WTO Deal On Export Competition Sets New Rules Without Enforcement Mechanism

Updated: NAIROBI, Kenya – The World Trade Organization deal on export competition agreed here Saturday (Dec. 19) generally requires export subsidies to be eliminated by developed countries immediately and by developing countries in three years, but allows these deadlines to be extended to five and seven years respectively for developed and developing countries under certain conditions.  

None of the commitments in the export competition text are subject to dispute settlement and are therefore not binding in the same way as the WTO Agreement on Agriculture. 

The ministerial decision on export competition also requires developing countries to eliminate in eight years so-called Article 9.4 subsidies, which are used for marketing and internal transportation costs. 

The outcome on export subsidies partially falls short of the U.S. demand for phaseouts of zero, three and five years for export subsidies by developed countries, export subsidies by developing countries and Article 9.4 subsidies, respectively.

The export subsidy commitments are one of four areas covered by the export competition decision. It also imposes rules on export credits that are less stringent than current U.S. policy in terms of the fees that must be charged to cover program costs, as well as disciplines on agricultural state trading enterprises (STEs) and food aid. The decision also imposes transparency requirement on all four types of export support.

The export competition decision is one of three decisions approved by ministers in the area of agriculture, with the others calling for further negotiations to establish a special safeguard mechanism (SSM) and to reach a permanent agreement on public stockholding for food security purposes. These will take place in separate “dedicated sessions” in the negotiating group on agriculture.

India failed in its effort to delink the SSM, which allows developing countries to snap back tariffs on agriculture imports due to import surges or price drops, from the negotiations on agriculture market access.

But it succeeded in inserting language into the decision on public stockholding saying that the permanent solution should be reached before the conclusion of negotiations on market access and domestic support.

India has long sought a permanent solution that would exempt from WTO subsidy limits support provided to farmers through public stockholding programs under which developing country governments purchase commodities at a higher price than the reference price set out in the Uruguay Round Agriculture Agreement.

The exception to the immediate phaseout of export subsidies for developed countries applies only to processed products, dairy products and swine meat, and is subject to four conditions laid out in a footnote to the decision. This footnote was included to protect the interests of Canada, Switzerland and Norway, which currently use export subsidies on such products.

The first condition is a standstill, which states that these countries cannot increase the quantity of goods that benefit from export subsidies beyond their average level in a 2003-2005 base period. Second, these countries cannot apply such export subsidies to new markets or to new products. Third, they cannot provide such export subsidies for products destined for least-developed countries after Jan. 1, 2016.

Fourth, in order to qualify for the five-year phaseout period in the footnote, developed countries must have notified export subsidies for these products in one of their three latest notifications to the WTO Committee on Agriculture.

Developing countries must meet the same notification requirement in order to take advantage of the longer, seven-year period for eliminating export subsidies.

The only other exception to the commitment to eliminate export subsidies is a footnote that allows the European Union to keep its existing export subsidy program for sugar until its previously scheduled expiration date of Sept. 30, 2017.

The export subsidy section contains one additional commitment compared to the previous draft text circulated by the facilitator on Dec. 17. It states that members “shall seek not to raise their export subsidies beyond the average level of the past five years on a product basis.”

The Office of the U.S. Trade Representative touted the export subsidy deal in Dec. 19 press release as ensuring an end to Canadian dairy and Indian sugar export subsidies, “while also preventing export-oriented countries like Brazil from taking advantage of such measures going forward.”

One trade official acknowledged the downside of the export competition decision not being legally binding, but pointed out that its commitments can be politically enforced by naming and shaming WTO members who fail to comply.

But he emphasized that such a decision can be implemented quicker and with greater certainty than a change to the legal text of the WTO Agreement on Agriculture, which contains legally binding commitments on export subsidies.

Changing the text of the agreement would require a consensus decision of the General Council on a protocol of amendment, which would then have to be accepted by two-thirds of WTO members before entering into force. That approach would significantly delay the elimination of export subsidies, the official noted.

He also noted that the commitments on export competition could be made legally binding by incorporating them into any new multilateral agreement on agriculture that WTO members may reach in the future.

On export credits, the export competition decision imposes a maximum repayment term of 18 months, which is consistent with current U.S. practice as well as a bilateral deal with Brazil to resolve a WTO case over U.S. cotton subsidies.

But the WTO export competition decision does not contain additional constraints on the U.S. GSM 102 export financing program that were imposed under the U.S.-Brazil cotton deal in an effort to ensure the program's fees covered its costs and thereby reduced the subsidy. The U.S.-Brazil deal did so by linking the fees the U.S. must charge under GSM 102 to the benchmark risk rates set out by the Organization for Economic Cooperation and Development.

The EU, Brazil and other WTO members had tried to incorporate similar disciplines into the Nairobi export credit text, but failed to do so. The final text only requires export finance programs to be “self-financing,” but does not lay out a specific period for which that must be the case, as the 2008 Doha round agriculture text had done.

The export credit text also contains language aimed at addressing China's worries that the disciplines would apply to export financing provided by banks in which the government owns a stake. The language, which was unchanged from the Dec. 17 facilitator's text, states that the disciplines apply to export financing support by any entity that is considered a “public body” under Article 1.1(a)1 of the Agreement on Subsidies and Countervailing Measures.

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 ACSM than the original methodology of majority ownership used by the U.S. Commerce Department.

But the USTR fact sheet emphasized that the disciplines would constrain export financing programs in China, as well as Brazil, without mentioning the state-owned enterprise issue. The deal “ensures export financing programs in countries like Brazil and China are subjected to disciplines in line with U.S. programs,” USTR said.

The disciplines on food aid are slightly stronger than those included in the draft text circulated on Dec. 17, but stop far short of demands by the European Union, Brazil and others to impose a numerical cap on the amount of so-called monetization of food aid by the United States.

Monetization refers to donated food items being sold by non-governmental organizations in a country as aid, a practice that some WTO members such as the EU view as a particularly trade distorting type of food aid.

That said, the decision slightly strengthens the obligation to monetize international food aid only in the cases of demonstrable need for the purpose of transport and delivery, or to redress food deficit requirements or insufficient agricultural production in least-developed and net food-importing developing countries. 

The final decision states that members “shall” monetize food aid only under such circumstances, while the Dec. 17 text said they “shall endeavor” to do so.

The changes to the food aid text resulted from negotiations between the U.S. and the African Group, which along with the EU had pressed for stronger disciplines on U.S. food aid programs. The final text also allows recipient countries to “opt out” of receiving monetized food aid.

On agricultural STEs, the decision imposes only one firm discipline, which is unchanged from the Dec. 17 facilitator's text. This is the obligation is that members “shall ensure that agricultural state trading enterprises do not operate in a manner that circumvents any other disciplines contained in this Decision.”

However, the final text eliminated a work program to explore other trade-distorting aspects of agricultural STEs that was included in the Dec. 17 text.

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