all the time. Thus it is vital for ECAs to complement and enhance what is being done by others (e.g. banks, private insurers, venture capital funds, etc.) so as to increase risk and financing capacity available to exporting companies. How, in detail, this is best achieved will vary from country to country, often very significantly.


19Other Countries’ Relevant Institutions

Other Countries’ Relevant Institutions

5.1 Introduction

Although EDC is Canada’s official ECA, arguably EDC is more than just an ECA. EDC does a number of things that most other ECAs do not, such as being able to invest in overseas companies and projects and invest in domestic exporters. This is not to say that other countries do not concern themselves with these activities; however, government support in these areas is provided via institutions or programs separate from ECAs.

For instance, development finance institutions (DFIs) are generally government-owned financial institutions which focus on private sector development in emerging markets. Many of these institutions are linked to their countries’ overseas development aid agencies, providing financial instruments in support of (or at least in alignment with) aid objectives. DFIs provide loans, guarantees, and equity to projects and local companies, typically filling a market gap but with a requirement to be financially self-sustaining. Their main objective and role is to facilitate private sector development within these markets. Of note, many DFI facilities are not explicitly tied to, or contingent on, national exports.

Similarly, certain countries operate SME development banks and programs, which focus on the needs of small business, providing some combination of loans, guarantees, insurance, advisory services, and equity capital. In many cases, the criteria for support relates to the size of the company or the transaction, rather than to whether or not the company is an exporter, prospective exporter, or simply a domestic company.

Thus, EDC has some features, characteristics, and programs which in most other countries are housed in institutions other than ECAs. This Chapter helps place EDC’s activities in context internationally, by reviewing some of the relevant institutions in other countries, and considering how certain other countries organize their export credit systems.


20 Other Countries’ Relevant Institutions

Different countries have reacted in different ways to the developments discussed in Chapter 3 of this Report, i.e. the globalization of supply chains and outsourcing etc. depending on their institutional structure. For most countries, the ECAs are separate from the DFIs and SME development banks, and their market focus is different and so the risk of overlap is reduced.

In most countries, ECAs do not typically assume direct exporter risks (i.e. domestic risk) except where they provide working capital facilities or bonding facilities in respect of export transactions. Their focus is on buyer and/or political risk in their buyers’ countries, or in countries of investment. SME development banks do assume risks on domestic companies — regardless of whether these are exporters or not — and support is not tied to a particular transaction, but rather these institutions are more involved in general corporate finance to SMEs. DFIs focus on overseas investment and development, normally regardless of the involvement of national firms.

With respect to the changing international trade scene as discussed in Chapter 3, the various ECAs, SME development banks, and DFIs in different countries have addressed exporter and investor needs in different ways. However, some general observations are instructive in the context of what Canada and its comparable institutions are doing.

For the most part, these countries are characterized by individual government-owned entities supporting fairly discrete elements of international supply chain activities. As such, government policy and direction can be precribed and targeted to particular changing market dynamics as they arise. An example is the recent announcement by the French government that it will provide greater state-backed credit insurance capacity via a reinsurer, Caisse Centrale de Réassurance, in order to help French companies affected by global market conditions.

Canada’s situation is different. It does not have a DFI , and both its ECA and SME development bank are active in various elements of the international supply chain.

5.2 Japan

Japan operates not one, but two ECAs — Japan Bank for International Co-operation ( JBIC) which lends, and Nippon Export and Investment Insurance (NEXI) which insures. For MLT transactions, JBIC will typically co-finance with commercial banks on a 60%–40% basis. NEXI will insure the commercial banks’ portion; this has the effect of facilitating commercial bank participation in virtually every transaction.

However, JBIC does more than export finance. It acts as Japan’s DFI, providing untied loans in support of private sector development; it also provides “balance of payments” loans to foreign governments.

Of particular note is the Japanese government’s recent decision to merge four public financial institutions into a single entity, with the aim of creating greater efficiency and better access to the capital markets for funding. As a result, JBIC will be merged with a SME bank and various other types of financial institutions. Nevertheless, JBIC will retain its distinct identity within the new mega-institution, and continues to report to the Ministry of Finance.

NEXI, the insurance ECA, remains a separate agency under the Ministry of Economics, Trade and Industry. As noted in Chapter 4, NEXI continues to be very active in the ST credit insurance field.


21Other Countries’ Relevant Institutions

5.3 Germany

Germany’s KfW Bankengruppe (KfW) is a multi-line development bank with a number of active branches or subsidiaries engaged in activities as varied as housing finance, SME development, export and project finance (KfW-IPEX) and development finance (KfW-DEG). KfW was established via the Marshall Plan in the late 1940s with an original mandate to assist in the reconstruction of Germany.

Recently, KfW-IPEX was spun off into a commercial stand-alone subsidiary. As a requirement of the European Commission, KfW-IPEX no longer enjoys the explicit guarantee of the Republic of Germany, and its debt obligations are rated by credit rating agencies solely on the merits of the institution itself. It must operate on a fully commercial basis, as any other commercial financial institution.

Euler-Hermes, as noted earlier, is one of the Big 3 in ST credit insurance, but it also has an arrangement with the German government to operate the “state account” for short term business. This arrangement is provided alongside that of PricewaterhouseCoopers AG (PWC) which runs the state account’s overseas investment insurance facility. Of note, KfW-IPEX can access the state account facilities just as any other commercial bank.

5.4 Czech Republic

In the Czech Republic, Czech Export Bank (CEB), like KfW-IPEX, can receive guarantees from the state’s insurance ECA, the Export Guarantee and Insurance Corporation (EGAP). It is noteworthy that CEB is bound by the state’s Bank Act, which also governs all commercial banks in the country, and is subject to the same banking supervision as the commercial banks. EGAP, for its part, is supervised under the state’s insurance regulations.

5.5 United States

The US government’s arrangements for the provision of public financial institutions are different yet again. The official ECA is US EXIMBANK, while Overseas Private Investment Corporation (OPIC) is the DFI, providing loans, guarantees, and insurance in support of development finance. OPIC also sponsors and helps capitalize private equity investment funds in developing and emerging markets. Unlike most ECAs, US-EXIM does not provide investment insurance, since this is done by OPIC.

Working closely with US-EXIM in support of small business is the Small Business Administration (SBA) which provides working capital guarantees to exporters.

5.6 Other Countries

Several developments are worth noting in non-OECD countries.


22 Other Countries’ Relevant Institutions

India, for example, operates an EXIM bank (Export-Import Bank of India) and an ECA (Export Credit Guarantee Corporation of India), both owned by the government. Of particular note is the range and sophistication of product offerings by these institutions. The EXIM bank offers ST and MLT export credits, as well as overseas investment finance, equity, concessional lines of credit, working capital finance, consultancy services, and deposit-taking. Meanwhile, the ECA provides guarantees and insurance for a range of export activities and risks, including buyer credit, shipment, services exports, software exports, overseas investment, construction works, supply contracts, and lines of credit.

China also operates two trade-related institutions, China EXIMBANK and Sinosure (the ECA). Sinosure can insure China EXIMBANK. What is remarkable in this case is the recent growth in ECA-related activity in support of Chinese export activity. Between 2005 and 2007, Sinosure’s total business insured nearly doubled, from US$21.2 billion to US$39.6 billion. Of this, its total ST business volume grew from US$17.0 billion to $30.1 billion.

5.7 Concluding Observations

While virtually all OECD countries have some combination of specialist institutions focusing on various activities such as development finance and export finance and export credit insurance, none of these countries — nor China or India for that matter — has all of these capabilities under one roof.

During the course of the Review Team’s work, one stakeholder made the point that Canada needs a stand-alone DFI. In this regard, it should be noted that EDC has operated for some time a so-called “pull strategy”, by lending to projects on market terms where there is no up-front or pre-identified Canadian export contract. This activity is somewhat akin to the funding activities of a DFI, which provides untied facilities. However, EDC’s approach differs from a DFI in that its objective is to influence procurement once the loan is made (i.e., to encourage the buyer to consider Canadian supply by introducing the buyer to what Canada has to offer). In addition to providing loans in this way, EDC uses its equity program to invest in overseas companies and funds, thus encouraging them to find Canadian partners and suppliers.

By providing this DFI-like funding support alongside its other export credit and insurance activities, EDC arguably achieves economies of scale, and the Government avoids potential overlaps. There also appears to be synergistic benefits of having overseas equity powers within the ECA. These advantages, and the follow on benefits for Canadian firms, could be diminished if there was a stand-alone DFI providing these services.

We do not see a strong case for limiting or otherwise changing any DFI-like services that EDC is providing. Whether or not Canada needs a DFI is beyond the scope of our work, but experience in other countries suggests that there can be unhelpful competition and overlap if two insitutions exist (e.g. in countries where there are separate ECAs and EXIM Banks), especially if there are “grey areas” between their activities and responsibilities.


23Short Term Business

Short Term Business

6.1 Background

Short Term export credit insurance applies to exports of goods and services sold on up to two years’ credit. However, the bulk of exports are sold on rather shorter credit terms. Indeed, the common estimate is that more than 90% of world exports are sold for cash or on credit of up to 180 days.

Short Term (ST) export credit insurance normally covers a range of commercial and political risks which prevent the buyer from paying. Risks can often be insured both in the period before shipment (i.e. from date of contract to date of shipment/dispatch or acceptance by the buyer) and in the period after shipment (i.e. from date of shipment/dispatch to the due payment date(s)), although the latter is more common. Policies were originally issued only to exporters but can now be issued to banks and to financing institutions such as factors.

The traditional insurance required exporters to insure all of their business (so called whole turnover or comprehensive insurance policies) but this was rarely applied rigidly, provided that insurers obtained what they saw as an acceptable spread of risks from the business offered for insurance. Today, many insurers offer a range of flexible policies with the objective of trying both to meet the varying needs of exporters and to keep the administration work (and so the costs) as low as practicable for both insurer and insureds.

EDC currently offers a wide range of ST facilities and products to exporters and financial institutions. This now includes single buyer policies. Special low administration products are available for SMEs and they are supported by specially trained and experienced staff often located close to the insured companies. EDC also offers SMEs and other exporters a flexible package of products and facilities including finance and bonding of varying kinds. This range of products is being extended to try to help with product development and market entry challenges and costs.


24 Short Term Business

6.2 Some Relevant Statistics

In considering the dynamics of the ST market for credit insurance, it is helpful to place the market in the context of Canada’s trade environment as well as EDC’s recent market activity.

Canada exports over one third of its Gross Domestic Product (GDP). Total trade represents approximately 70% of GDP, making Canada the second most trade-intensive country in the G8. It is estimated that 96% of Canada’s exporters are SMEs.6

In 2007, EDC had 5,800 ST policy holders, and insured ST exports reached $51 billion (out of EDC’s total business volume of $77 billion). Of this amount, $8.3 billion of ST insured business was in respect of exports to emerging markets, representing 40% of EDC’s total emerging markets business. SMEs accounted for 85% of EDC’s ST policyholders and 55% were small exporters. Over 50% of its ST policyholders in 2007 paid less than $5,000 in annual premium.

The total credit insurance market in Canada (export and domestic credit insurance) is estimated to have grown significantly in the last 10 years (i.e., since the time of the last legislative review). EDC’s market share is reported to have fallen from just under 70% to around 50% in this period. However, EDC’s share of the ST export credit insurance market is higher; one estimate puts EDC’s share at 85% in 2005, falling to 79% in 2006 and, probably, to a slightly lower level in 2007.

6.3 The 1998 Review

During the last legislative review, the review team recommended that EDC should “develop a partnership arrangement with private sector actors in Canada to offer a single credit insurance policy with a view to developing the market, creating private sector capacity and ultimately exiting the short term credit insurance market in Canada”. The 1998 review team’s report was later considered by the Standing Committee on Foreign Affairs and International Trade (SCFAIT). Recommendation 13 of the subsequent SCFAIT Report said, “The Committee is not persuaded that the Canadian economy would be better served if EDC were to withdraw from the field of domestic credit insurance”.

The later government response to the SCFAIT Report said, “The government agrees with this [SCFAIT] recommendation. EDC’s participation in domestic credit insurance has helped to develop the domestic market whilst providing considerable convenience to exporters. A very recent co-operative venture arranged by EDC with a private sector insurer will change EDC’s role in this market”.

Thus the last review and the recommendations in the context of ST credit insurance concentrated on domestic credit insurance. So did the subsequent SCFAIT Report and the government’s response to this. As is noted later, EDC has now withdrawn from domestic credit insurance and has a cooperative arrangement with Coface to offer what is, in effect, a “one stop shop” insurance policy covering both domestic credit insurance and export credit insurance. Approximately 30% of EDC’s ST policyholders currently have these joint EDC/Coface policies covering both export and domestic business.

6 Compete to Win. Competition Policy Review Panel, Final Report — June 2008.



6.4 Does EDC Operate Only in a “Market Gap”?

There can be no doubt that EDC operates outside any “market gap”, however defined, in the ST area, given the extent of overlap with the private insurers and the fact that EDC still has a very substantial share (perhaps 75% plus) of the export credit insurance market. In other words, in no sense could 75% plus of the ST export credit market be regarded as a market gap.

In addition, there can be no doubt that EDC actively competes with private insurers for export credit insurance business. However, this is not to say that, in either case, EDC is in any sense operating outside its mandate or acting in an “improper” way or contrary to Government policy.

6.5 Public Policy Considerations

No clear or detailed lines or boundaries appear to exist which delineate EDC’s “public policy” activities either by type of facilities or product, by individual cases (except in the context of Canada Account), or by volume/value.7 This is partly due to the emphasis on self sustainability and a commercial approach which seems to extend across all of EDC’s activities. But it also reflects the fact that the infrastructure which EDC has in place (e.g., in relation to SMEs) enables it to deliver products and services at a lower cost and at a higher quality because delivery costs are spread over a number of products than simply ST credit insurance. In part, this is a reflection of the multifaceted — or multi-product — relationship which EDC has with so many of its customers.

Against this background, it has not proved possible to identify in any kind of detail (or to cost with any precision) specific activities or cases which EDC carries out as public policy and which it would not carry out in the normal run of its business. As is suggested below, this is not necessarily a disadvantage or a problem and it is not a criticism of EDC.

There can be no doubt that EDC now operates over a greater range and offers a wider range of products than any other ECA. As indicated in Chapter 5, there can also be no doubt that EDC now provides some facilities which in most other countries might be carried out by other institutions and/or which would be the subject of budgetary allocation or direct funding by the government. Using its existing systems and networks, and utilizing the very impressive range of skills of its staff and their strong commercial and self sustaining approach, EDC carries out a range of activities without seeking any budgetary allocation on direct government funding. This is both unusual and very valuable, not least from the point of view of the Government.

We feel that this is another reason for being rather cautious about taking any steps deliberately to curtail or unravel EDC’s business, especially in the area of ST credit insurance.

In terms of the impact of these kinds of considerations on EDC’s activities in the ST area, EDC told the Review Team that its total costs for ST business had been included in its overall expenses/administration ratio numbers and that no separate or incremental figures were available which specifically related or were specifically attributable to public policy activities.

7 In the context of this Report, we refer to “public policy” as those activites and facilities which EDC would not necessarily undertake were it not a Crown Corporation.



Since it is important that the concept of Public Policy is neither exaggerated or discounted, the areas in which it might reasonably be suggested that EDC’s activities are directly influenced by public policy considerations could include the following:

(a) The extent of EDC’s ST facilities for SMEs many of which produce very small amounts of premium for EDC (see Chapter 6.12);

(b) Providing ST cover in difficult times, e.g. large limits and staying on cover (see Chapter 6.7);

(c) Giving export advice and technical assistance to companies via EDC’s offices in Canada and in other countries;

(d) Advertisements and training about credit insurance which benefit both Canadian exporters, brokers and private sector insurers (see Chapter 6.6);

(e) Assistance with Trade Fairs and Trade Missions;

(f ) Acceptance of greater concentration of risk and “unusual” credit terms to enable Canadian companies to match ECA-supported credit terms being offered by foreign competitors.

6.6 Competition and “Unfair” Competition

It was put to the Review Team by private insurers and some others that competition between EDC and private insurers is inherently unfair. Various reasons were put forward in support of this view.

Some suggested that the basic status of EDC as a Crown Corporation meant that any and all competition between it and private insurers could never be fair. Part of the same argument was that governments should never become involved in any activity or area where the private sector was operating or could operate or, if governments did have some operation, it must only be in the most limited, indirect, or contingent way.

Others noted that EDC paid no premium tax or other provincial or federal taxes and was not subject to provincial or federal “licensing” or to regulation requirements which applied to private insurers. Some also noted that EDC’s connection to government led to referrals. In addition, it was suggested to us that EDC had less demanding shareholders than private sector companies. Also, that EDC’s ST operations lacked “clarity” and that EDC was not required to report or publish information in the same way or to anything like the same extent as the private insurers with which it competed.

Finally, it was argued that EDC’s ST insurance facilities were regarded more favourably by banks (e.g. as regards being security for financing provided to exporters) than the parallel facilities of private insurers, in view of EDC’s “ownership” by the Canadian Government and what was seen by the banks as an implicit guarantee from the Canadian Government.

The Review Team was not presented with any evidence to suggest that EDC was operating in the ST area in breach of the wishes or policy of the Government. However, it may be useful to comment on some of the other points.



In recent years, EDC has paid a number of dividends to the Government ($350M in 2007 and $250M in 2008). In addition, as noted later, EDC has raised no charges to the Government for its “public policy” activities. Both of these points seem relevant and important in the context of the arguments put forward about EDC paying tax and having less demanding shareholders.

If indeed EDC benefits from government referrals which the private insurers do not, then this suggests that private insurers need to do more to raise awareness with relevant government officials, and does not necessarily imply that EDC enjoys any inherent advantages.

The attitude and practice of some banks and their alleged difference in treatment of EDC ST insurance and facilities from private insurers is not a question for EDC but, rather, something to be discussed between the private insurers (all of the Big 3 carry strong credit ratings) and the banks. The suggestion made to the Review Team by one of the banks that they were required by OSFI to act in a particular way due to Basel II considerations seems to be doubtful given the degree of discretion which OSFI grants to banks. Indeed, another bank told the Review Team that they treat all credit insurance policies in the same way. The private insurers could perhaps usefully pursue this point both with individual banks and with OSFI.

Transparency is a more difficult question. The absence of any published financial details of the profit-and-loss for EDC’s ST business inevitably gives rise to speculation and assumption, much of which may be false, without foundation and, generally, not helpful to anyone. It is not clear to the Review Team why EDC should not report publicly in some way and to the same extent as the private insurers with which it competes.

The Review Team finds it difficult to accept, at least at face value, the point put to it by some of the private insurers that, if EDC were to withdraw from its role as a direct insurer in the ST area, there would then be more competition. Not only is EDC the largest player, but there is already overlap and competition.

The Big 3 players already operate in Canada and are increasing their market share, while EDC’s share is reducing. Moreover, the whole market is growing. Other private insurers now operate in Canada including another global player (but with a slightly different product) offering competing facilities, namely AIG, and recently another player has begun to operate, Executive Risk.

There can be little doubt that, if EDC were to withdraw from the ST area or significantly reduce its activities, then this would be good for the private insurers. What is a good deal less clear is whether such a development would be good for Canadian exporters or for Canadian taxpayers (e.g., if EDC were relegated to being a “last resort insurer” and was to make losses, thus requiring budgetary contributions either to meet such deficits or to fund some of EDC’s public policy activities).

The Review Team also found it difficult to accept arguments to the effect that EDC’s activities in the ST area were preventing or inhibiting its operations both in the MLT area and in providing assistance of various kinds to SMEs. EDC seems to have the resources fully and effectively to operate in the MLT area and a strong counter argument can be raised to the effect that EDC is better able to advise and assist SMEs with finance and expertise in a variety of contexts because it has a credit insurance relationship with them.

However, there is another aspect to the issue of competition reflecting the nature of the insurers with which EDC is competing. The Big 3 in the credit insurance world (as noted earlier, Euler Hermes, Atradius and Coface) are very large, powerful, and efficient companies whose ST business world-wide dwarfs EDC’s ST business. They dominate the credit insurance world with an estimated combined share of 85% of total ST



credit insurance premium. They operate in and out of a growing list of countries, both OECD and emerging markets. They hold status records and credit information on huge numbers of buyers worldwide. Their very large premium income worldwide (i.e., Euler Hermes US$2.7 billion, Atradius US$2.6 billion, Coface US$1.6 billion) enables them to put in place huge and sophisticated global IT systems and platforms.

This, in turn, permits them to develop and introduce an ever widening range of very good products and to deliver them with world class service to their very significant number of customers worldwide (Euler Hermes 56,000 customers, Atradius 41,300 and Coface 125,000). Their presence in a large and growing list of countries (Euler Hermes 53 countries, Atradius 40 and Coface 62 direct and 92 including via partners) enables them to provide direct and on-the-spot expertise and assistance of varying kinds. They have tried and tested policy wordings and documentation. They offer an increasing range of related products such as credit information, factoring and debt collection. They are all highly rated (i.e. Euler Hermes is rated AA- by Standard & Poors, Atradius is A, and Coface AA-).

Their financial muscle and the sheer volume of their worldwide business gives them a strong position with reinsurers which means that they have substantial capacity both generally and for total exposure on individual buyers. All enjoy justifiably high reputations world wide. They can offer a wider range of facilities than EDC in terms of being able to offer domestic and export credit insurance in and out of a very large numbers of countries. Their huge IT systems should also often permit them to offer quicker answers than EDC on some credit limits for individual buyers.

They are, in short, very good at what they do and it is very much to the benefit of companies in Canada that they operate and compete in Canada.

Another point of relevance in the context of competition is that there seems to be some consensus — including amongst brokers — on two important issues.8 First, that EDC’s premium rates are normally higher than those of the private insurers, although in some cases for large exporters EDC is alleged to have offered lower rates than the private insurers. Second, that in the lower premium rate era of the last couple of years, it has not been EDC that has been a leader in any premium reductions. Having said that, EDC is operating in a competitive area and so it would be misleading to assume that in each and every case the EDC premium rate will be — and will remain — the highest one in the market.

Importantly, there is general agreement that a key objective for everyone should be to increase the total capacity available to Canadian companies. In this regard, it is also important to note that Canadian exporters switching from one insurer to another insurer does not increase total or overall capacity in the market. This is true for all insurers, including EDC.

Another relevant point is that EDC’s involvement in a substantial way in the ST export credit insurance market both creates a wider awareness of credit insurance amongst Canadian companies and also helps to “educate the market” (i.e., brokers, exporters and banks). This benefits all ST credit insurers and not just EDC.

In the context of competition specifically, it is important not to overlook the valuable roles which credit insurance brokers can play in the ST area, especially in providing specialist advice to exporters and in enabling them to access professional expertise and independent analysis and comment. Thus, it is vital that nothing is done to impede the development of a professional, expert network of brokers throughout the country.

8 The Review Team met with a range of brokers that deal with both private insurers, as well as EDC.



In summary, it is clear that competition is taking place. Indeed, given the overlap between EDC and the private insurers, competition is inevitable. However, the Review Team believes such competition benefits Canadian companies and contributes to overall market capacity, so long as EDC does not compete in any kind of predatory way.

Whether or not competition is predatory will not be an easy question to decide in specific cases and such judgment will need expertise and experience. We have confirmed with the Competition Bureau that EDC is not exempt from the Competition Act and so it is always open to private insurers to approach the Competition Bureau if they feel that in any particular case EDC has acted in a predatory way.

In addition, we recommend that there should be a Broker Advisory Panel of specialist brokers established by DFAIT to provide the EDC Board of Directors and the Minister of International Trade with market intelligence, as well as to review and report on any alleged examples of predatory competition from EDC. The Panel could both look at individual cases raised by the private insurers and also report annually.

6.7 Difficult Times: Large Limits and Staying on Cover

The Review Team was told that EDC has a “Canada focus”, meaning it can provide a greater consistency of export credit insurance support to Canadian companies compared to private multinational insurers, which serve exporters/sellers in many countries, have headquarters located in a different country, and thus must balance the requirements of customers in a large number of countries. It was also suggested that, given that EDC’s financial requirements as regards tax, regulation/supervision, profit, and rate of return may be less onerous than for private insurers, EDC may be able to take a slightly more favourable and longer term view of risks.

Two main arguments were made in support of these claims. First, that EDC is willing to stay on cover for longer than private insurers for certain sectors and certain countries which are experiencing difficulties. The South East Asia crisis of the 1990s was referenced as regards staying on cover for countries, while current conditions in the forestry and automotive parts sectors were mentioned as regards cover for sectors.

Second, that EDC is prepared to provide larger credit limits for some — strategically important — foreign buyers and is prepared for these to be maintained on a more consistent basis. Unlike multinational insurers, EDC does not have to share or otherwise apportion its buyer exposure capacity with exporters in other countries. One example quoted referred to a large US vehicle producer.

These are important points but they need to be treated with some caution. For instance, if any of the above positions were to lead to EDC paying claims or incurring losses on any substantial scale, then this would have implications both for EDC — in terms of the impact on its financial position and self-sustainability — and for Canadian exporters, who carry an uninsured portion of the risk of usually 5% or 10% of any losses.

We recommend that there should be a Broker Advisory

Panel of specialist brokers established by DFAIT to

provide the EDC Board of Directors and the Minister

of International Trade with market intelligence, as well as to review and report on

any alleged examples of predatory competition from EDC. The Panel could both

look at individual cases raised by the private insurers

and also report annually.



Further, the private insurers say that their operations in Canada have a good degree of independence and are focused on Canada and Canadian companies. They question whether EDC’s risk appetite or capacity is, in practice, really greater than their own, given the size and scale of their operations world-wide.

The Review Team does not accept the view that, at the first sign of trouble, private insurers withdraw credit limits or significantly reduce them. Apart from all else, this would not make commercial sense since it could precipitate buyer default and, thus, claims and losses. Moreover, the private insurers are well aware of the importance of relations with their customers and working through difficulties. However, we were told by brokers and others that, at the time of the Review, there were some signs of private insurers reducing credit limits in certain sectors in ways which EDC were said not to be following or copying.

This is a complex area in which it is not easy to reach firm judgments. We believe it is important to draw a distinction between what is perceived as an advantage and what may simply be a business decision. If EDC decides to stay on cover longer or provide larger credit limits than private sector insurers, it does not necessarily imply that EDC enjoys a particular advantage. It does suggest that EDC — as a public institution with a one-market focus — takes a different view of the world and of the needs of Canadian exporters.

However, having raised these issues with the brokers and others, we think that these are points which cannot be ignored or entirely discounted. The Review Team believes that they do have at least some validity and, balancing the cautionary points made above, they have been taken into account in making recommendations in relation to the ST export credit insurance area.

6.8 Should EDC have an “Exit Strategy”?

It has been suggested that EDC should have an “exit strategy” for ST business, which appears to mean that conditions and circumstances should be set down under which EDC should either withdraw as a direct insurer from the ST credit insurance market or significantly reduce its activities.

On balance, the Review Team was not persuaded by this suggestion, not least since it appears to presuppose that decisions have already been taken about EDC’s continuation in the ST market and/or that at some stage EDC should withdraw from the market (at least in its present role). As far as the Review Team is aware, these kinds of decisions have not been taken by the government.

There appears to be little benefit to anyone (including EDC, its customers, and the private sector insurers) in setting out theoretical and impractical scenarios or conditions for EDC to withdraw from the ST credit insurance market (e.g. that this would happen only when it could be proved beyond reasonable doubt that private insurers could meet, and could continue to meet, every requirement from Canadian companies, large and small). Indeed, postulating such a scenario risks producing an unattractive situation of uncertainty and concern for exporters, false expectations for private insurers, and the belief that decisions have been taken when they have not, with a resulting loss of motivation and morale for EDC staff.

Thus the creation at this time of an EDC “exit strategy” is not recommended.

The creation at this time of an EDC

“exit strategy” is not recommended.



6.9 Should EDC Set-Up a Subsidiary to Handle Short Term Business?

The Review Team also received a suggestion that EDC set up a subsidiary company to handle its ST credit insurance business. This would be a complicated and expensive step and the benefits of doing so remain unclear to the Review Team, certainly at this stage and in the immediate future. Amongst many other problems, it would raise questions about unbundling the package of ST insurance and financing facilities which EDC has for companies in the ST area, especially SMEs.

The Review Team is not convinced that such a step in current conditions in Canada would have “free standing” benefits on any scale. As such, no steps like this should be taken until the objectives of doing so had been carefully clarified and analyzed in detail.

It might be argued that setting up a ST subsidiary could be a way of obtaining greater transparency into EDC’s operations in the ST area. However, a much quicker, cheaper, and less complicated option to achieve this would be to require EDC to make public the same kind of figures and information regarding ST business as private insurers are required to do, and this we have recommended separately.

If the Government was to decide at some point in the future both that EDC should withdraw from the ST area and that its operations in this area should be disposed of in some orderly fashion (rather than simply letting them wind down), then it might be the case that creating a subsidiary company would be sensible and cost effective. However, unless and until that position is reached, we do not recommend that EDC should establish a subsidiary company to operate its ST credit insurance operation/activities.

6.10 Is EDC Making Losses on its Short Term Business?

This matter was raised with the Review Team on several occasions and it would not be putting it too strongly to say that, amongst the private insurers, there is an assumption that EDC’s activities in this area are producing deficits. Some speculation and assumptions are inevitable due both to the sensitivity of this area and to the fact that EDC does not publish any figures on the financial results of its ST business.

