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Today in the rise & fall of multilateralism: the “International Working Group” (no points for creative naming), an effort to govern public export credit agencies, is effectively disbanding (h/t @HowardJShatz). A eulogy & some broader implications 1/ https://home.treasury.gov/news/press-releases/sm1188
First some background: export credit agencies, like @EximBankUS, have typically been governed through an informal agreement at the OECD, known as “the Gentlemen’s Agreement” or simply “the Arrangement” (again, not great on creative naming…) https://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-understandings/ 2/
The purpose of the Arrangement is to set a level playing field in export finance, to tamp down on competition among agencies, so governments don’t end up massively over subsidizing trade finance to win export contracts. Historically it worked quite well 3/ https://www.cambridge.org/core/journals/international-organization/article/disciplining-trade-finance-the-oecd-export-credit-arrangement/BD7F3E5945CE957305555E55869D043D
The problem, which has been obvious for some time, is that China is not a part of the agreement. As China became an export power, it put more and more stress on the OECD regime, as @KristenHopewell describes here 4/ https://onlinelibrary.wiley.com/doi/abs/10.1111/rego.12253
The IWG was meant to be the solution. Formed in 2012, it brought together both the ‘old’ export credit agencies of the OECD and the new emerging economies, most importantly China but also India, Brazil and some others 5/
At the time of its creation in 2012, just getting China to agree to participate in talks on disciplining export credits was spun as a real victory for the Obama admin - an outcome of one of the old 'Strategic Economic Dialogues', iirc 6/ https://www.reuters.com/article/usa-china-exportcredits/us-china-agree-to-negotiate-export-credit-deal-idINDEE81D0GX20120214
From the outset though, the IWG never really got very far. For instance, by 2014 an internal EU assessment of the group already noted “the activities of the working group are for the time being very much driven by its OECD participants” 7/ https://op.europa.eu/en/publication-detail/-/publication/a191ae22-e65e-11e3-8cd4-01aa75ed71a1
As @KristenHopewell notes, China was never really interested in an agreement that would constrain its use of export credits, and thus there wasn’t much to be done. Reading between the lines, these are the same complaints in today’s announcement 8/ https://home.treasury.gov/news/press-releases/sm1188
A 2018 survey of export credit professionals – people who’s work would be directly impacted by the IWG – found only 13 percent believed it was making progress. More embarrassingly, 60 percent had never even heard of it. 9/ https://www.txfnews.com/News/Article/6639/Is-the-OECD-Consensus-still-fit-for-purpose
From one perspective, then, the question isn’t why governments are pulling the plug on the IWG now. The question is why it took so long to get to this point. 10/
Still, it’s a milestone worth marking, for two reasons. First, for what it means for the future of cooperation in export credits. The challenge in the regime today is not just that China isn’t included – it’s that OECD members themselves are losing faith in the regime 11/
As a high ranking @EximBankUS official told me recently, “War has broken out among OECD export credit agencies.” These agencies aren’t walking away from the Arrangement, but they’re bending the rules to distort the level playing field 12/
. @EximBankUS has been warning about this for a while – see in particular Chapter 2 here, on the ‘weaponization of export finance’ 13/ https://www.exim.gov/sites/default/files/reports/competitiveness_reports/2017/REVISED_EXIM-CompetitivenessReport_508C.pdf
With the collapse of the IWG, perhaps focus will turn to reinvigorating the Arrangement. Though I’m not sure what's possible at this point, because countries still competing with China are reluctant to tie their hands within the OECD, so long as China's outside. But we’ll see 14/
The second reason today’s news is noteworthy is because of what it potentially portends for the future of multilateral cooperation. The export credit regime is perhaps a ‘canary in the coal mine’ for how institutions adapt to a rising China – and it’s a worrying picture. 15/
Not only has the regime failed to bring China into the fold, but in the aftermath of China’s rise cooperation is breaking down even among the old members of the club, and the regime appears to be unraveling 16/
International cooperation is often more fragile than it appears – a significant shock (such as the rise of China) can knock regimes out of a cooperative equilibrium, and there’s no guarantee they’ll resettle in a new cooperative equilibrium after they adjust 17/
Finally, if you’ve read this far and still want to know more about the wild world of export credits (or are perhaps wondering why I had all those links at the ready), @jonasbunte, Alexa Zeitz & I have a paper on the recent travails of the regime – DM if you’d like a copy. 18/end
