US embassy cable - 05PARIS3296

UNCLAS SECTION 01 OF 05 PARIS 003296 
 
SIPDIS 
 
FROM USOECD 
 
STATE FOR E 
EB/IFD - GREENWOOD, GARBER, LYNG, BROWN AND KEAT 
OES/ENV 
WHA/BSC - EDWARDS 
EUR/ERA - FELDMAN 
STATE PLEASE PASS USTR FOR MALMROSE 
TREASURY FOR TVARDEK, DRYSDALE AND EPSTEIN 
COMMERCE FOR LENZ AND BEADLE 
STATE PASS EXIM BANK FOR SABA, CRUSE, KUESTER, 
SCHWEITZER AND FIRESTONE 
BRASILIA RIO AND SAO PAULO FOR ECON AND FCS 
 
E.O. 12958: N/A 
TAGS: EFIN, ETRD, SENV, ETRD, BR, OECD 
SUBJECT: OECD: APRIL EXPORT CREDITS MEETINGS FURTHER 
USG ANTIBRIBERY AND AIRCRAFT FINANCE GOALS 
 
1. SUMMARY: The Participants to the Arrangement on 
Officially Supported Export Credits and the Export 
Credit Group (ECG) of the Organization for Economic 
Cooperation and Development (OECD) met April 18-22, 
2005 at OECD headquarters in Paris.  Informal and 
formal aircraft meetings with Brazil made progress on 
clarifying the issues for a future aircraft sector 
finance agreement.  The Consultations group met on the 
afternoon of April 22.  Substantial progress was made 
on several issues, including an agreement on an 
Outreach Strategy for both the Participants and the 
ECG, an agreement on a revised mandate for the Working 
Group of Experts on Premium and Related Conditions, an 
ad ref agreement on extended repayment terms for 
renewable energy and water projects, and an agreement 
in substance on revisions to the Arrangement on 
flexible repayment and project finance terms.  The ECG, 
agreed to schedule a special meeting on the anti- 
bribery issue, in October, and to allow more time at 
the November meeting during which it hopes to conclude 
an agreement on an updated action statement.  End 
Summary. 
 
Participants and Consultations Meetings 
 
2. The Participants to the Arrangement on Officially 
Supported Export Credits met on in Paris on April 18, 
19, and 21.  The Participants spent the first two days 
electing a new Chair, Nicole Bollen (Netherlands), and 
a new Bureau, in addition to holding technical 
discussions on the implications of the United 
States/Cotton and Korea/Shipbuilding WTO panel dispute 
cases for the Arrangement, non-standard repayment 
structures (the article 13 issue), renewable 
energy, and an outreach strategy.  The Participants 
reached agreement on an Outreach Strategy for the 
Participation of Non-Member Economies.  In addition, 
the Participants agreed in the framework of the agreed 
Outreach Strategy, to hold its annual consultations for 
2005 with Stakeholders on October 3 (NGOs and the 
OECD's Business and Industry Advisory Council [BIAC] 
and Trade Union Advisory Council [TUAC]) and on October 
4 (non-member economies). 
 
3. Comment: The election of the Chair and Bureau, in 
contrast with 2004's contentious sessions, went 
smoothly. This reflects the U.S.-European Union (EU) 
compromise that elected an Australian Chairman and a 
Dutch Bureau member last April.  This compromise 
supported the U.S. position that smaller countries 
(i.e., non-G-7) should fill the role of Chairman, and 
positioned a small-country EU member to be elected 
Chairman this year.  End Comment. 
 
4. Other than Canada, the Participants reached 
agreement in principal in respect of Arrangement text 
to accommodate non-standard repayment profiles 
(including project finance) on the basis of the 
Secretariat proposal, as revised by various proposals 
 
SIPDIS 
from Participants.  With respect to the final text that 
will be integrated into the Arrangement, the 
Participants agreed that the Secretariat would review 
this for clarity and consistency, taking into account 
any drafting suggestions from Participants, and 
circulate a final text by the end of May 2005. 
 
