INTERNATIONAL FINANCIAL ENVIRONMENT and EXPORT CREDITS UPDATE by Candace Roper CoBank.
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Transcript of INTERNATIONAL FINANCIAL ENVIRONMENT and EXPORT CREDITS UPDATE by Candace Roper CoBank.
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