Most insurance is cyclical and this is especially true of credit insurance. So claims come in clusters and are not spread out evenly year by year. Thus conventional actuarial calculations are more difficult but not, of course, impossible. The key is not, therefore, the balance between claims and premium income in any single year but the net result of a number of years taken together. This also enables account to be taken of another feature of credit insurance which is not true of many other kinds of insurance; that is, that claims paid in any one year should not be treated or reported as losses, since every year substantial recoveries in respect of claims paid are made. In other words, net claims or losses are the result of the following:

Gross Claims — Recoveries = Net Claims/Losses

We do not recommend that EDC should establish a subsidiary company to operate its ST credit insurance operation/activities.



Another feature of credit insurance which distinguishes it from many other classes is that it is rather expensive to administer and operate. Formerly, this meant that it was unusually labour intensive; today, it now means not only this but also, increasingly, that very large sums need to be spent by insurers on IT so as to manipulate and update the large amounts and flows of information they receive in order to produce internationally competitive products and world class service to their customers.

It follows from all these factors that a conventionally accepted way of assessing the profitability or otherwise of short term credit insurance is by means of ratios. The most important of these has three parts and all relate to percentages of premium income:

Stage 1

Taking total administration costs covering both direct costs and the appropriate share of overheads and amortized capital expenditure and relating these to premium income produces a figure for a percentage of premium income which has to be allocated or earmarked for such costs. This is the Expenses or Administration Ratio. It is not unusual in credit insurance for this to reach or sometimes exceed 30%. This ratio normally is more stable than the other ratios below but, of course, a key for insurers is to try to reduce it to the maximum extent without any matching deterioration in service to customers or any reduction in underwriting standards or effectiveness.

Stage 2

Total Net Claims or losses (i.e. gross claims less recoveries) related to premium income. Obviously, this ratio can vary significantly from year to year due to the business cycle etc. In recent years the cycle has been in a relatively benign stage for credit insurers. But this may well be about to change with the impact of the credit crunch/sub prime crisis and possible recession in the US and significantly higher oil, food and energy costs.

This is the Claims or Loss ratio.

Stage 3

This consists simply of combining the two earlier ratios so as to produce an overall or combined ratio, i.e. the result of comparison between premium income in a year and, on the other hand, losses and expenses for that year.

It is important to note that a combined ratio of over 100% which would mean that the insurer has a loss need not be a fatal problem since, as noted earlier, credit insurance is cyclical and claims/losses can vary hugely between different years.

The key factor is the trend of this kind of ratio over a period of years and whether, to put it simply, income/premium is regularly exceeded by expenditure on losses and expenses and/or whether, over a run of years, any surpluses of premium in some years are significantly exceeded by the deficits in other years. Obviously, this analysis does not take account of investment income which may, for example, be used to offset cash deficits in certain years.



The Review Team requested from EDC details of the financial outturn of the ST scheme. However, the only detailed figures we were given from EDC — see Table 1 below — show that their ST scheme did not operate at a loss because over a run of years the combined ratio showed an average of less than 100%.

Table 1: Breakdown of Claims and Expenses Ratio — Cdn$

U/W YearProjected Premium

Ultimate Expected Losses Admin Expenses Total

Combined Ratio

2000 92,135,027 56,986,780 37,175,121 94,161,901 102%

2001 91,379,140 70,057,665 41,390,302 111,447,967 122%

2002 108,194,691 37,192,658 45,170,256 82,362,914 76%

2003 113,250,575 31,106,823 50,390,763 81,497,586 72%

2004 109,373,706 34,590,430 55,886,697 90,477,127 83%

2005 117,398,031 40,081,966 54,816,794 94,898,760 81%

2006 98,225,229 28,495,845 58,531,645 87,027,490 89%

2000–2006 729,956,401 298,512,166 343,361,578 641,873,744 88%

Nevertheless, the Review Team believes that the absence of more detailed information on a continuing basis is not helpful to anyone, hence we recommend that there should be greater transparency; in effect, that EDC should put into the public arena the same kind of information about ST credit insurance activities as the private insurers are required to do under OSFI regulations.

6.11 Operating as Insurer of Last Resort

A point which was made to the Review Team with some frequency was that EDC should become the insurer of last resort in the ST area. For example, it was suggested that EDC should withdraw from its current activities and operate only in the area of the smallest and newest SMEs, handing them over to the private insurers when they had grown and/or gained experience in exporting. Another example was that EDC should cease to be a direct insurer at all and become only a reinsurer to the private insurers of business in high risk countries or sectors, or to provide additional capacity where private insurers had reached their limits on individual buyers.

This is a concept which should not be taken at face value since it needs more detailed study, not least of the likely implications, especially financial implications. If the only ST business which EDC did and the only ST risks which it took were in respect of business which the private sector insurers would not or could not do, then — unless one has a rather low opinion of the underwriting of the private sector and its ability to distinguish good risks from bad risks — it must be rather unlikely that EDC could underwrite such business without making losses. It is hard to see how this would be helpful to anyone and neither would it fit with EDC’s orientation of being self sustaining.

We recommend that there should be greater transparency; in effect, that EDC should put into the public arena the same kind of information about ST credit insurance activities as the private insurers

are required to do under OSFI regulations.



In addition, export credit insurance essentially is like any other kind of insurance in that spread of risk is important. In other words, the greater the spread of risks, the greater the insurer’s ability to take on the more difficult risks. Concentration of risk is always a problem for insurers and this is one of the reasons why insurers use the reinsurance market (e.g., excess loss reinsurance).

If EDC were to operate only in the “last resort” area, it would likely have a poor spread of risk and significant concentration of risk. It would also likely have a low and irregular premium income which would make it difficult to keep any kind of infrastructure in place to assess and monitor risks and to provide any kind of quality service to exporters. This would make it difficult for EDC to keep up-to-date with developments in the market, including in the areas of risk management and underwriting techniques.

It is clear that those ECAs that have moved towards a “last resort” role have experienced just these kind of problems. Thus, for this and the other reasons mentioned, any proposals for such moves for EDC should be treated with great caution.

6.12 Small and Medium Sized Enterprises

In most countries, SMEs represent an important and sensitive sector, largely due to the important role they play in economic and employment growth. In the area of export credit insurance, SMEs have particular needs and requirements which can differ from those of larger companies. For instance, the smallest SMEs do not normally have the resources or capacity to handle complicated and time/resource consuming insurance documentation and procedures.

It is certainly not true that private credit insurers have no interest in SMEs or no experience in providing facilities for SMEs. It is equally untrue that only Government ECAs are able and willing to handle the export credit needs of small exporters. This partly reflects the fact that it is not essential — or universal practice — that premium rates for SMEs be subsidized. In fact, most Governments do not subsidize premium rates.

Experience in many countries demonstrates that what SMEs most need are specially designed facilities which are expressed in plain and straightforward terms and which are easy and cheap to administer (both for the insurer and the insureds). It is even better if the delivery of these products can be organized in association with technical expertise and advice (e.g., in relation to exporting/international trade techniques), as well as with financing.

However, it is expensive for insurers to develop and deliver special products for SMEs. In addition, the ability to do this will often depend crucially on the IT and information infrastructure which insurers need to have in place. In turn, this depends on the insurer having a sufficiently high premium income to meet the high costs of sophisticated IT systems and the obtaining and manipulation of vast quantities of information.

These considerations mean that it is very difficult for any credit insurer to offer world class products and internationally competitive products and service to SMEs if this is their only function. If such were the case, then not only is it unlikely that the products will be world class, but it will also be difficult for losses to be avoided. This is partly because the spread of risks of an SME-only insurer is likely to be limited, and so will its ability to handle the worst/more difficult kinds of risks.



Indeed, it is these kinds of problems (e.g. lack of spread of risk and low premium income) which have led EU ECAs to try to re-enter the ST market by setting up subsidiary companies to do the kind of business which EU Commission regulations prevent ECAs from insuring. Against this background, it is perhaps not surprising that no small or niche private sector credit insurers have chosen SMEs as their area of operation/specialization.

For these reasons, the Review Team believes that any suggestions that EDC should withdraw from ST business generally and should become a “last resort SME only” institution should be treated with considerable caution, not least because of the likely impact on SMEs and the financial implications for EDC and so for the Government and the taxpayer.

Brokers and others told the Review Team that, in the past, the private insurers have had minimum premium income thresholds which had the effect of making it difficult for SMEs to obtain ST policies if the SME was likely to produce an annual premium of less than $5,000. This is important to note, given the large number of EDC’s SME policyholders that fall into the “below $5,000 annual premium” category.

However, two new developments are in train in Canada. First, Euler Hermes has introduced a new facility — Trade Secure — especially for small companies and with no minimum premium figure. This, it is hoped, will be attractive to SMEs and so could generate substantial interest and business. Second, Atradius has just announced a new product for SMEs — Modula Start — which is designed to be distributed through co-operation partners. This should also have the effect of giving SMEs greater choice than was available in the past.

Potentially, these are two significant events for SME exporters. Since two of the “Big 3” global credit insurers are involved, these new products will draw on the large IT and buyer information systems and world wide networks and expertise/experience which these insurers already have in place. The two new products potentially offer important benefits to Canadian SMEs in providing both more competition and greater capacity.

While these new products are significant, it is still too early to draw definitive conclusions about their usage and take-up by SMEs. Further, it does not alter the Review Team’s view that, at present, it is undesirable and premature to take decisions which could arbitrarily restrict — without proper consideration of the consequences — EDC’s ST business, and so reduce its ability to continue to offer its current range of products and present quality of service to SMEs.

6.13 Increasing Total Capacity: Co-operation between EDC and Private Insurers

Earlier in this Chapter, it was noted that there is consensus among some stakeholders that an important objective should be to increase the overall capacity available in Canada’s ST market. One way of trying to achieve this is by co-operation between EDC and private insurers, although it is not always easy both to compete and to co-operate. Nevertheless, several examples were raised with the Review Team of past and continuing co-operation to mutual advantage and to the benefit of Canadian exporters.

The joint insurance policy between EDC and Coface embracing both domestic risks (taken by Coface) and export risks (taken by EDC) is a significant example of partnership, even though this arrangement is not universally applauded by the other private insurers. Other examples were noted, for instance in relation



to domestic sales in Mexico and cases where EDC has co-operated with private insurers other than Coface on individual policies which embrace both export and domestic risks.

EDC informed the Review Team that it has taken some initiatives with the private insurers on potential ways of partnering, although not all the private insurers consider these were realistic initiatives. EDC said they hope that these can be developed in practical ways to the benefit of not only the private insurers and EDC but also to the benefit of Canadian exporters by increasing total capacity available in the Canadian market.

It is important, too, to note that co-operation between EDC and the private sector can take place with parties other than insurers. For example, reinsurance with private sector reinsurers can also produce incremental capacity. Thus, it is relevant that EDC already has private sector reinsurance arrangements in place and has also made ad hoc reinsurance arrangements on individual large cases.

Reinsurance is a practical and long established way not only of sharing risks and reducing concentration of risk but also of generating additional risk taking capacity. It is normal practice for private insurers, including credit insurers. The largest reinsurers now have long and detailed experience of export credit insurance and could well be interested in greater co-operation with EDC. Thus, we think that it would be helpful for EDC to review whether it could usefully make more substantial and more regular use of the private reinsurance market.

We recommend that EDC should continue to increase its efforts to co-operate and partner with private insurers so as to increase capacity available to Canadian exporters, recognizing that the most successful co-operative arrangements are likely to be those which offer mutual benefits. As well, all cases of co-operation between EDC and private insurers should be monitored by DFAIT, either directly or via the Broker Advisory Panel discussed above, with a view to reporting in some objective and generally acceptable way on the actual business done, and in particular any “extra” capacity (however so determined) actually generated for the benefit of Canadian companies.

6.14 Conclusions: Should EDC Withdraw From or Significantly Reduce its ST Activities?

This is a very difficult question to answer with total confidence; however, in the context of this Review it cannot — and should not — be avoided. There are no simple or perfect answers which would satisfy all parties. Recognizing the strongly opposing views and positions, the Review Team has taken the approach of considering what is best for Canada.

We recommend that EDC should continue to increase its efforts to

co-operate and partner with private insurers so as to increase capacity available to Canadian exporters,

recognizing that the most successful co-operative arrangements are likely to

be those which offer mutual benefits.

All cases of co-operation between EDC and private insurers should be

monitored by DFAIT, either directly or via the Broker Advisory Panel with a

view to reporting in some objective and generally acceptable way on the actual business done, and in particular any

“extra” capacity (however so determined) actually generated for the benefit of

Canadian companies.



Two of the private insurers — the two largest ST credit insurance companies in the world — have argued strongly and in some detail for EDC to withdraw, certainly as a direct insurer. They accept that such a withdrawal would have to be phased in some way. But there appears to be some lack of clarity and precision about any residual role for EDC and this must throw some doubt on any claim that the private insurers could do everything that EDC currently does in the ST area.

As noted earlier, EDC’s present operations mean that it can carry out a range of “public policy” driven activities, without seeking payment allocation from Government. All the evidence we have seen shows that EDC’s customers are happy with the products and service they receive. In other words, there are no signs that exporters are pressing for EDC to withdraw or cut back. Even EDC’s private insurer competitors acknowledge that EDC is a very professional and expert insurer providing a range of very good products.

If EDC was to become a “last resort” insurer, there is a serious risk that it would not be able to maintain its service level on a self sustaining basis. Any attempts deliberately and arbitrarily to force EDC to cut back could lead its ST business — and its financial basis relating thereto — to unravel. The same could be said of the multi-faceted package of facilities to ST customers which EDC currently offers. Further, “last resort” status or arbitrary cut backs would impact adversely on EDC’s ability to underwrite larger and more difficult risks on any scale.

A reasonably plausible case can be made that competition is working and that Canadian companies are benefiting from this. The Review Team acknowledges that private insurers would like a bigger share of the market and that they would like it quickly. But we are not persuaded that the withdrawal of EDC would either lead to more competition or to better service and improved products for exporters. And this is surely the key test.

EDC has quit the domestic credit insurance market, although the Review Team understands that this has not been done in a way favoured by all private insurers, even though there was a competitive bidding process. However, the Review Team believes that here, as in other contexts, the preference and wishes of Canadian companies (e.g. in this context, having a “one stop shop”) should be the key deciding factor. For the record, the Review Team sees no reason or justification for EDC re-entering the area of domestic credit insurance, although one or two exporters expressed a desire to see EDC back in this market. Thus, we recommend that EDC should not re-enter the domestic credit insurance market, unless there are significant changes in the market leading to large scale gaps in the availability of domestic credit insurance.

Regarding SMEs, the Review Team is concerned by the risks to the position of these firms, given the high proportion (over 50%) of EDC’s ST customers that produce annual premium income of less than $5,000; indeed, the average annual premium amongst this 50% is in the range of $2,500. It is acknowledged that private insurers work with SMEs world wide and have produced products specifically for them, notwithstanding the fact that some governments have kept a role in this area. Further, it is recognized that the private insurers are making great efforts in this area in Canada and the two largest of these have introduced or are introducing innovative new products.

We recommend that EDC should not

re-enter the domestic credit

insurance market, unless there

are significant changes in the market leading

to large scale gaps in the availability of domestic credit

insurance.



However, the private insurers need to accept, in return, that these products are new in Canada and have still to be tested or to gain anything approaching general acceptability in the Canadian market with SMEs and with financing banks. Moreover, as noted earlier the private insurers have, in the past, had some kind of minimum premium threshold that has had the effect of excluding a good proportion (perhaps some 30%) of EDC’s existing ST customers.

It would be in everyone’s interest — especially Canadian SMEs — if the new products being introduced by private insurers both become significant successes. However, this will inevitably take time.

A very frequently made point is that Canada is alone amongst OECD countries in having an ECA so actively involved in the ST market.

As noted earlier, this kind of claim must take into account the position in Japan of NEXI, the “state owned private companies” in Belgium and Italy, and the level of ST government account business still done in Germany and France. Moreover, in the integrated and highly competitive international trading world which Canadian companies now face, one cannot ignore the positions in China and India, where it is still the ECA which does all or most ST export business.

The Review Team accepts that it can be uncomfortable for a government, especially one in an OECD country, to be out of step with the position of other governments. However, as stated earlier, it is dangerous simply to copy others or to follow fashion, and the more successful ECAs are those whose structure, status, priorities, and products directly and primarily reflect the position — and especially the needs of companies — of the country in which they operate.

Taking all of these factors into account and putting as the key criteria the interests of Canadian companies and Canadian taxpayers, we do not recommend that any steps should be taken artificially or arbitrarily to curtail or restrict EDC’s current activities in the ST export credit insurance area. Also, EDC should not in current conditions cease to be a direct insurer.

This view is reinforced by the fact that the risks in the ST area are increasing (due to the ongoing effects of the global credit crunch, a possible US economic recession, and higher prices for energy, food, and raw material commodities), and that the private insurance market appears to be hardening in response to these developments.

Further, we recommend that there is no need to change EDC’s mandate arising from ST credit insurance activities.

We do not recommend that any steps should

be taken artificially or arbitrarily to curtail or restrict EDC’s current

activities in the ST export credit insurance area. Also, EDC should not in current

conditions cease to be a direct insurer.

We recommend

that there is no need to change

EDC’s mandate arising from ST credit insurance

activities.

We recommend that this area should be investigated again in not later than 5 years time, to assess changes which may have taken place, not least in regard to the overlap between EDC and private insurers, changes in market share, and the facilities available to SMEs from the private insurers.



However, given the rapidly changing market place both in Canada and world-wide, including the uncertainties arising from the current global financial developments, the Review Team believes that 10 years is too long a period to wait for the next review of this area. Thus, we recommend that this area should be investigated again in not later than 5 years time, to assess changes which may have taken place, not least in regard to the overlap between EDC and private insurers, changes in market share, and the facilities available to SMEs from the private insurers.

6.15 Summary of Recommendations

1. We recommend that EDC should not re-enter the domestic credit insurance market, unless there are significant changes in the market leading to large scale gaps in the availability of domestic credit insurance.

2. We do not recommend that any steps should be taken artificially or arbitrarily to curtail or restrict EDC’s current activities in the ST export credit insurance area. Also, EDC should not in current conditions cease to be a direct insurer.

3. We recommend that there is no need to change EDC’s mandate arising from ST credit insurance activities.

4. The creation at this time of an EDC “exit strategy” is not recommended.

5. We do not recommend that EDC should establish a subsidiary company to operate its ST credit insurance operation/activities.

6. We recommend that there should be greater transparency; in effect, that EDC should put into the public arena the same kind of information about ST credit insurance activities as the private insurers are required to do under OSFI regulations.

7. We recommend that EDC should continue to increase its efforts to co-operate and partner with private insurers so as to increase capacity available to Canadian exporters, recognizing that the most successful co-operative arrangements are likely to be those which offer mutual benefits.

8. We recommend that there should be a Broker Advisory Panel of specialist brokers established by DFAIT to provide the EDC Board of Directors and the Minister of International Trade with market intelligence, as well as to review and report on any alleged examples of predatory competition from EDC. The Panel could both look at individual cases raised by the private insurers and also report annually.

9. All cases of co-operation between EDC and private insurers should be monitored by DFAIT, either directly or via the Broker Advisory Panel recommended above, with a view to reporting in some objective and generally acceptable way on the actual business done, and in particular any “extra” capacity (however so determined) actually generated for the benefit of Canadian companies.

10. We recommend that this area should be investigated again in not later than 5 years time, to assess changes which may have taken place, not least in regard to the overlap between EDC and private insurers, changes in market share, and the facilities available to SMEs from the private insurers.


41Medium and Long Term Business

Medium and Long Term Business

7.1 Background

The report from the 1998 Review dealt with this subject at some length, noting the concern of Canadian banks and what they saw as the absence of a “level playing field scheme” as compared with the guarantee schemes provided by the other ECAs. The very low activity level of Canadian banks and the larger banks in Canada was noted, as was the fact that EDC and the banks saw each as competitors in this area.

The Review recommended, “The Government should make a program available with banks on Canada Account which would provide guarantees for consensus loans. The cost of establishing and operating this program would be charged to the banks in the form of risk based consensus compliant guarantee fees. The program would only be established if a sufficient number of banks were prepared to subscribe to it”.

The SCFAIT Report also made a recommendation (No. 14) which said, “The committee recommends that the Government give careful study to the question of setting up a new medium term consensus loan program that would have the backing of the banks in order to reach a decision based on the best interests of Canadian exporters and the country as a whole”.

The Government response to the recommendations said, “The government shares SCFAIT and Gowlings’ concerns about the limited participation of Canadian banks in medium and long term export financing. Among G7 countries, none are more dependent on trade than Canada yet our commercial financial sector has a very limited role in medium term export finance at present. As a result, the extensive domestic and international networks of Canadian banks and substantial financial resources are not available to Canadian exporters for medium term export financing. Since broader participation by Canadian lenders would diversify the sources of export financing which are available and perhaps increase SME access to their services, the government will study the proposal for a guarantee program for the banks.”


42 Medium and Long Term Business

Since the time of the last review, the market for MLT business has changed substantially. Consolidation activity among many global banks and the emergence of numerous strong regional banks, particularly in developing and emerging markets, have fundamentally changed the landscape. Similarly, the proliferation of risk transfer mechanisms, including asset-backed instruments and special-purpose investment vehicles, has broadened the range of potential sources of risk capacity.

More recently, the global financial developments have raised important questions regarding the financial markets’ approach to absorbing and diversifying credit risks. The growing focus on the use of credit derivatives, combined with ongoing concerns over market liquidity, particularly among financial institutions, may signal new and significant challenges ahead for how MLT business is conducted.

There have been some indications of some private underwriters willing to write a limited amount of MLT insurance business; however given current market conditions, the extent to which this will be true in the future is open to significant doubt. This is also true of the banks’ ability and willingness to operate in this area.

7.2 MLT Facilities

It may be helpful to note that in the area of ECA involvement in MLT business, there are two main kinds of facilities:

(a) Direct Lending

In these cases the ECA itself is the lender to a bank or financing institution or to a buyer overseas. Thus the ECA not only takes the risks on the buyer/borrower not paying but also itself provides the financing. Banks are not involved in this portion of the financing but may be involved in separate but parallel financing loans. A number of ECAs have the powers to lend directly (e.g., US-EXIM and EFIC in Australia) but most of these do not currently lend on any scale. As is explained in Chapter 5, in some other countries (e.g., Japan, Czech Republic, India, and China) a separate public sector entity may do part or most of the lending, sometimes associated with a guarantee facility from the ECA.

(b) Guarantees

In these cases, the ECA provides a guarantee to a bank or syndicate of banks. Thus the ECA takes most of the risks of non-payment by the borrower or buyer, but the banks provide the financing. In many cases, the banks not only provide the financing for the loan guaranteed by the ECA but also provide incremental or parallel financing not guaranteed by the ECA (e.g., for the downpayment or for any local or foreign costs not covered by the ECA backed loan). This is the normal approach for most ECAs (e.g., in the US, France, Germany, and the UK).

EDC also makes another distinction which, as a general rule, is not made so frequently by other ECAs. This is between:

(i) Loans the terms of which (e.g., length of credit, profile of repayments, minimum downpayment, etc.) are subject to the terms and requirements of the OECD Arrangement — so called Consensus loans;



and

(ii) Loans where the terms are agreed between the lender and the borrower and are not subject to the OECD Arrangement but are on market terms — so called commercial loans.

Most of EDC’s MLT business is done via direct loans (guarantees represented only around 1% of EDC’s overall financing volume in 2007) and falls into the second category, namely commercial loans. In both contexts, EDC’s position and practice is different from those of other ECAs.

7.3 Recent Developments

EDC told us that, since the last review and particularly in the last three or four years, they have made significant efforts to produce a guarantee facility for the banks which is both more attractive to the banks and is also structured so as to make it directly comparable with the guarantee facilities available to banks from other ECAs, especially the G7 ECAs. They have also introduced a Non-Honouring facility in respect of sovereign loans which, EDC say, some banks regard as equivalent to a guarantee.

However, some banks still expressed concern to us over the terms of EDC’s guarantees and EDC’s policy towards guarantees. There seemed to be some uncertainty over EDC’s policy guidelines in respect of guarantees. The banks also saw EDC as having a clear preference to lend directly and, for this and other reasons, they tended to regard EDC as a competitor.

EDC’s guarantee business remains at a low level as compared both with its direct lending business and with the guarantee business of other ECAs. EDC told us this was a reflection of the fact that global Consensus-based business had declined in recent years. In fact, this is not the case. OECD figures for ECAs as a whole demonstrate that it has increased.

Some Canadian banks do little or no business with EDC in this area but are significant participants in, for example, the US-EXIM guarantee programme.

7.4 EDC’s Objectives

In our view, EDC, taking account of its mandate, should have two objectives in the area of MLT financing:

(a) First, to meet the full range of needs of Canadian MLT exporters and to provide world class and internationally competitive facilities, operated with flexibility and expertise.

(b) Second, to act so as to maximize the financing capacity available to Canadian MLT exporters, especially by co-operating with other financing institutions. This is likely to be even more important if, as seems likely, the credit crunch and other developments lead banks to review and, possibly, to curtail their activities in this area, so restricting still further the overall level of available financing.

Subject to the point made later about higher risk business, no one we met suggested that EDC was in any sense failing to meet the first objective. Indeed, there was general recognition and commendation of EDC’s



facilities and of the expertise, skill and flexibility with which these are operated and, overall, of the service provided to MLT exporters.

The second objective is more difficult.

In our view, it is in no one’s interest — especially Canadian exporters — for the banks to see EDC as a competitor in the MLT area or for them to use such capacity as they have available on cases involving exports from other countries and in partnerships with other ECAs, rather than for Canadian exports and in partnership with EDC.

There are some examples of EDC working closely with the banks on various partnership initiatives, and it will be important that such initiatives continue to enhance market capacity. However, we found, as is noted above, some continuing uncertainty amongst the banks over EDC’s attitude and policy on guarantees and what were perceived by some as a series of changes to it. Again, this is helpful to no one, not least as banks need to have some confidence and certainty about the nature of the guarantee so that they can bid on business.

This topic is, of course, not a new one and was raised in the last review report. Our discussions with both the banks and EDC suggested that there are likely to be no easy or quick solutions.

However, it is clear that the present situation is not the optimum one from the point of view of exporters, particularly larger capital goods exporters that need more financing options. As one significant exporter said to us, there is a need to “facilitate a greater diversification of financial partners to support our products” and some banks feel that “EDC’s presence can crowd them out”. The exporter went on to say that EDC should “ensure a greater presence of financial institutions in… financing… via its guarantee program” and “that a balanced approach between the EDC direct lending program and its guarantee program would allow for a greater presence of banks… and would allow financial institutions to benefit from an EDC guarantee as well as draw from EDC’s wealth of… experience… and that these financial institutions would gain a significant level of comfort from their experiences to act in a complementary role with EDC going forward”.

The problems with the present arrangements which were mentioned by the banks can be categorized in two ways. First are various operational or transactional matters, such as expanding the scope of certain kinds of guarantee programs. We do not see any barriers to EDC implementing these; indeed, we understand EDC is already doing some of them. Second are more substantive or strategic matters, such as the following:

The difference in EDC Guarantee coverage between less than US$10mn and more than US$10mn •transactions;

The cap on interest margin retained by the bank on transactions more than US$10mn;•

Cover on transactions more than US$10mn is available only for “Consensus” transactions;•

Conflict in pricing quoted by the bank and that quoted by EDC for direct financing; and•

Guarantee facilities for project financing and leasing.•

Given that there is no instant solution to change the present position — apart from EDC withdrawing from direct lending enitrely — and that the perceptions of EDC and some banks even on the present situation are



rather different, we recommend that those — probably relatively few — banks that have a serious interest in the MLT area and the capacity and willingness to provide MLT financing and to share MLT risks should be invited to set down in detail what problems they have with the present position, what changes they would like to see made and why.

Further, we recommend that EDC should consider the paper from the banks, especially the proposals for changes and for EDC to respond as positively and constructively as possible, with clear emphasis not on what is best for EDC but on what would be most helpful to Canadian MLT exporters, especially those like the large exporter quoted earlier. A detailed dialogue at working level should then take place with a report to be made to DFAIT and the Department of Finance on the results.

This may not be the most dramatic recommendation and it may — to some extent — have been tried in the past. However, we see no other practical way in which to achieve the very desirable objective of a higher level of bank involvement and so an increase in the MLT financing capacity available to Canadian exporters. In addition, it takes account of the fact that in current financial market conditions it is not clear what the risk appetite and funding capabilities of banks will be in relation to MLT business.

7.5 Higher Risk Business

On a number of occasions, exporters stressed to us the need for EDC to be able to undertake higher risk business and for EDC not to apply only the same kind of credit standards and requirements as the banks. Of course, if all an ECA does act as a lender or insurer of last resort and engage in only high risk business, it leads to a high concentration of risk and this reduces the possibility of financial break-even and avoiding losses. It also makes it difficult to obtain reinsurance from the private sector. Thus, this does not seem a prudent course for EDC to adopt. Thus, we do not feel it would be prudent for EDC to adopt this “last resort” option.

It was also stressed that, on the basis of what happens in other countries, EDC — as an ECA — should take the lead on higher risk business which might have the effect of encouraging banks also to become involved in a case. This, it was suggested, was the role of an ECA, namely to concentrate primarily on business which was not being done by the banks or which fell into the general category of “high risk”.

It was suggested more than once that such an approach could be a better use of any EDC surpluses than making dividend payments to the Government.

We recommend that those — probably relatively few

— banks that have a serious interest in the MLT area and the capacity and willingness to provide MLT financing and to share MLT risks should be invited to set down in detail

what problems they have with the present position, what

changes they would like to see made and why.