5. The Participants agreed in principle to a revised 
European Commission proposal to provide 15-year 
repayment terms (vice the standard 12-year terms for 
non-nuclear power projects) for renewable energy and 
water projects for a two-year trial period commencing 1 
July 2005. Three Participants required more time to 
consider the proposal and, therefore, the proposal was 
adopted ad referendum until May 6, 2005 for Canada, 
Japan and Norway.  (Japan agreed to the proposal on May 
2 and Norway on May 3.) 
 
6. Some NGOs lobbied for hydropower to be excluded. 
Despite their efforts, the proposal does include 
hydropower projects, but implementation was postponed 
until November.  Two representatives of the World Bank 
arrived unannounced at the meetings to support the 
inclusion of hydropower projects in the agreement on 
extended repayment terms.  The Participants have tasked 
their relevant experts to examine "whether extant 
guidelines for assessing large hydropower projects, 
i.e. as set out in the OECD Recommendation, are 
sufficient to comply with the relevant international 
standards, criteria and guidelines, or whether or not 
these need to be augmented."  The experts meetings will 
be held on June 23-24 and September 6-7, 2005. 
 
7. Finally, the Participants agreed on a text that 
provides the Premium Group with a mandate on future 
work related to buyer risk. 
 
8. The Participants Consultations Group met on the 
afternoon of April 22 to discuss a Canadian tied aid 
project in China that Japan had challenged as being 
commercially viable and, therefore, not eligible for 
tied aid.  Canada presented a feasibility study that 
was substantially lacking in detail.  The group was 
left unconvinced of the Canadian arguments for 
commercial non-viability and found the project to be 
commercially viable.  As a result, the project is not 
eligible for tied aid. 
 
Aircraft Meetings 
 
9. Technical experts from the Participants and Brazil 
met informally on 18-19 April to discuss several papers 
submitted by Brazil, Canada, and the European 
Commission (EC), and a letter from the Aviation Working 
Group (AWG) sent in response to questions posed by the 
Participants in February.  These informal technical 
discussions on an aviation sector agreement were 
productive.  The Brazilian presentation was well 
reasoned, showing a significant degree of technical 
sophistication and demonstrating that Brazil is taking 
the talks seriously. 
 
Informal Sessions with the Airbus ECAs and Brazil 
 
10. The United States and representatives of the 
Airbus countries met the evening of the 18th.  The 
Europeans pushed hard for the United States to agree to 
work to conclude a Europe/U.S. agreement on risk- 
adjusted fees prior to and irrespective of negotiations 
on a new sectoral agreement.  The USDEL was clear, 
however, that while EXIM and the European export 
credits agencies (ECAs) could discuss details of such 
an agreement, the United States would not be willing to 
commit to agree to something prior to consulting 
adequately with Brazil and Canada.  The USDEL expressed 
concern at the European ECA approach (no European 
Foreign Ministry representatives were present) and said 
it did not want to conclude a side agreement in a 
manner that would inflame the Brazilians, and, 
potentially, complicate U.S./Brazil bilateral 
relations, undermine the status of the Arrangement 
under the WTO, and have negative implications for the 
WTO Doha Round. 
 
11. The Europeans at the meeting also reiterated long- 
standing concerns that EXIM's fee discount for airlines 
from countries that have signed on to the Capetown 
Convention distorted the market.  The USDEL, both in 
these meetings and in a private conversation the next 
day with the lead UK aircraft expert, defended the 
discounts and called on the Airbus ECAs to join EXIM in 
offering them.  In conversations on the 19th, the UK 
expert agreed to talk further to EXIM about the 
discount, although he clearly would prefer a smaller 
one than that the United States currently offers.  The 
UK rep indicated that he would be willing to try to 
achieve a common view among the Airbus countries on the 
ideal magnitude of such a discount. 
 
