Inside US Trade
A new draft agreement on agriculture export credits moves closer to the U.S. proposal limiting the terms of government-backed loans to 18 months for cereals, oilseeds and cotton but cuts back on U.S. demands for extended pay-back periods for the world's poorest countries, according to industry and international government sources.
The draft agreement was proposed by the chair of talks at the Organization for Economic Cooperation and Development in an effort to bridge the remaining differences following the last round of negotiations late last month. The draft language appears to mirror a U.S. proposal on the key issue of repayment terms for government-backed loans, despite stated opposition to those terms from the European Union, Australia and Canada. The chair's proposal would phase the new 18-month repayment periods in over three years, cutting in half the maximum length of time allowed for repayment under the current U.S. program.
The EU, Australia and Canada had argued the agreement should move closer to commercially available terms which are generally around 180 days. But these countries had signaled that they could live with an agreement that limited repayment periods to one year.
But the chair's proposal limits additional repayment time for least developed countries to three months for cereals and oilseeds and eliminates any extra time for purchases of cotton. The U.S. had proposed an additional nine months repayment time for LDCs for these three products.
Talks resume on the issue in mid-November in an effort to hammer out an agreement by year's end, so that the issue will not hang over WTO agriculture negotiations in the World Trade Organization Agreement on Agriculture. Besides the loan terms for these three commodities, countries are still at odds over how the OECD agreement would address state trading enterprises, whether the agreement should call for more talks to further restrict use of agriculture export credits, and what leeway countries will have to extend more favorable terms in times of crisis.
Canada and Australia object to language in the chair's proposal, which has the support of the U.S., that would classify credit given by their single-desk exporters as receiving "official support," thus making these entities report on the terms of their loans to the OECD and potentially subjecting them to the same disciplines as the U.S. government-backed loans, officials from these countries said. Only STE-issued loans using government funds should be classified as receiving official support, they said. Single-desk exporters should not be subject to reporting requirements that would put them at a competitive disadvantage to large multinational exporters, Canadian officials said.
The current text also provides that future talks, either in the OECD or other international fora, could revisit the issue. This language is being pushed by the EU, which considers an OECD agreement only a first step to further disciplines that could be fleshed out in agriculture negotiations in the WTO. But the U.S. has objected to this language, even though it does not specify future WTO talks, because it considers that an OECD agreement fulfills the commitment spelled out in the WTO agriculture agreement.
The November talks will also feature further discussion on how the draft text defines what constitutes a "crisis" that would lead a country to lend on more favorable terms and what procedures it would have to go through to depart from the agreement. The U.S. characterizes the issue as the ability of countries to act unilaterally in times of crisis. The definition of crisis is also at issue, with the EU maintaining that the crisis must have ramifications in the daily life of the borrowing country's citizens, such as their ability to buy food, while U.S. industry takes a broader view of crisis as financial problems that seriously impact a country's ability to repay loans.
While the OECD agreement will not be binding, countries hope to reach agreement on language that would set forth parameters for under what circumstances it would be appropriate to derogate from the "gentleman's agreement." The EU is no longer pushing that such derogations must meet with consensus approval in the OECD but is advocating a more flexible approach, an EU official said.
The terms of loans for other agriculture products are no longer at issue in the discussion and are unchanged from previous drafts.
The inclusion of the key U.S. demand on repayment term length for cereals, oilseeds and cotton in the draft proposal will likely strengthen the U.S. hand against requests for further cuts in the November talks, industry sources said. Other OECD members, particularly the Cairns group countries of Australia and Canada, will also be under pressure to come to an agreement to prevent the end-of-year deadline from expiring with no new disciplines on agriculture export credits. Although these countries are still concerned with how the agreement would cover STEs and the repayment term length for the key commodities, sources in industry and government say these countries are closer to reaching agreement with the U.S., potentially isolating the EU.
The EU is currently engaged in a consultation process with member states on how to address the current chair's proposal in the next set of talks, with a discussion at the expert level scheduled for this week.:
