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Eligibility for obtaining ECA export credit insurance

Export credit agencies (ECAs) are state-supported agencies established to support export from their countries by insuring export credit risks on behalf of their states. This means an ECA will support export from its country only and will not support export from other countries.

However, even when a seller from an ECA country applies for the ECA export credit insurance, the problem may arise regarding the so-called ‘foreign content’ in the final product to be delivered to a foreign buyer. Foreign content is a term used for components and materials purchased from other countries for manufacturing the final product for export. It is not unusual that the percentage of foreign content in a final product is high, especially nowadays when large multinational companies place the manufacturing of such components in other countries. ECAs may be reluctant to insure the export credit risk in a transaction where foreign content in the final product is too high because such export comes mainly from other countries, not from the ECA country. The seller of such a final product will not be eligible to obtain export credit insurance from its national ECA.

ECAs apply various criteria for determining the foreign content in a transaction for which issuing the export credit insurance has been requested. Some ECAs accept a maximum of 50 per cent of foreign content in the final product while other ECAs accept less than that. Some ECAs accept a higher percentage of foreign content when the seller that applied for the export credit insurance is a small- or medium-sized company and a lower percentage when the seller is a large company. It is important for a small- or medium-sized company to obtain information about the acceptable percentage of foreign content before applying for the export credit insurance from their national ECAs.

Some ECAs apply the so-called ‘national interest’ criterion for determining whether to issue export credit insurance for the export of products with foreign content. The national interest criterion is more flexible than the foreign content criterion because it sometimes accepts an exceptionally high percentage of foreign content in a final product. Such ECAs focus on other aspects of exporting the final product, like using design, know-how and expertise from the ECA country in manufacturing the final product, transfer of gross-profits to the ECA country, payment of dividends, licences, royalties and similar payment obligations in the ECA country. Other elements of a transaction, which are analysed on a case-by-case basis, can also be considered. It is important for a small- or medium-sized company to obtain information about the ‘national interest’ if the ECA from its country applies this criterion.

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