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INTERNATIONAL FINANCIAL ENVIRONMENT and EXPORT CREDITS UPDATE. by Candace 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

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Presentation Transcript
presentation overview
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
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
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
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
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
WTODOHAROUND
  • “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
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
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
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
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 credits1
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
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
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
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
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
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 policy1
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

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