undercutting Canadian exporters. A delicate balance exists between accountability and
transparency on one side, and the ability to remain competitive on the other side. This balance
was addressed in the 2000 legislative review, which resulted in transparency requirements for
many of EDC‟s practices. According to the Conference Board of Canada:
EDC performs a different purpose. It is there as the Government of
Canada to ensure that there is enough capacity in terms of insurance
and financing for our exporters. It is a different beast, 100 per cent
in the public sector, with oversight almost daily by the Department
of Finance, Treasury Board and Foreign Affairs and International
Trade Canada. ... Theoretically, it is an interesting notion but I do
not think there is any more oversight required than what EDC
already has from the Government of Canada. I hope that it can be
as streamlined as much as possible to allow management to focus
on its core job to provide service to Canadian exporters and
EDC issues public reports that indicate the benefits accruing to Canadian businesses through the
services it provides, such as the number of jobs created, the number and size of companies
served, and some estimates of the percentage of GDP arising from its support of Canadian
exporters. Through EDC‟s environmental disclosure policy, the details of lending and equity
transactions as well as the number of transactions that have not been approved are published on
its website. EDC must first attain the approval of the commercial parties involved in the
transactions, but it has never had a problem receiving this authority. In addition to the audits
performed by the Auditor General, the Ministers of Foreign Affairs and International Trade, in
conjunction with the Minister of Finance, provide oversight and ensure that EDC is fulfilling its
mandate. EDC regularly meets with its shareholders, as well as with other federal departments,
Crown corporations and financial institutions.
EDC‟s administrative costs include both the direct costs of the services it provides and the
appropriate share of overhead. When administrative expenses are calculated as a percentage of
premium income, the ratio ranges from 40 per cent to 60 per cent between 2000 and 2006. The
administrative expenses have continued to increase gradually over the period, while premium
revenues have varied a great deal. Euler Hermes, a private-sector insurer, stated that EDC‟s cost
ratio seemed too high; Euler Hermes‟ cost ratio is approximately 30 per cent, which it also
considers to be high, thereby making profitability relatively more difficult. Atradius indicated that
its cost ratio is higher than usual, which it attributed to the current financial situation. It should be
noted, however, that – in the case of EDC – this analysis does not take into account the
investment income which may, for example, be used to offset cash deficits in certain years.
EDC responded to these concerns and explained that 80 per cent of its revenues are derived from
its lending program, such that EDC relies on insurance premiums for approximately 20 per cent
of its revenues, earned through receivables insurance, bonds, foreign investment insurance, etc.
Furthermore, EDC‟s revenues are affected by the exchange rate between the US and Canadian
Session, Issue no. 4, p. 14.
Session, Issue no. 3, pp. 29-30.
dollars, since most of its business is transacted in American dollars. Beginning in mid-2002, the
Canadian dollar began to rise relative to the US dollar, which has negatively affected the value of
EDC‟s revenues as they were stated in Canadian dollars. Administrative expenses are valued in
Canadian dollars, leading to the expected result of a higher expense ratio. EDC informed the
committee that “when you put all those administrative expenses into perspective, they run about
25 per cent on average of our operating income.” Operating income combines the revenues from
premiums and the net interest revenue, and a 25 per cent expense ratio was said to be lower than
the average expense ratio incurred by a non-retail bank (35 per cent). Furthermore, EDC
informed us that “[t]he actual increase in administrative expenses over the period is a direct result
of the growth of the program, the related investment in technology and our increased market
It should be noted that the total premiums collected under EDC‟s program were
generally sufficient to cover its related claims costs as well as the administrative costs.
B. What the Committee Recommends
1. Addressing Concerns about Predatory Competition
The committee acknowledges the competitiveness concerns presented by witnesses and recalls
those concerns included in the IFC report, which indicated that, without doubt, EDC operates
outside any “market gap” in respect of short-term export credit insurance and actively competes
with private insurers in the short-term export credit business. These concerns do not suggest that
EDC is operating in a manner inconsistent with its mandate or with government policy or
improperly. Indeed, we note that the IFC report does not recommend that EDC change its
activities or mandate in the short-term export credit insurance market.
After hearing the testimony of a number of witnesses, and following significant consideration, the
committee agrees that EDC should remain in the short-term export credit insurance market. This
market is growing in Canada, while the market share held by EDC is shrinking. Moreover, the
presence of EDC alongside its private-sector competitors creates more competition among service
providers, thereby enabling a greater degree of choice for Canadian businesses wishing to access
these services. This trend is positive and, in our view, EDC is not “crowding out” the private
The committee recommends that EDC expand its role in the short-
term export credit insurance market as demand warrants.