We recommend that EDC should consider the paper from the banks, especially the proposals for changes and for EDC to respond as positively and constructively as possible, with clear emphasis not on what is best for EDC but on what would be most helpful to Canadian MLT exporters, especially

those like the large exporter quoted earlier. A detailed dialogue at working level should then take place with a report to be made to DFAIT and the Department of Finance on the results.



It is true that an ECA can play a vital role in ensuring that its exporters are able to make internationally competitive offers on more difficult and higher risk cases. It is also true that some ECAs see this as their prime responsibility and role. One frequently quoted recent example was the heavy involvement of China in the natural resources sector in Africa and the role played by the ECA (Sinosure) and by the China Eximbank and, possibly, by the Sovereign Wealth Fund.

In looking at this area, it should be stressed that it would not be sensible or desirable for EDC to become involved in business producing what were, for example, referred in earlier UK ECA legislation as “unduly hazardous and quite crazy” risks.

EDC is, of course, well aware of these points and stresses that its commercial approach does not mean that higher risk business is never accepted or that its credit standards exactly mirror those of commercial banks. EDC points out, for example, the increased level and percentage of business it has done in recent years in emerging markets and outside the Investment Grade category.

Of particular importance in this context is the introduction by EDC of Strategic Risk Capital and the emphasis given to this in EDC’s Corporate Plan. The whole intention and rationale of this is to enable EDC to be involved with higher risk business than would be acceptable under “normal” standards.

EDC told us that it manages its capital in order to be able to support new and existing business, and to sustain the Corporation. EDC manages its capital capacity through its Board approved Capital Adequacy Policy (CAP). The CAP measures the capital required to support the credit, market, operational and business risks of the Corporation. Additional capital is made available beyond that which is required to support these core risks and is designated as SRC.

EDC said that SRC is designated for supporting higher risk business opportunities of strategic importance to its customers and their industries, but which are outside of EDC’s typical operational norms. In 2007, the volume of SRC transactions stood at $2.4 billion (signed and committed exposure). In 2008, EDC facilitated $760 million of trade and investment through the use of SRC (as of August 31st).

EDC said that its usage of SRC will evolve over time and in response to changing market conditions. As such it is difficult to identify how it will be used from year to year. However, EDC’s experiences to date are illustrative of ways in which SRC may be deployed. Some examples of this include:

Unsecured small loans to small companies, i.e. micro financing;•

Equity investments;•

Financing to sub-sovereign obligors like Provinces, States or cities;•

We recommend that EDC management and staff should continue active steps to ensure that new business is done to utilize the existing Strategic Risk Capital.



Support subject to appropriations risk, i.e. long term exposure that is dependent on annual •appropriations to continue to operate and service debt obligations;

Debtor-in possession financing;•

Financing to cover cost overruns;•

Support in emerging markets jurisdiction where the legal and regulatory systems are untested or •underdeveloped;

Support for obligors whose risk assessments are based on financial statements that are not US or •Canadian GAAP or IFRS;

Financing in local (foreign) currencies that are “unhedgeable”;•

Debt owed to EDC ranks below the debt owed to other lenders, i.e. sub debt, mezzanine debt or 2nd •lien facilities;

Support for leading edge technologies or products;•

Single buyer insurance policy;•

Automotive suppliers’ insolvency excess loss insurance.•

We strongly support this approach.

We recommend that EDC management and staff should continue active steps to ensure that new business is done to utilize the existing Strategic Risk Capital.

We also recommend that serious consideration be given to additional Strategic Risk Capital being made available so as to enable EDC to meet the needs of Canadian MLT exporters in this increasingly competitive but undoubtedly difficult area and that this should be a priority — especially for the EDC Board and the Government — when reviewing future EDC surpluses and dividend payments.

We recommend that serious consideration be given to additional Strategic Risk Capital being made available so as to enable EDC to meet the needs of Canadian MLT exporters

in this increasingly competitive but undoubtedly difficult area and that this should be a priority — especially for the EDC Board and the Government — when reviewing future EDC surpluses

and dividend payments.



7.6 Non-OECD Countries

An increasing feature of MLT business is the growing activities of Brazil, India and China. This is clearly illustrated by the Table 2 below.

Table 2: New MLT Official Export Credit Volumes (USD billion) 2002 2005 2006 2007*

Canada 10.0 12.0 15.5 18.5

France 6.5 10.5 9.0 14.0

Germany 6.0 12.0 14.0 10.0

Italy 2.5 8.0 8.0 11.0

Japan 6.0 9.0 6.0 2.0

U.K. 2.5 2.0 3.0 3.5

U.S. 8.0 9.0 8.5 8.0

Total G-7 $41.5 $62.5 $64.0 $67.0

Brazil 4.0 3.5 7.5 N/A

China 5.5 18.5 29.0 N/A

India 1.0 3.5 4.0 N/A

Total B,C,I $10.5 $25.5 $40.5 N/A

B,C,I % of G-7 25% 41% 63%* EstimateSource: US Export-Import Bank Report: June 2008

We were not told by any exporters that EDC was unable to match competition, including from ECAs on their own accounts or on their national interest accounts, including from suppliers from these countries. It should be noted that the terms of the OECD Consensus do not preclude participants from considering matching the credit terms being offered by non-participant countries.




1. We recommend that those banks that have a serious interest in the MLT area and the capacity and willingness to provide MLT financing and to share MLT risks should be invited to set down in detail what problems they have with the present position, what changes they would like to see made and why.

2. We recommend that EDC should consider the paper from the banks, especially the proposals for changes and that EDC should respond as positively and constructively as possible, with clear emphasis not on what is best for EDC but on what would be most helpful to Canadian MLT exporters, especially those like the large exporter quoted earlier. A detailed dialogue at working level should then take place with a report to be made to DFAIT and the Department of Finance on the results.

3. We recommend that EDC management and staff should continue active steps to ensure that new business is done to utilize the existing Strategic Risk Capital.

4. We recommend that serious consideration be given to additional Strategic Risk Capital being made available so as to enable EDC to meet the needs of Canadian MLT exporters in this increasingly competitive but undoubtedly difficult area and that this should be a priority — especially for the EDC Board and the Government — when reviewing future EDC surpluses and dividend payments.


51Domestic Financing

Domestic Financing

8.1 Introduction

As discussed in Chapter 3, the evolving nature of international trade and investment — particularly as this relates to the increasing sophistication of global supply chains — gives rise to much ambiguity regarding what is “domestic” and what is not. In effect, there are fewer and fewer kinds of commercial activities which are not in some way, directly or indirectly, linked to exporting activities. Another important point made in that chapter is that, for an exporter to be successful in its part of the supply chain, other parts of the supply chain need to have access to appropriate financing, risk management, and other support.

These concerns underline the importance of considering whether EDC should provide domestic financing and, if so, in what circumstances. This is a challenging matter, in that it involves many dimensions, ranging from private sector capacity to public sector policy, which need to be taken into account and reconciled. As well, we must be cautious in considering what has worked (or failed) in other countries; as noted in Chapter 4, it is dangerous to generalize about other systems, or simply to copy others or follow fashion.

Further, the notion of market gaps must be applied with some caution: gaps tend to ebb and flow over time, driven by myriad events and developments in market activity and public policy. As such, gaps that do not exist today may exist tomorrow, and vice versa. Thus, the area of domestic financing must be considered with a view to what kind of approach will work best over the coming years as market conditions change and if and when gaps arise. In other words, the Recommendations are not based on addressing specific gaps, but provide a mechanism for addressing gaps as and when they arise. As such, we have deliberately designed the Recommendations in this Chapter so as to avoid near-term or prescriptive solutions for addressing specific or existing market gaps in domestic financing. Rather, our approach has been to:


52 Domestic Financing

(a) provide a mechanism for EDC to address legitimate gaps as and when they arise, and

(b) provide reporting and oversight mechanisms to minimize the potential for EDC overlap with existing — or future — domestic financing sources.

Should it be decided that a change to the current arrangements is desirable, this could necessitate changes to EDC’s legislation or Regulations. The current position is that, under the Regulations related to the ED Act, EDC may enter into a domestic financing transaction only with the approval of both the Minister of International Trade and the Minister of Finance. The Regulations consider a transaction to be domestic where “the Corporation provides credit to a person with respect to a transaction that does not relate, directly or indirectly, to the carrying on of business or other activities outside Canada”.

8.2 Commercial Market Considerations

Commercial banks, as well as non-bank financial intermediaries in the private sector, have an obvious and important stake in this matter since they provide much of the financing currently available to companies in Canada. Similarly, Canada has a well established private equity market with large well capitalized institutional investors and investment funds, providing domestic support ranging from venture capital to acquisition financing to infrastructure funding. Finally, Canadian capital markets provide sources of debt and equity financing, from straightforward bond and stock issues to more complex instruments such as securitizations.

According to the submission to the Review Team by the Canadian Bankers Association, the commercial banks, not surprisingly, have strong views in the area of domestic finance. The banks acknowledge and support EDC’s existing activities in support of catalyzing financing capacity for smaller Canadian exporters, principally by insuring foreign receivables. However, they express concern about EDC expanding into areas that could overlap with the banks’ existing markets and clients. Moreover, they argue that EDC enjoys advantages, such as its sovereign risk credit rating, lighter regulatory requirements, and non-taxable status, which could result in an unfair playing field in the domestic arena.

They suggest that EDC’s role in the financial marketplace should complement, rather than crowd out, domestic private sector capacity. Further, they believe that the existing limitations on EDC’s domestic financing activities, as set out in the Regulations, are appropriate and should be kept in place.

8.3 Public Sector Financing Support

Domestic financing is not only provided by private sector sources. The Government has many and varied financing programs and services — at the federal, provincial, and municipal levels — designed to extend credit to domestic companies. This includes federal programs that are targeted at borrowers of a certain size (e.g., SMEs, via Business Development Bank of Canada (BDC) and the Canada Small Business Financing Program), or in a particular location (e.g., Western Economic Diversification, Atlantic Canada Opportunities Agency), or with a certain sector focus (e.g., Farm Credit Corporation, PPP Canada Inc., Sustainable Development Technology Canada).



Such financing support is provided directly via Government departments, indirectly by Crown Corporations, and at arm’s length via foundations or other entities. At the provincial level, government departments operate many different types of programs designed to assist SMEs, fund early-stage ventures, and support certain sectors of the economy.

8.4 Business Development Bank of Canada

In considering whether EDC should provide domestic financing, particular attention must be paid to BDC, given that these two federal Crown corporations serve customers in areas which can overlap.

BDC’s activities are almost exclusively concerned with SMEs (defined by BDC as enterprises with less than 500 employees — although most BDC clients are, we were told, rather smaller than this), and it is required to be self-sustaining and to be complementary. BDC offers financing and consultancy but recently has only rarely used its guarantee powers. It has 96 branches in Canada and 600 account managers. It has about 6,000 clients that export. Its role is intended to be complementary to the private sector, and its Corporate Plan — as well as the Statement of Priorities and Accountabilities from its governing Minister — includes a focus on helping its SME clients to export.

BDC’s financing facilities are invariably at a higher cost than those of the commercial banks. If the banks were to feel that BDC was crowding them out in any case, then the banks have specific BDC contact points to approach. Moreover, BDC says that individual banks can, and do, put cases to the Canadian Bankers Association who then raise them with BDC.

Its loan portfolio is about $10 billion of which about $3 billion is to exporting clients who, BDC estimates, export between $30 and $40 billion annually.

BDC stressed to the Review Team that they are concerned with SME capacity building, including export capacity and that this can involve capacity being developed by Canadian companies outside Canada. BDC is not involved with individual export transactions.

8.5 Public Policy Considerations

Some noteworthy public policy consideration and guidance has been forthcoming in the area of domestic finance and EDC. At the time of the last review, the matter of domestic financing was considered. SCFAIT recommended that the Government not amend EDC’s power to conduct domestic financing. The Government, in its response to the Committee, agreed with the intent of this recommendation, but indicated a desire to continue to monitor closely such transactions.

In 2007, the Standing Committee on International Trade approached the matter in a somewhat different fashion and its April 2007 Report recommends this time that the federal government, as part of its Legislative Review of EDC, should consider granting it the authority to finance imports that are critical to Canadian exports. The Government, in its response to the Committee, agreed that it should assess the extent of the role



EDC could play in this area.9 Further, the Government acknowledged that the current legislative and regulatory framework relating to facilitating imports and other requirements of the global supply chain is complex and unclear. For instance, it noted that EDC can finance imports now, but such imports must be directly linked to a specific export contract, a requirement that can be difficult to establish in the context of complex supply chains.

8.6 EDC’s Position on Domestic Financing

EDC reports that in recent years it has been approached by Canadian firms in a variety of sectors to support domestic transactions that were related to exporting activity. These transactions complied, in EDC’s view, with its mandate as expressed in the ED Act, but nonetheless were captured by the wording of the Regulations and therefore required Ministerial approval. In only one of these instances did EDC successfully bring a transaction forward for approval by the two Ministers; this process took some months from the time EDC completed its review and submitted the transaction to DFAIT. During this process there was no assurance that the transaction would be approved, although in the end this was the case.

In EDC’s view the existing Regulations create two main problems. First, regardless of the likelihood that exports will arise from EDC’s support, unless an actual export contract is in place at the time of EDC’s support then the deal is considered a domestic transaction and thus subject to the Regulations. This makes it difficult for EDC to support firms that sell goods offshore without specific or identified export or off-take contracts, such as the sale of commodities like oil on the spot market. It also inhibits EDC support for early stage firms that do not yet have export contracts in place but are establishing or developing a business with an export focus, or firms that are importing goods or services (e.g., technology) for the purposes of incorporating them into exports which have not yet been contracted for.

Second, the process for seeking Ministerial approval lacks clarity and predictability. As noted above, the approval process may take weeks or months. Moreover, the basis upon which a Minister would decide to approve or turn down a transaction does not appear to be clearly or objectively established. Presuming that EDC would only bring forward a transaction if it strongly believed that it complied with its mandate, this suggests that the only decision left for Ministers is a rather subjective determination of whether this is business EDC should do.

As a result, EDC reports that most potential domestic transactions are never brought forward to the Government for approval, since the process is too cumbersome and uncertain to meet the needs of the Canadian companies involved. In seeking to address this issue, EDC has stated in its submission that it does not seek a “carte blanche” on domestic financing. Rather, it proposes that it should only consider providing such financing subject to certain conditions:

(i) it would look to banks to maximize their lending capacity in a particular situation before calling on EDC;

(ii) it would urge customers to seek bank support first; and

(iii) it would participate in the same capacity as the banks.9 See Ten Steps to a Better Trade Policy: Report of the Standing Committee on International Trade. April 2007 39th Parliament, 1st Session, and

Government Response to the Seventh Report of the Standing Committee on International Trade: Ten steps to a better trade policy: Recommendations (http://www2.parl.gc.ca/CommitteeBusiness/StudyActivityHome.aspx?Cmte=CIIT&Language=E&Mode=1&Parl=39&Ses=1&Stac=1690159).



8.7 Overlaps Between EDC and BDC

We were told on a number of occasions by various stakeholders of overlaps and duplication between the activities and facilities of BDC and EDC, such as domestic financing for Canadian companies that export, financing of Canadian direct investment abroad and venture capital. DFAIT confirmed to us that this and, especially, any competition between Crown Corporations, were contrary to the wishes of the Government and Treasury Board confirmed such competition was not desirable. In addition, overlap and duplication — in Canada and overseas — and the uncertainty which this inevitably causes are not helpful to SMEs. In this context, it is important to note that the needs of SME exporters in relation to developing global supply chains — and helping SMEs to take maximum advantage of them — extend beyond financing alone.

In our view, SMEs would benefit from a common co-ordinated and clear position as regards who does what within the public sector in respect of helping with exports. And from the point of view of Canadian taxpayers, unnecessary duplication, overlap and competition between Crown Corporations are wasteful of effort and resources.

We were told that progress is being made between EDC and BDC in working together to avoid overlaps and address market gaps. BDC’s new Market Xpansion loan product is cited as an example of complementarity: EDC and DFAIT shared information with BDC about the need for export market development funding. In response, BDC developed this product, which will be marketed jointly with EDC and DFAIT.

We recommend that any activity by EDC in the area of domestic financing should not risk further overlap with BDC’s activities.

8.8 Conclusions

Several conclusions can be drawn in the area of domestic financing:

(a) It is clear that the current and future developments in global commerce and international supply chains will continue to drive the need to respond in flexible and creative ways to the financing and risk management needs of Canadian exporters.

(b) EDC’s powers under the ED Act allows for EDC to provide domestic financing in accordance with its mandate.

(c) In current and likely future circumstances, the requirement under the Regulations for Ministerial approval of all domestic financial transactions does not appear to serve the needs of EDC or its clients in an effective manner. Moreover, it is questionable whether it is an appropriate or cost effective arrangement.

(d) Numerous private sector and public sector sources of domestic financing exist, and these are important providers of domestic financing and risk capacity.

(e) EDC told us some market gaps do exist in this area.

We recommend that any activity by EDC in the area of domestic financing should not risk further overlap with

BDC’s activities.



Based on the foregoing, we feel there is a legitimate case for enabling EDC to provide support for domestic financing transactions, and to do so in a way that would respond to the recommendation in the April 2007 report by the Standing Committee on International Trade to grant EDC the authority to finance imports that are critical to Canadian exports. There are various ways of achieving this. For example:

(i) changing the definition in the Regulations of what constitutes a domestic financing transaction;

(ii) exempting certain kinds of transactions from the requirement to obtain Ministerial approval;

(iii) delegating decisions on domestic financing transactions to EDC’s Board by way of a Directive; or

(iv) amending the ED Act in relation to EDC’s mandate.

In our view, there do seem to be some potential gaps in the domestic financing area that could appropriately and effectively be filled by EDC. One problem is the increasing difficulty in a “supply chain” international trading world (where the processing of goods and services prior to final sales may be carried out in a number of countries) of establishing a tangible link between a domestic financing and a specific export contract, even where the company involved may be an established exporter.

We believe that the key test in relation to any gap or any case should be to confirm that it falls clearly within EDC’s existing mandate as set out in Section 10 of the ED Act; that is, this issue should not be tackled by seeking to amend the EDC mandate.

In addition, we believe that any EDC activity in this area should be restricted to filling gaps and to complementing the activities of private and public sector financing entities, such as the banks and BDC. The objective should clearly and explicitly be to increase and to enhance the capacity of the banks and other financial institutions and not to compete with them. Put another way, EDC should do nothing to distort the market in this area. In this context and others, it is very important that EDC’s domestic financing should not be offered at rates below those of the commercial banks (and BDC). Apart from all else, this should help to reduce allegations of competition and crowding out.

Importantly and as noted above, this should not become an area where EDC starts overlapping still further with BDC. Moreover, if the banks were to complain about EDC’s activities in this area, then it could be helpful to consider establishing some mechanism for dealing with these, e.g. to involve the CBA.

It is understood that EDC’s domestic financing activities would be subject to its Environmental Review Directive. As well, we have been advised that EDC’s statutory power to provide financing in respect of a project, subject to the Canadian Environmental Assessment Act (CEAA), cannot be exercised or performed until certain requirements under the CEAA are met.

As well, it should be noted that all business facilitated by EDC is reviewed in the context of its Canadian Benefits Framework. One of the principles of the Framework is to achieve a reasonable alignment between the level of support that EDC is contemplating and the economic benefits likely to be generated by the transaction. EDC told us that in terms of domestic transactions facilitated by the Corporation under the Regulations, it can use the Framework as it already appropriately calculates the Canadian benefits. We understand that in EDC’s only domestic financing transaction signed to date, the Corporation did conduct a



Canadian benefits analysis using the Framework. As such, it seems reasonable that EDC should continue to apply the existing Framework to future domestic financing transactions.

We do not think that it is appropriate or necessary for Ministers to become involved in a series of individual cases. Rather, we think that the approach should be:

(a) To define the areas in which EDC involvement could take place.

(b) For the Regulations to be amended accordingly (i.e., the ED Act should not be amended).

(c) That only cases which did not fall within the areas at (a) but where EDC felt there was a gap should be put to Ministers, subject to each case having first received the specific endorsement of the EDC Board.

Against the background described above, we are not convinced that it would be appropriate to move from a position where all domestic financing cases are put to Ministers to a situation where no cases are put to Ministers.

Thus, after taking full account of the gaps which EDC told us had been put to them, we recommend that the Regulations should be amended so that EDC is able to provide domestic financing in cases which fall within their mandate without case-by-case reference to Ministers in the following areas:

(a) Working capital for new/start up/emerging Canadian exporters.

(b) General purpose financing facilities for Canadian companies where the majority of the companies’ activities and business are exports.

(c) Financing for production and infrastructure projects which may not be tangibly linked to specific export contracts but where it can be reasonably established that part of the resulting production will be exported.

(d) Financing for domestic merger and acquisition activities of Canadian companies where the intention is to increase the competitiveness of Canadian companies in the international market, recognizing that some of the assets of the companies concerned may be outside Canada.

(e) Financing for imports that are critical to Canadian exports.

In addition, since this is a relatively new area for EDC and in view of the concerns and considerable caution expressed by the banks about EDC increasing its activities in domestic financing, we recommend that, for an initial period at least, there should be regular reports to the EDC Board on its domestic financing activities.

We recommend that, for an initial period at least, there should be regular reports to the EDC Board on EDC’s activities in domestic financing.



We recommend that these should be supplemented at least for the first two years, by regular — at least half-yearly — reports to DFAIT and the Department of Finance which would enable them to monitor the position and to report as necessary to Ministers. Recognizing that commercial confidentiality requirements will exist, we recommend that the reports to DFAIT and the Department of Finance should include at least the following:

(1) Number of cases financed during the period.

(2) The names of the Canadian borrowers, signing dates and the values of the various cases (i.e., the individual value of each case).

(3) The total value of cases financed.

(4) Description of the type of cases financed.

(5) Clarification for each case of whether and to what extent EDC finance complemented finance from the banks or any other private sector financing institution or source.

We recommend that the Regulations should be amended so that EDC is able to provide domestic financing in cases which fall within their mandate without case-by-case reference to Ministers in the following areas:









1. We recommend that any activity by EDC in the area of domestic financing should not risk further overlap with BDC’s activities.

2. We recommend that the Regulations should be amended so that EDC is able to provide domestic financing in cases which fall within their mandate without case-by-case reference to Ministers in the following areas:






We recommend that these should be supplemented at least for the first two years, by regular — at least half-yearly — reports to DFAIT and the Department of Finance which would enable them to monitor the position and to report as necessary to Ministers. Recognizing that commercial confidentiality requirements will exist, we recommend that the reports to DFAIT and the Department of Finance should include at least the following:








3. We recommend that, for an initial period at least, there should be regular reports to the EDC Board on its domestic financing activities.

4. We recommend that these reports should be supplemented at least for the first two years, by regular — at least half-yearly — reports to DFAIT and the Department of Finance which would enable them to monitor the position and to report as necessary to Ministers. Recognizing that commercial confidentiality requirements will exist, we recommend that the reports to DFAIT and the Department of Finance should include at least the following:







61Governance

Governance

9.1 Introduction

In the book, Why Mexicans don’t drink Molsons, EDC is described as an “800-pound gorilla”.10 In some ways this is not surprising, given the range and extent of EDC’s activities which now extend well beyond the day-to-day activities of most ECAs. The actual financial flows are very large and the contingent amounts at risk are even bigger, particularly set against the Canadian fiscal position. Against this background, it is not surprising that governance is a very important issue.

EDC exists as a matter of public policy and is accountable to the Government and Parliament and, ultimately, to taxpayers with respect to its activities. Thus the matter of governance is fundamental to the Review. This Chapter considers what governance mechanisms exist, how these have evolved, and what changes may be useful going forward.

9.2 EDC’s Governance Environment

It is fair to say that the term governance does not relate to a single activity or mechanism. Rather, it is used to describe an overall approach to a collection of checks and balances within a system designed to ensure an appropriate degree of accountability and oversight by relevant stakeholders. The most obvious stakeholder in this case is the Government, but others stakeholders exist both in Canada and abroad, including from industry, the financial community, and civil society.

10 Mandel-Campbell, Andrea: Why Mexicans Don’t Drink Molson: Rescuing Canadian Companies From the Suds of Global Obscurity, p. 187.


62 Governance

While the above description is quite broad, the schematic in Figure 5 below provides a way of organizing and understanding the various elements comprising EDC’s governance environment.

Figure 5: EDC’s Governance Environment

Broadly speaking, EDC’s governance environment is influenced in two ways. First, and most directly, by certain legislative instruments, principally Acts of Parliament — such as the Financial Administration Act and the ED Act — and the Regulations relating thereto. These instruments direct how Government Departments and Crown Corporations generally must function, and also prescribe legally what EDC may or may not do. Second, by a host of external influences in Canada and abroad. These include international treaties, public policy guidance, and best practices. These influences have an impact on how EDC conducts its affairs, and they may arise in various ways including from international obligations to which Canada (and thereby, EDC) is a party, government policy directives or guidance, public or private sector best practices, or concerns voiced by civil society.

Ultimately, these legislative instruments and external influences give rise to an array of activities or mechanisms which, taken together, constitute EDC’s governance framework. Some of the more significant of these include the Corporate Plan, activities of its Board of Directors, delegations of authority, policies and procedures, guidance from the Minister accountable for the Corporation, special audits, disclosure activities, self-assessments, and ethical standards.

EDC’s Governance Environment

Governance Attributes:Appointments

PlanningTarget Setting

ReportingAudit

OversightCompliance

External Influences:International Agreement &

TreatiesPublic Policy Guidance

ParliamentBest Practices

Legislative Instruments:Financial Administration Act

Export Development ActEDC RegulationsOther Legislation


63Governance

9.3 Legislative Instruments

Financial Administration Act

The Financial Administration Act (FAA) is a federal statute which provides for the financial administration of the Government of Canada, the establishment and maintenance of the accounts of Canada, and the control of Crown Corporations. Part X of the FAA, deals specifically with the governance practices and procedures of federal Crown Corporations (and their subsidiaries), with a view to providing for consistent governance practices and procedures across Crowns.11

In terms of general corporate affairs, the FAA establishes that each Crown is ultimately accountable, through the appropriate Minister, to Parliament for the conduct of its affairs. It sets out the procedure whereby directives may be given by a Minister to a Crown, as well as the responsibility of the Crown to carry out such directives.12 It also lists restricted transactions, which may only be undertaken if authorized by an Act of Parliament (e.g., a change in the purposes for which a Crown was incorporated) or by the Governor in Council (e.g., procure the incorporation of a subsidiary, dispose of property, etc.). Further, it provides for the Governor in Council to make regulations exempting a Crown from certain activities which would normally require prior authorization by it.

The FAA provides for the appointment, resignation, remuneration, and indemnification of directors. Further, it prescribes that the board of directors of a Crown is responsible for the management of the business, activities, and other affairs of the Corporation, including its by-laws. The FAA also deals with financial management and control matters, including the requirement for Crowns to submit annually a corporate plan to the Minister for approval of the Governor in Council. In this regard, it provides for the form and content of the corporate plan, which includes operating and capital budgets. It also sets out requirements with respect to borrowing activities, bank accounts, surpluses and dividends, appointment of auditors, special examinations, and reporting requirements.

Export Development Act

The ED Act sets out the legislative parameters for EDC. It prescribes governance actions such as the appointment of the Board of Directors and the establishment of committees of the Board, as well as the appointment of EDC’s President.

Section 10 of the ED Act sets out the purposes and powers of the Corporation. It states that EDC is established for the purposes of supporting and developing, directly or indirectly, Canada’s export trade and Canadian capacity to engage in that trade and to respond to international business opportunities. It also sets out the powers that EDC may exercise in carrying out its mandate, which includes acquiring and disposing of property, providing insurance, extending credit, taking security interests, and providing consulting services.

The Section includes a provision that EDC shall, in exercising its powers, comply with such conditions as the Minister of Finance may prescribe. Further, the Section provides that the Governor in Council may, on the recommendation of the governing Minister and the Minister of Finance, make regulations governing various powers (e.g., equity investments, domestic insurance and financing, etc.) and that certain types of transactions

11 Certain Crown Corporations (e.g., Bank of Canada) are exempt from certain of the provisions of the FAA.12 Such directives may relate to the implementation of provisions of the WTO Agreement and bilateral or multilateral free trade agreements.


64 Governance

under the regulations may require the approval of either the Governor in Council or the governing Minister (alone or jointly with the Minister of Finance).

Other relevant provisions of the ED Act include:

Section 16, which allows the Board to make by-laws delegating to the President and officers of the •Corporation authorization to exercise powers that are given specifically to the Board under the Act.

Section 17, which prescribes that EDC may establish offices anywhere in Canada, although the head •office shall be in the National Capital Region.

Section 24.2 exempts EDC from certain provisions of the Canadian Environmental Assessment Act.•

Section 24.3 prohibits EDC’s directors, officers, employees, agents, and advisors from knowingly •disclosing information obtained by the Corporation in relation to its customers.

Section 25, which requires the Minister to cause periodic reviews of the provisions and operations of •ED Act.

Export Development Canada Exercise of Certain Powers Regulations

Pursuant to Section 10(6) of the ED Act, the Governor in Council has established the Export Development Canada Exercise of Certain Powers Regulations. The Regulations, which have undergone various changes over the years, prescribe what transactions the Corporation may enter into on its own authority and what transactions require prior outside approval. These Regulations deal with leasing powers, acquiring equity interests, domestic financial transactions, and domestic insurance transactions.

