Nairobi Rules On Article 9.4 Subsidies, Export Credits May Be Enforceable

The provisions in the Nairobi export competition decision that require developing countries to eliminate so-called Article 9.4 export subsidies for marketing and transportation costs and that impose disciplines on export credits could be subject to dispute settlement at the World Trade Organization even though the decision itself is not, according to WTO experts.

This is because these two provisions are grounded in the Uruguay Round Agreement on Agriculture, which is a so-called "covered agreement" under the WTO that is subject to dispute settlement, they said. By contrast, ministerial decisions are not covered agreements.

But WTO jurisprudence establishes that ministerial decisions can be used to interpret obligations in a covered agreement, according to these experts. That was the finding of the Appellate Body in a case involving Indonesia's challenge of the U.S. ban on clove cigarettes.

Article 9.4 subsidies take their name from that provision of the WTO Agriculture Agreement, which stated that developing countries could provide such subsidies up until the end of the implementation period of the Uruguay Round in 2001.

Going into Nairobi, some WTO members such as the U.S. believed that this language was abundantly clear and that developing countries stopped being able to use Article 9.4 export subsidies in 2001, while others such as India maintained that they were still able to use these subsidies. India provides export subsidies for sugar that it views as allowed under Article 9.4.

But the Nairobi decision provides more clarity, stating that developing countries cannot use Article 9.4 subsidies after 2023.

Experts said it was plausible that, if a developing country continued to use these subsidies after 2023, another member could bring a case under the Article 9.4 of the Agriculture Agreement alleging a violation of that provision. Such a country could cite the Nairobi decision as further clarifying the obligation.

In addition to banning Article 9.4 subsidies after 2023, the Nairobi decision also imposes a series of conditions on the use of such subsidies in the interim.

Among these are that members not apply export subsidies in a manner that circumvents the requirement to reduce and eliminate all export subsidies; seek not to raise their export subsidies beyond the average level over the past five years; and ensure that any export subsidies have "at most minimal trade distorting effects and do not displace or impede the exports of another Member."

One Geneva source said members could use these conditions to challenge a developing country's use of Article 9.4 subsidies even prior to the 2023 deadline for elimination. Such a case would also allege a violation of Article 9.4, and then use the Nairobi decision to clarify the obligations of that provision.

On export credits, the main discipline in the Nairobi decision is that the repayment term of the loan shall not exceed 18 months. Although this obligation is not directly subject to dispute settlement, WTO experts argued that a member could seek to enforce it through Article 10.2 of the Agriculture Agreement.

Article 10.2 states: "Members undertake to work toward the development of internationally agreed disciplines to govern the provision of export credits, export credit guarantees or insurance programmes and, after agreement on such disciplines, to provide export credits, export credit guarantees or insurance programmes only in conformity therewith."

These experts argued that a dispute settlement panel would likely consider the Nairobi decision to be a future agreement on export finance disciplines within the meaning of this article.

One former U.S. agriculture trade official noted that Article 10.2 is particularly strong because it not only commits WTO members to develop a future agreement on export credit disciplines, but also to uphold them once such an agreement is reached.

The other two issues covered in the Nairobi export competition decision are agricultural state-trading enterprises and international food aid. Sources characterized the commitments on these issues as hortatory or of low quality, meaning the question of whether they are subject to dispute settlement is less relevant.

Last modified onThursday, 12 May 2016 16:02
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