TWN Info Service on WTO and Trade Issues (May16/08)
13 May 2016
Third World Network

Hollowness of Nairobi export competition accord exposed
Published in SUNS #8237 dated 10 May 2016

Geneva, 9 May (D. Ravi Kanth) -- The hollowness of the export competition accord concluded as part of the package in the WTO Nairobi Ministerial Conference Decisions (NMD) has been exposed by Canada in a paper issued by it for the post-NMD agriculture negotiations.

In a restricted paper issued by Ottawa, Canada has suggested that the NMD accord five months ago on export competition disciplines are tailor-made for the United States to continue with its trade-distorting practices.

"To a large extent," Canada maintained in its restricted paper, the new disciplines in the Nairobi ministerial decision "reflect the current operation of the United States' (US) GSM-102 program, which in Canada's view has considerable trade-distorting effects."

In the three-page paper issued on 4 May, Canada stated that the Nairobi decision on export credits "establishes a maximum repayment term of 18 months and requires that credit programs charge risk-based premiums and be operated in a manner that covers up long-term operating costs and losses (i. e. self-financing)."

The Canadian paper, however, did not mention the work done on the export credits during the Doha trade negotiations, particularly the 2005 Hong Kong Ministerial Meeting and the 2008 revised draft modalities issued by the then chair of the agriculture negotiations, former New Zealand Ambassador Crawford Falconer.

The conspicuous silence on the Doha Development Agenda (DDA) negotiations is a significant pointer in the direction of efforts of US-led developed countries to erase the work of the Doha Round from the ongoing negotiations to develop new disciplines in domestic support, and export financing programs, said a trade negotiator familiar with the development.

The 2005 Hong Kong Ministerial Declaration (HKMD) proposed that export credits must be limited to 180 days (6 months).

The HKMD says: "We note emerging convergence on some elements of disciplines with respect to export credits, export credit guarantees or insurance programmes with repayment periods of 180 days and below. We agree that such programmes should be self-financing, reflecting market consistency, and that the period should be of a sufficiently short duration so as not to effectively circumvent real commercially-oriented discipline."

The 2008 revised draft modalities had suggested the following disciplines: "Export financing support shall be provided in conformity with the terms and conditions set out below.

(a) Maximum repayment term: the maximum repayment term for export financing support under this Agreement, this being the period beginning at the starting point of credit [1] and ending on the contractual date of the final payment, shall be no more than 180 days. For developed country Members, this shall apply from the first day of implementation or the last day of 2010, whichever comes first. Existing contracts which have been entered into prior to the signature of this Agreement, are still in place, and are operating on a longer timeframe than that defined in the preceding sentence, shall run their course until the end of their contractual date, provided that they are notified to the Committee on Agriculture and are not modified.

(b) Self-financing: export credit guarantee, insurance and reinsurance programmes, and other risk cover programmes included within sub-paragraphs 1(b) (c) and (d) above shall be self-financing. Where premium rates charged under a programme are inadequate to cover the operating costs and losses of that programme over a previous 4-year rolling period, this shall, in and of itself, be sufficient to determine that the programme is not self-financing. In addition, and irrespective of whether these programmes conform with the requirements set out in the preceding sentence, this does not exempt them from complying with any other provision of this Agreement or the other covered Agreements, including by reference to the more generally formulated long-term operating costs and losses of a programme, not limited to the historical rolling period referred to in the previous sentence, under item (j) of the Illustrative List. Where these programmes are found to constitute export subsidies within th e meaning of item (j) of the Illustrative List, they shall also be deemed to be not self-financing under this Agreement."

Canada ignored the Doha disciplines and went on to argue that "the GSM-102 program is available for use on a wide range of products, but the commodities most covered by the program include coarse grains, oilseeds, wheat and wheat flour, oilcakes, rice and cotton."

It maintained that the GSM-102 "program has been through several changes in recent years as a result of (rulings in) United States - Subsidies in Upland Cotton (DS267)."

However, the GSM-102 continues to distort trade by providing importers of US agriculture products with access to credit at better than commercial rates, Canada argued.

Canada cited a recent publication by the Australian Rural Industries Research and Development Corporation that estimated the rates of government export assistance by comparing the difference between US-based financing costs with GSM-102 guarantees and domestic financing costs in the importing market without the guarantees.

Canada maintained that "this degree of subsidisation creates incentives for importers to favour US suppliers over other suppliers that do not offer the same degree of preferential finance, or none at all."

"Given the scale of the GSM-102 program, these trade-distortions are significant and affect the exports of a wide range of countries," according to Canada.

It quoted the WTO Secretariat Background document on Export Credits, Export Credit Guarantees or Insurance Programmes (G/AG/W/125/Rev. 2/Add. 2) which says "that these distortions caused by the GSM-102 impact more than major exporting economies."

The report states, for example, that between 2009 and 2013, 26 exporting economies were affected by US cereal product sales with finance guarantees in Asian markets, Canada argued.

"Over the same period, 12 exporting economies in South America and 5 in Central America were affected by the US export credit scheme," Canada maintained.

Ottawa claimed that "the length of the repayment term is also an incentive for importers to favour US suppliers. A long repayment term, coupled with an attractive degree of subsidisation, will provide incentive for an importer to favour suppliers offering access to these terms, further amplifying the trade distortion effects of the export financing support. The current GSM-102 program allows for a maximum repayment term of 18 months."

"According to the WTO Secretariat Background document the average annual value of exports covered by the GSM-102 over the last five years (2010-14) is USD3.244 billion," Canada argued.

The size and scope of US export credits on agricultural goods is not a new phenomenon, Canada maintained.

"Average annual exports covered by GSM-102 from 2000-2005 were USD2.714 billion (Ibid.) and an OECD analysis from 2000 notes that US export credits in agriculture averaged USD3.201 billion from 1995-1998," Canada maintained.

"To put the size of the financing support in perspective, if the GSM-102 program were a country, it would have been the 43rd largest exporter in terms of value of agriculture products in 2013," Canada charged.

In a nutshell, "nearly three quarters of WTO Members export fewer agriculture products, in value terms, than the sum of GSM-102 financed exports," Canada concluded.

Therefore, members must address "significant trade distortions caused by export credit schemes can be disciplined further. For example, the US GSM-102 program, which distorts trade by providing importers of US agriculture products with access to credit on better than commercial rates, was not substantively curtailed."

Canada said "current disciplines are also not dissuading some other Members from developing similar export credit programs."

The Nairobi ministerial decision was a special and differential treatment for the US on export credits and food aid, said a trade negotiator from a developed country. "Why blame the US when Canada and others could have simply refused to accept the agreement which they did not do," according to the negotiator. +