1. INTERNATIONAL FINANCIAL ENVIRONMENT and EXPORT CREDITS UPDATEby
Candace Roper
CoBank

2. PRESENTATION OVERVIEW
Comment on global credit environment
Status of U.S. ag export credit programs
Overview of programs
Developments in WTO Doha Round negotiations
Brazil Challenge and WTO Ruling
Future of U.S. export credit programs

3. GLOBAL CREDIT ENVIRONMENT
Improving U.S. and global economy
Dramatic decline in U.S. credit defaults
Improving country risk (e.g., Brazil, Turkey)
Huge excess global liquidity (S>D)
“Buyer’s Market” for credit
Dramatic decline in loan spreads
Loosening of credit terms & conditions
Creditors/Investors buying tomorrow’s headaches?

4. U.S. EXPORT CREDIT PROGRAMS
USDA/CCC: GSM-102, GSM-103, Supplier Credit Guarantee Program
Promote U.S. ag exports by providing attractive import financing terms to overseas buyers and/or their banks
Length of loan (“tenor”) is critical to success of U.S. export credit programs, especially GSM
More than $100 billion in exports supported

5. COMPETITOR COUNTRY SUPPORT FOR EXPORTS
Export Subsidies
State Trading Entities (AWB, CWB, China)
Export Credits
“Official” export credit programs, plus:
“Unofficial” export credit practices
State Trading Entities
National Development Banks (e.g., Brazil)

6. EXPORT CREDITS IN THE WTO: OVERVIEW
GATT Uruguay Round Agreement (1994)
Article 10.2 on export credits
WTO Doha Round (2001-present)
Brazil Challenge, WTO Ruling, and U.S. Response (July 2005)

7. WTO DOHA ROUND “Doha Development Round” November 2001 “Three Pillars:”
Domestic Support: production subsidies
Market Access: tariffs & quotas
Export Competition: ex subsidies, ex credits, STEs, food aid
Goal: liberalize global trade in goods (and services)
Original deadline January 1, 2005

8. DOHA ROUND: U.S. OBJECTIVES
Domestic Subsidies: reduce/harmonize
Tariffs & Quotas: reduce/harmonize
Export Subsidies & Export Competition:
Subsidies: eliminate
Credits & Food Aid: “disciplines”
State Trading Entities (CWB, AWB): “disciplines”
Goal: Level the playing field for U.S. agriculture

9. DOHA ROUND: NCFC OBJECTIVES
Export subsidies: eliminate
Tariffs: harmonize
Market access: increase, for both developed & developing countries (DCs)
Domestic support: significant reduction in trade distorting support (“amber box”)
No special treatment for net ag exporting DCs
No exceptions for “sensitive” commodities
Science-based approach to SPS issues
Generally consistent with US position

10. DOHA ROUND: EXPORT CREDITS
Starting point: Uruguay Round Article 10.2:
“Members undertake to work toward the development of internationally agreed disciplines to govern the provision of exports credits, export credit guarantees, or insurance programs…”
U.S. position on Export Credits:
Distinct from export subsidies
Not subject to WTO dispute panel challenge
Should be negotiated along with other “Pillars”

11. DOHA ROUND: U.S. EXPORT CREDITS
August 2004: U.S.-EU “Framework Agreement”
Highly general, except for ex credits & subsidies
In return for the elimination of:
1) export price subsidies;
2) “trade distorting practices” of STEs…
U.S. agrees to cut the tenor of export credits to 180 days and allow other “disciplines” (e.g., higher insurance premiums) to be imposed
Reiterated in latest US Doha ag proposal (10/10/05)

12. DOHA ROUND: U.S. EXPORT CREDITS
A good deal for U.S. agriculture?
Answer depends on:
Elimination of export subsidies: “Parallel reduction with equivalent effect”
Meaningful disciplines on STEs
Improved market access, especially in developing countries
Harmonization of domestic subsidies (EU, other)
Prospects unclear, at best
No meaningful response to latest US proposal

13. BRAZIL WTO CHALLENGE
Challenge to U.S. cotton program and to U.S. export credit programs (all commodities)
Dispute Panel rules in favor of Brazil on U.S. export credit programs
Initial ruling September 2004
Final ruling March 2005

14. BRAZIL CHALLENGE: WTO RULING
URA Article 10.2 does not protect U.S. export credit programs from WTO challenge
U.S. export credit programs confer illegal export subsidy, as income does not cover “long term operating costs and losses” ( )
Data source: Federal Budget (OMB)
U.S. must eliminate subsidy by July 1, 2005 or face sanctions by Brazil

15. WTO RULING: U.S. RESPONSE
U.S. opts to comply with ruling by July 1
Acts to eliminate “illegal subsidy” by:
increasing by program premiums (income)
minimizing potential program losses
Highest risk countries eliminated for GSM-102
GSM-103 program eliminated
SCGP under review

16. THE FUTURE?
CCC programs likely less effective in supporting U.S. ag exports
May be substantially eliminated by Doha end-date
Phase-in period for tenor cuts and disciplines is critical; “parallel reduction with equivalent effect” by our competitors

17. COBANK & US AG TRADE POLICY
Export Credits
Export Credits Working Group (2001): commodity/cooperator groups and other industry participants, including CoBank
Regular consultations with USDA/USTR
CoBank in a leadership role (DC Office, International Division)
Larger WTO Doha negotiations & trade issues
Agricultural Technical Advisory Committee for Trade (third term)
Key WTO Meetings (Hong Kong Ministerial, December 2005)

18. COBANK & US AG TRADE POLICY
Shared Goal with NCFC:
“Achieve a level playing field for US agriculture, including ag commodities, production inputs and processed products, in the global marketplace.” *
*NCFC statement of objectives and principles on WTO negotiations and US agriculture