The committee notes the recommendation in the IFC report that the Department of Foreign
Affairs and International Trade establish a broker advisory panel to review and report on any
alleged examples of predatory competition from EDC, as well as to provide EDC‟s Board of
Directors and the Minister of International Trade with market intelligence. As envisioned by the
IFC report, this panel – which would report annually – would examine individual complaints
Letter to the Standing Senate Committee on Foreign Affairs and International Trade, 27 March 2009.
from private-sector insurers. We are mindful of the interests and incentives faced by the members
of this panel, particularly with respect to whose interests the panel would serve.
The committee recommends that the Government of Canada
establish a broker advisory panel whose mandate would be to
ensure that the activities of EDC are carried out for the benefit of
a competitive business environment.
2. Consistency in Reporting and Other Administrative Concerns
The committee believes that EDC should work to improve its transparency. In our view, greater
transparency builds consumer confidence and enhances fairness among competitors. Specifically,
EDC should take measures to improve public reporting of its financial transactions in the short-
term credit insurance market. At the same time, the committee recognizes that EDC performs a
purpose that is different from the financial institutions supervised by OSFI and, therefore, should
neither be supervised nor regulated by it.
The committee recommends that EDC make publicly available
information that is, to the extent possible, consistent with the
information that its private-sector competitors are required to
provide to the Office of the Superintendent of Financial
ENHANCING THE ROLE THAT EDC CAN PLAY
A. Recent Budget Measures
As part of its response to the current economic conditions and in order to meet the short-term
financing needs of Canadian businesses, the Government of Canada has implemented a number
of measures in respect of EDC. As the Minister of International Trade testified, Canadians “are
facing extreme challenges the likes of which we have not seen for decades, and ... this particular
organization, EDC, is able to help through this difficult time.”
As announced in Economic and Fiscal Statement 2008 and Budget 2009: Canada’s Economic
Action Plan, EDC has received:
$350 million to facilitate additional capitalization of loans;
an increase in the ceiling of share capital to be purchased by the government from $1.5
billion to $3 billion;
a temporary expansion of domestic powers, allowing it to provide financing solutions for
an increase in the Canada Account limit from $13 billion to $20 billion to ensure that the
government has the direct capacity, if needed, to provide credit and meet the high-risk
financing requirements of businesses in strategic, hard-hit sectors of the Canadian economy
that are deemed to be in the national interest; and
an increase in the contingent liability ceiling from $30 billion to $45 billion, thereby
increasing the risks that EDC can underwrite and encouraging commercial banks to continue
to advance loans and increase access to financing.
As well, the Business Credit Availability Program (BCAP) has been established to enhance
cooperation between private-sector financial institutions and federal financial Crown
corporations, including EDC, in providing loans and other forms of credit support to businesses
whose access to financing would otherwise be restricted. The program is intended to fill gaps in
market access and lever additional lending by private-sector institutions.
B. What the Witnesses Said
In addressing the committee, the Automotive Parts Manufacturers‟ Association remarked that:
I think that insurance is absolutely essential, because receivable
insurance is required in today‟s environment when customer
viability is much more questionable than it was in the past. [Small
and medium enterprises], especially, need some assurance that they
will be paid. [ … ] They cannot afford to bet the farm on one or two
companies without that kind of receivable insurance to ensure their
customer does not drag them under, and yet it may be a great
Session, Issue no. 3, p. 9; Evidence, 40
Session, Issue no. 2, p. 30.
opportunity for them. Increasing contingency insurance, or liability,
as they call it, is a good thing.
In reaction to EDC‟s extended temporary mandate designed to fill a gap in the domestic market,
the Canadian Bankers Association noted: “Extraordinary times call for special measures, and we
understand and support the government‟s initiatives regarding EDC. We recognize and appreciate
the government‟s emphasis that the powers be temporary in nature and that they not be used to
displace private-sector lending.”
C. What the Committee Recommends
1. Expanded Resources and Authorities
The committee feels that it is critically important to examine the November 2008 Economic
Update and Budget 2009 measures in respect of EDC within the context of our review and the
report of the 2008 legislative review, rather than as mere pieces of legislation.
The committee is encouraged by the favourable testimony regarding EDC‟s additional powers
and resources, and is pleased that witnesses feel that EDC is suitably positioned to respond to the
current financial situation facing Canadian businesses and exporters.
However, the committee is cautious in its assessment of the temporary expansion of EDC‟s
mandate in support of the domestic market. On the one hand, we agree that significant gaps in the
market for domestic credit have emerged since the release of IFC‟s report. On the other hand, the
first recommendation in the IFC report is that, barring significant changes in the market leading
to large-scale gaps in domestic credit insurance availability, EDC should not re-enter the
domestic credit insurance market. Furthermore, we are concerned with the wording of the
enabling legislation that allows for a possible extension, by an Order in Council, of the two-year
period in which EDC may participate in the domestic credit market.
