IUST: Facilitator's Ag Text Leaves Out SSM, Stockholding; Reflects Many U.S. Demands

NAIROBI, Kenya – A draft agriculture text released here by the ministerial facilitator reflects some U.S. demands, such as leaving out a special safeguard mechanism and permanent solution on food stockholding programs, as well as including an 18-month term for repayment of export credits and less extensive disciplines on food aid than demanded by other countries.

But the text, circulated early on the third day (Dec. 17) of the World Trade Organization's tenth ministerial here and obtained by Inside U.S. Trade, also contains language that the U.S. may find objectionable narrowing the scope of state-owned enterprises (SOEs) covered under export credit disciplines. Export credits are one of the four pillars of export competition, along with export subsidies, agricultural state trading enterprises (STEs) and food aid.

A cover page to the text states that it is a “good faith attempt” by the facilitator and chairman of the agricultural negotiating group to identify compromise outcomes, but does not purport to represent a consensus by members. The aim of the texts “to assist Ministers to find common ground, and in keeping with this aim they should be considered to expire at the end of the Tenth Ministerial Conference,” the cover page says.

One informed source allied with developing countries blasted the text as “calibrated to suit the U.S. proposals.” This source pointed out that it only contains commitments to negotiate in the future on the special safeguard mechanism (SSM) demanded by countries like India and the Philippines and the food stockholding permanent solution pushed by India.

The SSM would allow developing countries to snap back their tariffs on agriculture products in the event of import surges or falling prices. On public stockholding, India and other members of the G-33 group are seeking to permanently exempt subsidies provided through such programs from counting toward WTO subsidy limits.  

In a Dec. 17 interview, South African Trade Minister Rob Davies said his country can live with the agriculture text as proposed by the facilitator, but noted that the African Group may seek further changes on the food aid language. He said South Africa has not been a proponent of the SSM and the stockholding solution, although it has supported India and other developing countries on those issues.

By contrast, civil society groups attending the ministerial here blasted the facilitator's text, largely because it excluded the SSM and the stockholding solution.

"The new text on agriculture makes a travesty of developing country concerns," Ranja Sengupta, a representative of Third World Network, said in a statement. "There is no progress and no deliverable on the special agricultural safeguard or the permanent solution to food security proposal on public stockholding, which are genuine concerns of developing countries while the export competition package is being sold as the big deliverable but which does nothing but protect U.S. interests such as on 540 days (1.5 years) on credit repayment. The developing countries gain nothing from this text and should firmly reject it."

The informed source called the text's language on food aid “insufficient.” The food aid provisions largely reflect an earlier U.S. proposal on this topic that imposed weaker disciplines on the so-called monetization of food aid than a joint proposal put forward by the European Union, Brazil and other countries. Monetization refers to donated food items being sold by non-governmental organizations in a country as aid.

While the joint proposal would have capped monetization at a certain percentage of overall in-kind food aid donations, the facilitator's text preserves non-binding language from the U.S. proposal stating that members “shall endeavour to monetize international food aid only where there is a demonstrable need for monetization for the purpose of transport and delivery of the food assistance, or the monetization of international food aid is used to redress short and/or long term food deficit requirements or insufficient agricultural production situations … .”

However, the facilitator's text adds a new requirement that “local and regional market analysis shall be completed before monetization occurs for monetized international food aid,” and sets out parameters for such analysis.

On agricultural STEs, which some officials had described as the most difficult pillar of export competition, the only binding discipline in the facilitator's text is that members “shall ensure that agricultural exporting state trading enterprises do no operate in a manner that circumvents any other disciplines contained in this Decision.”

It also contains language stating that members “shall strive to ensure” that the use of export monopoly powers by agricultural STEs has minimal trade distorting effects and does not displace or impede exports of other countries. That falls short of a U.S. proposal tabled in November to eliminate STEs with an export monopoly power for agricultural goods by a certain, unspecified date. 

In addition, the facilitator's text establishes a work program on agricultural STEs to discuss the issues raised in the 2008 Doha round agricultural text.

The 2008 text would have imposed stricter disciplines on agricultural STEs be requiring the elimination of export subsidies, export financing, government underwriting of losses, and export monopoly powers for such entities.

On export subsidies, the aspect of export competition where the gaps were the narrowest, the facilitator's text adopts the phaseout periods proposed by the chairman of the agriculture negotiating group. Those are for developed countries to phase out export subsidies by in five years, and developing countries to do so in eight years.

This language falls short of Switzerland's demands for it to be given a seven-year phaseout of export subsidies for developed countries without a staging period. 

The facilitator's text also adopts the chairman's proposal for an additional five-year period in which developing countries could not be subject to dispute settlement challenges with regard to export subsidies after they eliminate them. This is a form of the so-called peace clause created under the Uruguay Round Agriculture Agreement.

On export credits, the facilitator's text includes language that seems to respond to demands by China to carve out some of its state-owned enterprises (SOEs) from the disciplines. That Chinese footnote had been opposed by the U.S., Australia and other countries. The facilitator's text responds to China's demands by stating that disciplines will apply to export financing provided by governments as well as any “public body” as referred to in Article 1 of the Agreement on Subsidies and Countervailing Measures (ASCM).

China has won several World Trade Organization cases against the U.S. that have set a higher threshold for determining whether an SOE is a public body under the Agreement on Subsidies and Countervailing Measures than the original methodology of majority ownership used by the U.S. Commerce Department.

Specifically, the Appellate Body has found that control, as evidenced by majority ownership, is not necessarily enough to prove that an SOE is a public body under Article 1 of the ASCM. Instead, the entity must possess, exercise or be vested with "government authority" and must be performing a "government function," the Appellate Body has found.

That language is similar to the footnote that China had originally proposed to the export credit text. The footnote stated: “A financial institution or entity shall not be taken as export financing entity unless it possesses, exercises, or is vested with Government authority.”

The adoption of the 18-month repayment period reflects the U.S. position that it was not willing to go beyond its current practice. The U.S. agreed to limit the loan repayment period for export credit guarantees under its GSM 102 program to 18 months under its bilateral deal with Brazil to settle a longstanding dispute over cotton subsidies.

But the facilitator's text leaves out another aspect of the Brazil deal, which was to require that, for guarantees with loan tenors between 12 and 18 months, the U.S. charge fees based on the benchmark rates established by the Organization for Economic Cooperation and Development (OECD). The EU, Brazil and other countries had proposed a similar discipline in the export competition text, but this was not reflected in the facilitator's text.

Also in line with the U.S. position, the facilitator's text states that export credit programs should be “self financing,” but stops short of establishing a specific time over which rates must cover operating costs and losses of the program, as the 2008 Doha text did.

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