Disclosure

Appendices

1. EDC Mandate
Virtually every industrialized nation in the world promotes its national exports through a range of activities including export financial services. EDC was established in 1969 under the Export Development Act to function as Canada’s official export credit agency.

EDC’s mandate, as outlined in the Export Development Act, is to support and develop Canada’s export trade and Canadian capacity to engage in that trade and to respond to international business opportunities. To fulfill this mandate, EDC provides trade finance and risk mitigation services to Canadian companies whose business relates to export trade.

Canada is reliant on export trade. Exports are now equivalent to 43 percent of Canadian gross domestic product, an increase from 27 per cent in 1986. This total is the highest of the Organization for Economic Co-operation and Development (OECD) member countries and nearly three times the U.S. figure. Exports account for one in four Canadian jobs.

With this high level of Canadian trade dependency in mind, EDC benefits Canada by providing ground-breaking commercial financial solutions to companies of all sizes, helping them to succeed in the global marketplace and creating enduring prosperity for Canada.

2. EDC Disclosure Policy development
In fulfilling its mandate, EDC is committed to seeking out the views of its stakeholders. EDC made public a draft disclosure policy in order to obtain comments about it from all stakeholders, and those comments were considered in the preparation of the present Disclosure Policy.

A variety of institutions including international and domestic financial institutions, developmental institutions, and export credit agencies were researched in the preparation of this disclosure policy.

EDC’s Disclosure Policy applies equally to both Corporate Account transactions and Canada Account transactions.

In the development of this policy, EDC has ensured its compliance with the foreign policy of the Government of Canada as well as its international understandings.

Customers
EDC’s customers may include buyers, borrowers, exporters, guarantors, banks, insurers or any other party to a transaction that EDC is actively considering.

Accounts Receivable
This insurance protects policyholders against non-payment by their buyers or banks, whether due to insolvency, default, repudiation of goods or termination of contracts, or due to risks outside of the buyer’s control such as difficulty converting or transferring currency, cancellation of export or import permits, and war-related risks.

EDC has the largest export accounts receivable insurance portfolio in Canada. Coverage is available for companies of all sizes and some products have been simplified to meet the needs of small- and medium-sized enterprises.

Financing
Financing services enable Canadian companies to provide their customers with flexible, medium- or long-term financing. EDC offers a variety of structures that can be tailored to meet today’s evolving market conditions.

Lines of credit and protocols are pre-arranged financing facilities set up between EDC and foreign banks or agencies. They represent a fast means by which smaller exporters can promote sales. Note purchase facilities enable EDC to purchase promissory notes issued by foreign buyers to Canadian exporters for the purchase of Canadian goods and services, thereby freeing up cash for the exporter. These are ideal for small- to medium-sized transactions. Direct buyer loans can be arranged for any export transaction, but usually apply to transactions having repayment terms that exceed two years. Long-term pre-shipment financing, leasing support and project financing are also available.

Guarantees are provided to financial institutions seeking to enter into a risk-sharing arrangement with EDC, whereby EDC guarantees a portion of the financing extended by them to eligible foreign borrowers in support of Canadian exports.

Contract Insurance and Bonding (CIB)
CIB services come into play in many international transactions, particularly for capital equipment and projects, where customers may require exporters to post bonds guaranteeing their bid, performance, or any advances received from them.

Performance security insurance protects exporters from wrongful calls made on their bonds. Performance security guarantees, on the other hand, provide banks with coverage against any calls pursuant to the guarantees issued on an exporter’s behalf. In transactions where the exporter is required to post surety bonds instead of bank letters of guarantee, EDC may issue the bond directly to the buyer. Alternatively, EDC also offers reinsurance capacity to licensed sureties to augment their capacity and to facilitate the issuance of such bonds.

Political Risk Insurance
Political Risk Insurance is available to support Canadian companies with investments in foreign countries and to support lenders who finance transactions pursued by Canadian companies abroad. EDC’s cover protects against political risks: transfer difficulties, whereby an investor is unable to convert local earnings into hard currency or repatriate hard currency; expropriation, whereby an investor is unable to use its assets or conduct business due to the direct or indirect actions of the host government; war, revolution, and insurrection, whereby the project’s assets are destroyed or business operations are discontinued due to politically motivated conflict.

Equity
Equity and other forms of related investments in projects or companies operating abroad or through participation in market- or sector-focussed investment funds can be provided by EDC. This allows EDC to offer broader support to Canadian firms, attract additional sources of financing, foster cooperation among Canadian firms and their partners, and assist Canadians to compete globally.

