INTERNATIONAL FINANCIALENVIRONMENT

andEXPORT CREDITS UPDATE

byCandace Roper

CoBank

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

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?

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

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)

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)

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

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

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

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”

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)

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

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

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” (1992-2002) Data source: Federal Budget (OMB)

U.S. must eliminate subsidy by July 1, 2005 or face sanctions by Brazil

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

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

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)

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