Given the discussion of domestic financing in Chapter 8, it should be noted that Section 5 of the Regulations permits EDC to enter into a domestic financial transaction, upon the approval of both the governing Minister and the Minister of Finance. Such a transaction involves any arrangement by EDC to provide credit to an entity in connection with a “transaction that does not relate, directly or indirectly, to the carrying on of business or other activities outside Canada”.

Other Legislation

There is other legislation to which EDC is subject and which affects EDC’s governance environment. For instance, owing to recent changes to the Federal Accountability Act, EDC is now subject to the Access to Information Act (ATI). As such, documents under the Corporation’s control are available to the public, subject to certain exemptions under ATI and the ED Act. Similarly, EDC has a legal obligation to ensure that supported transactions comply with the provisions of the Corruption of Foreign Public Officials Act and the Anti-Terrorism Act. Further, the Corporation is subject to the Public Servants Disclosure Protection Act, which establishes a mechanism for the disclosure of wrongdoing in the public sector and protects public servants who make disclosures.


65Governance

9.4 External Factors

EDC’s governance is influenced directly and indirectly by external factors, some general and some specific.

For instance, as an Agent of Her Majesty in Right of Canada, EDC has an obligation to conduct its business in accordance with various international agreements, treaties, and conventions. These have the potential to influence EDC’s governance environment, by establishing parameters for what the Corporation may or may not do in providing financial services. EDC must comply fully across all its activities with Canada’s international obligations, including the WTO’s Agreement on Subsidies and Countervailing Measures and the OECD’s Arrangement on Officially Supported Export Credits, which also includes various Sector Understandings (e.g., for civil aircraft) for its medium and long-term activities.

The OECD has also issued guidance in such areas as corruption (Action Statement on Bribery in Officially Supported Export Credits) and the environment (Recommendation on Common Approaches on Environment and Officially Supported Export Credits). Further, Canada is a party to the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Transactions. Finally, EDC is subject to the Berne Union General Understanding on credit terms for short-term activities.

Similarly, EDC’s governance reflects public policy guidance both in Canada and internationally. For example, a Treasury Board of Canada report to Parliament in 2005 reviewing the governance framework of Crown corporations presented a number of action items, many of which have since been reflected in EDC’s governance mechanisms.13 Also in 2005, the OECD released a report on governance of state-owned enterprises (SOEs) with a commercial activity.14 Key recommendations addressed transparency and accountability (e.g., to Parliament), operational autonomy, stakeholder relations, internal and external audits, separation of board chair and CEO, and annual board evaluations.

The Corporation’s governance framework reflects some of the current thinking on best practices in this area, including from the OECD Report. For instance, the above referenced Treasury Board report recommended drawing from private sector best practices to improve the governance framework for Crowns. This includes such areas as ensuring boards are independent from management, providing orientation/education for directors, mandating the use of evaluations, and revising audit committee composition requirements.

9.5 Governance Activities

The legislative instruments and external influences give rise to an array of attributes which, taken as a whole, build a picture of EDC governance environment. These attributes comprise at least seven types of mechanisms or activities: appointments, planning, target setting, reporting, oversight, compliance and audit.

Appointments

The Governor-in-Council appoints the Chairman of the Board and the President. The Minister of International Trade recommends the appointment of all other directors, with the approval of the Governor-in-Council.

13 Meeting the Expectations of Canadians: Review of the Governance Framework for Canada’s Crown Corporations.14 OECD Guidelines on Corporate Governance of State-owned Enterprises.


66 Governance

Planning

Planning mechanisms provide clarity on how EDC expects its activities to evolve going forward, as well as the associated rationale for such evolution. Two important mechanisms are the Minister’s Statement of Priorities and Accountabilities (SPA) and EDC’s Corporate Plan.

In accordance with Treasury Board recommendations, EDC’s governing Minister issues a SPA to the Corporation. The SPA, which is subject to an annual review, sets out certain functions, activities, and information requirements which the Government expects EDC to adhere to in planning and carrying out its operations.

In accordance with the FAA, EDC is obliged to prepare and submit annually for approval by the Board and the Governor in Council a Corporate Plan, including an operating budget, a capital budget, and a borrowing plan. The Corporate Plan assesses the Corporation’s operating environment, outlines its business strategy over the medium term, and presents a financial forecast plan, including assumptions and key ratios. As part of the Corporate Plan process, various Government departments, including DFAIT, Finance, and Treasury Board have opportunities to review and provide input to the Plan.

The Corporate Plan has a role of central importance both in terms of EDC’s operations and governance. The plan is discussed in draft with Government and has to be approved by the Minister for International Trade and the Governor-in-Council.15 Thus, we recommend that the SPA should be provided by the Minister to EDC at sufficiently early date in the planning process to allow EDC to take full account of the Government’s priorities in the drawing up of its Corporate Plan.

It is vital that the SPA is made available at an early enough date for EDC to take full account of the Government’s priorities when drawing up the Corporate Plan. The Government should use fully the opportunity they have both through seeing the Plan in draft and having to approve the Plan to ensure that the Plan fully meets their oversight requirements and needs.

Target Setting

Performance targets play an important role across EDC’s operations, not only as regards the implementation and monitoring of strategies and priorities, but also in the context of remuneration.

In our view, Government needs to have a clear understanding of the key targets both in terms of their main component parts but also as regards their relative priorities. An important point — but not the only one — is to clarify and confirm that these priorities fully reflect the appropriate public policy priorities.

15 As a matter of practice, the Minister of Finance typically recommends the approval of the Corporate Plan to the Minister for International Trade.

We recommend that the SPA should be provided by the Minister to EDC at sufficiently early date in the planning process to allow EDC to take full account of the Government’s priorities in the

drawing up of its Corporate Plan.


67Governance

Thus we recommend that Government should regard the review of key targets as an integral part of the whole Corporate Plan process (i.e., at consideration, approval and monitoring stages). DFAIT officials should pay particular attention to the Corporation’s key performance targets and their main component parts and priorities.

In other words, for governance to operate in the optimum way, it is not sufficient for Government to concentrate only on high level objectives. Attention needs also to be given to the most significant elements of the Tactics, Performance Measures and Definitions which flow from these.

Reporting

Reporting mechanisms, which may be obligatory or voluntary, serve to communicate how EDC has performed against established measures and benchmarks. For instance, in accordance with the FAA, EDC is obliged to submit an Annual Report regarding its activities and results in the most recent fiscal year. Pursuant to Treasury Board guidelines, EDC hosts an Annual Public Meeting, which is attended by representatives of government, industry, and civil society.

EDC’s Disclosure Policy, first developed in 2001, has been updated on several occasions to reflect requirements, recommendations, or guidance from various sources including the OECD Common Approaches on Environment and Officially Supported Export Credits, the OAG, public consultations, and new legislation (ATI). An example of voluntary reporting is EDC’s annual Corporate Social Responsibility Report, the performance indicators of which are reviewed by an independent auditing firm.

Oversight

Oversight mechanisms provide perhaps the most tangible and objective characteristics of EDC’s governance environment. EDC’s Board of Directors and Committees of the Board provide guidance, direction, and authority for EDC’s activities. In 2007, a special Charter was approved by the Board which spells out the Board’s responsibility for stewardship of EDC. As well, the Board oversees and approves EDC’s Corporate Plan, and is responsible for monitoring EDC’s risk management practices. Further, the Board conducts an annual survey of its directors regarding performance and governance issues, reflecting Treasury Board guidelines on best practices.

Other relevant oversight mechanisms include EDC’s policies, procedures, and frameworks relating to a broad array of operational dimensions. This includes delegations of authority for financial commitments, policies for disclosure and environmental reviews, and frameworks for risk management. EDC’s Capital Adequacy Policy includes a new dividend policy which was applied for the first time in 2007.

We recommend that Government should regard the review of key targets as an integral part of the whole Corporate Plan process (i.e., at consideration, approval and monitoring stages). DFAIT officials should pay particular attention to the Corporation’s key performance targets and their

main component parts and priorities.


68 Governance

Compliance

Compliance mechanisms help ensure that EDC conducts its affairs in accordance with specified parameters, which may be established by the Government, promoted by third parties, or imposed by the Corporation on itself. For instance, EDC is subject (under the FAA) to periodic special examinations by the Office of the Auditor General of Canada (OAG) to assess whether its financial and management control and information systems and management practices provide reasonable assurance that its assets are safeguarded, its resources are managed efficiently, and its operations carried out effectively.16

In terms of compliance with third-party guidelines, it is noteworthy that in 2007, EDC became only the second ECA to adopt the Equator Principles, an international financial industry benchmark for assessing and managing social and environmental risk in project financing. As well, EDC is participating in Canada’s delegation to the ISO Working Group on Social Responsibility, which is tasked with drafting ISO 26000, an international voluntary standard on social responsibility.

Examples of self-imposed parameters are EDC’s Code of Business Ethics and Code of Conduct, which guide corporate and employee activities regarding the environment, bribery, human rights, conflicts of interest, confidential information, and ethical conduct. Each employee and Board member is required to complete a Code of Conduct Statement of Compliance annually.

Audit

The OAG undertakes an annual audit of the accounts, as well as an audit every 5 years of the design and the implementation of the Board’s Environmental Review Directive.

9.6 Evaluation of EDC’s Governance

DFAIT and Department of Finance

We specifically asked both DFAIT and Department of Finance if they were satisfied with the extent and manner in which EDC met its governance responsibilities towards them. They both confirmed that they were satisfied.

Government Directors on the EDC Board

One question which did arise during the consultations is the possibility of Government officials serving — again — on the EDC Board. A number of points seem relevant in this context. First, that the chairman and all members of the Board are appointed by the Government. To this extent, it might be argued that they reflect EDC’s shareholding arrangements. Government officials left the Board as recently as 2006 in accordance with changes in Government policy toward Crown Corporations generally, leaving the discretion of these decisions to individual Ministers. We understand that of the 48 Crown Corporations, only seven have public servants on their board and, of the seven, three are required to do so by virtue of their legislation (e.g. the Deputy Minister of Finance is on the board of the Bank of Canada). This means that currently only four of 48 have Government directors at the discretion of their Minister.

16 The most recent such special examination was carried out in 2004, and concluded that there was reasonable assurance that there were no significant deficiencies in the systems and practices examined. As of the date of this report, a special examination is ongoing.


69Governance

Obviously all members of the EDC Board — which is accountable to Government — share the same fiduciary responsibilities and it seems to us that on some occasions this could produce potential problems and conflicts for Government officials serving on the Board.

In addition, we think that a valid point is made by the President of BDC, M. Jean-René Halde, in an article in the July 2007 edition of the Journal of Development Finance when he says “Having bureaucrats on the BDC Board had been a long standing practice. However, even if the senior bureaucrats who had served on our Board brought experience and insight — which they did — their presence blurred the fundamental line between the Board and the Government”.17

Therefore, based on the information available, we do not recommend the re-appointment of Government officials as directors to the EDC Board.

Information

Concern was expressed to us about the amount of information available to Government officials.

It is perfectly understandable that officials in DFAIT and the Department of Finance may require more, and more detailed, information than may be available in the public arena. It would also seem sensible that this should be provided on a regular basis and in a structured way which reflects commercial confidentiality. This kind of information might embrace not only details in relation to business volumes and financial results on specific facilities/products/business areas and some breakdown of exposure/liabilities, but also some increased understanding and appreciation following Board meetings, etc. on strategy. This would supplement the information which is provided as part of the Corporate Plan process.

This need not become a bureaucratic exercise or cause much extra work for anyone, inside or outside EDC. But rather than rely on ad hoc requests, we recommend that DFAIT and Department of Finance draw up details of what they need (and why) in order to carry out their oversight and governance responsibilities and that a protocol is negotiated with EDC so as to set the necessary procedures/methodology in hand and so that uncertainty is removed. We believe that this kind of limited transparency as between EDC and the relevant parts of Government would be in the interest of all the parties directly involved.

9.7 Conclusions

Against the background described above, it is clear that there are several interlocking and overlapping areas of governance. Taken together, these provide a comprehensive framework within which the Corporate Plan in its various phases is the centerpiece.

17 Journal of Development Finance, Issue No. 54, July 2007, “Governance at BDC”, Jean-Rene Halde, p. 36.

Based on the information available, we do not recommend the re-

appointment of Government officials as directors to the

EDC Board.

We recommend that DFAIT and Department

of Finance draw up details of what they need (and why) in order to carry out their oversight and

governance responsibilities and that a protocol is negotiated with EDC

so as to set the necessary procedures/methodology

in hand and so that uncertainty is removed.


70 Governance

Given not least the point made at the beginning of this chapter about the significant position of EDC across the economic and financial spectrum in Canada, we recommend that it would be useful for Government to review the organizational and operational structures and the resources which it currently has in place especially in DFAIT in relation to the oversight of EDC.

For governance and oversight to work effectively, the structures and resources need to reflect not only the importance of EDC’s activities and the substantial financial implications both actual and contingent which are involved but also that EDC’s priorities and strategies need to be totally aligned with the relevant public policy requirements and priorities.

DFAIT’s ability effectively to meet its governance responsibilities and to provide advice and support to its Minister will be directly dependent on the information and resources available to it.

The question of information is dealt with earlier in this chapter and the recommended protocol on this subject could be linked to the SPA issued by DFAIT to EDC.

Since this is challenging work by any standards, continuity of staff is very important. We suggest, therefore, that DFAIT should review whether the relevant posts should be filled by rotational staff.

We also suggest that DFAIT should seek to increase its technical expertise and to look for ways of augmenting such expertise. This is of even greater importance given the additional roles we have recommended for DFAIT (see Recommendations 8, 9, 12 and 18 in Chapter 12).


1. We recommend that the SPA should be provided by the Minister to EDC at sufficiently early date in the planning process to allow EDC to take full account of the Government’s priorities in the drawing up of its Corporate Plan.

2. We recommend that Government should regard the review of key targets as an integral part of the whole Corporate Plan process (i.e., at consideration, approval and monitoring stages). DFAIT officials should pay particular attention to the Corporation’s key performance targets and their main component parts and priorities.

3. Based on the information available, we do not recommend the re-appointment of Government officials as directors to the EDC Board.

We recommend that it would be useful for Government to review the organizational and operational structures and the resources which it currently has in place especially in DFAIT in relation

to the oversight of EDC.


71Governance

4. We recommend that DFAIT and Department of Finance draw up details of what they need (and why) in order to carry out their oversight and governance responsibilities and that a protocol is negotiated with EDC so as to set the necessary procedures/methodology in hand and so that uncertainty is removed.

5. We recommend that it would be useful for Government to review the organizational and operational structures and the resources which it currently has in place especially in DFAIT in relation to the oversight of EDC.


73Civil Society

Civil Society

10.1 Developments Since the Last Review

At the time of the last legislative review, a number of issues were raised by various stakeholders regarding EDC’s activities in areas of concern to civil society. This included matters of transparency and accountability, public disclosure of activities, the environment and sustainable development, and human rights.

In the intervening years, both the Government and EDC have responded through various initiatives summarized below:

introducing a legislated Environmental Review Directive in the ED Act;•

becoming the second ECA to sign on to the Equator Principles;•

developing a public Disclosure Policy;•

becoming subject to the federal • Access to Information Act;

establishing a CSR Advisory Council;•

convening Annual Public Meetings;•

signing an MOU with DFAIT to facilitate the sharing of human rights related information; and•

issuing a Statement on Human Rights.•


74 Civil Society

10.2 Current Civil Society Concerns

During the current Review process, relatively few civil society organizations have expressed concerns or issues. In terms of actual numbers, the last review received submissions from six civil society organizations, and four such organizations participated in stakeholder meetings; during the current Review, only two such organizations have made submissions, and only one such organization participated in stakeholder meetings.

It is worth noting that certain civil society organizations have recognized and commended EDC’s efforts to date in responding to civil society concerns and giving consideration to corporate social responsibility and human rights principles in its operational policies and business practices. Notwithstanding these efforts, certain organizations have argued that more could still be done. In this regard, their concerns focus on the areas of disclosure and accountability, protecting human rights, and environmental and social standards.

As a case in point, we noted that the report of the Advisory Group on the National Roundtables on CSR and the Canadian Extractive Industry in Developing Countries contained a number of recommendations specific to EDC. EDC was a participant in these initiatives and advised us that as a Crown Corporation they would be working closely with the Government as it reviews and assesses the report.

With respect to disclosure and accountability, particular concern was expressed regarding EDC’s exemptions from certain obligations under the Access to Information Act. On the issue of human rights, concerns were expressed that EDC’s policy approach is non-binding and lacking in rigour and transparency. One organization argued that there should be a legally binding human rights framework which would dictate the activities of not only EDC but the Canadian Government and companies in general. Another suggested to amend the ED Act to explicitly mandate EDC to protect against the interference of human rights by its clients. Regarding environmental and social standards, questions were raised regarding EDC’s compliance with international best practices in this area.

10.3 Conclusions

The concerns raised by civil society organizations during the course of our Review, particularly in the area of protecting human rights, are important but they extend beyond the area of EDC. Our work has concentrated on how successfully EDC has taken into account and responded to these concerns within the parameters of its mandate and its operations and in relation to Government policies.

By common consent, EDC has done much in recent years to address key areas of concern to civil society. It would probably be fair to say that EDC has done more and gone further than any other ECA. The Corporation appears to be an informed and engaged party in relation to civil society developments both within the Canadian Government and internationally. This includes matters relating to human rights, and the effects of its activities in this area. EDC’s recent co-hosting (with CIDA) of a multi-stakeholder workshop on mining in the Democratic Republic of Congo is an example of such engagement initiatives.

We would in principle agree with the view, as expressed by these organizations in their submissions to the Review Team, that EDC, as a public institution and entity of the Canadian Government, shares in Canada’s international human rights obligations. However, this does not mean that EDC should be asked to define Canada’s obligations in this area; this is a matter of concern to the Government itself within the context of


75Civil Society

overall domestic and foreign public policy. As one of the organizations correctly points out, any kind of legally binding framework, if one were to arise, would have to come from Canada’s Parliament, and not from EDC.

We would caution against applying unilateral requirements on EDC in the area of human rights protection. A better approach would likely be to encourage more broad-based engagement internationally on these issues, such as via the OECD or among international financial institutions. Once the objectives in this area had been defined by Government, then EDC could no doubt play a legitimate and important role in this regard, given its status and recognition among stakeholders internationally.

With respect to the areas of disclosure and accountability and environmental and social standards, we are less than fully convinced by the arguments and suggestions presented by the civil society organizations.

Regarding disclosure and accountability, EDC makes the case that it aims to balance the need for public accountability with the need to effectively execute its mandate and to protect its customers’ commercially sensitive information. We believe that this is a reasonable and appropriate objective for an institution of this nature, and we would note EDC’s accomplishments since the time of the last review in broadening significantly the scope of its disclosure undertakings. Further, EDC notes that the Section and Schedule of the Access to Information Act which exempts EDC from certain disclosure requirements was considered and debated at the Parliamentary level as part of the process of making EDC subject to this Act. On balance, we have not, during the course of the Review, received sufficiently compelling rationale for second-guessing the decisions of Parliamentarians in this regard. Nevertheless the area of disclosure of, and public access to, information in public-sector institutions is important, and so we encourage EDC to continue pushing forward in terms of the quantity and quality of information which is made publicly accessible.

On the matter of environmental and social standards, one submission to the Review argued that EDC should be statutorily mandated to ensure that its standards in this area are consistent with international “best practice”. However, these are not described in a way that would strongly suggest that there exists a commonly held understanding of what constitutes “best practices” in this area. On several dimensions, EDC appears to be at or near the forefront of these standards among not only ECAs but international financial institutions generally. Its Environmental Policy, the Environmental Review Directive under the ED Act, and the OAG’s regular, legislated environmental audits are examples of standards which EDC or the Government has put in place to ensure compliance with Canadian and international standards.

In closing, we recommend EDC maintains its active engagement and policy development in this area. Care should be taken that any changes are not unilaterally imposed on EDC in such a way as to put Canadian exporters at a disadvantage. Therefore, continued efforts at the OECD by EDC to establish common approaches on the full range of civil society issues should be encouraged.

We encourage EDC and DFAIT to continue pushing forward in terms

of the quantity and quality of information which is made publicly

accessible.


76 Civil Society


1. We encourage EDC to continue pushing forward in terms of the quantity and quality of information which is made publicly accessible.

2. We recommend EDC maintains its active engagement and policy development in this area. Care should be taken that any changes are not unilaterally imposed on EDC in such a way as to put Canadian exporters at a disadvantage. Therefore, continued efforts at the OECD by EDC to establish common approaches on the full range of civil society issues should be encouraged.

We recommend EDC maintains its active engagement and policy development in this area. Care should be taken that any changes are not unilaterally imposed on EDC in such a way as to put

Canadian exporters at a disadvantage. Therefore, continued efforts at the OECD by EDC to establish common approaches on the full range of civil society issues should be encouraged.


77Other Issues

Other Issues

11.1 Introduction

A number of other issues arose during our work which are not discussed elsewhere in this report. Thus it seems useful to record our views and recommendations on the following:

(i) Offices Overseas

(ii) Taxation

(iii) Canadian Government Guarantee

(iv) Portfolio Management

(v) Canada Account

11.2 Offices Overseas

It is clear from Chapter 3 of this report that a very wide range of Canadian companies — exporters of goods and services, investors and financing institutions of various kinds — all need access to a growing range of resources to enable them to do business internationally in a rapidly changing and increasingly competitive world. It is obvious that all Canadian companies cannot have a presence or an operation of their own in all countries where business opportunities may exist. This is especially true of SMEs. But local information and on-the-spot expertise, help, and information are vital.


78 Other Issues

As regards the Canadian Government, the lead in providing such help and information will be taken by the Trade Commissioner Service of DFAIT. In addition, Provincial Governments, Crown Corporations, and banks have established a presence in some of the most important overseas markets.

Given the increasing range and growing complexity of EDC’s operations and facilities, it is not surprising that EDC has developed its own network of representatives who can offer an impressive range of assistance and information to Canadian companies (e.g., by forging links with local buyers and local financing institutions). A list of the current EDC overseas representatives is attached in Annex L.

It is clear from the Town Hall Meetings and the submissions made to us that exporters have found EDC’s on-the-spot assistance and local expertise of significant value. The overseas representatives have also enabled EDC to operate its own widening range of facilities more effectively and flexibly. In this regard, EDC sees a business need to increase the range of its current 13 representatives to 20 by 2010.

All of the existing EDC representatives are currently located in Canadian diplomatic missions. For a variety of reasons, this may not always be the optimum or most practical arrangement. However, under EDC’s current legislation, it does not — unlike, for example, the Canadian Commercial Corporation (CCC) — have the authority to establish its own offices outside Canada.

Some flexibility in this area seems very desirable. This is for example, recognized in the April 2007 Report of the Standing Committee of International Trade where Recommendation 2 reads, “The federal government should immediately undertake a review of the existing legislative restrictions that restrain Export Development Canada from having greater commercial presence in emerging markets and remove restrictions where feasible”.

Given EDC’s desire to expand its overseas representation, combined with the facts that no stakeholders have raised any significant issue in this area, and that other Crown Corporations involved in supporting Canada’s international activities — such as CCC — have the legislative ability to open offices overseas, it seems reasonable to permit EDC greater flexibility in how it establishes

overseas offices. Obviously, close co-operation with DFAIT in this area is essential and would no doubt include DFAIT considering EDC’s views on why EDC wished to establish representation in a particular country and whether such representative should best be co-located within the diplomatic mission or separately.

Against this background, we recommend that EDC’s legislation (Section 17 of the ED Act) should be amended so as to enable it, in close co-operation with DFAIT, to establish offices outside Canada where it judges that this is necessary for business reasons and in order to carry out its responsibilities under its Act.

We recommend that EDC’s legislation (Section 17 of the ED Act) should be amended

so as to enable it, in close co-operation with DFAIT, to

establish offices outside Canada where it judges that this is

necessary for business reasons and in order to carry out its responsibilities under its Act.


79Other Issues

11.3 Taxation

The fact that EDC is not subject to either Federal or Provincial tax was raised with us on a number of occasions (e.g. by the private insurers in the context of “unfair competition”). It is of course true that EDC does not pay tax but, as is mentioned in Chapter 6, EDC undertakes a range of “public policy” activities which are not carried out by private insurers and for which EDC is not paid by the Government.

Whether or not EDC should be one of the Crown Corporations which is subject to tax (as opposed to remaining one of the Crown Corporations which is tax exempt) is of course a matter for the Ministry of Finance and is beyond the scope of this Report.

However, in the context of some of the issues raised with us during our work, three points seem relevant.

First, many would argue that it makes little practical sense for the Government to tax itself. Second, that the likely sequence of events were EDC to be required to pay tax would be that it would react like other large financial institutions and seek to minimize tax which would lead to disputes with the Canada Revenue Agency (CRA), appeals and counter appeals, legal action and generally heavy costs and continuing uncertainty. Third, that tax payments (like premium tax) would inevitably be passed on to EDC’s customers and so could impact on the international competitiveness of Canadian exports.

11.4 Government Guarantees

The existence of the Government of Canada “guarantee” behind EDC is important in a number of contexts.

For example, it makes EDC’s short term credit insurance policies more attractive to the banks (see Chapter 6.6). It also enables EDC to borrow more cheaply internationally and makes its treasury management activities more popular with the banks. Further, it makes EDC’s MLT Guarantee Program of greater interest to the banks.

One possibility raised with us was that EDC would somehow pay the Government for the use of the guarantee. It is not entirely clear how useful this would be in practice. For example, it would not generate any additional income (it might even reduce income if some of EDC’s activities were to become less attractive to “customers”). At best, it might produce some sharing of income between Government and EDC; that is, the Government putting money in two pockets rather than one pocket.

In this light, this does not seem to us to be a very attractive option and we do not recommend any changes.

11.5 Portfolio Management

Continuous monitoring and active management of the portfolio of risks has become of increasing importance for ECAs and for others involved in risk management. In addition, a variety of new techniques and facilities have been developed in the last few years, including various kinds of swaps.


80 Other Issues

Some ECAs have wanted to try to reduce the concentration of risk in their total exposure which can arise both in respect of risks on individual countries or particular sectors. Other ECAs have needed to reduce existing exposure in some areas in order to free up capacity so as to be able to undertake new business.

The traditional approach to reducing exposure and concentration has been via reinsurance or co-insurance where, in effect, the risks of the ECA are shared with either reinsurers or other insurers, including other ECAs. The objective is usually to try to get a better or more even spread of risks and an improved balance of risks within a portfolio. In addition to reinsurance and

co-insurance, varieties of credit derivatives, swaps and hedging, credit default swaps etc., as well as facilities for the sale of debt are now available in the market.

The end result of reduced concentration of risk and improved spread/balance of risks is not only desirable in itself but, importantly, enables the ECA to take on more risks from new business.

Opportunities to swap or trade risks and assets can arise in the market at short notice and may only be available for a very limited period. So speed and flexibility of reaction is important.

EDC said that their portfolio management activities are governed under Section 10.1 (h) and (j) of the ED Act and that, while the language of these provisions is sufficiently broad to cover the type of activities which EDC would use so as prudently to manage risks, the use of these powers is tied to Section 10.1; that is, to EDC’s mandate. EDC feels that this linkage can be problematic as many of their portfolio management activities are not directly linked to new financing transactions and may apply to a range of existing exposure.

While an argument can be made that prudent risk management — indirectly — enables EDC to carry out its mandate, it could be useful to clarify the position, perhaps by removing the purpose test set out in the ED Act for such activities. For example, a new section might be added to deal with portfolio management activities.

Given that it is undesirable that there should be any uncertainty or any lack of clarity in this area of growing importance where rapid response to opportunities in the market is vital, we recommend that the Government should consider amending the ED Act to clarify EDC’s portfolio management powers.

11.6 Canada Account

As noted earlier, this Report does not deal with Canada Account as it was not an issue raised generally through the consultations.

However, one specific point did arise.

Pursuant to Section 23 of the ED Act, Canada Account is used to support export transactions which for risk management practices EDC is unable to take on its own account, but which the Minister for International Trade, in concurrence with the Minister of Finance, considers to be in Canada’s national interest. Canada

We recommend that the Government

should consider amending the ED

Act to clarify EDC’s portfolio management

powers.


81Other Issues

Account transactions include business in all of EDC’s product categories (financing, accounts receivable insurance, contract insurance and bonding, and political risk insurance) except equity. While the business is underwritten directly by the Government, EDC is responsible for the administration of Canada Account.

In the management of Canada Account, EDC may be called upon to carry out restructuring agreements or debt work-outs that, while resulting in some partial forgiveness of debt, present the best overall outcome for the Government’s assets. Section 24.1 of Financial Administration Act imposes a requirement for parliamentary authority before the forgiveness of debt, and EDC is able to act in a prompt and efficient manner based on the legislative authority of Section 23 of the ED Act.

Section 23 of the ED Act contains a provision that stipulates that “the Minister (of International Trade), with the concurrence of the Minister of Finance, may authorize the Corporation to make any investment or enter into any transaction… necessary or desirable for the management of assets and liabilities arising out of any transactions that may be entered into (Canada Account).” We understand since restructurings or debt-workouts are considered transactions, Section 23 has been interpreted as providing the necessary parliamentary authority to undertake such restructurings which may include the forgiveness of debt.

In order to provide greater clarity on EDC’s authority in this regard, we recommend that this authority be clarified and, if appropriate, the ED Act be amended so that it is explicit that EDC has the parliamentary authority to undertake proposed restructurings, with the authorization of the Minister of International Trade and the concurrence of the Minister of Finance, which may include the forgiveness of debt.