12. Brazil/U.S. bilateral talks the morning of 19 April 
were positive, building on previous discussions in 
Paris and Brazil.  The Brazilian delegation presented 
its views on key elements of a risk-adjusted fee 
system.  The U.S. delegation noted that the EU was 
pressing for an EU-U.S. fee system ahead of a 
comprehensive multilateral aircraft agreement.  In 
response, the Brazilian delegation noted that, while 
Brazil cannot interfere with EU-U.S. relations, such a 
bilateral agreement would not be helpful.  Brazil noted 
that it would like to see a final, comprehensive 
agreement as soon as possible. 
 
13. The Participants and Brazil held the 20th meeting 
of the Sector Understanding on Export Credits for Civil 
Aircraft on 20-21 April in follow-up to the informal 
technical meeting.  Based on the feedback from the 
technical experts, the Participants agreed to send 
another letter to the AWG with additional questions and 
clarifications.  The United States, the European 
Commission (EC), Brazil, and Canada all volunteered to 
draft new papers for review at further technical 
aircraft meetings due to be held in June. EXIM will be 
drafting a paper on risk, as will Canada, with the 
topics of the EC and Brazilian papers still to be 
determined. Other delegations agreed with Brazil that 
if an aircraft sector understanding were reached, it 
would be de facto or de jure stand alone from the 
Arrangement on Export Credits and that Brazil would not 
be expected to adhere to changes in the Arrangement 
text that stem from discussions in which Brazil had not 
participated.  The Group agreed to meet again in June 
with the AWG on the morning of the 20th, for informal 
technical sessions the afternoon of the 20th through 
the morning of the 22nd, and formally on the afternoon 
of the 22nd. 
 
Export Credit Group Meetings 
 
14. The OECD Working Party on Export Credits and Credit 
Guarantees (ECG) met on the afternoon of April 21 and 
the morning of April 22.  The ECG reached agreement on 
an outreach strategy for the participation of non- 
member economies and on an agreement to expand the 
mandatory reporting under the Export Credits and 
Unproductive Expenditure to Heavily Indebted Poor 
Countries (HIPCs) transparency exercise to all 
countries that are eligible for IDA-only financing. 
 
Anti-Bribery 
 
15. Background:  The ECG adopted in 2000 an Action 
Statement on Bribery and Export Credits.  NGOs, 
especially Transparency International (TI), have been 
critical of the Action Statement, asserting that it 
does not go far enough in preventing bribery and 
corruption that distorts trade.  Germany, Belgium, and 
the Czech Republic submitted to the ECG a paper in 
September 2004 that proposed an update to the Action 
Statement.  The United States, feeling the proposal did 
not go far enough, and after an extensive process of 
interagency consultation, submitted its own paper in 
April 2005.  End Background. 
 
16. The German head of delegation and his deputy spoke 
privately on April 19 with the State Rep, expressing 
concern over the U.S. paper.  The Germans were 
particularly concerned over proposed U.S. language that 
would increase the scope of instances that would 
require enhanced due diligence by ECAs and other 
language that would place a greater obligation on 
applicants and/or exporters to disclose bribery-related 
information.  The State Rep pointed out that the U.S. 
goals, aside from the obvious one of reducing bribery, 
are to maintain the distinction between an ECA and an 
enforcement agency and to place the responsibility of 
compliance clearly on the applicant and/or exporter. 
 
17. In contrast to the Germans, French delegates 
responded positively to the U.S. proposal.  The French 
particularly liked the U.S. ideas that there be an 
obligation for an ECA to report suspicions of bribery 
to the competent authorities and to place the legal 
responsibility for informing the ECA of "red flags" on 
applicants and exporters.  They also accepted the U.S. 
view that other issues should be explored further 
during November ECG meetings, particularly questions on 
how to deal with commissions and other payments. 
France saw the merits of exploring the issue of ECAs 
and bribery at the G-8, especially if the ECG fails to 
adopt appropriate measures. 
 
18. Canada, while expressing general support for U.S. 
goals, was concerned about how to implement them, and 
indicated it was unlikely to join a consensus before 
November.  The UK anticorruption expert indicated that 
the UK would have only limited formal comments given 
controversy over its own standards. 
 
