Export credits: issues and general framework

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Against a backdrop of fierce international competition, exporting companies need appropriate financial solutions. Export credits are an essential lever for conquering foreign markets. They can be used to finance international commercial operations and secure transactions.

Definition and economic context

Export credits are a key factor in national economic growth. According to fascicule 1050 of the JurisClasseur Droit bancaire et financier, export activity generates "a significant need for financing at favourable rates, both in the short term and in the medium and long term".

These loans are designed to meet two major challenges:

• Competitive financing requirements
• Covering risks specific to international trade

The risks to be covered include

• Commercial risk (default by a foreign debtor)
• Political risk
• Catastrophic risk

Types of export credits

Export credits can be classified according to two main criteria:

Depending on duration :

• Short-term: up to 2 years
• Medium-term: 2 to 7 years
• Long term: more than 7 years

Depending on the beneficiary :

• Supplier credits (exporter)
• Credits to the buyer (foreign importer)

In practice, there are five main forms:

1. Pre-financing loans
2. Foreign receivables securitisation loans
3. Supplier credit in the strict sense
4. Lump-sum payments
5. International factoring

Le buyer credit is a significant development in export financing. As the JurisClasseur article explains, in this configuration, "a bank or public export credit agency in the exporting country undertakes to make a loan directly to a foreign buyer to enable the buyer to acquire goods or services from a supplier in the exporting country".

The changing role of governments

Historically, governments have played a leading role in the development of export credits.

This intervention took the form of :

• Setting up specialised national institutions
• The development of public procedures to encourage export financing
• Implementing risk coverage systems

In France, COFACE (Compagnie Française d'Assurance pour le Commerce Extérieur) fulfils this role of "insurer of foreign trade".credit insurer on behalf of the State, which is a major form of public financial support for exports.

However, governments are gradually withdrawing their involvement. This withdrawal is part of a wider process of economic liberalisation. It is also the result of international commitments to limit "credit competition" between exporting countries.

The different categories of export credit

France offers three categories of export credit:

1. Managed" or "conventional" loans
   • Covered by a COFACE guarantee
   • Benefit from a bonus procedure
2. Pure guarantee" loans
   • Covered by COFACE
   • Without public financial support
3. Free" loans
   • Not subject to any public procedure

These different forms are often combined. An export may be financed partly with public support and partly with free credit (sometimes called "accompanying financial credit").

Possible combinations of financing

For large-scale projects, the financial packages can become complex, with combinations of :

• Export credits (with or without public support)
• Development aid credits on favourable terms
• Mixed credits
• Loans and guarantees from international financial institutions (International Finance Corporation, European Bank for Reconstruction and Development)

These arrangements are made within the framework of co-financing. International regulations provide a strict framework for these practices, notably through the "Arrangement on Officially Supported Export Credits" negotiated under the aegis of the OECD.

Points of attention for exporters

To make the most of export credits, you need to :

• Precisely identify financing requirements (production period, payment terms granted)
• Assess the risks specific to the destination country
• Explore all the cover options available
• Find out about available public support schemes
• Anticipating international regulatory constraints

The financing structure can be a decisive competitive advantage in international trade negotiations. The payment terms offered can make the difference between winning a contract or awarding it to a foreign competitor.

A legal advice specialising in credit law is often necessary to optimise the financial package for a major export operation. Regulatory constraints are constantly changing, and the best way to structure a deal depends on many factors specific to each situation.

Our firm regularly assists exporters with these complex procedures. Do not hesitate to contact us to analyse your specific export financing needs.

Sources

• JurisClasseur Droit bancaire et financier, Fasc. 1050: "Export credits. Credits for buyers and suppliers", Gautier Bourdeaux, first published on 2 September 2009
• G. Bourdeaux, "Le crédit acheteur international. Approche française et comparative", Economica, 1995.
• OECD, "Export Credit Financing Systems in OECD and Non-OECD Countries", MAJ 2005

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