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Why export credit agencies provide guarantees in addition to insurance: a contractual perspective
Cheng Lin *
While export credit insurance (“ECI”) remains the mainstream product in the global export credit industry, some export credit agencies also provide export credit guarantees (“ECGs”). An ECG is a more client-friendly product and easier than ECI for banks to use. This is reflected in their significantly different contractual terms: an ECI policy imposes more substantial obligations on banks than an ECG contract. Despite its higher costs, an ECG can better cater to the needs of some banks. It can be used either as a “top-up” facility together with ECI in supplier credit transactions or as a standalone and tailored product in buyer credit transactions.
“Export credit facilities” is the collective name for all types of insurance or guarantee products that are used to secure trade transactions where the exporter allows the buyer to pay on credit terms. 1 According to the International Association of Credit & Investment Insurers (“the Berne Union”), the international organisation of official export credit agencies (“ECAs”) and private credit insurers around the world, in 2018 alone, about 13 per cent of the world’s cross-border trade (US$2.5 trillion equivalent) was protected by export credit facilities. 2 Depending on the legal nature of the cover, export credit facilities can be categorised as export credit insurance (“ECI”) or export credit guarantee (“ECG”). The terms “insurance” and “guarantee” are often used interchangeably to label
* PhD candidate, King’s College London. I would like to express my great gratitude to Professor Özlem Gurses and Professor Eva Lomnicka QC (Hon), my supervisors at King’s College London, for their endless help with my PhD project. I would also like to thank Mr Vinco David, the Secretary General of the Berne Union, and Mr Laszlo Varnai, the Associate Director of the Berne Union Secretariat, for their insightful comments and suggestions during my internship at the Berne Union in April–December 2019. All errors and omissions, of course, remain mine. This research is generously funded by King’s College London Dickson Poon School of Law’s PhD Internship Scheme.
1. In international trade, the term “export credit” means that the buyer pays at a later date instead of making an immediate cash payment. By providing credit terms, the exporter can make a more competitive offer and the transaction is therefore more likely to be concluded. See A Grath, The Handbook of International Trade and Finance (Kogan Page, London, 2008), 109.
2. Berne Union, “Berne Union Industry Report 2019 H1”, The BUlletin (The Official Newsletter of the Berne Union) , January 2020, 10. Available at www.berneunion.org/Articles/Details/489/January-BUlletin-Mega-Trends-and-Trade.
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