19. The European Commission (EC) indicated to the 
United States that the EC would support the U.S. paper, 
but that it was not sure if it could overcome the 
objections of Germany and some like-minded 
delegations.  During the course of the meetings, the EC 
worked closely and constructively with the United 
States, submitting on the final day compromise language 
that the United States was able to vet in advance with 
some Washington experts. 
 
20. The ECG allotted most of the morning of its April 
22 meeting to discussion of export credits and bribery. 
A representative from the OECD's Anti-Corruption 
Division (i.e., the Secretariat for the Working Group 
on Bribery (WGB) in International Business 
Transactions), and from the WGB's Bureau, informed 
Members that while the WGB was not yet in a position to 
provide any input on key terms, it would do so once its 
Members had a chance to consider the issue further.  A 
representative from TI presented a paper on the issue 
of key terms related to the ECG's anti-bribery 
undertakings (this was in response to the ECG's request 
for TI's views.  Another presentation was made by 
Transparency International on Preventing Corruption in 
Construction Projects.  The Berne Union also made a 
presentation on a survey it undertook of its members on 
the issue of agent's commissions.  Finally, 
representatives from the OECD's Anti-Corruption 
Division provided an update on the status of Phase II 
reviews under the OECD Convention. 
 
21. Germany presented an updated version of the 
proposal that it, Belgium, and the Czech Republic had 
first presented at November 2004 ECG meetings.  The 
United States presented a proposal that goes 
significantly further than the German/Belgian/Czech 
one.  Most delegations indicated that they needed more 
time to study the US proposal.  France was perhaps the 
most supportive.  It became clear that delegations 
require significant lead time to coordinate positions 
in capitals prior to reaching any final agreement to 
amend the ECG's Action Statement.  As a result, the 
Chair concluded that the proposals had generated a 
significant level of support and that the ECG should 
hold a Special Session (10-11 October) before 
finalizing enhancement of the Action Statement at the 
plenary ECG Meeting in November 2005.  The Chair gave 
all delegations until May 30 to submit further papers 
on the subject. The Chair also suggested members 
consider making the Action Statement the subject of an 
OECD Recommendation, to demonstrate the political 
intent of the ECG Members to actively combat bribery. 
 
22. Comment:  The United States intends to continue to 
press to raise ECA antibribery standards, including 
through a paper that will be prepared by the May 30 
deadline aimed at reaching final agreement on an 
enhanced Action Statement in November.  The USG would 
like to see a revised Action Statement that goes 
further to prevent bribery and corruption.  Following 
this revision, the United States will continue to put 
forward proposals to increase progressively ECAs' anti- 
bribery procedures and practices.  Bribery 
disadvantages U.S. and other firms that comply with 
high anticorruption standards, such as those required 
under the U.S. legal and enforcement framework.  The 
United States also advanced its goals for including 
Brazil in a future aviation sector finance agreement 
during these meetings, an issue that we will continue 
to make a priority.  End Comment. 
 
------------------- 
The U.S. Delegation 
------------------- 
 
23.  The U.S. Delegation was: 
 
Head of Delegation 
 
Steve Tvardek, Director, Office of Trade Finance, 
Treasury 
 
Advisors 
 
Robert Beadle, International Trade Specialist, 
Department of Commerce 
 
James Cruse, Senior Vice President, Policy, EXIM 
 
David Drysdale, Deputy Director, Office of Trade 
Finance, Treasury 
 
Cory Firestone, Policy and Planning, EXIM 
 
Stephen K. Keat, Financial Economist, Office of 
Development Finance, Economic Bureau, Department of 
State 
 
Eric Lenz, International Trade Specialist, Department 
of Commerce 
 
Robert Morin, Vice President, Transportation Division, 
EXIM 
 
Helen Recinos, Economic Officer, U.S. Mission to the 
OECD 
 
MORELLA