Offices Overseas

1. We recommend that EDC’s legislation (Section 17 of the ED Act) should be amended so as to enable it, in close co-operation with DFAIT, to establish offices outside Canada where it judges that this is necessary for business reasons and in order to carry out its responsibilities under its Act.

Government Guarantees

2. We do not recommend any changes.

Portfolio Management

3. We recommend that the Government should consider amending the ED Act to clarify EDC’s portfolio management powers.

We recommend that this authority be clarified and, if appropriate, the ED Act be amended so that it is explicit that EDC has the parliamentary authority to undertake proposed restructurings,

with the authorization of the Minister of International Trade and the concurrence of the Minister of Finance, which may include the forgiveness of debt.


82 Other Issues

Canada Account

4. We recommend that EDC’s authority be clarified and, if appropriate, the ED Act be amended so that it is explicit that EDC has the parliamentary authority to undertake proposed restructurings, with the authorization of the Minister of International Trade and the concurrence of the Minister of Finance, which may include the forgiveness of debt.


83Recommendations

Recommendations

The recommendations discussed throughout this report are recapped and summarized below.

12.1 Recommendations Relating to ST Credit Insurance

1. We recommend that EDC should not re-enter the domestic credit insurance market unless there are significant changes in the market leading to large scale gaps in the availability of domestic credit insurance.

2. We do not recommend that any steps should be taken artificially or arbitrarily to curtail or restrict EDC’s current activities in the ST export credit insurance area. Also, EDC should not in current conditions cease to be a direct insurer.

3. We recommend that there is no need to change EDC’s mandate arising from ST credit insurance activities.

4. The creation at this time of an EDC “exit strategy” is not recommended.

5. We do not recommend that EDC should establish a subsidiary company to operate its ST credit insurance operation/activities.

6. We recommend that there should be greater transparency; in effect, that EDC should put into the public arena the same kind of information about ST credit insurance activities as the private insurers are required to do under OSFI regulations.

7. We recommend that EDC should continue to increase its efforts to co-operate and partner with private insurers so as to increase capacity available to Canadian exporters, recognizing that the most successful co-operative arrangements are likely to be those which offer mutual benefits.


84 Recommendations

8. We recommend that there should be a Broker Advisory Panel of specialist brokers established by DFAIT to provide the EDC Board of Directors and the Minister of International Trade with market intelligence, as well as to review and report on any alleged examples of predatory competition from EDC. The Panel could both look at individual cases raised by the private insurers and also report annually.

9. All cases of co-operation between EDC and private insurers should be monitored by DFAIT, either directly or via the Broker Advisory Panel recommended above, with a view to reporting in some objective and generally acceptable way on the actual business done, and in particular any “extra” capacity (however so determined) actually generated for the benefit of Canadian companies.

10. We recommend that this area should be investigated again in not later than 5 years time, to assess changes which may have taken place, not least in regard to the overlap between EDC and private insurers, changes in market share, and the facilities available to SMEs from the private insurers.

12.2 Recommendations Relating to Medium and Long Term Business

11. We recommend that those banks that have a serious interest in the MLT area and the capacity and willingness to provide MLT financing and to share MLT risks should be invited to set down in detail what problems they have with the present position, what changes they would like to see made and why.

12. We recommend that EDC should consider the paper from the banks, especially the proposals for changes and that EDC should respond as positively and constructively as possible, with clear emphasis not on what is best for EDC but on what would be most helpful to Canadian MLT exporters, especially those like the large exporter quoted earlier. A detailed dialogue at working level should then take place with a report to be made to DFAIT and the Department of Finance on the results.

13. We recommend that EDC management and staff should continue active steps to ensure that new business is done to utilize the existing Strategic Risk Capital.

14. We recommend that serious consideration be given to additional Strategic Risk Capital being made available so as to enable EDC to meet the needs of Canadian MLT exporters in this increasingly competitive but undoubtedly difficult area and that this should be a priority — especially for the EDC Board and the Government — when reviewing future EDC surpluses and dividend payments.

12.3 Recommendations Relating to Domestic Financing

15. We recommend that any activity by EDC in the area of domestic financing should not risk further overlap with BDC’s activities.

16. We recommend that the Regulations should be amended so that EDC is able to provide domestic financing in cases which fall within their mandate without case-by-case reference to Ministers in the following areas:



85Recommendations





17. We recommend that, for an initial period at least, there should be regular reports to the EDC Board on its domestic financing activities.

18. We recommend that these reports should be supplemented at least for the first two years, by regular — at least half-yearly — reports to DFAIT and the Department of Finance which would enable them to monitor the position and to report as necessary to Ministers. Recognizing that commercial confidentiality requirements will exist, we recommend that the reports to DFAIT and the Department of Finance should include at least the following:






12.4 Recommendations Relating to Governance

19. We recommend that the SPA should be provided by the Minister to EDC at sufficiently early date in the planning process to allow EDC to take full account of the Government’s priorities in the drawing up of its Corporate Plan.

20. We recommend that Government should regard the review of key targets as an integral part of the whole Corporate Plan process (i.e. at consideration, approval and monitoring stages). DFAIT officials should pay particular attention to the Corporation’s key performance targets and their main component parts and priorities.


86 Recommendations

21. Based on the information available, we do not recommend the re-appointment of Government officials as directors to the EDC Board.

22. We recommend that DFAIT and Department of Finance draw up details of what they need (and why) in order to carry out their oversight and governance responsibilities and that a protocol is negotiated with EDC so as to set the necessary procedures/methodology in hand and so that uncertainty is removed.

23. We recommend that it would be useful for Government to review the organizational and operational structures and the resources which it currently has in place especially in DFAIT in relation to the oversight of EDC.

12.5 Recommendations Relating to Civil Society

24. We encourage EDC to continue pushing forward in terms of the quantity and quality of information which is made publicly accessible.

25. We recommend EDC maintains its active engagement and policy development in this area. Care should be taken that any changes are not unilaterally imposed on EDC in such a way as to put Canadian exporters at a disadvantage. Therefore, continued efforts at the OECD to establish common approaches on the full range of civil society issues should be encouraged.

12.6 Recommendations Relating to Other Issues

Offices Overseas

26. We recommend that EDC’s legislation (Section 17 of the ED Act) should be amended so as to enable it, in close co-operation with DFAIT, to establish offices outside Canada where it judges that this is necessary for business reasons and in order to carry out its responsibilities under its Act.

Government Guarantees

27. We do not recommend any changes.

Portfolio Management

28. We recommend that the Government should consider amending the ED Act to clarify EDC’s portfolio management powers.

Canada Account

29. We recommend that EDC’s authority be clarified and if appropriate, the ED Act be amended so that it is explicit that EDC has the parliamentary authority to undertake proposed restructurings, with the authorization of the Minister of International Trade and the concurrence of the Minister of Finance, which may include the forgiveness of debt.


87Mandate and Regulation Changes


The ED Act and the EDC mandate contained in this Act have stood the test of time very well, in spite of many significant changes in the international trading world in which EDC operates.

An important feature is that EDC has interpreted its mandate flexibly and constructively over the years. In the context of the changes in the international trading world as described in Chapter 3 and the uncertainties arising from the current financial market developments, we feel it is very important that EDC continues to interpret its mandate with the same degree of flexibility in order to meet fully the evolving needs of Canadian companies.

There have only been a relatively few rather limited problems with the legislation but some of these problems may well become larger in the coming years. These problems, which have been discussed earlier in this report, most importantly relate to the Regulations rather than to the ED Act itself. The only areas where we recommend that changes/amendments may be necessary are domestic financing, EDC offices overseas, portfolio management, and Canada Account.

With respect to domestic financing, our recommendation — that EDC be permitted to provide domestic financing in certain pre-defined areas which fall within their mandate without case-by-case reference to Ministers — would require an amendment to the Regulations.

Our recommendation regarding offices overseas — that EDC be permitted to establish offices outside Canada — would require only a very minor amendment to Section 17 of the ED Act.

Finally, our recommendations to clarify and confirm EDC’s powers in relation to their portfolio management activities and to Canada Account restructurings might require small amendments to the ED Act.


88 Annex A: Review Team

Annex A: Review Team

Malcolm Stephens, CB, Project co-Leader

Malcolm Stephens is a highly sought-after international expert with over 40 years of experience in the export credit, export finance and political risk field, including five years as Chief Executive of UK’s Export Credit Agency (ECGD) and six years as Secretary General of the International Union of Credit and Investment Insurers (the Berne Union). Mr. Stephens was also the Head of the Trade and Export Finance Operations for Barclay’s Group. In his role as Group Chairman of International Financial Consulting Ltd., he has advised numerous governments and agencies from around the world, including Australia, New Zealand, Canada, China, South Africa, Turkey, Chile, Bangladesh, among others. He undertook a study for the European Commission on the definition of marketable and non-marketable risks for short-term credit insurance. He is a frequent speaker at international meetings and has published widely, including a book for the IMF entitled “The Changing Role of Export Credit Agencies”.

Diana Smallridge, Project co-Leader

Diana Smallridge is the President of International Financial Consulting Ltd., a position she has held since June 2000. Ms. Smallridge is a well-known expert in the area of Ex-Im Banks, Export Credit Agencies and Development Banks and has 20 years of experience in the field. She has extensive practical expertise in program evaluation, product development and strategic and business planning for government-owned financial institutions. She has a wide international network and has worked with clients in more than 30 countries including Australia, Canada, US, Japan, New Zealand, Bangladesh, South Africa, Turkey, Saudi Arabia, Finland, Romania, Czech Republic, Malta, Mauritius, Mexico, and throughout the Caribbean. In addition, Ms. Smallridge is the Conference Chairman for the Annual Global Convention on Export Credit and Political Risk, held annually in London, and is a regular conference speaker. She was the keynote speaker in October 2006 to the EU ECAs in Helsinki, Finland on the topic of the Future of Export Credit, as well as in Jeddah Saudi Arabia in January 2007 to the Islamic ECAs on the topic of the Role of Export Credit Agencies in Emerging Markets.

Patrick Brean, Technical Consultant

Patrick Brean specializes in the areas of international projects, financial services, and corporate strategy. Mr. Brean has extensive public and private-sector expertise in treasury/capital markets, financial derivatives and risk management products, offshore project development, private equity, project and structured finance, and investment funds. He has concluded projects with many public-sector clients in Canada and abroad, including Industry Canada, Department of Foreign Affairs and International Trade, Export Development Canada, Canadian Commercial Corporation, Environment Canada, Multilateral Investment Guarantee Agency, and Finnvera. Private-sector projects have been concluded in communications/IT, financial services, infrastructure, energy, industrial equipment, and biotechnology throughout the Americas, Europe, and Africa. In addition to serving as Senior Associate of International Financial Consulting Ltd., Mr. Brean is the Director of Project Advisory for Green Capital Advisors Ltd., and President of Crystalus Strategic Documents Inc.


89Annex A: Review Team

Craig MacDonald, Stakeholder Consultations

Craig MacDonald has 36 years’ experience, twenty-three at the executive level, in the Public Service of Canada. His specialization is in trade policy, international business development and human resource management. He held senior management positions as Director General both in the Department of Foreign Affairs and International Trade and in Industry Canada, and served abroad as Canada’s Ambassador to the Republic of Finland and Minister-Counsellor and Deputy Head of Mission at Canada’s Mission to the European Union, in Brussels. Earlier foreign assignments were in Washington, Bangkok and Tehran. As Director General for Trade Policy and International Affairs in Industry Canada, he co-chaired one of the government/private sector teams, which represented the early stages of the ‘Team Canada’ approach to international business development, and co-ordinated Industry Canada’s involvement with the other sector teams. He also participated in several Ministerial-led Canadian business missions abroad. As Director General, International Business Development in Foreign Affairs and International Trade, he regularly consulted with industry groups and provincial government officials on a variety of international business development initiatives.

Susan Norrington, Events Management

Sue Norrington, CAE, was Events Manager for the EDC Review 2008. She organized the cross-country Town Hall meetings, online video-clips and managed the EDC Review site.

Elizabeth Garner, Research

Elizabeth Garner has been the researcher for the EDC Review. She has expertise in researching the financing mechanisms for trade and development and has undertaken SME, exporter research, as well as a number of institutional surveys.


90 Annex B: ED Act and Regulations

Annex B: ED Act and Regulations

Export Development Act

E-20An Act to establish Export Development Canada and to support and develop trade between Canada and other countries and Canada’s competitiveness in the international market-place

SHORT TITLE

Short title

1. This Act may be cited as the Export Development Act.

R.S., 1985, c. E-20, s. 1; 2001, c. 33, s. 2(F).

INTERPRETATION

Definitions

2. In this Act,

“Board”« conseil »“Board” means the Board of Directors of the Corporation;

“body corporate”« personne morale »“body corporate” means an incorporated body wherever or however incorporated;

“Chairman” [Repealed, 2001, c. 33, s. 3]

“Chairperson” « Version anglaise seulement »“Chairperson” means the Chairperson of the Board;

“Corporation”« Société »“Corporation” means Export Development Canada, the corporation established by section 3;

“director”« administrateur »“director” means a director of the Corporation;


91Annex B: ED Act and Regulations

“entity”« entité »“entity” means a body corporate, a trust, a partnership, a fund, an unincorporated association or organization, Her Majesty in right of Canada or of a province, an agency of Her Majesty in either of such rights and the government of a foreign country or any political subdivision thereof and any agency thereof;

“Executive Committee”« comité de direction »“Executive Committee” means the Executive Committee of the Board;

“Minister”« ministre »“Minister” means such member of the Queen’s Privy Council for Canada as is designated by the Governor in Council as the Minister for the purposes of this Act;

“person”« personne »“person” means a natural person, an entity or a personal representative;

“personal representative”« représentant personnel »“personal representative” means a person who stands in the place of and represents another person and, without limiting the generality of the foregoing, includes, as the circumstances require, a trustee, an executor, an administrator, a committee, a guardian, a tutor, a curator, an assignee, a receiver, an agent and an attorney of any person;

“President”« président »“President” means the President of the Corporation;

“property”« biens »“property” includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, and whether situated in Canada or elsewhere, and includes obligations, easements and every description of estate, interest and profit, present and future, vested or contingent, in, arising out of or incident to property;

“security interest”« sûreté »“security interest” means an interest in or a charge on property by way of mortgage, lien, pledge or otherwise taken to secure the payment or performance of an obligation;

“Vice-Chairman” [Repealed, 2001, c. 33, s. 3]

“Vice-chairperson” « Version anglaise seulement »“Vice-chairperson” means the Vice-chairperson of the Board.

R.S., 1985, c. E-20, s. 2; 1993, c. 26, s. 2; 2001, c. 33, s. 3.



CORPORATION ESTABLISHED

Corporation established

3. A corporation is hereby established, to be known as Export Development Canada, consisting of a Board of Directors composed of fifteen directors, including a Chairperson and a President.

R.S., 1985, c. E-20, s. 3; 2001, c. 33, s. 4.

Appointment of directors

4. (1) Each director, other than the Chairperson and the President, shall be appointed by the Minister, with the approval of the Governor in Council, to hold office during pleasure for a term not exceeding four years that will ensure, as far as possible, the expiration in any one year of the terms of office of not more than one half of the directors.

Appointment of Chairperson

(2) The Chairperson shall be appointed by the Governor in Council to hold office during pleasure for such term as the Governor in Council considers appropriate.

Vice-chairperson

(3) The Board shall elect a Vice-chairperson of the Board from among the directors.

R.S., 1985, c. E-20, s. 4; R.S., 1985, c. 1 (4th Supp.), s. 44(E); 2001, c. 33, s. 13(E); 2006, c. 9, s. 254.

Alternate directors

5. The Governor in Council may appoint a person to be an alternate director for any director who is selected from among persons employed in the federal public administration and the alternate director so appointed shall act as a director during any period in which the director for whom he is an alternate is, by reason of absence or incapacity, unable to act.

R.S., 1985, c. E-20, s. 5; 2003, c. 22, s. 224(E).

Chairperson to preside at meetings

6. (1) The Chairperson shall preside at meetings of the Board and of the Executive Committee.

Absence, etc., of Chairperson

(2) In the event of the absence or incapacity of the Chairperson, or if the office of Chairperson is vacant, the Vice-chairperson shall perform the functions of the Chairperson during the absence, incapacity or vacancy.



Absence, etc., of Chairperson and Vice-chairperson

(3) Where the Vice-chairperson is, by reason of circumstances referred to in subsection (2), authorized by that subsection to act as Chairperson but the Vice-chairperson is himself absent or incapacitated or the office of Vice-chairperson is vacant, such of the other directors as are present at a meeting shall, if they constitute a quorum of the Board or of the Executive Committee, select a director to act as Chairperson and the director so selected shall perform the functions of the Chairperson until such time as the Chairperson or Vice-chairperson is available to perform them.

R.S., 1985, c. E-20, s. 6; 2001, c. 33, s. 13(E).

COMMITTEES OF THE BOARD

Executive Committee

7. (1) There shall be an Executive Committee of the Board consisting of the Chairperson and four other directors selected by the Board.

Powers

(2) The Executive Committee may exercise any powers and perform any duties of the Board delegated to it by the Board.

R.S., 1985, c. E-20, s. 7; 2001, c. 33, s. 13(E).

Other committees

7.1 The Board may establish any other committee and that committee may exercise any powers and perform any duties of the Board delegated to it by the Board.

2001, c. 33, s. 6.

PRESIDENT

Appointment of President

8. (1) The President shall be appointed by the Governor in Council to hold office during pleasure for such term as the Governor in Council considers appropriate.

Management of Corporation vested in President

(2) The President is the chief executive officer of the Corporation and has on behalf of the Board the direction and management of the business of the Corporation, with authority to act in the conduct of the business of the Corporation in all matters that are not by this Act or the by-laws of the Corporation specifically reserved to the Board or any committee of the Board.



Absence or incapacity of President

(3) In the event of the absence or incapacity of the President, or if the office of President is vacant, the Board shall authorize a director or an officer of the Corporation to act as the President for the time being and shall fix the terms and conditions of his appointment and his remuneration, but no person so authorized by the Board has authority to act as President for a period exceeding sixty days without the approval of the Governor in Council.

R.S., 1985, c. E-20, s. 8; R.S., 1985, c. 1 (4th Supp.), s. 44(E); 2001, c. 33, s. 7.

SALARIES AND ExPENSES

Salaries, etc., of directors

9. (1) Subject to subsection (2), each of the directors not selected from among persons employed in the federal public administration shall be paid by the Corporation such salary, fees or other remuneration as is fixed by the Governor in Council and each director is entitled to be paid by the Corporation reasonable travel and other expenses incurred by him in the course of his duties under this Act.

Salaries

(2) The Chairperson and, if the President is a person other than the Chairperson, the President shall be paid by the Corporation a salary to be fixed by the Governor in Council.

R.S., 1985, c. E-20, s. 9; 2001, c. 33, s. 13(E); 2003, c. 22, s. 224(E).

PURPOSES AND POWERS

Purposes

10. (1) The Corporation is established for the purposes of supporting and developing, directly or indirectly, Canada’s export trade and Canadian capacity to engage in that trade and to respond to international business opportunities.

Powers

(1.1) Subject to any regulations that may be made under subsection (6), in carrying out its purposes under subsection (1), the Corporation may

(a) acquire and dispose of any interest in any property by any means;

(b) enter into any arrangement that has the effect of providing, to any person, any insurance, reinsurance, indemnity or guarantee;

(c) enter into any arrangement that has the effect of extending credit to any person or providing an undertaking to pay money to any person;



(d) take any security interest in any property;

(e) prepare, compile, publish and distribute information and provide consulting services;

(f ) procure the incorporation, dissolution or amalgamation of subsidiaries;

(g) acquire and dispose of any interest in any entity by any means;

(h) make any investment and enter into any transaction necessary or desirable for the financial management of the Corporation;

(i) act as agent for any person or authorize any person to act as agent for the Corporation;

(j) take such steps and do all such things as to it appear necessary or desirable to protect the interests of the Corporation; and

(k) generally, do all such other things as are incidental or conducive to the exercise of its powers, the performance of its functions and the conduct of its business.

Use of services and facilities of departments, etc.

(2) In exercising its powers under this Act, the Corporation shall, where appropriate, make use of the services and facilities of departments, boards and agencies of the Government of Canada.

Limit of liability

*(3) Subject to subsections (3.1) and (4), the contingent liability of the Corporation in respect of the principal amount owing under all outstanding arrangements entered into under paragraph (1.1)(b) shall at no time exceed the greater of

(a) an amount equal to ten times the authorized capital of the Corporation, and

(b) seventeen billion, five hundred million dollars.

* [Note: The amount in paragragh (b) has been increased to twenty billion dollars, see 2002, c. 27, Sch. 1 (EDC) vote 38a.]

Appropriation Act

(3.1) The amount referred to in paragraph (3)(b) may be varied in an appropriation Act.



Exclusion

(4) The amount of the contingent liability referred to in subsection (3) that the Corporation has insured or reinsured or with respect to which the Corporation has a right, by agreement, to be indemnified shall not be taken into account in calculating the contingent liability under that subsection.

Minister of Finance may prescribe conditions

(5) The Corporation shall, in exercising the powers conferred on it by paragraph (1.1)(h), comply with such conditions of general application as the Minister of Finance may prescribe.

Regulations

(6) The Governor in Council may, on the recommendation of the Minister and the Minister of Finance, make regulations governing

(a) the disposal by sale or lease of property acquired by the Corporation for the purpose of such disposal;

(b) the entering into by the Corporation of arrangements that

(i) have the effect of

(A) providing, to any person, any insurance, reinsurance, indemnity or guarantee,

(B) extending credit to any person, or

(C) providing an undertaking to pay money to any person, and

(ii) are made in respect of transactions not relating, directly or indirectly, to the carrying on of business or other activities outside Canada;

(c) the entering into by the Corporation of arrangements that have the effect of extending credit to a person in respect of the acquisition by that person of any interest, other than a security interest, in any entity;

(d) the entering into by the Corporation of arrangements that have the effect of providing to a person any insurance, indemnity or guarantee, in respect of the financing, by that person, of an acquisition by another person of any interest, other than a security interest, in any entity;

(e) the provision by the Corporation of consulting services on a fee basis; and

(f ) the acquisition by the Corporation of any interest, other than a security interest or an interest resulting from the realization of a security interest, in any entity.



Approval

(7) For greater certainty, the regulations made pursuant to subsection (6) may specify that certain transactions or classes of transactions of the Corporation require the approval of the Minister, the Minister jointly with the Minister of Finance, or the Governor in Council and, where so specified, the Minister, the Minister jointly with the Minister of Finance, or the Governor in Council is authorized to give that approval.

Publication of proposed regulations

(8) Subject to subsection (9), the Minister shall cause to be published in the Canada Gazette at least sixty days before the proposed effective date thereof a copy of every regulation that the Governor in Council proposes to make under this Act and a reasonable opportunity shall be afforded to interested persons to make representations with respect thereto.

Exceptions

(9) The Minister is not required to cause to be published a proposed regulation if the proposed regulation

(a) has been published pursuant to subsection (8) whether or not it has been amended as a result of representations made by interested persons as provided in that subsection; or

(b) in the opinion of the Minister, makes no material substantive change in an existing regulation.

R.S., 1985, c. E-20, s. 10; 1993, c. 26, s. 4; 2001, c. 33, s. 8.

ENvIRONMENTAL EFFECTS

Requirement

10.1 (1) Before entering, in the exercise of its powers under subsection 10(1.1), into a transaction that is related to a project, the Corporation must determine, in accordance with the directive referred to in subsection (2),

(a) whether the project is likely to have adverse environmental effects despite the implementation of mitigation measures; and

(b) if such is the case, whether the Corporation is justified in entering into the transaction.

Directive

(2) The Board shall issue a directive respecting the determination referred to in subsection (1), which directive may



(a) define the words and expressions that the Board considers necessary for the application of that subsection, including the words and expressions “transaction”, “project”, “adverse environmental effects” and “mitigation measures”;

(b) establish the criteria that the Corporation must apply in making the determination; and

(c) establish exceptions specifically or by any class, as defined by the Board, to the Corporation’s obligation to make the determination.

Statutory Instruments Act

(3) The directive is not a statutory instrument for the purposes of the Statutory Instruments Act.

2001, c. 33, s. 9.

CAPITAL AND SHARES

Authorized capital

11. (1) The authorized capital of the Corporation is one billion five hundred million dollars divided into fifteen million shares of the par value of one hundred dollars each.

Subscription and payment for shares

(2) Where the Board recommends that the Minister subscribe for unissued shares of the Corporation, the Minister may, if the Minister of Finance concurs, subscribe at par for such number of shares as he considers desirable and the amount of each subscription shall be paid to the Corporation out of the Consolidated Revenue Fund at such times and in such amounts as the Board requires.

Shares not transferable

(3) The shares of the capital stock of the Corporation are not transferable and shall be held in trust for Her Majesty.

R.S., c. E-18, s. 11; R.S., c. 8(2nd Supp.), s. 2; 1973–74, c. 13, s. 1; 1974–75–76, c. 17, s. 1; 1977–78, c. 38, s. 1; 1980–81–82–83, c. 163, s. 6.

Borrowing

12. The Corporation may borrow money by any means, including issuing and selling bonds, debentures, notes and other evidences of indebtedness of the Corporation.

R.S., c. E-18, s. 12; 1980–81–82–83, c. 163, s. 7; 1984, c. 31, s. 14.



Loans to Corporation

13. At the request of the Corporation, the Minister of Finance may, out of the Consolidated Revenue Fund, lend money to the Corporation on such terms and conditions as are fixed by him.

R.S., c. E-18, s. 13.

Maximum borrowings of Corporation

14. (1) The aggregate amount of borrowings of the Corporation pursuant to sections 12 and 13 and outstanding shall at no time exceed an amount equal to fifteen times the aggregate of

(a) the paid-in capital of the Corporation, and

(b) the retained earnings of the Corporation, determined in accordance with the most recent statements of accounts of the Corporation for a financial year that have been audited by the Auditor General of Canada.

Calculation of maximum borrowings

(2) For the purpose of calculating the aggregate amount of outstanding borrowings of the Corporation under subsection (1),

(a) accumulated deficits, and

(b) the retained earnings of the Corporation, where the Corporation and its auditor are unable to agree on the amount of the retained earnings,

shall not be taken into account.

R.S., 1985, c. E-20, s. 14; 1993, c. 26, s. 5.

Reserves or provisions

15. The Corporation may establish one or more reserves or provisions out of which may be paid any losses sustained by the Corporation in the conduct of its business.

R.S., c. E-18, s. 15; 1980–81–82–83, c. 47, s. 14.

By-LAWS

By-laws

16. The Board may make by-laws



(a) for the regulation of its proceedings, including the delegation of any of its powers and duties to any committee of the Board and the fixing of quorums for meetings of the Board and any committee of the Board;

(b) prescribing the duties of any officers and employees of the Corporation;

(c) delegating to the President the conduct of any business of the Board;

(d) delegating, subject to any terms and conditions specified in the by-laws and despite any delegation of such authority to any committee of the Board, to any one or more officers of the Corporation, jointly or severally, any authority to authorize the Corporation to exercise a power under this Act that is given specifically to the Board by any provision of this Act;

(d.1) respecting

(i) the establishment, management and administration of a pension plan for the officers and employees of the Corporation and their dependants,

(ii) the contributions to be made by the Corporation to the associated pension fund,

(iii) the provision of benefits under the pension plan,

(iv) the payment of pensions, and

(v) the investment of the assets of the fund; and

(e) generally, for the conduct and management of its activities.

R.S., 1985, c. E-20, s. 16; 2001, c. 33, s. 10.

GENERAL

Offices

17. The Corporation may establish offices anywhere in Canada and the head office of the Corporation shall be in the National Capital Region described in the schedule to the National Capital Act.

R.S., 1985, c. E-20, s. 17; 1993, c. 26, s. 6.

Agent of Her Majesty

18. The Corporation is for all purposes an agent of Her Majesty in right of Canada.

R.S., c. E-18, s. 18; 1984, c. 31, s. 14.



Terms and conditions

19. The Board may, subject to this Act and any by-law of the Board, determine the terms and conditions on which the Corporation may exercise any power under this Act.

R.S., 1985, c. E-20, s. 19; 1993, c. 26, s. 7.

Staff

20. The Corporation may employ such officers and employees and such consultants and advisers as it deems necessary to carry out its purposes and shall fix the terms and conditions of their employment and their remuneration, which shall be paid by the Corporation.

R.S., c. E-18, s. 20.

Auditor

21. (1) The Auditor General of Canada is the auditor of the Corporation.

Report re directive

(2) As auditor of the Corporation, the Auditor General must, at least once every five years, audit the design and the implementation of the directive referred to in subsection 10.1(2) and submit a report on the audit to the Board and to the Minister. The Auditor General must submit the report to each House of Parliament on any of the first thirty days on which it is sitting after the report is completed.

R.S., 1985, c. E-20, s. 21; 2001, c. 33, s. 11.

Exemption from income tax

22. Section 27 of the Income Tax Act does not apply to the Corporation.

R.S., c. E-18, s. 22; 1970–71–72, c. 43, s. 3, c. 63, s. 4.

Authorization of the Minister

23. (1) Where the Corporation advises the Minister that it will not, without an authorization made pursuant to this section, enter into any transaction or class of transactions that it has the power to enter into under paragraphs 10(1.1)(a) to (e) or (i) to (k) and the Minister is of the opinion that it is in the national interest that the Corporation enter into any such transaction or class of transactions, the Minister, with the concurrence of the Minister of Finance, may authorize the Corporation to do so.



