Export Competition Issues

in the WTO

Linda Young

Montana State University

Bozeman, MT, USA

June 16, 2005

Linda Young

Underlying Premises on Trade Reform

Disciplines first in areas of most need– Large and clear cases

Institutional diversity when possible

– Best fit needs of countries; developing countries lacking other institutions

Emphasis on the poor and food security

Motivation: overall success

– Trade (reform) contentious in all quarters

Linda Young

July Framework and Export Subsidies

Direct export subsidies will be phased out under a “credible” time frame

Treat all products the same– Phase out export subsidies for all products over a

specified time period in equal increments (or) Initial down payment:

– 42 percent (continue pace of URAA)

– 20 percent (mirror down payment in domestic support)

– A good faith gesture

– Then phase out over 5-10 years

Linda Young

Export Subsidies cont:

Limited number of commodities could be given longer transition period– Particularly if 5 year phase out for most

Maintain the current system of commitments on both the volume of subsidized exports and the value of expenditures on export subsidies

Accelerated reduction for commodities with higher levels of subsidies – politically difficult

Linda Young

Export Subsidies: Special and Differential Treatment

Special and differential treatment for developing countries – Longer transition period than that given to

developed countries for reduction of their remaining export subsidy commitments

– Concern over unfairness – less compelling if being phased out

Currently, exceptions for developing countries for marketing, handling, upgrading and international transport

Continued concern over food import bills

Linda Young

Share of Total Export Subsidies Notified to the WTO, 1995-2001

USA

Norway

SwitzerlandSA: 1.4%

Other

Switzerland: 5.3%

: 1.4%

: 1.4%

: 1.9%

EU-25: 90.0%

Source: ICONE (based on WTO notifications)

Linda Young

EU Export Subsidy Notifications by Commodity, 2001

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Rice

Wine

Fruit and vegetables, fresh

Cheese

Sugar

Poultry meat

Eggs

Other milk products

Bovine meat

Fruit and vegetables, processed

Butter and butter oil

Achohol

Coarse grains

Skim milk powder

Pigmeat

Wheat and wheat flour

% value % volume

Linda Young

U.S. Export Subsidy Notifications, 2001 & 2002

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Cheese - 2002

Cheese - 2001

Skim milk powder - 2002

Skim milk powder - 2001

% volume % value

Linda Young

Major Accomplishment

Phasing out – great deal of support

Achievement should not be risked due

to details– 5-10 years – still a good agreement

Linda Young

Export Credits

July Framework: Elimination of programs with more than 180 days repayment– Transition period

(3-5 years suggested)– Reduce dollar value of

transactions coveredEU-15

3%

Canada1%

USA96%

Export Credits,1 Year or More, 1998

Linda Young

Programs Less Than 180 Days

Premium covering operating costs and losses Reporting to WTO Harbinson text disciplines including (but is not limited to):

– Maximum repayment term of 180 days; – Minimum cash payments by importers of specified

percentage of the amount of the contract value by the starting point of the credit;

– Provisions specifying the payment of interest;– Minimum interests rates, with members to use Commercial

Interest Reference Rates as published by the OCED, plus appropriate risk-based spread;

Linda Young

Export Credits: Special and Differential Treatment

Create a special program for developing countries Past credit programs did not serve LDCs and NFIDCs Credit constraints most likely to inhibit imports by

developing country members Could assist the WTO in meeting food security goals Program

• operated by a multilateral institution or national governments

• without budgetary restrictions for designated recipients, perhaps NFIDCs and least developed countries

Linda Young

State Trading Enterprises (STEs)

July Framework: “Trade distorting practices with respect to exporting STEs including eliminating export subsidies provided to or by them, government financing, and the underwriting of losses.”

New Terms and Conditions for STEs– Require STEs to provide duty-free access for the goods they manage – Eliminate the possibility of high-price domestic market used to subsidize exports

Expedited dispute settlement procedure to determine if violations have occurred– Possible, but concerns over harassment and due process

Linda Young

Lack of Agreement on Trade Impacts of STEs

Viewpoints on consequences and acceptability differ Sumner and Bolton on the CWB – provocative Sometimes categorized on basis of contestability Disagreement on market power (grain markets) Price discrimination and pooling

– CWB Case by WTO

– Cannot generalize results to other cases

Linda Young

Mandate Co-existence

Few STEs coexist with the private sector– Evidence suggests results in demise

Removes the achievement of scale (and sometimes scope) economies in marketing initiatives, quality control and reputation, branding and related areas; funneling any rents to producers.

Possible that private firms, often in imperfect markets, will benefit

Negotiate in context of competition policy – Recommended by Josling, Scopolla, others

Linda Young

STEs: Special and Differential Treatment

Increasing recognition that markets don’t always perform functions abandoned by the state

Removal of STEs has/can result in lack of R&D

If co-existence mandated, consider exemption or longer transition period

Linda Young

Food Aid: Proposals for Disciplines

Assuming no restrictions on emergency food aid

Language stating market development objectives not appropriate

Surplus disposal: we define as food aid from stocks due to the implementation of agricultural policy, i.e., US 416 b– these stocks can be used appropriately

– suggest discipline food aid from such stocks to be given to the WFP – prevent worse abuse and political motivations

Linda Young

Other Viewpoints

More restrictions?– Oxfam – in cash form and more restrictions on

in-kind and monetized food aid

– Barrett and Maxwell: non-emergency tied aid Blue Box; poorly target tied aid Red Box

Restrictions to make food aid more efficient will reduce amount

This trade-off should be made by recipients

Linda Young

New Institutional Home

Recognize the WTO is not the appropriate institution

to discipline food aid

• Emphasis on commercial displacement (as in July Framework) excessive

• Create a new institution to replace current dysfunctional structure

• Evaluate trade-offs between quantity and efficiency of food aid

• Advise WTO on future disciplines

Linda Young

Parallel Elimination of All Forms of Export Subsidies

July Framework asks for “parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect” – Necessary for political reasons

Not a model-based solution: not possible in a credible fashion

Eliminate government expenditures on export subsides, export credits, STEs

S&D treatment for developing country concerns including food aid and export credit program for specified recipient

Linda Young

Share of Total Export Subsidies Notified to the WTO, 1995-2001

Source: ICONE (based on WTO notifications)

Processed products 12%

Sugar 11%

Other meats 5%

Other 5%

Dairy 35%

Beef 18%Grains 14%

Linda Young

Australia2%

Canada5%

EU-158%

USA85%

Share of Total Subsidy Element in Export Credits among Participants to the OECD Export Credit

Arrangement, 1998

Source: OECD

Total: US$300 million

Linda Young

EU-153%

Canada1%

USA96%

Share of Total Export Credits with Length of1 Year or More among Participants to the OECD

Export Credit Arrangement, 1998

Total: US$3.9 billion

Source: OECD

Linda Young

Share of Total Export Credits among Participants to the OECD Export Credit Arrangement, 1998

Livestockproducts 16%

Vegetableproducts 16%

Cereals 28%

Processedproducts 10%

Other 23%

Wool & hair 7%

Source: OECDTotal: US$7.9 billion

Linda Young

U.S. Project Food Aid, 1990-2002(grain equivalent)

0

1

2

3

1990 1992 1994 1996 1998 2000 2002

MM

T

U.S. project food aid Monetized food aid