In light of the significance of these measures and the extraordinary economic conditions under
which they were implemented, the committee believes that this temporary change in EDC‟s
mandate merits further scrutiny. The IFC report states that “the notion of market gaps must be
applied with some caution: gaps tend to ebb and flow over time, driven by myriad events and
developments in market activity and public policy. As such, gaps that do not exist today may
exist tomorrow and vice versa.”
We agree with this statement, and recognize the need to
monitor the economic environment and assess EDC‟s presence in the domestic market.
Session, Issue no. 4, p. 32.
Session, Issue no. 3, p. 72.
Session, Statutes of Canada 2009, Chapter 2, An Act to implement certain provisions of the
budget tabled in Parliament on January 27, 2009 and related fiscal measures, Received Royal Assent on 12 March
2009, Part 5, Division 3, Section 263 (2), p. 251, http://www2.parl.gc.ca/content/hoc/Bills/402/Government/C-10/C-
International Financial Consulting Ltd., (December 2008), p. 51.
The committee recommends that the Government of Canada
evaluate, and report to Parliament on, the continued need for
EDC’s presence in the domestic credit market and that, as
provided by legislation, Parliament be given ample time to study
2. The Need for Partnerships
The committee notes that some businesses have been able to take advantage of the Industrial
Cooperation Program offered by the Canadian International Development Agency (CIDA) in
order to support projects for which they have applied to receive EDC funding. At the same time,
we heard concerns that inter-agency funding of large-scale and expensive development projects,
which would include feasibility studies and training, carried out by private businesses is neither
systemic nor coordinated. This situation complicates potentially valuable and beneficial
initiatives by Canadians and permits competitors to procure them instead.
The committee acknowledges that there may be some benefit to greater inter-agency coordination
of program support, particularly where objectives are complementary. In light of earlier studies,
however, we also caution that such coordination should not be carried out in a way that requires
commitments on the part of the recipient to purchase Canadian goods and services. In other
words, we continue to be adamant that tied aid undermines aid effectiveness and increases costs.
Understanding that CIDA is currently holding consultations about whether the Industrial
Cooperation Program should remain with it or whether elements of the program should be
assigned to other agencies, the committee supports funding of development projects that meet
EDC requirements and that are consistent with its mandate, whether these funds are assigned by
CIDA or by another agency.
More generally, the committee supports partnerships, both with other Canadian governmental
entities and the private-sector in the domestic market. In that regard, we believe that the
establishment of Business Credit Availability Program is a useful development. We encourage
this and other opportunities for continued dialogue and partnerships among EDC and relevant
agencies and organizations. We feel that these types of dialogue provide valuable opportunities to
minimize the overlap in services and to contribute to the goal of ensuring that the needs and
complementary objectives of Canadians and Canadian businesses are met as efficiently and
effectively as possible.
In addition, we are encouraged by the recent announcement of collaboration between EDC and
the private-sector insurers in Canada to facilitate up to $1 billion in new domestic credit. EDC
will provide re-insurance for domestic receivables to private insurers, such as Atradius and Euler
Hermes, to assist Canadian business in accessing credit.
The committee recommends that the Government of Canada
establish mechanisms for greater coordination between EDC and
Investment Cooperation (formerly Industrial Cooperation
Program) in order to enhance trade using existing tools and
3. Ongoing Review
As the basis for its research and analysis, IFC engaged stakeholders in a series of town hall as
well as one-on-one meetings arranged at the request of an individual. Stakeholders, which
included the Canadian business community, private-sector competitors, civil society and
individuals representing the Canadian taxpayer, were consulted on a variety of issues. Town hall
meetings were held in Toronto, Vancouver, Calgary, Winnipeg, Montreal, Kanata, Halifax and
Ottawa. While the committee acknowledges that IFC was pro-active in its attempts to advertise
and raise awareness of its review process, we are concerned about the lack of consultation in
Atlantic Canada, where only a single town hall meeting was held. It was also brought to our
attention that representatives of EDC, the Department of Foreign Affairs and International Trade
as well as various other federal departments and agencies were present at the town hall meetings.
The committee is concerned that stakeholders did not have the opportunity to communicate their
opinions openly to the IFC review team, as comments might be constrained in the presence of
EDC, an agency on which some stakeholders depend for export financing and insurance services.
The committee is of the view that, given the dynamic nature of the world in which we live, the
rather static nature of legislation, and the need to ensure that public policy goals are being
achieved as efficiently and effectively as possible, Parliament – whether as a result of a statutory
provision or as part of its oversight responsibilities – should review legislation periodically in
order to ensure that its objectives are being met in the best possible manner. Certainly, as part of
this review, stakeholder input – whether it occurs through private-sector organizations, public
consultations by departments and agencies, or parliamentary hearings – should be broadly
representative of those affected.
Export Development Canada Media Release 14 May 2009. Available at:
The committee recommends that section 25 of the Export
Development Act be amended by specifying that responsibility for
the ten-year legislative review be undertaken by each Chamber of
Documents you may be interested
Documents you may be interested