Amendment without authorization

(2) The Corporation may amend any agreement entered into pursuant to an authorization of the Minister made under subsection (1), without further authorization of the Minister, if the amendment in no way results in the agreement being inconsistent with the Minister’s authorization.

Moneys required to discharge obligations to be paid out of C.R.F.

(3) All moneys required by the Corporation to discharge its obligations under any transaction entered into under this section shall be paid to the Corporation by the Minister of Finance out of the Consolidated Revenue Fund.

Separate account

(4) The Corporation shall maintain a separate account of all moneys received by way of receipts and recoveries, and of all disbursements made, in connection with all transactions entered into under this section and shall, subject to subsections (5) and (6), pay to the Receiver General all such receipts and recoveries.

Expenses and overhead

(5) The Minister of Finance may authorize the Corporation to retain from any receipts and recoveries described in subsection (4) such part thereof as the Minister of Finance considers to be required to meet the expenses and overhead of the Corporation arising out of transactions described in that subsection.

Financial management

(6) The Minister, with the concurrence of the Minister of Finance, may authorize the Corporation to make any investment or enter into any transaction or any class of transactions necessary or desirable for the management of assets and liabilities arising out of any transaction that may be entered into pursuant to this section.

R.S., 1985, c. E-20, s. 23; 1993, c. 26, s. 8.

Limit of liability

24. (1) Subject to subsection (2), in respect of transactions entered into pursuant to section 23, the total of

(a) the contingent liability of the Corporation in respect of the principal amount owing under all outstanding arrangements giving rise to contingent liabilities,

(b) the obligation of the Corporation to advance funds in respect of any outstanding arrangement that has the effect of extending credit or to pay money to any person in respect of any outstanding arrangement, and



(c) the outstanding principal amount of obligations owed to the Corporation in respect of any arrangement that has the effect of extending credit shall at no time exceed thirteen billion dollars.

Exclusion

(2) The amount of

(a) the contingent liability referred to in paragraph (1)(a) that the Corporation has insured or reinsured or with respect to which the Corporation has a right, by agreement, to be indemnified, and

(b) the obligations referred to in paragraphs (1)(b) and (c) that the Corporation has sold, assigned or otherwise transferred on a non-recourse basis

shall not be taken into account in calculating the total liabilities and obligations under subsection (1).

R.S., 1985, c. E-20, s. 24; 1993, c. 26, s. 8.

Canadian Environmental Assessment Act: s. 5(1)

24.1 (1) Subsection 5(1) of the Canadian Environmental Assessment Act does not apply where the Minister or the Minister of Finance exercises a power or performs a duty or function under this Act or any regulation made under it, or exercises a power of authorization or approval with respect to the Corporation under any other Act of Parliament or any regulation made under it.

Subsection 5(2)

(2) Subsection 5(2) of the Canadian Environmental Assessment Act does not apply where the Governor in Council exercises a power of authorization or approval under regulations made under this Act, or where the Governor in Council exercises a power of authorization or approval with respect to the Corporation under any other Act of Parliament or regulations made under it.

Subsection 8(1)

(3) Subsection 8(1) of the Canadian Environmental Assessment Act does not apply to the Corporation.

2001, c. 33, s. 12.

Use of Corporation’s name or initials

24.2 (1) Except with the written consent of the Corporation, no person shall in any prospectus or advertisement, or for any other business purpose, use the following names and initials: “Export Development Canada”, “Exportation et développement Canada”, “Export Development Corporation”, “Société pour l’expansion des exportations”, “E.D.C.”, “EDC”, “S.E.E.” and “SEE”.



Offence

(2) A person who contravenes subsection (1) is guilty of an offence and liable on summary conviction to a fine not exceeding $10,000 or to imprisonment for a term not exceeding six months, or to both.

2001, c. 33, s. 12.

Privileged information

24.3 (1) Subject to subsection (2), all information obtained by the Corporation in relation to its customers is privileged and a director, officer, employee or agent of, or adviser or consultant to, the Corporation must not knowingly communicate, disclose or make available the information, or permit it to be communicated, disclosed or made available.

Authorized disclosure

(2) Privileged information may be communicated, disclosed or made available

(a) for the purpose of the administration or enforcement of this Act and legal proceedings related to it;

(b) for the purpose of prosecuting an offence under this Act or any other Act of Parliament;

(c) to the Minister of National Revenue solely for the purpose of administering or enforcing the Income Tax Act or the Excise Tax Act; or

(d) with the written consent of the person to whom the information relates.

2006, c. 9, s. 179.

Review

25. (1) Five years after the coming into force of this section and every ten years thereafter, the Minister shall cause a review of the provisions and operation of this Act to be undertaken in consultation with the Minister of Finance.

Report to Parliament

(2) The Minister shall, within one year after causing a review to be undertaken pursuant to subsection (1), submit a report on the review to Parliament.

Study

(3) Each report submitted to Parliament pursuant to subsection (2) shall be reviewed by such committee of the Senate and of the House of Commons or such joint committee as is designated or established for the purpose of reviewing such report.

R.S., 1985, c. E-20, s. 25; 1993, c. 26, s. 8.




SOR/94-410Registration June 02, 1994

ExPORT DEvELOPMENT ACT


P.C. 1994-935 June 02, 1994

Whereas, pursuant to subsection 10(8)* of the Export Development Act, a copy of proposed regulations, substantially in the form annexed hereto, was published in the Canada Gazette Part I on November 6, 1993 and a reasonable opportunity was thereby afforded to interested persons to make representations with respect thereto;* S.C. 1993, c. 26, s. 4(2)

Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister for International Trade and the Minister of Finance, pursuant to subsection 10(6)* of the Export Development Act, is pleased hereby to make the annexed Regulations governing the disposal by lease of certain property, the entering into of certain arrangements and the acquisition of certain interests by Export Development Canada.

Regulations Governing the Disposal by Lease of Certain Property, the Entering Into of Certain Arrangements and the Acquisition of Certain Interests by Export Development Canada

SHORT TITLE1. These Regulations may be cited as the Export Development Canada Exercise of Certain Powers

Regulations.

2001, c. 33, s. 30.

INTERPRETATION2. In these Regulations,

“Act” means the Export Development Act; ( Loi )

“domestic financial transaction” means any arrangement entered into by the Corporation whereby the Corporation provides credit to a person with respect to a transaction that does not relate, directly or indirectly, to the carrying on of business or other activities outside Canada, but does not include an arrangement that has as its purpose the management of the assets and liabilities of the Corporation; (opération de financement sur le marché national)



“domestic insurance transaction” means any arrangement entered into by the Corporation whereby the Corporation provides any insurance, reinsurance, indemnity or guarantee with respect to a transaction entered into by another person and that does not relate, directly or indirectly, to the carrying on of business or other activities outside Canada; (opération d’assurance sur le marché national)

“equity interest” means, in respect of an entity, an ownership interest in an entity; (titres de participation)

“estimated residual value” means, in respect of property to be leased, the estimated value of the leased property at the end of the term of the lease, less any amount that the Corporation is entitled to receive under any agreement that is in effect on the day the lease is entered into and that relates to the disposal by the Corporation of its interest in the property, as determined by the Corporation at the time the lease is entered into by the Corporation; ( valeur résiduelle estimative )

“export transaction” means a transaction involving:

(a) the export of goods out of Canada,

(b) the manufacture, sale, leasing, treatment or servicing of goods that are to be used by a person in carrying on business or other activities outside Canada,

(c) the sale or licensing of any right in a patent, trade-mark or copyright to a person that are to be used by a person in carrying on business or other activities outside Canada, or

(d) the rendering of any service to a person in connection with the carrying on of business or other activities outside Canada by a person. ( opération d’exportation )

“foreign project equity interest acquisition” [Repealed, SOR/2008-46, s. 1]

2001, c. 33, s. 31(F); SOR/2004-118, s. 1; SOR/2008-46, s. 1.

CIRCUMSTANCES UNDER WHICH THE CORPORATION MAy ExERCISE CERTAIN POWERS

3. (1) Subject to subsection (2), the Corporation may dispose by lease of property acquired by the Corporation for the purpose of such disposal.

(2) A disposal by lease of property of the Corporation requires the approval of the Minister and the Minister of Finance, where

(a) the property is not to be used outside Canada during the term of the lease;

(b) the lease is not entered into for the primary purpose of extending credit;

(c) the lease provides that the Corporation will be responsible for installing, promoting, servicing, cleaning, maintaining and repairing the property during the term of the lease;



(d) the Corporation does not intend to dispose of its interest in the property during or at the end of the term of the lease;

(e) the capital cost of the property and the financing charges related to the capital cost of the property will not be recovered by the Corporation; or

(f ) no contractual arrangement exists for the final disposal of the Corporation’s interest in the property to be leased and the estimated residual value of the property to be leased, together with the estimated residual value of all other property that the Corporation has acquired an interest in for the purpose of disposal by lease in respect of which no contractual arrangement exists for the final disposal of the corporation’s interest in such property, would be more than 20 per cent of the aggregate of the cost of acquisition of all such properties.

4. (1) Subject to subsection (2), the Corporation may acquire an equity interest in an entity.

(2) Subject to subsections (4) and (5), an acquisition by the Corporation requires the approval of the Minister and the Minister of Finance, if the value of the equity interest to be acquired by the Corporation together with the value of any equity interest already held by the Corporation in that entity exceeds 25 per cent of the value of all equity interests in the entity at the time of acquisition by the Corporation.

(3) For the purposes of subsection (2), the value of all equity interests in the entity at the time of acquisition by the Corporation

(a) is to be calculated on a fully diluted basis and shall include the equity interest being acquired by the Corporation or by any other person and any equity interest that the Corporation or any other person is obligated to acquire; and

(b) is to be determined in accordance with

(i) the most recent audited financial statements of the entity, if available,

(ii) any agreements between the entity and the Corporation that relate to the acquisition, and

(iii) any agreements among persons who have acquired, are acquiring or are obligated to acquire an equity interest in the entity and any agreements between any of them and the entity that relate to the acquisition of their respective equity interests in the entity.

(4) Subsection (2) does not apply to an acquisition resulting from a restructuring, reorganization or other similar workout arrangement involving an entity in which the Corporation already holds an equity interest or to which it is a creditor.

(5) Subsection (2) does not apply where the equity interest is acquired by reason of

(a) dividend or other in-kind distribution;



(b) the exchange or substitution, as a result of an amalgamation, merger or other similar action, of an equity interest already held by the Corporation for an equity interest in an entity that is the result of the action; or

(c) the settlement, in whole or in part,

(i) of a debt held by the Corporation in connection with any arrangement that has the effect of extending credit or providing an undertaking to pay money, or

(ii) a debt or claim in respect of which the Corporation has made a payment pursuant to an arrangement that has the effect of providing any insurance, reinsurance, indemnity or guarantee.

SOR/2004-118, s. 2; SOR/2008-46, s. 2.

5. (1) Subject to subsection (2), the Corporation may enter into a domestic financial transaction.

(2) A domestic financial transaction to be entered into by the Corporation requires the approval of the Minister and of the Minister of Finance.

6. (1) Subject to subsections (2) and (3), the Corporation may enter into a domestic insurance transaction.

(2) A domestic insurance transaction to be entered into by the Corporation requires the approval of the Minister and the Minister of Finance where:

(a) the domestic insurance transaction is entered into with or in respect of a person whose annual export transaction business volume, at the time the application is made to the Corporation for insurance, reinsurance, indemnity or guarantee is:

(i) less than 15 per cent of that person’s total annual business volume; and

(ii) less than $5,000,000 or the equivalent thereof in the currency of another country as calculated at the rate of exchange between the Canadian dollar and the other currency as quoted by the Bank of Canada at noon on the day immediately preceding the day on which application is made to the Corporation; and

(b) the maximum contingent liability of the Corporation with respect to all domestic insurance transactions will be or will continue to be more than 40 per cent of the aggregate maximum contingent liability of the corporation under all outstanding insurance, reinsurance, indemnity or guarantee transactions entered into by the Corporation.

(3) A domestic insurance transaction to be entered into by the Corporation requires the approval of the Minister and the Minister of Finance where the domestic insurance transaction is an insurance arrangement that is of a class defined in the schedule to the Insurance Companies Act and that is set out in column II of an item of the schedule to these Regulations.



SCHEDULE

(Subsection 6(3))

Item Class of insurance

1. accident and sickness insurance

2. accident insurance

3. aircraft insurance

4. automobile insurance

5. boiler and machinery insurance

6. boiler insurance

7. earthquake insurance

8. employers liability insurance

9. explosion insurance

10. falling aircraft insurance

11. fidelity insurance

12. fire insurance

13. forgery insurance

14. hail insurance

15. impact by vehicles insurance

16. inland transportation insurance

17. legal expense insurance

18. liability insurance

19. life insurance

20. limited hail insurance

21. limited or inherent explosion insurance

22. livestock insurance

23. machinery insurance

24. marine insurance

25. personal accident insurance

26. personal property insurance

27. plate glass insurance

28. property insurance

29. public liability insurance

30. real property insurance

31. sickness insurance

32. sprinkler leakage insurance

33. theft insurance

34. title insurance

35. water damage insurance

36. weather insurance

37. windstorm insurance


110 Annex C: Statement of Work — Scope of the Review

Annex C: Statement of Work — Scope of the Review

Extract from the Statement of Work contained in the Request for Proposal

Issued by the Department of Foreign Affairs and International Trade

November 6, 2007

Objective

The Contractor will produce a report for submission to the Minister of International Trade to support the Minister’s statutory obligation under the Export Development Act (the “Act”) to conduct periodic legislative reviews of the provisions and operation of the Act in consultation with the Minister of Finance. The full title of the Act is as follows:

An Act to establish Export Development Canada and to support and develop trade between Canada and other countries and Canada’s competitiveness in the international market-place.

The Contractor will assess how Export development Canada (EDC) is evolving and should continue to evolve, to address the competitive dynamics and demands of international trade, and will make recommendations where appropriate including possible changes to legislation. To this end, the Contractor will carry out the tasks and activities and produce the deliverables set out in the Scope of Work below. The final report will serve to inform the Minister’s assessment of the mandate, future direction and public policy issues related to EDC.

Background

EDC was established in 1969 and was at that time called Export Development Corporation. It was created as an instrument of public policy for the purposes of supporting and developing trade between Canada and other countries. Its mandate is to support and develop, directly or indirectly, Canada’s export trade and Canadian capacity to engage in that trade and to respond to international business opportunities. EDC reports to Parliament through the Minister of International Trade.

The Act came into force in 1969 and was significantly amended in 1993, including a provision for a legislative review in 1998 and every 10 years thereafter. During the 1998 Review, a report was tabled in Parliament, as required by the Act, and was referred to the Standing Committee on Foreign Affairs and International Trade and the Senate Standing Committee on Banking, Trade and Commerce. This review generated, inter alia, legislative and regulatory amendments. The amendments included: establishing a legal obligation for EDC to conduct environmental reviews (subject to periodic audit by the Auditor General), changing the corporation’s name to Export Development Canada, amending certain financial regulations under the Act. The review also resulted in EDC’s development of comprehensive disclosure and environmental policies.

The global economy has changed profoundly, particularly over the past decade. New dynamics have created enormous opportunities. Technological advances, trade liberalization, and a shift in business models towards global value chains have paved the way for broader participation in global commerce. Exports, imports and


111Annex C: Statement of Work — Scope of the Review

direct investment have become interconnected, with emerging markets playing a central role in new supply chains. New economic powers have emerged, significantly augmenting the depth and complexity of markets and intensifying the competition.

EDC Legislative Review 2008

These developments will continue to influence the way business is done, and require public and private financial intermediaries to adapt their trade finance and risk management services to meet client needs. Government-to-government competition is also intensifying and Canadian firms face global competitors strongly backed by their governments. Governments create and leverage the framework within which the private sector trades, invests and innovates. Directly and indirectly, governments provide support through export credit and investment agencies, development finance and aid institutions, and the fiscal and regulatory regimes in which financial intermediaries and the private sector operate.

It is therefore a matter of national interest to ensure that Canada’s exporters and investors have adequate and competitive services to meet the global competition. This concern looks to the overall capacity of the Canadian financial sector — including both public- and private-sector players and their respective international arms — to provide trade finance and risk management services, and to the role EDC may play in providing, supporting and developing that capacity directly or indirectly through its products and services, expertise, capital and partnerships.

Scope of the Review

The Review will be structured on the following themes. The inquiries under each theme illustrate a general range of interest and may be supplemented or developed through more detailed or specific inquiries.

A. The changing global and competitive environment

Provide an assessment of the changing global economy, noting developments since the 1998 Legislative Review, and speculating on probable international trade developments over the coming decade. Include a comprehensive discussion of the major domestic and international trends and developments, and their impact on Canada’s international competitiveness.

Identify the competitive challenges faced by firms operating in this environment, focusing on the role of financial intermediation in international commerce. Outline how Canada’s chief competitors are responding. Evaluate Canada’s trade finance system and how its capacity compares with that of other OECD and non-OECD countries in meeting the competitive challenge.

B. Canadian business needs: ensuring EDC’s ability to meet them

Identify the existing and emerging needs of Canada’s trade and investment community for financing and risk management products and services. Examine what EDC is doing, or should do, to meet the needs of Canadian businesses, including small, medium and large enterprises. Assess how EDC has responded, or proposes to respond, to particular developments in international commerce.

Assess whether the legislative and policy framework in which EDC operates provides sufficient flexibility to support current and anticipate future needs of Canadian international business.


112 Annex C: Statement of Work — Scope of the Review

C. Canadian private-sector financial capacity for trade and risk management: is there a role for EDC to play to increase this capacity?

Identify gaps or limitations in the market’s provision of trade finance and risk management services for Canadian exporters and investors and where gaps are identified the reasons for the market’s failure. Examine the extent to which EDC is addressing these needs alone or in collaboration with the private sector.

Evaluate EDC’s contribution to the overall capacity of the Canadian financial sector — including both public- and private-sector players and their respective international arms — to provide financing and risk management services. Review the performance of EDC’s lines of business from the point of view of their contribution to building private-sector financial capacity in support of Canada’s international commerce. Assess the potential for enhanced cooperation between EDC and the private sector.

Evaluate the extent to which EDC products and services complement the offerings of private sector financial institutions and the factors that need to be considered in determining when the capacity of private sector financial institutions would eliminate the need for EDC involvement in a given business line. This would include an analysis of the benefits and risks inherent in EDC exiting a specific business line and an examination of exit strategies that would not harm Canadian exporter and investor access to financing and risk management products and services.

D. EDC’s place within government

Review the relationship between EDC and the government in light of EDC’s commercial orientation and its public policy mandate.

Determine how effectively EDC has supported the government’s overall public policy objectives, including trade and investment promotion, governance and accountability, corporate social responsibility; and its cooperation with government departments and other Crown corporations and agencies.

Name of Section 113

Focus:

Phase 1: Raising Awareness

Phase 2: Stakeholder Consultations

2008 Review of Export Development Canada Communication & Engagement StrategySubmitted to: Department of Foreign Affairs and International Trade

Annex D: Communication and Engagement Strategy


114 Annex D: Communication and Engagement Strategy

Table of Contents

1. Introduction 115

1.1 Background and Context 1151.2 International Financial Consulting Ltd. Approach 116

2. Communication Strategy 117

2.1 Communication Goal 1172.2 Communication Objectives 1172.3 Communication Tactics 117

3. Engagement Strategy 119

3.1 Engagement Goal 1193.2 Engagement Objectives 1193.3 Engagement Tactics 119


115Annex D: Communication and Engagement Strategy

Introduction1.1 Background and Context

The objective of the EDC Review is to assess how EDC is evolving — and should continue to evolve in the future — to address the competitive dynamics and demands of international trade on behalf of its stakeholders, and to make recommendations where appropriate including possible changes to legislation.

A critical component of the Review team’s work, then, is to communicate and engage effectively with two categories of EDC stakeholders:

Primary stakeholders: These are directly affected by the Review. Apart from EDC itself, they may carry •responsibility for EDC within government; rely on EDC’s products and services as a client, or represent those who do (associations); or offer financial and risk mitigation services in support of Canadian businesses operating internationally, as partners or competitors.

Secondary stakeholders: These have an interest in what EDC does but the impact on them is less •significant. They include EDC’s international counterparts; sister financial Crown corporations and other government programs; research institutes and NGOs.

During Phase 1 of the Review, from February 2008 to April 2008, the Review team will be pro-actively raising awareness among both primary and secondary stakeholder groups. (As depicted in Figure 1.) The Review team’s plan of action for this time period is outlined in the Communication Strategy of this document.

During Phase 2 of the Review, from April 2008 to July 2008, the Review team will be engaging with both primary and secondary stakeholder groups. The Review team’s plan of action for this time period is outlined in the Engagement Strategy.

Figure 1: Four Phases of the Review

PHASE 2:

Stakeholder Consultations

Receive and analyze views of stakeholders and interested parties on the four themes of the Review

PHASE 1:

Background Research and Awareness Raising

Background information review and stakeholder awareness activities

PHASE 3:

Analysis of Key Findings and Recommendations

Prepare and present a final report for delivery to the Minister

PHASE 4:

Minister’s Report on the Review

Minister will submit a report on the Review to Parliament

Four Phases of the Review



1.2 International Financial Consulting Ltd. Approach

In considering the most effective approach to communicating and engaging with EDC’s primary and secondary stakeholders, International Financial Consulting Ltd. defined not only what success would look like, but also what failure might look like.

For the Raising Awareness/Communications Strategy portion of the Review, we determined that failure might sound like this:

“I didn’t even know about the Review.”•

“I heard about the Review, but I didn’t know I could get involved.”•

“I tried to learn more about the Review but couldn’t find/access the information.”•

For the Stakeholder Consultations/Engagement Strategy portion of the Review, we determined that failure might sound like this:

“I called/emailed the Review team to get involved, but got no response.”•

“I tried to submit my comments to the website, but I kept getting error messages.”•

“I wanted to attend a Town Hall, but there wasn’t one in my province.”•

“The Review Team didn’t contact me for input, but they contacted my competitor.”•

“I wanted to get involved, but I wasn’t able to communicate with the Review team or receive •information in my official language of choice.”

“I wanted to contact the Review team, but they only allowed comments via email/website and I prefer •to speak in person.”

“I was interested in attending an event, but couldn’t find the information on the website (or the •information was out of date).”

Once we knew what failure might look/sound like, we used this information to establish our overall vision of success (the Goal), then we defined success (the Objectives), and lastly, we identified concrete means for achieving this success (the Tactics).



Communication Strategy2.1 Communication Goal

The goal of this communication strategy is:

To set the stage for successful stakeholder consultations in Phase 2 of the Review by establishing a high level of awareness in Phase 1.

2.2 Communication Objectives

To meet the above stated goal, the Review Team has established the following objectives:

1. Stakeholders will be aware of the Review, its purpose, how they can participate, and how they can find more information.

2. Stakeholders will find it easy to access information and keep up-to-date on developments.

3. Stakeholders will find it easy to access and communicate with the Review team.

2.3 Communication Tactics

For each of the above stated objectives, the following tactics have been identified:

Tactics for Communication Objective #1:

1. Space will be bought/secured for a bilingual public information notice in a wide spectrum of print and online communication sources. The notice will include the purpose of the Review, how stakeholders can participate and where they can find more information.

2. The public information notice will also be widely distributed for voluntary posting on international trade related communication sources, in both official languages.

3. Early-stage discussions and briefings will be held with trade-related government departments at both provincial and federal levels, guardian authorities and oversight departments, and advisory groups set up by Ministers. Stakeholders can meet in the official language of their choice.

4. Early-stage discussions and briefings will be held with key industry associations as a means to disseminate information/raise awareness of the Review among Canadian businesses and private

Communication Objective #1: Stakeholders will be aware of the Review, its purpose, how they can participate, and how they can find more information.



financial intermediaries. During these discussions, it is anticipated that many of these key stakeholders will choose to use these meetings as an opportunity to make submissions to the Review.


1. A dedicated website (www.edcreview2008.com) will be established as the primary source of information for stakeholders throughout the Review. Any new developments will be posted within a 24-hour period.

2. The website and its links will be continuously tested throughout the Review. Any technical difficulties that might arise with the website will be dealt with on a priority basis and solved within a 24-hour period.

3. Visitors to the website can register to receive periodic news updates directly to their email boxes.

4. The date and locations of all Town Hall meetings will be advertised in regional and national newspapers (in addition to being posted on the website).


1. Multiple channels will be offered for stakeholders to access the Review team: website, email, toll-free phone number, and postal mail.

2. Any contact initiated with the Review team, by any channel, will receive an initial response within 24 hours.

Communication Objective #2: Stakeholders will find it easy to access information and keep up-to-date on developments.

Communication Objective #3: Stakeholders will find it easy to access and communicate with the Review team.



Engagement Strategy3.1 Engagement Goal

The goal of this engagement strategy is:

To stimulate the highest level of engagement from primary and secondary stakeholders so that the final report is as informed, rigorous and comprehensive as possible.

3.2 Engagement Objectives

To meet the above stated goal, the Review Team has established the following objectives:

1. Stakeholders will find the Review Team to be highly responsive and accessible.

2. Stakeholders will have equal and transparent access to the Review process and the Review team.

3. Stakeholders will find the context and scope of the Review fully and consistently explained and the processes to facilitate their input as clear and as efficient as possible.

3.3 Engagement Tactics

For each of the above stated objectives, the following tactics have been identified:

Tactics for Engagement Objective #1:

1. Multiple channels will be established for stakeholders to access the Review Team: in-person, email, toll-free telephone, website, and postal mail. In addition, for those stakeholders who do not want direct access but do want to provide input, online stakeholder surveys may be conducted, if necessary. Stakeholders will be able to communicate via any of these channels in their official language of choice.

2. The dedicated website will act as the primary platform for information-sharing during the Review process and will be continually updated to ensure that all stakeholders, regardless of geographic location, have equal access to the most up-to-date information.

3. The Review Team will make itself available for in-person discussions with any interested party. Briefings with key industry associations (see Communication Objective #1, Tactic #4) will address the needs of key stakeholder groups. Supplementary groups or individuals can be met in-person by scheduling meetings to be held following regional Town Halls.

Engagement Objective #1: Stakeholders will find the Review Team to be highly responsive and easily accessible.



4. Any in-person consultations, such as public advertised Town Halls, will be held in major cities across Canada to ensure that all stakeholders, regardless of geographic location, have equal access to the Review process. To enable the participation of those in other locations, Webcasts will be held in conjunction with Town Halls. The Town Hall meetings will also be used as an occasion for supplementary group and individual meetings according to interests previously registered from parties in the relevant city.

5. Any contact made by a stakeholder, through any channel, will receive an initial response from the Review Team within 24 hours.

6. The Review Team will make itself available at hours that suit the stakeholder to ensure that all stakeholders in Canada, regardless of location/time zone, can have in-person contact with the Review Team.

7. The Review Team will maintain a high level of visibility throughout the Review process by attending key international conferences, industry annual general meetings, and any other relevant international trade events.

8. To ensure that the Review Team can respond at maximum efficiency, even during periods of high volume, the Team will maintain continuous contact and information-sharing with its members via a dedicated and secure Intranet platform.


1. The Review Team will not pro-actively seek input from any one party and will instead provide prompt responses to all stakeholder-initiated requests for participation stemming from the awareness tactics. This will enable a transparent process for all stakeholders.

2. Stakeholders may make their submission to the Review process known to all other stakeholders via the dedicated Review website. However, to safeguard against the potential of perceived bias of the Review Team, the website will only allow submissions to be viewed in full via a link to that organization’s own public website. (Stakeholders may also choose to announce that they have made a submission, but not to share the submission for viewing by the Review website’s visitors.)

3. At public meetings, the Review Team will ensure that its comments are neutral, so as to avoid any suspicion of bias or pre-determined views or any perception of directing comments in a particular direction or towards a particular subject (other than for purposes of seeking clarification or ensuring an opportunity for all to be heard).

Engagement Objective #2: Stakeholders will have equal and transparent access to the Review process and the Review team.




1. In all communications with stakeholders, the purpose of the Review and its four key themes will be highlighted, inter alia, drawing upon relevant extracts from the Request for Proposals.

2. The website will provide comprehensive background material, as well as regularly-updated documentation relevant to the subject matter of the Review. Highlights will be incorporated in printed material to be distributed in advance of consultation events.

3. Prior to attendance at any Town Hall, participants will be asked to register in advance, to indicate any organization they represent, to note the subject area on which they will be speaking, as well as to confirm their desire to make a verbal or written submission.

4. The Review Team will make it clear to participants at any in-person session when comments will be received “on the record” and “off the record.

Engagement Objective #3: Stakeholders will find the context and scope of the Review fully and consistently explained and the processes to facilitate their input as clear and as efficient as possible.


122 Annex E: Bibliography

Annex E: Bibliography

Auboin, Marc. 2007. Boosting Trade Finance in Developing Countries: What link with the WTO? Staff Working Paper ERSD-2007-04. Geneva: WTO. Available online: http://www.wto.org/english/res_e/reser_e/ersd200704_e.pdf

Association of Financial Professionals [AFP]. 2007 AFP Trade Finance Survey: Report of Survey Results. Available online: http://www.afponline.org/pub/pdf/2007_Trade_Finance_Survey.pdf

Bank of Canada. 2007. Financial System Review — Dec/07. Available online: http://www.bank-banque-canada.ca/en/fsr/2007/fsr_1207.pdf

Beckman, Kip and Danielle Goldfarb. 2007. Canada’s Changing Role in Global Supply Chains. Ottawa: International Trade and Investment Centre, The Conference Board of Canada.

