To increase national exports and protect businesses many countries such as the United States, the United Kingdom, Canada, Brazil, France and Germany have established agencies which act as intermediaries between the government and exporters in issuing export financing in the form of state backed insurance.
In Poland, the role of such agency is performed by, Korporacja Ubezpieczeń Kredytów Eksportowych Spółka Akcyjna ("KUKE"). KUKE is a public company, in which the State Treasury owns 63.31% of shares. The remaining 36.69% are owned by the Bank of National Economy, which is wholly owned by the State Treasury. KUKE was established under the Act on Export Insurance Guaranteed by the State Treasury of 7 July 1994 (the "Export Insurance Act").
As well as establishing the KUKE, the Export Insurance Act also sets out the rules of granting the insurance backed Polish State Treasury. Recently these rules were changed by the amendment of 7 November 2014, which entered into force on 1 January 2015 (the "Amendment").
The Amendment's main aim was to modernize the rules under which insurance is granted and increase the number of insurance policies issued. The rules, remained relatively unchanged since the Export Insurance Act was first adopted over 20 years ago and had been long criticized as being out of date. Most importantly, the rules did not comply with the new reality in production and services, that components of many products or services are often of a foreign origin. Therefore, the Amendment was designed to encourage Polish businesses to pursue more export activities.
The Amendment aims to achieve the above described objectives by:
- introducing new classification of when a product or service is considered as being of Polish origin,
- indicating a new acceptable level of foreign components in the final product or service,
- allowing new means of proving the composition of the product.
The main criterion under which an exported product or service may benefit from an insurance backed by the State Treasury is that it must be of Polish origin.
According to the new article 6b of the Export Insurance Act, Polish origin is based on the percentage of net income of the product or service, that is generated by the "foreign components". The new rule is that if the net income from the "foreign components" of the product exceeds a certain level, the product shall not be considered as being of Polish origin. Article 6b states that those levels may vary depending on the export agreement but must always range between 50% and 90%.
In line with changes described above, the Amendment introduced a new Article 6c that contains a definition of the term "foreign components". This definition covers costs of production or the price purchase if the component was purchased from a foreign entrepreneur (both a natural person and a company) or even the cost of the work of suppliers' foreign employees. The origin of components may be proven by invoices and other sales documents, as well as documents proving the value of the components used.
The Amendment has also introduced a new acceptable level of "foreign components" in the final product or service. Prior to the Amendment, this matter was governed by the regulation of the Minister of Economy of 6 August 2001 (the "Former Regulation"). According to the Former Regulation, export insurance could be granted if:
- the export agreement was concluded for a period of less than two years, and
- the net income of the foreign components constituting the product or service was not more than 50% of the total income.
At present, this matter is regulated by newly implemented Articles 6a-6e of the Export Insurance Act, as well as a new regulation of the Minister of Economy of 19 December 2014 (the "New Regulation"), issued based on Article 6e.
Under the New Regulation, a shipment may benefit from insurance if:
- the export agreement is concluded for a period of less than two years and the net income from the components of foreign origin in the final exported product or service does not exceed 70% of the total income, or
- the export agreement was concluded for a period of more than two years and the net income from the components of foreign origin in the exported product or service, does not exceed 60% of the final income.
The Amendment also changes the rules on exporters proving the composition of their products or services to KUKE. Before the Amendment many exporters had found it difficult to prove the Polish origin of their products. However, under Article 6b of the Export Insurance Act, exporters may now choose to prove the origin of the Polish components of the product or service and not the origin of products purchased abroad.
The New Regulation also specifies that if required, the origin of foreign components may be proven by invoices and other sales documents, as well as documents proving the value of the components used (invoices, description of the production process, etc.).
The Amendment of the Export Insurance Act is a considerable step forward and should be a serious encouragement for Polish of food and beverage sector producers, especially those exporting their products to non-member states such as Ukraine, Belarus or Russia, to enter new markets previously considered to be difficult and competitive.