SOURCE: Euler Hermes ACI

July 29, 2005 13:43 ET

CAFTA Opens Trade Doors but Increases Risk Potential

Trade Credit Insurance Can Help Protect Companies Exploring New Free Trade Zones

OWINGS MILLS, MD -- (MARKET WIRE) -- July 29, 2005 --When the U.S. Congress passed the Central American Free Trade Agreement (CAFTA), it opened the door for more U.S. companies to export their goods to Latin America. However, the expected trade increase includes the potential for more financial risk, according to Euler Hermes ACI -- the leading provider of accounts receivable insurance in the U.S.

CAFTA will eliminate tariffs on 80 percent of U.S. exports to the countries of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. Experts expect an increase in trade to these areas, as companies will now save nearly $15 billion per year through the tariff elimination. But exporters looking to begin shipping their goods to Central America should be wary of their increased risk exposure.

"The door swings both ways," said Arjan van de Wall, Euler Hermes ACI Senior Vice President and Director of International Development. "Without the tariffs, more U.S. goods can be shipped to Latin America, which will be beneficial to American businesses. But the increased amount of exposure combined with the less stable economies in certain parts of Central America mean a bigger financial risk in entering these new markets."

An expert in Latin American affairs, van de Wall believes that CAFTA will have similar implications to the North American Free Trade Agreement (NAFTA), specifically expanding sales into new markets and leveling the playing field in trade due to the fact that most imports from the six Central American countries now enter the U.S. duty-free. However, van de Wall explained that expanding sales into new markets always comes with an increased loss risk. Export receivables can affect bank financing, collections and legal recourse are more difficult, and buyer information is less readily available.

Businesses looking to expand their sales into the new free trade zone may find trade credit insurance to be most beneficial in protecting their cash flow. "As with NAFTA, the Central American free trade zone will facilitate sales expansion into significantly riskier countries, and trade agreements do not equalize all commercial regulations nor the means to dispute them," van de Wall said. "Through the utilization of trade credit insurance, a company looking to export its goods to Latin America can have the benefit of better loss protection and better risk management intelligence."

Meanwhile, CAFTA has also opened the door to additional free trade zone discussions with countries like India and China. "As the current administration pursues more free trade zones around the globe, U.S. companies should seriously consider the benefits that a trade credit insurance policy with Euler Hermes ACI can offer," concluded van de Wall. "Expanding sales is important, as is protecting cash flow."

For more information about Euler Hermes ACI products and services, visit http://www.eulerhermes.com/usa.

Euler Hermes is the worldwide leader in trade credit insurance and one of the leaders in bonding and guarantees. With 5,400 employees in 40 countries, Euler Hermes offers a complete range of services for the management of customer receivables and posted a consolidated turnover of 1.9 billion euros in 2004. The North American headquarters (Euler Hermes ACI) is in Owings Mills, Md. For more information visit www.eulerhermes.com.

Euler Hermes, a subsidiary of AGF and a member of Allianz, is listed on Euronext Paris. Standard & Poor's rates the group and its principal trade credit insurance subsidiaries AA-.

These assessments are, as always, subject to the disclaimer provided below.

Cautionary Note Regarding Forward-Looking Statements:

Certain of the statements contained herein may be statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words 'may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue' and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Group's core business and core markets, (ii) performance of financial markets, including emerging markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults (vii) interest rate levels, (viii) currency exchange rates including the Euro-U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences.

The matters discussed herein may also involve risks and uncertainties described from time to time in Allianz AG's filings with the U.S. Securities and Exchange Commission. The Group assumes no obligation to update any forward-looking information contained herein.

Contact Information

  • Contacts:

    Rick Ostopowicz
    Public Relations and Communications Specialist
    Euler Hermes ACI
    Phone: (410) 753-0652
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