Belanger, Brad, Allan Riding, and Prescott Ensign. 2007. Financing Canadian SME Exporters. Ottawa: Industry Canada. Available online: http://www.sme-fdi.gc.ca/epic/site/sme_fdi-prf_pme.nsf/vwapj/Financing_Canadian_SME_Exporters_Eng.pdf/$FILE/Financing_Canadian_SME_Exporters_Eng.pdf

Berne Union 2008. Berne Union International Union of Credit & Investment Insurers 2008, Berne Union.Available online: http://www.berneunion.org.uk/pdf/Berne%20Union%202008.pdf

Canadian Council of Chief Executives. 2007. Clean Growth: Building a Canadian Environmental Superpower.

Carrington, Christine and Barbara Orser. 2006. Small Business Financing Profiles: SME Exporters. Ottawa: Industry Canada. Available online: http://www.sme-fdi.gc.ca/epic/site/sme_fdi-prf_pme.nsf/vwapj/ExporterSMEsProfile_Eng.pdf/$file/ExporterSMEsProfile_Eng.pdf

Competition Policy Review Panel. Final Report: Compete to Win, June 2008

Department of Finance Canada. 2005. Review of Borrowing Framework of Major Federal Government-Backed Entities. Available online: http://www.fin.gc.ca/treas/MFGBE/PDF/MFGBE_Reporte.pdf

Department of Foreign Affairs and International Trade Canada [DFAIT]. 2007. Canada’s State of Trade 2007. Ottawa: DFAIT, Government of Canada. Available online: http://www.international.gc.ca/eet/pdf/07-1989-DFAIT-en.pdf

Ernst Baltensperger and Nils Herger. 2007. Exporting Against Risk? Theory and Evidence from Public Export Insurance Schemes in OECD Countries. NCCR Trade Working Paper No. 2007/29. Berne: NCCR Trade Regulation. Available online: http://www.nccr-trade.org/images/stories/publications/IP10/exportcredit.pdf

European Commission. 1997. “Communication of the Commission to the Member States pursuant of Article 93(1) of the EC Treaty applying Articles 92 and 93 of the Treaty to short-term export-credit insurance.” Official Journal 281 (17 September): 4–10. Available online: http://trade.ec.europa.eu/doclib/cfm/doclib_section.cfm?sec=186&lev=2&order=source


123Annex E: Bibliography

European Commission (DG Competition). 2005. The Report on Market Trends of Private Reinsurance in the Field of Export Credit Insurance. Available online: http://ec.europa.eu/competition/state_aid/studies_reports/export_credit_insurance_report.pdf

European Union. 03/05/2008. “Commission approves proposed acquisition of joint control of Prisma and OeKB-V by Euler Hermes and OeKB.” Brussels: European Union. Available online: http://www.nieuwsbank.nl/en/2008/03/05/r043.htm

Export Credits Guarantee Department [ECGD]. 2004. Report on the Comparison of Export Credit Agencies. London: ECGD.

Export Development Canada [EDC]. November 2007. Speech by Eric Siegel, President and CEO of Export Development Canada. Available online: http://www.edc.ca/english/print/mediaroom_13759.htm

Export-Import Bank of the United States [Ex-Im Bank]. 2007. Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States. Washington, DC: Export-Import Bank of the United States. Available online: http://www.exim.gov/about/reports/compet/documents/2006CompetitivenessReport.pdf

Fontagné, Lionel. 1999. OECD Foreign Direct Investment and International Trade Complements or Substitutes. OECD Directorate for Science, Technology and Industry. DSTI/DOC(99)3.

Foss, Mark, et. al. 2007. Dirty Business, Dirty Practice - How the Federal Government Supports Mining, Oil and Gas Abroad. Ottawa: Canadian Network on Corporate Accountability. Available online: http://www.halifaxinitiative.org/dirtypractices/DirtyPractices.pdf

Halde, Jean-Rene. “Governance at BDC”, Journal of Development Finance, Issue No. 54, July 2007.

Hawley, Susan. 2006. Evidence and Practice of Combating Bribery in Officially Supported Export Credits: The Evidence So Far from the OECD Working Group on Bribery Phase 2 reviews. The Corner House (on behalf of ECA Watch). Available online: http://www.thecornerhouse.org.uk/pdf/document/OECD2ECA.pdf

Headrick, Christine. 02/12/2008. “Wells Fargo Expands Commercial Finance in Canada,” San Francisco: CNW Group. Available online: http://www.newswire.ca/en/releases/archive/February2008/13/c9868.html

Hejazi, Walid and A. Edward Safarian. 1999. Perspectives on North American Free Trade: Modelling Links Between Canadian Trade and Foreign Direct Investment. Ottawa: Industry Canada.

Hodgson, Glen. 2007. Adopt a More Strategic Approach to International Trade. Ottawa: The Conference Board of Canada.

International Monetary Fund [IMF]. 2007. World Economic Outlook 2007. Washington D.C.: IMF. Available online: http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/text.pdf

Keenan, Karyn. 2008. Export Credit Agencies and the International Law of Human Rights. Ottawa: Halifax Initiative Coalition. Available online at: http://www.halifaxinitiative.org/updir/ECAs_and_HR_law.pdf



Knigge, Markus, et. al. The Use of Environmental and Social Criteria in Export Credit Agencies’ Practices. Eschborn, Germany: GTZ.

Kotowski, Maciej. 2007. Insuring Canada’s Exports: The Case for Reform at Export Development Canada. Ottawa: C.D. Howe Institute Commentary 257. Available online: http://www.cdhowe.org/pdf/commentary_257.pdf

Laidler, David. 2006. Grasping the Nettles: Clearing the Path to Financial Services Reform in Canada. Ottawa: C.D. Howe Institute Commentary 238. Available online: http://www.cdhowe.org/pdf/commentary_238.pdf

Malaket, Alexander. July 2007. “There’s a New Trade Financier in Town: Non-bank providers of trade finance,” Global Trade Review. Available online: http://www.tradeopus.com/opus_articles/arm_gtr_article_july2007.pdf

Mandel-Campbell, Andrea. Why Mexicans Don’t Drink Molson: Rescuing Canadian Companies From the Suds of Global Obscurity

National Roundtables on Corporate Social Responsibility (CSR) and the Canadian Extractive Industry in Developing Countries. 2007. Advisory Group Report. Available online: http://geo.international.gc.ca/cip-pic/library/Advisory%20Group%20Report%20-%20March%202007.pdf

Organisation for Economic Co-operation and Development [OECD]. 2003. Regulatory Reform in Finland: Marketisation of Government Services — State-Owned Enterprises. Available online: http://www.oecd.org/dataoecd/28/46/32684881.pdf

Organisation for Economic Co-operation and Development [OECD] (Trade Directorate). 2004. Officially Supported Export Credits and SMEs. TD/ECG(2002)19/FINAL.

Organisation for Economic Co-operation and Development [OECD]. 2005. OECD Guidelines on Corporate Governance of State-Owned Enterprises. Available online: http://www.oecd.org/dataoecd/46/51/34803211.pdf

Organisation for Economic Co-operation and Development [OECD]. 2006. Policy Framework for Investment: A Review of Good Practices.

Organisation for Economic Co-operation and Development [OECD] (Trade and Agriculture Directorate). 2006. Revised council recommendation on common approaches on the environment and officially supported export credits. TAD/ECG(2007)9. Available online: http://www.olis.oecd.org/olis/2007doc.nsf/LinkTo/NT00002B8E/$FILE/JT03228987.PDF

Organisation for Economic Co-operation and Development [OECD]. 2007. Staying Competitive in the Global Economy: Moving up the Value Chain. Available online: http://www.oecd.org/dataoecd/24/35/38558080.pdf


125Annex E: Bibliography

Organisation for Economic Co-operation and Development [OECD] (Trade and Agriculture Directorate). 2007. Arrangement on Officially Supported Export Credits — 2008 Revision. TAD/PG(2007)28/FINAL. Available online: http://www.olis.oecd.org/olis/2007doc.nsf/LinkTo/NT00005A06/$FILE/JT03238355.PDF

Organisation for Economic Co-operation and Development [OECD]. 2007. Best Practice Policies for SMEs: Country Presentations — A Comprehensive Review of the Canada Small Business Financing Act. CFE/SME(2005)10.

Organisation for Economic Co-operation and Development [OECD]. 2007. CSR and Trade: Informing Consumers about Social and Environmental Conditions of Globalised Production. TD/TC/WP(2006)17/FINAL.

Organisation for Economic Co-operation and Development [OECD]. 2007. Enhancing the Role of SMEs in Global Value Chains. OECD Background Report for OECD Global Conference in Tokyo.

Organisation for Economic Co-operation and Development [OECD] (Trade and Agriculture Directorate). 2007. Tied Aid: 2006 Full-Year Review of Experience with the ‘Helsinki Tied Aid Disciplines’ of the Arrangement. TAD/PG(2007)10.

Organisation for Economic Co-operation and Development [OECD]. 2007. Trends and Recent Developments in Foreign Direct Investment.

Organisation for Economic Co-operation and Development [OECD] (Trade and Agriculture Directorate). 2007. Untied Aid: 2006 Full-Year Review: Agreement on Untied ODA Credits Transparency. TAD/PG(2007)3.

Organisation for Economic Co-operation and Development [OECD]. 2008. Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Low-Income Countries. TAD/ECG(2008)1. Available online: http://www.olis.oecd.org/olis/2008doc.nsf/LinkTo/NT00000962/$FILE/JT03238627.PDF

Rosenau, James N. Distant Proximities: Dynamics beyond Globalization.

Spong, Rebecca. 2007. “Tough Choices for Canadian Banks.” Global Trade Review 6(2):70—77. Available online: http://www.tradeopus.com/gtr_nov_dec_canada2007.pdf

Statistics Canada. 2006. A Profile of Canadian exporters: 1993 to 2004. Ottawa: Statistics Canada. Available online: http://www.statcan.ca/english/freepub/65-506-XIE/65-506-XIE2007001.pdf

Stephens, Malcolm. 1999. The Changing Role of Export Credit Agencies. Washington: International Monetary Fund.

Treasury Board of Canada. 2006. Review of the Governance Framework for Canada’s Crown Corporations. Available online: http://www.tbs-sct.gc.ca/report/rev-exa/gfcc-cgse_e.pdf



United Nations Convention on Trade and Development. [UNCTAD]. 2007. Trade and Development Report 2007. Available online: http://www.unctad.org/en/docs/tdr2007_en.pdf

United Nations Convention on Trade and Development [UNCTAD]. 2007. World Investment Report 2007. Available online: http://www.unctad.org/en/docs/wir2007_en.pdf

Wang, Jian-Ye, Mario Mansilla, Yo Kikuchi, and Siddhartha Choudhury. 2005. Officially Supported Export Credits in a Changing World. Washington: International Monetary Fund.

Willem te Velde, Dirk and Michael Warner. 2007. Use of subsidies by Development Finance Institutions in the Infrastructure Sector. London: Overseas Development Institute.

World Trade Organization [WTO]. 2007. World Trade Report 2007. Geneva: WTO. Available online: http://www.wto.org/english/res_e/booksp_e/anrep_e/world_trade_report07_e.pdf

World Trade Organisation [WTO]. Agreement on Subsidies and Countervailing Measures. Available online: http://www.wto.org/english/docs_e/legal_e/24-scm.pdf


127Annex F: Summaries of Town Hall Meetings

Annex F: Summaries of Town Hall Meetings

Toronto

Twenty-six representatives from industry, the financial community, and government attended the •meeting.

Initial presentations focused on the liquidity crunch facing the Canadian automotive parts and •equipment sector in particular, and manufacturing more generally. The question was posed as to whether EDC could fill some of the resulting financial gap, taking on a greater direct lending role.

EDC’s sectoral knowledge and structuring expertise was commended.•

Emphasis was placed on the global dynamics of integrated trade and the new liquidity challenges for •companies needing to make investments to upgrade equipment, technology and labour skills to be internationally competitive. This was cited as underscoring two key issues: (i) EDC’s evolving role from a traditional export credit agency (ECA) to a much broader range of support to Canadian companies active in global markets and (ii) the evolution of the global financial services.

Another focal point was EDC’s presence in the short-term credit insurance market — atypical for most •OECD ECAs — and suggestions that its activities constrain competition in this market segment. The EDC spokesperson noted that EDC’s share had declined significantly in this area.

vancouver

Fifteen representatives from industry, the financial community, government and civil society attended •the meeting.

Initial comments emphasized the importance of positioning within global supply chains and noted •that, while global trends were faced by all, the challenge was compounded for Canadian firms as a result of appreciated Canadian dollar.

Financial issues addressed by Review were characterized as especially timely given companies’ need to •upgrade technology and equipment and, where labour costs are significant, to maximize outsourcing. One speaker emphasized “the need to ensure Canadian companies have access to world class financial services, with government stepping in when and where needed”. Another emphasized the importance of EDC’s ability to provide liquidity in today’s capital-constrained market.

It was suggested that EDC’s mandate must be examined against such basic questions as: “What •constitutes a “Canadian export” today? What is the appropriate support role for government?” Another participant emphasized that, in assessing where Canadian interests lie, one needed to recognize the downstream benefits of Canadian investment abroad — in terms of strengthening the economic health of the Canadian parent and generating consequential economic activity in Canada.

The need to take a hard look at international comparisons — support available to Canadian companies’ •foreign competitors — was emphasized. In particular, the creative and innovative mechanisms being introduced by the export credit systems within India and Brazil were cited as examples.


128 Annex F: Summaries of Town Hall Meetings

As regards the needs of SMEs, one participant commented that, for those in private sector financing •of SMEs, EDC plays a very complementary role in mitigating risk and in extending leverage to “places we wouldn’t otherwise have gone”. Another speaker cited the inflexibility of commercial banks and consequent market gaps for small-sized exporters. Another participant supported the concept of fuller reinvestment of EDC’s profits to support the export potential of small and medium-sized firms. Also mentioned was the need for “some sort of outreach to SMEs… reducing the complication of informing SMEs as to who does what”.

EDC’s role in providing short-term accounts receivable insurance was the subject of lively discussion. •One speaker questioned the need. Another characterized it as subsidized “especially for EDC customers” and viewed it as unfair competition “given that EDC’s cost of capital is non-existent”.

As regards medium-term export finance for manufactured goods, one participant emphasized the •“reality of multi-country sourcing requiring more flexibility in assembling financial support packages”.

Discussion regarding EDC’s partnership role with other private sector financial players prompted the •comment from one participant that “cooperation with EDC was difficult”.

Commenting on human rights, a representative of Amnesty International advocated: (i) the need for •greater disclosure by EDC to facilitate monitoring, (ii) the adoption of the International Financial Corporation’s Human Rights Standards as a minimum and (iii) removal of support for projects in countries where there are clear human rights violations. He also suggested that such obligations should be embedded in the relevant legislation. The EDC representative noted that EDC had signed onto the International Financial Consulting Ltd. Standards last autumn, one of only two export credit agencies to have done so. She also highlighted the comprehensive project information routinely posted on the EDC website and indicated that she was unaware of any current project which raised human rights concerns.

Calgary

Nineteen representatives from industry, the financial community, government and civil society attended •the meeting.

The participants at the meeting were largely from the corporate sector and most of these were small •and mid-sized companies with varying degrees of involvement in international trade and investment.

The representative from a resources firm highlighted the advice and support given by EDC and other •Trade Team partners for his firm’s early ventures into the international marketplace and indicated that, in light of his experience, he would be making a written submission to the Review Team.

Another participant cited their success in acquiring via the web a foreign supplier for their own website •development work at a fraction of the price and strengthening their own export potential as a result.

The needs of newly-export-ready SMEs were emphasized by several participants. The support provided •by the EDC representatives in Shanghai and Beijing and by Trade Commissioners in Eastern Europe were cited, by way of example, as contributing to firms’ export success. Other participants noted the excellent advice provided by the local Trade Commissioners’ Office and Alberta Government officials.



Another speaker commended the local Trade Commissioner for encouraging her to persist in her efforts to obtain financial support for commercial banks, which ultimately succeeded.

The information needs of prospective exporters — “directing traffic in the export preparedness •spectrum” — was a major topic of discussion. It was noted that the local “Trade Team Alberta” had given up trying to explain an excessively complex and fragmented support structure, and suggested that their success turned upon the close links (and considerable co-location) among the Team members, their accepted role as ‘facilitators’ and effectiveness in redirecting clients to the appropriate service wherever the client initiated contact. The role of “Business Link” for early stage export development enquiries was also noted. The general consensus was perhaps best summarized by the comments that “the platform is there, I guess, for us to access”, but that “there is an awareness gap regarding the existence of information and available services”.

The comment was made that the trade support network was not really geared up for those looking for •information as to where to outsource.

Winnipeg

Sixteen representatives from industry, the financial community, government and civil society attended •the meeting.

One Trade Team Manitoba participant opened the session with three suggestions: (i) resurrecting the •‘Team Canada’ model of trade missions, with a strong sectoral orientation; (ii) changing the orientation to one of partnership/joint venture formation; and (iii) focus increasingly on investment opportunities, noting by way of example the recently announced Hong Kong-Dubai agreement, the potential of Islamic banking and others seeking “safe havens” in which to invest. Ontario trade promotion efforts were cited as a model in terms of their aggressive pursuit of joint venture and partnership opportunities.

Another participant noted their design expertise in the field of geothermal technology, local projects, •but the major challenge they faced in terms of “how do we put our company/expertise out here with the hope of identifying partnership opportunities”.

Discussion of support programs noted the drastic reduction of the PEMD program and the new •version of EDC’s “son of PEMD” facility. The EDC representative noted that an alternative, lower-cost product was currently under development.

One participant commented that he did not use EDC because of his desire for ‘one stop shopping’ for •both his Canadian and U.S. credit insurance needs and the comparatively high cost of EDC coverage of the Canadian component. He relied, accordingly, on private sector sources, notwithstanding his preference to use EDC on the basis that they “don’t pull the pin as fast”.

Border problems were highlighted: “Now controlled by Homeland Security”. “Inability to get •pre-clearance pass”.

Another participant, noting that their export business was increasingly shifting from sales to foreign •governments to sales to local distributors (who in turn sold to government), highlighted the increasing



importance of EDC’s performance security guarantee and performance security insurance. PSG and PSI were, for them, important products which worked well.

Several participants commended EDC products and services. A couple of others found them •unresponsive and bureaucratic.

Montréal

Twenty-six representatives from industry, the financial community and government attended the •meeting.

There was a consensus on the new competitive dynamics globally and challenge facing Canada: inter •alia, the growing role of the BRIC countries (Brazil, Russia, India and China) and the well-organized financial support they enjoy. One participant, citing its responsiveness in the past, commented that EDC now needed to “gear up to a different game”.

Several speakers spoke to the current and foreseeable environment of less liquidity and in different •forms. EDC’s role was characterized as essential in “ensuring stability of risk taking in difficult times… taking on more risk, taking it on longer and with more diversified products”. If addressed, the liquidity challenge, given the withdrawal of European banks, was seen as a tremendous opportunity for Canada.

EDC was praised for its “impeccable service” and proactive posture. Suggested areas for improvement •or further adjustment included: (i) additional flexibility; (ii) new products to match the competition; (iii) potential use of profits to mitigate rising fees; (iv) even larger partnerships with Canadian private banks and greater involvement in public-private sector infrastructure financing; (v) more competitive pricing; and (vi) more attention to fostering relationships with current clients.

The “Trade Team Canada” theme focused particularly on the potential to make more effective use of •CIDA Inc. through more effective linkages with other international business development support facilities — e.g. the potential of CIDA Inc./CCC co-operation in pursuing overseas projects, both IFI-supported and sole-sourced.

As at other Town Hall meetings, comments on EDC’s relationship with SMEs continued to be mixed. •One participant cited it as “the only place to go… Canadian private sector financing is not there for SMEs”. Another characterized EDC products as invaluable, not just for companies, but also for private sector financiers seeking to maximize the working capital of their clients. By contrast, another speaker cited difficulties of access and response in their past approaches to EDC.

Marketing and educational issues were raised in terms of companies’ relatively poor understanding •of EDC’s specific products and services. One speaker commented that the needed “Finance 101” educational efforts should not impinge upon EDC’s core workload.

The role and competence of world-scale private sector financial players in the short-term export credit •insurance market was highlighted.

Africa arose in several contexts: notably, in terms of the “massive, well-organized Chinese attack” on •that continental market, EDC’s relative absence and inflexibility, a tendency to overestimate the risk



and the untapped potential to pursue partnership opportunities as compared to what competitors are now doing, e.g. COFACE, Islamic financing and other African financial services.

Kanata

Six representatives from industry, the financial community, and government attended the meeting.•

The fact that representatives from only two SMEs attended the Kanata Town Hall Meeting was •indicative of the Kanata business community and perhaps that of all SMEs. SMEs and start-ups with very slim staff have to choose wisely their networking events.

It was suggested that EDC was out of touch with this sector as they are not present at any of the •Networking events within the IT and/or small business community.

Attention was drawn to gaps in communication and the fact that any marketing done by EDC to create •awareness left the IT business group out of the picture. Instead of current methods such as mail-outs it was suggested that EDC use innovation and more approachable means of communication such as the internet and the following of blogs within the IT business sector. The message should change from “Come, find us” to “We’ll find you”.

The suggestion was made that EDC could be in touch with “new start-up” companies to welcome them •to the business community and to “help small start-ups make connections”.

It was felt that there is no support available to assist small companies which are highly technical to •export either their expertise or their services or software.

The statement was made that Canada will lose its toe-hold in the IT world within the next five years as •the technical expertise moves to work out of the country, to work in other countries. It was suggested that we view this expertise as one of our best commodities to export and develop programs to keep our R & D, thus retaining our technical expertise rather than losing it. Just as Canadian companies outsource in the manufacturing world EDC should develop programs to assist Canadians with the technical expertise to be “outsourced” in global markets.

Halifax

Fifteen representatives from industry, the financial community, and government attended the meeting.•

Opening presentation highlighted critical EDC support for local firm exporting 90% of production •to U.S.A.: specifically, in guaranteeing U.S. bond coverage for a major contract with company in mid-west U.S. EDC accepted case that, while no Canadian direct exports immediately involved, successful contract held prospect of future direct exports from an expanded Canadian manufacturing base. That prospect currently being pursued in negotiations with a major U.S. farm equipment supplier.

The same company similarly commended EDC support in providing guarantee of bank financing for •four-month working capital needed to establish operations in Australia.



Value of EDC characterized as three-fold: (i) its risk appetite was especially important in Atlantic •Canada, given the paucity and limited focus of the banks; (ii) EDC’s capacity as a crown corporation to spread across a larger portfolio, and thereby enhance its capacity for, risk; and (iii) its rapid decision-making practices.

EDC’s active role in developing export skills of Canadian companies through participation in FITT •program was noted.

One participant highlighted ACOA’s export mentoring program, capacity to finance export marketing •initiatives and the effective partnerships and working relationship within the Trade Team Nova Scotia export support network — of which EDC was an important player.

A private sector financial player contrasted the exceptionally valuable role played by EDC in helping •exporters grow with its role in providing short-term credit insurance — where its pre-eminence risked crowding out private sector alternative sources of credit insurance — which also brought with them an important presence and information on buyers within the 51 countries in which they operated.

One participant highlighted the important role played by CCC in supporting their sales to the U.S. •navy and their anticipated reliance on EDC as they broadened their business base and expanded sales to a broader, but likely smaller and perhaps less reliable, range of clients.

Ottawa

Forty representatives from companies, industry associations, the financial community, government and •civil society attended the meeting.

The significance of and evolving competitive dynamic facing the forest products sector was highlighted. •Future prospects were viewed positively in light of the increasing pressure on arable land. On the other hand, increasing transportation costs, driven by rising fuel costs, were also emerging as an important new competitive factor.

The aerospace sector’s capital financing needs were highlighted. The new Aircraft Sector Understanding •(ASU) negotiated in the OECD was viewed as offering welcome transparency and a more level playing field in an industry sector universally dependent on significant financial support from governments and export credit agencies.

EDC would remain critically important in meeting the need for assured, stable export financing •consistent with demand and to fill the financing gap arising from the limited private sector financing available. It was suggested that the time was ripe for increased participation by banks and that this could be achieved by ECC using its guarantee program to achieve a better balance between direct lending and bank lending supported by an EDC guarantee.

There was a call for greater reinvestment of EDC profits in industries of importance to Canada.•



EDC’s strong presence in the short-term credit insurance market was cited as anomalous when •compared with the situation in other countries and characterized as a disincentive for private sector players to expand their market share.

EDC’s recent human rights statement and the agency’s adherence to the Equator Principles was raised, •but it was suggested that it needed a mandatory rather than voluntary regime in this area.

EDC’s partnership agreements with other federal agencies were cited, opening the way for closer •cooperation in supporting the development of Canadian companies’ export potential. Three areas in which prospects for closer cooperation had been identified were awareness-building, training and skills development and organizing of trade missions.

Another Town Hall participant outlined the role of World Trade Centres, both in Canada and abroad, •and the potential for EDC and others involved in export promotion to make better use of this resource.

The potential for closer cooperation between Industry Canada and EDC was noted, especially as •regards the exchange of research and intelligence of common interest.

The close collaboration of EDC with the Forum for International Trade Training, including the •encouragement of EDC staff to take FITT courses, was highlighted and commended.


134 Annex G: Town Hall Meeting Participants

Annex G: Town Hall Meeting Participants

This listing does not include the names of officials from EDC, DFAIT or the Review Team who were represented at all the Town Hall meetings.

TorontoMary Anderson I.E. Canada

Chantal Aubin

Paul Flanagan Euler Hermes Canada

Peter Grills BMO Capital Markets

Steve Grunau Industry Canada

Vincent Guglielmo Automotive Parts Manufacturers’ Association

Paloma Healey Scotiabank

Tom Hearne Redline Communications

Louis Lambert Redline Communications

Jean-Michel Laurin Canadian Manufacturers & Exporters

Joe Loparco Automotive Parts Manufacturers’ Association

Joanne Lostracco Canadian Commercial Corporation

Grenville MacDonald Park Re Canada

Craig MacKenzie Northstar Trade Finance Inc.

Kent Paisley Executive Risk Insurance Services

Richard Pinder Atradius

Lisa Proulx Scotiabank

Michel Weiss Bank of Montreal

Martin Zablocki Canadian Commercial Corporation

vancouverShirley Bennie Business Development Bank of Canada

Steve Bow Northstar Trade Finance

Catharine Devlin Devlin E-Business Architects

Fabian Hope Euler Hermes Canada

Noel Laqui Royal Bank of Canada

Jean-Michel Laurin Canadian Manufacturers and Exporters Alliance

Robert Napoli Vancity Capital

Noah Quastel Amnesty International

Douglas Roff Atradius Credit Insurance NV

Wendy Wong Royal Bank of Canada


135Annex G: Town Hall Meeting Participants

CalgaryJack Ballegooyen Canyon Technical Services Ltd.

Irina Bobrysheva IB Group Ltd.

Dean Brawn Calibre Environmental Ltd.

Patrick Feighan Tarco

Tait Layton Canada Oil Magazine

Jim Lysyk Tarco

Allan McNeil AMIS InterAg

Malei Muranatea TechCom

Rod Orsten Tarco

Kirk Purdy MacLeod Resources

Gail Robinson TechCom

Jose Ismael Vanegas World Products Supply

Doris Weiss Numbers Unlimited

WinnipegBob Dilay Manitoba Trade and Investment

Glenn Friesen Manitoba Agriculture

Ken Kohut Bristol Aerospace

Bill Markusa Burrows Lumber Inc.

Micke Millard The Geothermal Alternative/Southern Comfort

Mechanical

Darcy Reimer Ag Growth Industries

Simon Romana IRA NRG.net

Nadia Said Manitoba Trade and Investment

Bill Teerhuis Manitoba Trade and Investment

Craig Wood Bristol Aerospace

MontréalThomas Assimes TD Securities

Patrick Beaudoin Investissement Québec

J. Denis Bélisle DESSAU

Lynda Cedar, Ph.D. Atlantic Life Sciences Inc.

Alpha Diop Montréal Export International Inc.

Cémil Gamas Crédit commercial Chittenden

Francis Gariepy Atradius Credit Insurance NV

Steve Gartner Kruger Inc.

Yves Gervail Euler Hermes Canada

Marcello Iacovella Wildfire Inc.

Karen Kastner BDC

Morris Krymalowski Industrie Canada

Robert Labelle Euler Hermes Canada


136 Annex G: Town Hall Meeting Participants

Yves Morel Ministère du Développement économique de

l’Innovation et de l’Exportation (MDEIE)

Stewart Spence Zhaspen Canada

Germain Tremblay Intello Technologies

Miville Tremblay TROC Québec

James White Wildfire Inc.

KanataNatasha D’Souza Virtual EyeSee


Robert Norris StraTerra

HalifaxDavid Bryson Electro Braid Fencing

Sandra Canning Agriculture and Agri-Food Canada

Jim Fanning Atlantic Canada Opportunities Agency

Paul Flannagan Euler Hermes Canada

Tonya Furlong Atlantic Canada Opportunities Agency

Colin Gale Atlantic Canada Opportunities Agency

Helen Gromick Nova Scotia Community College

John Hoar Nova Scotia Finance

Michelle Landreville Mining Association of Nova Scotia

Craig Levongie Business Development Bank of Canada

Robert McMahon Satlantic Incorporated

OttawaAmin Amiani Business Financial Advisory Ltd.

