INTERNATIONAL FINANCIAL ENVIRONMENT and EXPORT CREDITS UPDATE

1
INTERNATIONAL FINANCIALENVIRONMENTandEXPORT
CREDITS UPDATE
by Candace Roper CoBank
2
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

3
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 (SgtD)
• Buyers Market for credit
• Dramatic decline in loan spreads
• Loosening of credit terms conditions
• Creditors/Investors buying tomorrows headaches?

4
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

5
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)

6
EXPORT CREDITS IN THE WTOOVERVIEW

• 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)

7
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

8
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

9
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

10
DOHA ROUNDEXPORT 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

11
DOHA ROUNDU.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)

12
DOHA ROUNDU.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

13
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

14
BRAZIL CHALLENGEWTO 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

15
WTO RULINGU.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

16
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

17
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)

18
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

19
(No Transcript)