Export Competition Issues in the WTO Linda Young Montana State University Bozeman, MT, USA June 16, 2005

Linda Young 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

Linda Young 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

Linda Young 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

Linda Young 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

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

Linda Young EU Export Subsidy Notifications by Commodity, 2001

Linda Young U.S. Export Subsidy Notifications, 2001 & 2002

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

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

Linda Young 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;

Linda Young 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

Linda Young 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

Linda Young 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

Linda Young 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

Linda Young 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

Linda Young 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

Linda Young Other Viewpoints  More restrictions? –Oxfam – in cash form and more restrictions on in-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

Linda Young 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

Linda Young 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

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

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

Linda Young Share of Total Export Credits with Length of 1 Year or More among Participants to the OECD Export Credit Arrangement, 1998 Total: US$3.9 billion Source: OECD

Linda Young Share of Total Export Credits among Participants to the OECD Export Credit Arrangement, 1998 Livestock products 16% Vegetable products 16% Cereals 28% Processed products 10% Other 23% Wool & hair 7% Source: OECD Total: US$7.9 billion

Linda Young U.S. Project Food Aid, (grain equivalent)