Export Competition Issues in the WTO

1. Export Competition Issuesin the WTO Linda Young Montana State University Bozeman, MT, USA June 16, 2005

2. 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

3. 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

4. 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

5. 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

6. Switzerland: 5.3% : 1.4% EU-25: 90.0% : 1.4% : 1.9% Share of Total Export Subsidies Notified to the WTO, 1995-2001 Source: ICONE (based on WTO notifications)

7. EU Export Subsidy Notifications by Commodity, 2001

8. U.S. Export Subsidy Notifications, 2001 & 2002

9. Major Accomplishment • Phasing out – great deal of support • Achievement should not be risked due to details • 5-10 years – still a good agreement

10. Export Credits Export Credits,1 Year or More, 1998 July Framework: Elimination of programs with more than 180 days repayment • Transition period (3-5 years suggested) • Reduce dollar value of transactions covered

11. 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;

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. Other Viewpoints • More restrictions? • Oxfam – in cash form and more restrictions onin-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

19. 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

20. 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

21. Other meats 5% Other 5% Sugar 11% Dairy 35% Processed products 12% Grains 14% Beef 18% Share of Total Export Subsidies Notified to the WTO, 1995-2001 Source: ICONE (based on WTO notifications)

22. Share of Total Subsidy Element in Export Credits among Participants to the OECD Export Credit Arrangement, 1998 Total: US$300 million Source: OECD

23. Share of Total Export Credits with Length of1 Year or More among Participants to the OECDExport Credit Arrangement, 1998 Total: US$3.9 billion Source: OECD

24. Cereals 28% Other 23% Wool & hair 7% Vegetableproducts 16% Processedproducts 10% Livestockproducts 16% Share of Total Export Credits among Participants to the OECD Export Credit Arrangement, 1998 Total: US$7.9 billion Source: OECD

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