Bob Bamford Ottawa Manufacturers’ Network

Catherine Beauchamp Business Development Bank of Canada

Patrick Chevalier Natural Resources Canada/NRCan

Chrystia Chudezak Natural Resources Canada/NRCan

Adele Deschamps Industry Canada

Scott C. Ferris FITT — Forum for International Trade Training

Darcy Ferron Scotiabank

Paul Flannigan Euler Hermes Canada

Andrew Fraser Western Economic Diversification Canada

Greg Gorman World Trade Centre Ottawa-Gatineau

Jan Grofe Amnesty International

Murray Gwyer Agriculture and Agri-Food Canada

Patrick Hurens Industry Canada


137Annex G: Town Hall Meeting Participants

Karina Kessaris NRCan/Science and Policy Integration/

International Affairs

Bob Kirke Canadian Apparel Federation

Vic Klassen Lean Advisors Inc.


Normand Lanthier Office of the Auditor General of Canada

Audrey Lorimer Atlantic Canada Opportunities Agency

Loanne Lostracco Canadian Commercial Corporation

Rachelle Mandel Transport Canada

Marc Meloche Bombardier

Ian Miller Atradius

Marta Morgan Forest Products Association of Canada

Mary O’Keefe Industry Canada/Canada Business Network

Stephanie Reid Treasury Board

Roger Shier Farm Credit Canada

Vlada Shilina Aerospace Industries Association of Canada

Brent Wilson Agriculture and Agri-Food Canada

Sarah Winton Aerospace Industries Association of Canada

Carly Wolff Canadian Fertilizer Institute

Ying Xie Ottawa Chinese Community Service Centre


138 Annex H: List of Stakeholders Consulted

Annex H: List of Stakeholders Consulted

This list comprises those individuals or organizations which sought us out to request consultations with the Review Team. Detailed discussions have also taken place with a large number of EDC officials, who are not listed individually here. In addition, informal discussions were conducted with a number of ECAs from around the world.

Federal GovernmentMarie-Lucie Morin Foreign Affairs and International Trade Canada

Stewart Beck Foreign Affairs and International Trade Canada

Kathryn McCallion Foreign Affairs and International Trade Canada

Paul Thoppil Foreign Affairs and International Trade Canada

Robert Clark Foreign Affairs and International Trade Canada

Martin Jensen Foreign Affairs and International Trade Canada

Julie Insley Foreign Affairs and International Trade Canada

Alexandra Dostal Foreign Affairs and International Trade Canada

Leigh Wolfrom Foreign Affairs and International Trade Canada

Erin Davidge Foreign Affairs and International Trade Canada

Jessie Hislop Foreign Affairs and International Trade Canada

Robert Wright Finance Canada

Peter Cameron Finance Canada

Lise Carriere Finance Canada

Stephanie Burnett-Landry Finance Canada

Jennifer Purves Finance Canada

Alexandra Dostal Finance Canada

Marcie Girouard Industry Canada

Mary O’Keefe Industry Canada

Harvey Wong Industry Canada

Laura Morin Industry Canada

Guy Berneche Office of the Superintendent of Financial Institutions

Guillaume Couillard Competition Bureau

Janet Mrenica Treasury Board Secretariat

Stephanie Reid Treasury Board Secretariat

Jean Silbert Lapolice Treasury Board Secretariat

Marian McMahon Office of the Auditor General

Lissa Lamarche Office of the Auditor General

Normand Lanthier Office of the Auditor General

Crown CorporationsJean-René Halde Business Development Bank of Canada (BDC)

Michel Bergeron Business Development Bank of Canada (BDC)

Marc Whittingham Canadian Commercial Corporation (CCC)

Suzanna Denevon-Fortier Canadian Commercial Corporation (CCC)


139Annex H: List of Stakeholders Consulted

Parliamentarians/Ministerial AidesPaul Benoit Office of Minister David Emerson

Barrett Bingley Office of Minister David Emerson

Gerald Keddy MP

Sarah MacLean Aide to Mr. Keddy

ExportersJill Anderson Aecometric Corporation

Lynda Cedar ALS Clinic

Allan McNeil AMIS InterAg

Bernard Herscovich BelAir Networks

Ken Kohut Bristol Aerospace

Craig Wood Bristol Aerospace

Mary Van Sandvoort Burlington Technologies Inc.

Paul Leinburd Crowncap

Catharine Devlin Devlin E-Architects

Skip Werner GE

Grace Chisholm George Myers Fashion Apparel

Balusamy Sekar Integrated Software Technologies Ltd.

Ken Kubecka Interna Furniture Design Ltd.

Christopher Trider Macleod Resources Ltd.

Chris Harrison MDA

K.C. Vasudeva Maxtech Manufacturing Inc.

Mervyn Pinto Minaean International Corp.

Bill Setka National Leasing

Stephen Lappin NetThruPut

Una Power Nexen

Marvin Romanow Nexen

Trevor Jones Nortel

Michael McCorkle Nortel

William Neil Nortel

Elliot Lifson Peerless Clothing

Tony Nardi Peerless Clothing

Sharon Porte Peerless Clothing

Robert Langevin Pratt and Whitney Canada

Pamela Steer Redknee Inc.

Pierre Pharand Rio Tinto Alcan

Lucy Quaglia Sciencetech Inc.

Chantal Rougerie SNC Lavalin

Brenda Pennock Talisman Energy Inc.

Patrick Feighan Tarco

Jim Lysyk Tarco


140 Annex H: List of Stakeholders Consulted

Rod Orsten Tarco

Zach Wilkie Tiger Industries Inc.

Joel Simon Walpert Industries Ltd.

James Moore Wildfire

InsurersJohn Salinger AIG

Neil Leary Atradius

Ian Miller Atradius

Chris Short COFACE

Paul Flanagan Euler-Hermes

Robert Labelle Euler-Hermes

Paul Overeem Euler-Hermes

Arjan VandeWall Euler-Hermes

Kent Paisley Executive Risk

Dan Riordan Zurich Emerging Market Solutions

BrokersKeith Milloy CFIB

Charles Berry BPL

Martine Douce BFL

Paul Turner Jaimac Risk Management

Ron Doyle Millennium Credit

Financial InstitutionsPeter Kemball Acorn Capital Partners

Christian Turenne Banque National Canada

Philippa Fitzsimmons BMO

Michel Weiss BMO

Reesa Shurgold HSBC

Marguerite Gill JP Morgan Chase

Steve Bow Northstar

Scott Shepherd Northstar

Jascha Jabes Scotiabank

Laura Saenz Scotiabank

Gregoire Bonhomme SocGen

Charles Attard TD

Akhil Lamba TD

Wolfgang Mersch TD


141Annex H: List of Stakeholders Consulted

AssociationsTerry Campbell Canadian Bankers Association

John Lancaster Canadian Bankers Association

Carly Wolff Canadian Fertilizer Institute

Jean-Michel Laurin Canadian Manufacturers and Exporters

Richard Remillard Canadian Venture Capital Association

Steve Morrisey Cement Association of Canada

Paul Lansbergen Forest Products Association of Canada

Alan Hercovici Fur Council of Canada

Grant Kelly Insurance Bureau of Canada

Irene MacDonald Insurance Bureau of Canada

Greg Gorman World Trade Centre, Ottawa-Gatineau

Ontario GovernmentReed Barrett Ministry of Enterprise, Opportunity and Innovation

Rowena Dias Ministry of Economic Development and Trade

Rick Grandin Ministry of Small Business and Entrepreneurship

Hope Jaglowitz Ministry of Economic Development and Trade

John Langley Ministry of Economic Development and Trade

Bob Seguin Ministry of Economic Development and Trade

CommitteesCME’s Export Finance and Insurance Committee

Canadian Manufacturing Coalition

SME Advisory Board of the Minister of International Trade

International Commerce Advisory Group of DFAIT

CME’s Development Assistance Committee

OtherEstelle Havva

George Kamstra Northwest Midwest Alliance

Noah Quastel Amnesty International

Walter Robinson Tactix


142 Annex I: List of Written Submissions

Annex I: List of Written Submissions

The organizations listed below forwarded written submissions to the Review Team. Several of these submissions were listed, with the permission of the author, on the dedicated Review website, www.edcreview2008.ca, with a link provided to the web page of the submitting organization where their submission could be viewed in its entirety.

Aerospace Industries Association Canada

Agrium Inc.

Amnesty International

Atradius Trade Credit Insurance Inc.

Bombardier Aerospace

Business Development Bank of Canada

C.D. Howe Institute

CAMESE — Canadian Association of Mining Equipment and Services for Export

Canadian Bankers Association

Canadian Commercial Corporation

Canpotex Limited

Elk Valley Coal Partnership

Euler Hermes ACI

Export Development Canada

George Myers Fashion Apparels

Halifax Initiative Coalition

House of Adjustments Inc.

Insurance Bureau of Canada

Interior Designers of Canada

International Commerce Advisory Group

MacDon Industries Inc.

Mackenzie FSG International Limited

Maxtech Mfg. Inc.

Minaean International Corporation

Optelian

Pacific Energy Fireplace Products Ltd.

SNC-Lavalin Capital Inc.

Scotiabank

SimEx Inc.

The Canadian Chamber of Commerce

TransAlta Corporation

Troc Québec

Wildfire Inc.

World Trade Centre


143Annex J: List of Berne Union Members

Annex J: List of Berne Union Members

Organization18 Ownership Major Facilities

AIG Global Trade & Political Risk

Country: USAFounded:1978www.aig.com

Wholly-owned subsidiary of American International Group, Inc.

Trade Credit Insurance, Investment Insurance, Political Risk Insurance

Asuransi Ekspor Indonesia

Country: IndonesiaFounded: 1985www.asei.co.id

100% State-owned Export credit insurance, Credit insurance and credit guarantee, Surety bonds

The Israel Export Insurance Corp, Ltd

Country: IsraelFounded: 1957www.ashra.gov.il

100% State-owned Export credit insurance, Investment insurance

Atradius

Country: NetherlandsFounded: 1925www.atradius.com

Swiss Re 34.95%, Seguros Catalana Occidente 28.26%, Credito y Caucion 21.73%, Deutsche Bank 12.73% and Sal Oppenheim 2.33%

Export Credit Insurance, Global Policy, Debt Collections

Banco Nacional de Comercio Exterior

Country: MexicoFounded: 1937www.bancomext.com

State-owned Credit insurance, Export finance, Project Finance, Bonds and Guarantees, Carbon Market

Compania Espanola de Seguros de Credito a la Exportacion

Country: SpainFounded: 1970www.cesce.com

CESCO has been established as a joint stock company (Sociedad Anonima) in which the Spanish state is a majority shareholder (50.25%). The remaining capital is owned by the main Spanish banks and insurance companies. CESCE has no private individual shareholders.

Export Credit Insurance, Investment insurance

Credit Guarantee Insurance Corporation of Africa Ltd.

Country: South AfricaFounded: 1956www.creditguarantee.co.za

Ownership is shared between the major short-term insurers and reinsurers in South Africa

Short-term (up to one-year) cover: commercial and political risk; pre-shipment: credit and domestic cover


144 Annex J: List of Berne Union Members

Chubb Group of Insurance Companies

Country: USAFounded: 1882www.chubb.com

Chubb Political Risk is part of the CHUBB Group of Insurance Companies

Political Risk Insurance for International Investments, Political Risk Insurance for International Trade

Compagnie Francaise D’Assurance

Country: FranceFounded: 1946www.coface.comor www.cofacerating.com

Natixis COFACE’s mission is to facilitate global business to business trade by offering companies four product lines to help them manage, finance and protect their receivables: Company information, Receivables management, Receivables protection, Receivables financing; COFACE also offers two other business lines: Guarantee insurance, Public procedures management for export guarantees given by the French state (notably, investment insurance)

Companhia de Seguro de Creditos, SA

Country: PortugalFounded: 1969www.cosec.pt

The BPI Group 50% and EULER Hermes Group 50%

Export credit insurance, Investment insurance, Bonds and Guarantees

Credit Insurance Zimbabwe Ltd

Country: ZimbabweFounded: [email protected]

Private commercial and merchant banks, pension funds and reinsurance companies

Pre and post-shipment ST export cover for political and commercial risks; domestic ST cover for commercial risk; export consignment stocks and transit political risk cover, domestic bonds and guarantees

Credito y Caucion

Country: SpainFounded: [email protected]; [email protected]; [email protected]

43.18% Grupo Catalana Occidente; 41.18% Consorcio de Compensacion de Seguros; 7.82% Espana SA Compania Nacional de Seguros; 5.00% Ges Seguros y Reaseguros SA; 2.82% Nacional de Reaseguros SA

Credit Insurance, Bonds

Export Credit Guarantee Corporation of India Ltd

Country: IndiaFounded: 1957www.ecgc.in

Autonomous company with 100% shareholding by the Government of India

Export credit insurance, Export Credit Insurance to Banks, Overseas Investment Insurance, Bonds and Guarantees, Full-Fledged Factoring

The Export Credits Guarantee Department UK

Country: UKFounded: 1919www.ecgd.gov.uk

UK government Guarantees for Finance, Project Finance, Export Credit Insurance, Bonds and Guarantees, Investment Insurance



ECICS Ltd

Country: SingaporeFounded: 2003www.ecics.com.sg

IFS Capital Limited-100% Credit Insurance, Surety Bonds

Export Credit Insurance Corporation of South Africa Ltd.

Country: South AfricaFounded: 2001www.ecic.co.za

South Africa Government through the Department of Trade and Industry

Export Credit Insurance, Investment Insurance, Performance Bond Insurance

Export Development Canada

Country: CanadaFounded: 1944www.edc.ca

Principle Shareholder: Government of Canada

Insurance, Financing, Bonding

The Export Finance and Insurance Corporation

Country: AustraliaFounded: 1957www.efic.gov.au

Wholly owned and guaranteed by the Commonwealth of Australia

Export Finance and Insurance, Project Financing, Political Risk Insurance, Bonds, Sureties and Guarantees

Export Guarantee and Insurance Corporation

Country: Czech RepublicFounded: 1992www.egap.cz

EGAP is fully owned by the state. Shareholder’s rights are exercised by Ministry of Finance (40% of votes), Ministry of Industry and Trade (36%), Ministry of Agriculture (12%) and Ministry of Foreign Affairs (12%)

Insurance with state support against commercial and political risk, Export credit insurance (buyer and supplier credits), Insurance of supplier credits financed by a bank, Insurance of export contract-related bonds (advance payment bonds, bid bonds and performance bonds) against unfair and fair calling, Manufacturing risks insurance, Pre-export financing insurance, Insurance of a conformed letter of credit, Investment insurance, Insurance of a credit for financing of investments, insurance of market prospection

Euler Hermes Kreditversicherungs-AG

Country: GermanyFounded: 1917www.agaportal.de/en/age

100% Euler Hermes SA, Paris, The German government does not hold any shares in the company

Export Credit Insurance, Project Finance, Bonds and Guarantees

Eksport Kredit Fonden

Country: DenmarkFounded: 1996www.ekf.dk

100% State-owned agency with the Ministry of Economic and Business Affairs as the guardian authority

Export Credit Insurance, Export finance, Project Finance, Investment Guarantees, Bonds and Guarantees



Exportkreditnamnden

Country: SwedenFounded: 1933www.ekn.se

100% state-owned government agency

Export Credit Insurance, Project Finance, Bonds and Guarantees, Investment insurance, Other products

National Export Import Bank of Jamaica Limited

Country: JamaicaFounded: 1986www.eximbankja.com

100% government of Jamaica Export credit insurance, Export financing, Import financing

FCIA Management Company, Inc

Country: USAFounded: 1961www.fcia.com

Great American Insurance Company

Short-Term (up to one-year) cover, Medium-Term (over one-year) cover

Finnvera Plc

Country: FinlandFounded: 1963www.finnvera.fi

100% State-owned Export credit insurance, Investment insurance, Bonds and Guarantees

Garanti-Instituttet for Eksportkreditt

Country: NorwayFounded: 1929www.giek.no

GIEK is an independent government enterprise, and holds all the shares of GIEK Credit Insurance Ltd

Export Credit insurance, MLT cover, Investment insurance, ST credit insurance is handled by GIEK Credit Insurance Ltd

Hong Kong Export Credit Insurance Corporation

Country: Hong KongFounded: 1966www.hkecic.com

The government of the Hong Kong Special Administrative Region of the People’s Republic of China

Export credit insurance, Supplier credit facilities, short-term (up to one year) cover: commercial and political risk: pre-shipment and credit cover, Medium/long term (cover one year)

The Islamic Corporation for the insurance of Investment and Export Credit

Country: MultilateralFounded: 1994www.iciec.com

The authorized capital of ICIEC is US$144 million, to which the Islamic Development Bank (IDB) subscribed to 50%, while 36 member countries of the Organisation of the Islamic Conference (OIC) subscribe to the other 50%

Export Credit Insurance Services, Foreign Investment Insurance Services, Reinsurance Services

Korea Export Insurance Corporation

Country: KoreaFounded: 1992www.keic.or.kr

100% state-owned Export credit insurance, Investment Insurance, Bonds and Guarantees



Export Credit Insurance Corporation Joint Stock Company

Country: PolandFounded: 1991www.kuke.com.pl

The state Treasury represented by the Ministry of Finance — 87.85%. State Economy Bank — 12.15%

Export Credit insurance, Investment insurance, Bonds and guarantees, Domestic credit insurance

Hungarian Export Credit Insurance

Country: HungaryFounded: 1994www.mehib.hu

On behalf of the Hungarian State the Hungarian Privatisation and State Holding Company Ltd. (25%) and the Hungarian Development Bank Ltd. (75%)

Export Credit Insurance, Investment Insurance

Exim Bank of Malaysia BHD

Country: MalaysiaFounded: 1977www.exim.com.my

100% state-owned by the Ministry of Finance

Export Credit Insurance, Project Finance, Investment Insurance, Bonds and Guarantees

Multilateral Investment Guarantee Agency

Country: MultilateralFounded: 1988www.miga.org

Miga is owned by 171 member countries

Through its investment guarantees, MIGA offers protection for new cross-border investments as well as expansion and privatisations of existing projects against the following non-commercial risks: transfer restriction; expropriation; war and civil disturbance; and breach of contract.

Nippon Export and Investment Insurance

Country: JapanFounded: 2001www.nexi.go.jp

100% state-owned Export Credit Insurance, Insurance or Project Finance, Investment Insurance and United Loan Insurance, Bonds and Guarantees

Oesterreichische Kontrollbank Aktiengessellschaft

Country: AustriaFounded: 1946www.oekb.at

Commercial Banks Export Credit Insurance for Capital Goods, Project Finance, Investment Insurance, Bonds and Guarantees

Office National du Ducroire Nationale Delcrederedienst

Country: BelgiumFounded: 1921www.ondd.be

100% state-owned Contract Types Covered, Risk Covered, Causes of Loss Covered, Amounts Covered

Overseas Private Investment Corporation

Country: USAFounded: 1971www.opic.gov

100% state-owned, the corporation is governed by a 15-member board of directors, of whom eight are appointed from the private sector and seven from the federal government

Insurance, Bonds and Guarantees



PricewaterhouseCoopers AG

Country: GermanyFounded: 1922www.agaportal.de

Senior Management (Partners), 100%

Investment insurance

Servizi Assicurativi del Commercio Estero

Country: ItalyFounded: 1977www.sace.it

Ministry of Economy and Finance

Export Credit Coverage, Project Finance Coverage, Political Risk Insurance

Seguradora Brasileira De Credito A Exportacao S/A

Country: BrazilFounded: 1997www.sbce.com.br

COFACE, Banco do Brasil, BNDES, Bradesco Seguros SA, Cia de Seguros Minas Brasil, Sul America Cia Nacional de Seguros, Unibanco Seguros SA

Export Credit Insurance, MLT cover: commercial and political risks, Supplier and buyer credit cover, Structured and project finance

SID Bank, Inc. Ljublijana

Country: SloveniaFounded: 1992www.sid.si

Joint stock company (88 shareholders), principal shareholder is Republic of Slovenia (91.15%), other shareholders: Slovene banks, enterprises, insurance companies, and others.

Export Credit Insurance, Investment Insurance, Financing, Guarantees

Swiss Export Risk Insurance

Country: SwitzerlandFounded: 2007www.serv-ch.com

SERV is a Swiss government institution under public law

Export Credit Insurance, Pre-shipment Risk Cover, Project Finance, Bonds and Guarantees

China Export & Credit Insurance Corporation

Country: ChinaFounded: 2001www.sinosure.com.cn

State-owned Export credit insurance, Investment insurance, Domestic trade credit insurance, Bond and guarantee, Debt collection service, Credit rating service

Sri Lanka Export Credit Insurance Corporation

Country: Sri LankaFounded: 1978www.slecic.lk

Government-backed export credit agency

Export Credit Insurance (Seller’s Risk), Export Credit Guarantees, Export Performance Guarantees, Other Services

Export-Import Bank of the Slovak Republic

Country: Slovak RepublicFounded: 1997www.eximbanka.sk

100% sovereign Insurance products, Banking Products

Sovereign Risk Insurance Limited

Country: BermudaFounded: 1997

ACE Bermuda Insurance Ltd, a wholly-owned subsidiary of ACE Limited

Investment Insurance, Sovereign and Sub-Sovereign Non-Payment, Capital Markets



Taipei Export-Import Bank of China

Country: Chinese TaipeiFounded: 1979www.eximbank.com.tw

100% government-owned Export Credit Insurance, Investment Insurance, Export Finance, Guarantees

Export-Import Bank of Thailand

Country: ThailandFounded: 1993/1994www.exim.go.th

Royal Thai Government 100% Financial Services similar to those offered by commercial banks, Other specialised financial facilities to support Thai exporters or investors investing abroad, Export Credit Insurance — Short term (less than 2 years) — Medium and long term — Investment insurance, Merchant marine financing, financing facilities for overseas construction contracts

Export Credit Bank of Turkey

Country: TurkeyFounded: 1987www.eximbank.gov.tr

100% owned by the Treasury of the Republic of Turkey

Export Credit Insurance, Project Finance, Export Finance, Bonds and Guarantees

Export-Import Bank of the United States

Country: USAFounded: 1934www.exim.gov

100% Federal Government-owned independent agency

Export Credit Insurance, Export Finance, Export Loan Guarantees, Export Working Capital Loan Guarantees, Project Finance

Zurich Emerging Markets Solutions

Country: USAFounded: 1997www.zurichna.com/politicalrisk

Zurich Financial Services Group

Political Risk Insurance, Credit Insurance

18 Berne Union International Union of Credit & Investment Insurers Annual report 2008.


150 Annex K: List of Prague Club Members

Annex K: List of Prague Club Members

Organization19 Ownership Major Facilities

Export Credit and Insurance Agency of the Republic of Serbia

Country: SerbiaFounded: 2005www.aofi.co.yu

100% Republic of Serbia Export credit insurance, Loans and guarantees, Factoring

The African Trade Insurance Agency

Country: MultilateralFounded: 2001www.africa-eca.com

Burundi, Democratic Republic of Congo, Djibouti, Eritrea, Kenya, Liberia, Madagascar, Malawi, Rwanda, Sudan, Tanzania, Uganda, Zambia, Atradius Group, COMESA, PTA Bank and PTA Reinsurance Company

Political risk insurance for trade and investment, Mobile assets insurance, Unfair calling of bonds insurance, Inter and intra-regional and domestic whole turnover credit insurance, Comprehensive non-payment cover for single (structured) credits to: Private obligors, parastatal obligors, and sovereign obligors

Bulgarian Export Insurance Agency

Country: BulgariaFounded: 1998www.baez-bg.com

Full state ownership Export Credit Insurance, Export Financing, Insurance of Credit and Financing

Export Credit & Guarantee Company (Botswana) Pty Ltd

Country: BotswanaFounded: [email protected]

Botswana Development Corporation Limited

Export credit insurance, Domestic credit insurance, Construction-related and trade bonds, Management of an SMME credit guarantee scheme on behalf of a development financial institution. The qualifying SMEs need not be exporting

Export Credit Guarantee Agency Oman

Country: Sultanate of OmanFounded: 1991www.ecgaoman.com.om

Fully owned by the Government of Oman

Export credit insurance, Domestic credit insurance, Pre-Shipment credit guarantee, Post-Shipment credit facilities

Export Credit Guarantee Corporation of Zimbabwe

Country: ZimbabweFounded: 2000www.ecgc.co.zw

Reserve Bank of Zimbabwe (100%)

Export credit insurance, Domestic credit insurance, Pre-shipment export finance guarantee, Post-shipment export finance bank guarantee, Bonds and guarantees


151Annex K: List of Prague Club Members

Export Credit Guarantee Company of Egypt

Country: EgyptFounded: 1993www.ecgegypt.net

Export Development Bank of Egypt 36%, National Investment Bank 21%

Export credit insurance, whole turnover policy, single shipment policy, single shipment policy, unconfirmed letters of credit, services policy, export factoring, Insurance, finance and collection of expert trade receivables on recourse and non-recourse basis

Export Guarantee Fund of Iran

Country: IranFounded: 1973/1994www.egfi.org

Wholly state-owned Policies, Guarantees

Eximgarant of Belarus

Country: BelarusFounded: 2001www.eximgarant.by

100% government-owned Export Credit Insurance with State Support

Eximbank of Romania

Country: Romaniawww.eximbank.ro

95.374% — the Romania state, 4,626% — five regional investment funds

EximBank Romania provides the following insurance types: — ST insurance policy against foreign payment default risk, MLT insurance policy against foreign payment default risk, Buyer credit insurance policy, Insurance policy of equity investments abroad

Croatian Bank of Reconstruction and Development

Country: CroatiaFounded: 1992www.hbor.hr

State-owned Export finance, Export credit insurance and investment insurance, Financing of infrastructure projects, Financing of the economy, Promotion and development of SMEs, Bond and guarantee business

Inter-Arab Investment Guarantee Corporation

Country: KuwaitFounded: 1974www.iaigc.org

All Arab countries Investment guarantee, Export credit insurance, Cross-border lease insurance


152 Annex K: List of Prague Club Members

Investment Guarantee Agency Bosnia & Herzegovina

Country: Bosnia & HerzegovinaFounded: 1996www.igabih.com

Full state ownership ST and MT financing for domestic export companies, Working capital loan guarantees, to local banks providing financing to export companies, performance, bid and advance payment bonds facility for domestic companies Performing works abroad, Factoring facility for domestic exporting companies, Export credit insurance, Import credit reinsurance facility for foreign ECAs and insurance companies, Credit information facility on domestic companies, Political risk insurance for foreign traders with domestic companies and sovereign

Jordan Loan Guarantee Corporation

Country: JordanFounded: 1994www.jlgc.com

Limited public shareholding company

Loan guarantees, export credit guarantees

Kazakhstan State Insurance Corp for Export Credit & Investment

Country: KazakhstanFounded: 2003www.kecic.kz

100% government-owned Supplier credit insurance, Buyer credit insurance, Insurance of pre-shipment risks, L/C insurance, Investment insurance

Credit & Export Guarantee Fund Estonia

Country: EstoniaFounded: 2000www.kredex.se

Ministry of Economy Affairs and Communications 100%

ST export credit insurance, MLT export credit insurance, Pre-shipment insurance, Investment insurance, Business loan guarantees (including guarantees for bonds), Leasing guarantees, Mezzanine loans, Housing loan guarantees

Macedonian Bank for Development Promotion

Country: MacedoniaFounded: 1998www.mbdp.com.mk

A shareholding company: 100% government-owned

Investment loans, ST export credit insurance, Pre-shipment finance loans, Guarantee fund

National Agency for Insurance & Finance of Exports of Sudan

Country: SudanFounded: 2005www.naife.org

Ministry of Finance & National Economy, Central Bank of Sudan, commercial banks and insurance companies

Export credit insurance, Credit facilities, Promotion and planning activities


153Annex K: List of Prague Club Members

Philippine Export-Import Credit Agency

Country: PhilippinesFounded: 1977www.philexim.gov.ph

100% government-owned and controlled corporation (GOCC)

Developmental financing through guarantees, export lending and export credit insurance, capacity building and technical assistance services

Saudi Export Program

Country: Saudi ArabiaFounded: 1974www.sep.gov.sa

Government of Saudi Arabia Credit Insurance and export guarantees, Direct lending to major export transactions

Serbia & Montenegro Export Credit Agency

Country: SerbiaFounded: 2002www.smeca.co.yu

State-owned Export credit insurance and domestic credit insurance for exporters, Export performance insurance and guarantees, Working capital loans and guarantees, factoring facility (export and import for exporters), Import insurance guarantees, Credit reports and consulting services

Tryggingardeild Utflutnings

Country: IcelandFounded: 2002www.nsa.is

100% state-owned governmental agency

Export Credit Insurance, Project Finance, Bonds and Guaranteed, Investment Insurance

Uzbekinvest National Export-Import Insurance Company

Country: UzbekistanFounded: 1997www.uzbekinvest.uz

State-owned ST export credit insurance, M/LT export credit insurance, Documentary credit/guarantee insurance, advance payment insurance, domestic credit insurance, investment insurance

19 Berne Union International Union of Credit & Investment Insurers Annual Report 2008.


154 Annex L: Locations of Current EDC Overseas Representative Offices

Annex L: Locations of Current EDC Overseas Representative Offices

Shanghai

Beijing

Singapore

New Delhi

Mumbai

Warsaw

Abu Dhabi

Moscow

Sao Paulo

Rio de Janeiro

Santiago

Mexico City

Monterrey

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