Foreign Policy  
Domestically, EDC adheres to the guidance it receives from Foreign Affairs and International Trade Canada with regard to the issue of foreign policy and human rights. Furthermore, EDC follows Government of Canada policy on other related policy issues. The disclosure of such guidance, policies, or principles will be done in accordance with the Government’s practice in these areas.

International understandings
Canada is a signatory to numerous international understandings. As Canada’s official export credit agency, EDC is subject to particular international agreements. For example, Canada is a member of the Organization for Economic Cooperation and Development (OECD).

The OECD Working Party on Export Credits and Credit Guarantees addresses issues related to export credits and the environment in a multilateral setting. The OECD also "houses" the Consensus Arrangement guidelines. The Arrangement sets out the most generous terms and conditions permitted for official export credit business and hence serves to prevent a destructive and costly export credit race among governments seeking to promote their national exports.

EDC’s practices are also subject to the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM). Through the foreign policy guidance it receives from the Government of Canada, EDC ensures compliance with the relevant rules under the SCM Agreement and any other international understandings applicable to EDC, including disclosure requirements under those agreements.

Canada Account
Under the Export Development Act, the Minister for International Trade, with the concurrence of the Minister of Finance, may authorize EDC to undertake certain transactions of a financial nature to support and develop export trade. These transactions, and the legislative authorities that underlie them, have come to be known collectively as the "Canada Account." EDC acts as the administrator of the Canada Account.

Services under the Canada Account program are provided on a user-pay basis. Exporters pay premiums for insurance coverage, and there are fees associated with Canada Account financing and guarantee services. Loans are extended on terms that are fully repayable, on either a concessional or non-concessional basis.

While EDC strives to find ways to structure transactions under its Corporate Account, there are a number of factors which might lead EDC to refer a transaction to Canada Account. The transaction could: exceed EDC’s exposure guidelines for a particular country (that is, the maximum amount of business EDC has decided it can prudently undertake in a specific market); involve markets where, for reasons of exceptional risk, EDC is unwilling to support Canadian export business; or it could involve an amount or a term in excess of that which EDC would normally undertake for a single borrower.

The eligibility considerations applied to transactions considered under Canada Account program are:

Canadian Benefits
EDC’s powers were expanded in the 1993 Export Development Act and allowed it to shift its focus from the Canadian content of exports to broader Canadian benefits such as research and development investment in Canada, employment growth and dividends, royalties, licensing fees, etc.

EDC Board of Directors
EDC’s policies and practices are formulated by its Board of Directors. The Board has 15 directors, drawn primarily from the private sector. Each director, other than the Chairman and the President, is appointed by the Minister for International Trade with the approval of the Governor in Council to hold office for a term not exceeding three years. The Chairman and the President are appointed by the Governor in Council to hold office for such terms as the Governor in Council deems appropriate.

Minister for International Trade
As a Crown corporation, EDC reports to Parliament through the Minister for International Trade and is regulated primarily through the Export Development Act and the Financial Administration Act.

EDC’s annual report and corporate plan summary are tabled annually in Parliament and the Auditor General of Canada is the auditor of the corporation. The Governor-in-Council, on the recommendation of the Minister for International Trade and Treasury Board, must approve EDC's corporate plan, and the Minister of Finance must approve EDC's borrowing plan annually and may elect to be included in the recommendation of EDC’s corporate plan.

Financial Administration Act
The Government of Canada primarily regulates Crown corporations through the Financial Administration Act (FAA).

EDC is presently listed under Part I of Schedule III to the FAA. As such, EDC is required to:

Auditor General of Canada
The Auditor General of Canada conducts an audit of EDC every year, and a comprehensive special examination of EDC every five years. EDC has received the Auditor General's Award for Excellence in Annual Reporting for four out of the last seven years.

Organization for Economic Cooperation and Development (OECD)
The OECD Working Party on Export Credits and Credit Guarantees addresses issues related to export credits and the environment in a multilateral setting.

The OECD also "houses" the Consensus Arrangement. The Arrangement, first developed in 1978, sets out the most generous terms and conditions permitted for official export credit business and hence serves to prevent a destructive and costly export credit race among governments seeking to promote their national exports.

Canada is an OECD member and all of the Canada Account program, as Canada’s national interest account, operates according to the Arrangement guidelines.

World Trade Organization (WTO)
The provisions of WTO’s Subsidy and Countervail Measures Agreement (SCM Agreement) govern all international trade.

All of EDC’s business is subject to the disciplines of the WTO, which dictate that government-backed institutions operate according to the market unless they adhere to the interest rate provisions of the Arrangement (see OECD for details).

Moral Hazard
This is a term used by the insurance industry to indicate anything that would encourage a claim to be made. Due to this risk of moral hazard, EDC’s general policy is not to disclose information on individual insurance transactions, and this is consistent with practices in the insurance industry.