AG: DISAGREEMENTS STILL REMAIN ON EXPORT COMPETITION

As the first fortnight of an intensive six-week cycle of agriculture negotiations drew to a close on 12 May, WTO Members remained divided on how to develop disciplines on a range of policies that could have an effect tantamount to that of export subsidies, so that these practices can be eliminated together by 2013. 'Export competition' is a key part of the overall 'modalities' that negotiators are still working towards, after missing a key end-April deadline for reaching agreement.

Agriculture Chair Ambassador Crawford Falconer (New Zealand) circulated revised 'reference papers' on export credits, food aid and exporting state trading enterprises (STEs), which identified some areas of convergence and focused on others where Members still needed to bridge differences. Observers say that Members have made progress since the Hong Kong Ministerial Conference in December, especially on food aid, though many issues still remained unresolved.

In Hong Kong, the EU reluctantly agreed to eliminate its export subsidies by the end of 2013, so long as other countries phase out "all export measures with equivalent effect" over the same period of time. While the EU has traditionally relied heavily on export subsidies to ensure that surplus production can be sold overseas, the US has used favourable loans to achieve the same goal. The EU is also keen to ensure that the provision of in-kind food aid (primarily by the US) and the activities of STEs do not serve as a loophole for continuing export subsidisation.

Meetings on 11 May focused primarily on food aid and exporting STEs, and saw substantive discussion of the chair's revised reference papers.

STE definitions still a stumbling-block

The Hong Kong Declaration stipulates that "disciplines relating to exporting STEs will extend to the future use of monopoly powers so that such powers cannot be exercised in any way that would" provide support to exports. While many countries have STEs, Members are primarily concerned about the powerful state trading enterprises in Australia, Canada and New Zealand. The EU and US argue that these monopoly powers are trade-distorting in and of themselves, and are seeking their elimination. They have pushed for tighter disciplines, including a revision of the existing definition of STEs in WTO rules as set out in GATT Article XVII.

The first version of the chair's reference paper had described a choice between two options: either maintaining the existing definition with minor modifications, or using an alternative definition which had been proposed. The revised reference paper now suggests a compromise based largely on the alternative definition, but with some words and phrases in square brackets to indicate areas of ongoing disagreement. Nonetheless, in the 11 May meeting, Australia, Canada and New Zealand continued to argue against the need for any revised definition.

The EU argued that an open-ended list of new disciplines would be necessary to ensure that STEs' actions do not have an effect equivalent to that of export subsidies. Countries with major STEs, however, claimed that this would just create uncertainty.

Members also continued to disagree over whether monopoly powers should be completely prohibited or simply disciplined. Less contentious, but still to be resolved, are outstanding issues around notification and transparency measures concerning STE operations, and how and when new commitments would be implemented.

Negotiators still need to reach agreement on appropriate treatment for developing country STEs, though it is recognised that these entities serve an important role in preserving domestic consumer price stability and ensuring food security. The reference paper envisages additional flexibility for developing country monopoly STEs that account for a low percentage of total world exports. The precise nature of special and differential treatment for developing countries may become clearer once arrangements for developed country STEs have been finalised.

Argentina and Brazil emphasized that any new text must maintain existing restrictions on subsidies in the Agreement on Agriculture. The chair agreed to revise the reference paper so as to ensure that there was no ambiguity about this.

Some more convergence on emergency food aid

Discussions on food aid aim to ensure the elimination of commercial displacement resulting from donations of subsidised food, whilst safeguarding bona fide food aid in emergency situations through a 'safe box.' A proposal from the African and Least-Developed Country (LDC) groups, which include many food aid recipients, has served as the basis for subsequent submissions from the EU and the US.

The US and the EU remain divided over the nature of non-emergency aid. While the EU would like in-kind food aid only to be provided in fully grant form (as opposed to concessional sales) and ultimately phased out in favour of cash, the US believes that in-kind aid should remain allowed, and has spoken against making fully grant form mandatory. The US believes that the monetisation of in-kind aid (when it is sold to raise funds for development purposes) should be allowed in certain circumstances, whereas the EU favours a complete phase-out. The chair's reference paper reflects these disagreements, and seeks further guidance from Members.

Sources nonetheless reported that positions in some areas seem less extreme than before. In particular, Members appear to have achieved a degree of convergence on appropriate 'triggers' for allowing flows of in-kind food aid under the safe box, with roles foreseen for appeals from multilateral agencies and the non-governmental humanitarian organisations that cooperate with them. The chair's reference paper therefore contains sections of preliminary draft text in this area. However, countries remain split between those that want the recipient governments to take priority over intergovernmental institutions with regard to the trigger, and those that would prefer the reverse.

Discussions on 11 May looked at the role of the WTO in particularly urgent situations where multilateral agencies might not be able to issue the declaration of emergency necessary to "trigger" the safe box mechanism. Falconer concluded that, in such cases, the WTO's role would be primarily one to ensure that any grants are appropriately notified.

The chair also noted that defining the duration of emergencies was not within the WTO's competence, and suggested that better qualified multilateral agencies should provide advice on the period of time for which in-kind food aid would be necessary.

Export credits: new EU proposal stirs up discussions

Falconer's reference paper on export credits contains several paragraphs of draft text outlining rules for export financing support to make sure that governments are prohibited from making loans on overly favourable terms to support the purchase of their farm exports.

For instance, it specifies a 180-day limit for the repayment of loans, so that governments cannot extend credit indefinitely. It would also require interest to be paid on export financing support, and points to some potential benchmarks for establishing a minimum interest rate. The draft text in the paper also seeks to ensure that governments cannot assume too much of the risk associated with their loans, including the risk of non-payment or foreign exchange fluctuations. Notably, it would require export financing support programmes to be "self-financing" over a to-be-negotiated length of time. Countries are divided over the duration over which this would be assessed -- the EU maintains it should be no longer than one year; the US would prefer 15 years, but has said that it would be willing to 'explore' shorter periods.

The chair noted that a new EU proposal, which Members had not yet been able to discuss in a meeting of all delegations, took a "very different approach" to dealing with export credits. The paper called for the development of 'core disciplines' aimed at ensuring that export financing support does not have the effect of subsidising exports. These would focus on the maximum repayment period, premiums to offset risk, and the duration of the self-financing period. This would represent a substantial departure from the approach that has been discussed thus far, under which Members would develop specific disciplines for all aspects of export credit programmes that might potentially have the effect of an export subsidy. Another new proposal, this one from the US, follows the traditional approach. It too has not been discussed by the negotiating group.

Sources report that since discussions on export competition are relatively far advanced compared to other areas, no consultations on the issue are planned in the immediate future.

ICTSD reporting.