7-Business: US export credits - a means for secret GE food trade?

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TITLE:  OECD export credit talks stalled
SOURCE: Feedstuffs, USA, by Ian Elliott
DATE:   January 29, 2001

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OECD export credit talks stalled

One of the closing acts of President Bill Clinton's Administration was to 
give U.S. commodity and food exporters a new $40 million export credit 
under the GSM-102 loan guarantee program to boost sales of American 
agricultural products into Russia during the 2001 fiscal year.

Under the GSM-102 program, the U.S. Department of Agriculture guarantees 
loans for up to three years. USDA operates another export credit program, 
GSM-103, which extends this loan period to 10 years.

The Clinton Administration was able to offer the Russian loan guarantee 
because international talks held at the Organization for Economic 
Cooperation & Development (OECD) are no closer to conclusion now than they 
were when they started more than six years ago. The OECD talks are supposed 
to limit the use of export credits on agricultural products. On the latest 
proposal, governments are still divided, even as they boost spending on 
export credits.

Agricultural export credits were up 44% between 1995 and 1998 in the 
world's richest countries, OECD said. The bulk of these credits, some $12.8 
billion, was offered by the U.S. government. Other major users of this 
trade measure during 1995-98 were Australia ($6.8 billion), the European 
Union ($4.3 billion) and Canada ($3.6 billion), according to OECD.

When measuring the share of a country's agricultural exports that benefited 
from export credits, OECD said Australia led the pack, with more than 15% 
of its exports benefiting. Canada used credits on 5.4% of its exports, 
while the U.S. used these measures on 5.2% of its total agricultural 
exports. These credits are viewed by some as a way around World Trade 
Organization (WTO) limits on more classical export subsidies.

Now, a new study from OECD said the use of these export credits distorts 
trade and does not lead to new business. The OECD study, "An Analysis of 
Officially Supported Export Credits in Agriculture," was released in Paris, 
France, just before Christmas.

As part of the 1994 agreement that established WTO, and set new trading 
rules on agriculture, countries agreed in Article 10 of the Agreement on 
Agriculture "to work toward the development of internationally agreed 
disciplines to govern the provision of export credits, export credit 
guarantees or insurance programs." An agreement was needed, some 
negotiators at the time argued, to prevent countries from circumventing 
cuts in classical export subsidies spelled out in other parts of the 
package.

Those negotiations on new internationally agreed disciplines have been 
underway since July 1994 at OECD. Now, time and patience are rapidly 
running out for the negotiations. With new WTO talks to overhaul the 
agriculture agreement now underway, the lack of a new arrangement on export 
credits is already starting to hamper discussions.

The EU has made it clear that it is only willing to discuss further cuts in 
classic export subsidies if all the tools used by governments to circumvent 
limits on these subsidies are included. Export credits are a minor tool in 
the EU's trade arsenal, whereas other OECD studies have found that Europe 
is the major user of classic export subsidies. Understandably, EU officials 
have made it clear that one of their main targets is the type of export 
credits the Clinton Administration extended to Russia just before leaving 
office.

"The U.S. export credits are calculated to be almost twice as distorting on 
a per unit basis as any other country's and, given the U.S.'s relatively 
large program, account for the majority of the distortions in world markets 
caused by officially supported export credits," the OECD study said.

OECD member governments, the world's richest 29 countries, are now 
examining a proposal to settle the credit talks. The proposal has yet to be 
made public. However, major differences remain over credit time limits and 
coverage that these governments have so far been able to resolve.

"There's still some work that needs to be done in at least three, if not 
four, capitals to see whether or not this can be finalized," Dick Fritz, 
general manager of USDA's Foreign Agricultural Service, told reporters in 
Washington, D.C., earlier this month, according to a wire service report.

Trade officials said two main sticking points on the latest proposal are 
coverage and repayment period.

The coverage issue deals with whether state trading enterprises (STEs) like 
the Canadian Wheat Board (CWB) would be required to report the terms of 
their credits on exports of wheat and barley. The U.S. argued that these 
STEs must be covered. The Canadian government said this would place CWB at 
a disadvantage to private grain companies.

However, questions have been raised about the Canadian government's 
argument. CWB borrowings are guaranteed by the government of Canada. The 
board seldom makes use of borrowings other than through this facility, 
according to Canadian grain industry sources. Therefore, equating CWB with 
private grain companies may be overreaching.

The OECD study also raises questions about the Canadian government's 
argument, suggesting distortions are not from the private sector but from 
government agencies.

"Private export credits entirely on commercial terms without direct or 
indirect government involvement are part of normal transactions and do not 
distort markets but, on the contrary, facilitate trade," the study said.

Similar arguments are likely to be made by other countries that operate 
agricultural STEs. According to OECD statistics, more than 15% of 
Australia's agricultural exports in the 1995-98 period were sold using 
export credits.

The second major problem with the current OECD proposal for a new export 
credit arrangement is in the area of period of time for repayment.

Here, a major holdout is the U.S. The OECD study found the U.S. accounted 
for 97% of the export credits granted for longer than a year during the 
1995-98 period. The U.S. said it is willing to reduce credit periods to 18 
months for most agricultural products.

Trade sources said the U.S. proposal is not quite that simple. They said 
the U.S. is willing to reduce the repayment period, but with some notable 
exceptions. The U.S. insists on exceptions for breeding cattle, grains and 
oilseeds. For the grains and oilseeds trade, a major recipient of U.S. 
export credits, the U.S. negotiators have proposed phasing in reductions in 
this repayment period down to only 24 months.

According to Fritz, that is as far as the U.S. is willing to go.

Unless these differences are settled soon, governments like the EU will go 
into the key March session of the WTO talks with a strong hand on export 
subsidies, strengthened by the new OECD study.

The OECD study includes the following major findings:
- "The use of officially supported export credits has increased both in 
absolute terms and relative to trade";
- "In some cases, officially supported export credits offer greater 
benefits to importers than any private arrangements can," and
- "Officially supported export credits are not likely to generate new trade 
through helping to overcome liquidity constraints in developing countries. 
This is because the bulk of export credits is used in trade between OECD 
countries and also reflects the fact that the estimated benefits to 
importers are very small."

The report goes further to debunk the argument that these export credit 
programs are a useful means to alleviate hunger in poor countries.

"The very small share of officially supported export credits given to 
developing countries is one of two facts that calls into question the very 
purpose of these programs," OECD said. "The second fact that undermines the 
justification that officially supported export credits may help developing 
importers is that the benefits to importers, as estimated in this study, 
are very small -- perhaps only sufficient to gain a competitive advantage 
for the exporter -- and unlikely to be of much help to countries that are 
truly in need of financial assistance and food."

OECD, however, cautioned that while reaching a new deal on disciplines for 
export credits would "represent an important step toward reducing 
distortions in export competition," it cannot alone end trade distortions.

"Other export competition policies that may serve to perpetuate market 
distortions and inefficiencies would also need to be disciplined," the OECD 
report said.

As the EU has made clear, however, unless there are new disciplines on 
export credits, there are unlikely to be further cuts in export subsidies.

Without a deal, OECD warned "governments are currently free to provide 
credits to importers at any terms, no matter the degree to which they 
effectively subsidize the importer, as long as there is no protocol 
governing or limiting their use in agriculture."



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