Inside US Trade / Vol. 19, No. 16
Industrialized countries failed last week to reach agreement on new disciplines for agriculture export credits because the U.S. and Canada could not settle their differences on the maximum term for loan repayments and on whether the agreement should cover state-trading enterprises, such as the Canadian Wheat Board.
Informed sources said failure to reach agreement by a mid-May ministerial meeting of Organization for Economic Cooperation and Development would likely mark an end to the effort to negotiate export credit disciplines in the OECD. The chairman of the negotiating group told representatives to see if they could moderate their positions by then.
But a Canadian official said absent new flexibility from the U.S., the ministerial meeting would probably mark the end of negotiations. "If [the U.S.] can't show any flexibility on the repayment terms, then that's a big problem for us and we wouldn't want any more disciplines [on state trading enterprises]," the official said.
The U.S., however, has said that it has gone as far as it can, and already faces criticism from agriculture groups and members of Congress for the concessions it has already made, sources said.
The two countries have been at odds over loan repayment duration and state-trading enterprises since November. The U.S. agreed to negotiate disciplines for farm export credits -- the primary form of U.S. farm export assistance -- as part of the World Trade Organization agreement on agriculture concluded in 1993.
Specifically, the U.S. has said it would accept a proposal tabled in November by the chairman of the OECD negotiating group, which would cap loan terms on grains, oilseeds and cotton to 18 months with an additional three months given for least-developing and net food importing countries. However, Canada has said it would not accept loan terms longer than one year on these products, a Canadian official said.
In addition, Canada has objected to language that would apply the export credit disciplines to "special institutions controlled by and/or acting under the authority of governments," the Canadian official said. This could subject entities like the Canadian Wheat Board to disciplines on internally-financed loans, while multinational grain traders would not be subject to such restrictions. The U.S. was unwilling to abandon this language.
Australia took a similar line in November talks, but in last week's negotiations moved toward accepting the November proposal. It said it could accept the longer repayment terms, even the extra three months for cotton, which it argues is unjustified by the actual time textile makers need to obtain the necessary revenue to repay loans, according to a trade official.
It also tabled an interpretive note, which the U.S. signaled it could accept, that would have made the Australian Wheat Board exempt from disciplines. Australia's interpretation would hold that disciplines cover state trading enterprises only when the finances of those enterprises are guaranteed by governments. That definition would include the Canadian Wheat Board but not its Australian counterpart, the official said.
Before the talks, the Bush Administration came under pressure from leading Senate Democrats not to agree to the OECD proposal the Administration had signaled it could accept as written. Sens. Max Baucus (D-MT), the ranking member of the Finance Committee and Tom Harkin (D-IA), the ranking member of the Agriculture Committee, told Agriculture Secretary Ann Veneman not to accept curtailment of the GSM export guarantee program without concessions from competing agriculture producers and without a promise would not face demands for further cuts.
"We are deeply concerned that U.S. representatives are planning to accede to very substantial concessions to curtail our nation's GSM export credit guarantee programs in negotiations this week in Paris under the Organization for Economic Cooperation and Development," Harkin and Baucus said in their April 10 letter. "We simply do not understand the rush by the U.S. to accept the OECD terms without obtaining any significant concessions in return and without any assurance that doing so will preclude demands in the very near future for even further weakening of our GSM export credit guarantee programs."
Harkin and Baucus also argued that concessions by the U.S. in the OECD would undercut U.S. efforts to get the European Union to agree to reform of its agriculture subsidies programs in the WTO. WTO members, including the EU and members of the Cairns group of agriculture exporters such as Canada and Australia, have called for disciplines on export credits to be negotiated in ongoing WTO agriculture talks.
"Rather than agree to an unfavorable OECD agreement at this time, it seems far preferable to defer this matter to WTO negotiations," Harkin and Baucus argued. Some agricultural groups have argued against such an approach because WTO negotiations would consider export credits the same as export subsidies, which the U.S. and other agricultural producers have said they want to eliminate.
The senators also wrote that a failure to reach an agreement in the OECD would not violate its WTO commitments. "The U.S. is obligated to negotiate in good faith toward reaching an agreement, and it has done so. We are not compelled to accept an unfavorable agreement or one in which we obtain virtually nothing in return -- both of which deficiencies are evident in the current OECD proposal," the letter says.
Baucus and Harkin did acknowledge that failure to reach agreement in the OECD could open up U.S. export credit programs to a potential WTO challenge, but argued that the damage to the program by new disciplines in the OECD outweighs that risk.
"We recognize that there is a risk of a WTO challenge to our GSM programs if the OECD proposal is not accepted, but we do not believe that risk justifies being forced into a bad agreement," the letter said. "The OECD's proposed changes to the GSM export credit guarantee programs would have substantial long-term consequences for our nation's agricultural exports and very significant ramifications for future agricultural trade negotiations."
Clinton Administration officials argued that failure to reach a deal would open the program up to challenge as a circumvention of export subsidy commitments, but some industry representatives disputed that argument. They insist that only export guarantee programs that do not cover costs would be vulnerable (Inside U.S. Trade, Nov. 10, p.1).
Some agriculture groups, including soybean and corn producers, had agreed to accept the U.S. position accepting the November proposal. On both these products, the U.S. has WTO commitments not to provide any export subsidies, so application of the GSM program to these products could potentially trigger a WTO case. These groups also argued the U.S. should not have the issue hanging over it in WTO talks.
But other agriculture groups, including wheat and cotton producers, and Cobank, the bank that uses most of the guarantees, argued that the U.S. concessions went too far (Inside U.S. Trade, Nov. 3, p.1).
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