INTERNATIONAL FINANCIAL ENVIRONMENT and EXPORT CREDITS UPDATE

1. INTERNATIONAL FINANCIALENVIRONMENTandEXPORT CREDITS UPDATE by Candace Roper CoBank

2. PRESENTATION OVERVIEW • Comment on global credit environment • Status of U.S. ag export credit programs • Overview of programs • Developments in WTO Doha Round negotiations • Brazil Challenge and WTO Ruling • Future of U.S. export credit programs

3. GLOBAL CREDIT ENVIRONMENT • Improving U.S. and global economy • Dramatic decline in U.S. credit defaults • Improving country risk (e.g., Brazil, Turkey) • Huge excess global liquidity (S>D) • “Buyer’s Market” for credit • Dramatic decline in loan spreads • Loosening of credit terms & conditions • Creditors/Investors buying tomorrow’s headaches?

4. U.S. EXPORT CREDIT PROGRAMS • USDA/CCC: GSM-102, GSM-103, Supplier Credit Guarantee Program • Promote U.S. ag exports by providing attractive import financing terms to overseas buyers and/or their banks • Length of loan (“tenor”) is critical to success of U.S. export credit programs, especially GSM • More than $100 billion in exports supported

5. COMPETITOR COUNTRY SUPPORT FOR EXPORTS • Export Subsidies • State Trading Entities (AWB, CWB, China) • Export Credits • “Official” export credit programs, plus: • “Unofficial” export credit practices • State Trading Entities • National Development Banks (e.g., Brazil)

6. EXPORT CREDITS IN THE WTO:OVERVIEW • GATT Uruguay Round Agreement (1994) • Article 10.2 on export credits • WTO Doha Round (2001-present) • Brazil Challenge, WTO Ruling, and U.S. Response (July 2005)

7. WTODOHAROUND • “Doha Development Round” November 2001 • “Three Pillars:” • Domestic Support: production subsidies • Market Access: tariffs & quotas • Export Competition: ex subsidies, ex credits, STEs, food aid • Goal: liberalize global trade in goods (and services) • Original deadline January 1, 2005

8. DOHA ROUND: U.S. OBJECTIVES • Domestic Subsidies: reduce/harmonize • Tariffs & Quotas: reduce/harmonize • Export Subsidies & Export Competition: • Subsidies: eliminate • Credits & Food Aid: “disciplines” • State Trading Entities (CWB, AWB): “disciplines” • Goal: Level the playing field for U.S. agriculture

9. DOHA ROUND: NCFC OBJECTIVES • Export subsidies: eliminate • Tariffs: harmonize • Market access: increase, for both developed & developing countries (DCs) • Domestic support: significant reduction in trade distorting support (“amber box”) • No special treatment for net ag exporting DCs • No exceptions for “sensitive” commodities • Science-based approach to SPS issues • Generally consistent with US position

10. DOHA ROUND:EXPORT CREDITS • Starting point: Uruguay Round Article 10.2: • “Members undertake to work toward the development of internationally agreed disciplines to govern the provision of exports credits, export credit guarantees, or insurance programs…” • U.S. position on Export Credits: • Distinct from export subsidies • Not subject to WTO dispute panel challenge • Should be negotiated along with other “Pillars”

11. DOHA ROUND:U.S. EXPORT CREDITS • August 2004: U.S.-EU “Framework Agreement” • Highly general, except for ex credits & subsidies • In return for the elimination of: • 1) export price subsidies; • 2) “trade distorting practices” of STEs… • U.S. agrees to cut the tenor of export credits to 180 days and allow other “disciplines” (e.g., higher insurance premiums) to be imposed • Reiterated in latest US Doha ag proposal (10/10/05)

12. DOHA ROUND:U.S. EXPORT CREDITS • A good deal for U.S. agriculture? • Answer depends on: • Elimination of export subsidies: “Parallel reduction with equivalent effect” • Meaningful disciplines on STEs • Improved market access, especially in developing countries • Harmonization of domestic subsidies (EU, other) • Prospects unclear, at best • No meaningful response to latest US proposal

13. BRAZIL WTO CHALLENGE • Challenge to U.S. cotton program and to U.S. export credit programs (all commodities) • Dispute Panel rules in favor of Brazil on U.S. export credit programs • Initial ruling September 2004 • Final ruling March 2005

14. BRAZIL CHALLENGE:WTO RULING • URA Article 10.2 does not protect U.S. export credit programs from WTO challenge • U.S. export credit programs confer illegal export subsidy, as income does not cover “long term operating costs and losses” (1992-2002) • Data source: Federal Budget (OMB) • U.S. must eliminate subsidy by July 1, 2005 or face sanctions by Brazil

15. WTO RULING:U.S. RESPONSE • U.S. opts to comply with ruling by July 1 • Acts to eliminate “illegal subsidy” by: • increasing by program premiums (income) • minimizing potential program losses • Highest risk countries eliminated for GSM-102 • GSM-103 program eliminated • SCGP under review

16. THE FUTURE? • CCC programs likely less effective in supporting U.S. ag exports • May be substantially eliminated by Doha end-date • Phase-in period for tenor cuts and disciplines is critical; “parallel reduction with equivalent effect” by our competitors

17. COBANK & US AG TRADE POLICY • Export Credits • Export Credits Working Group (2001): commodity/cooperator groups and other industry participants, including CoBank • Regular consultations with USDA/USTR • CoBank in a leadership role (DC Office, International Division) • Larger WTO Doha negotiations & trade issues • Agricultural Technical Advisory Committee for Trade (third term) • Key WTO Meetings (Hong Kong Ministerial, December 2005)

18. COBANK & US AG TRADE POLICY • Shared Goal with NCFC: • “Achieve a level playing field for US agriculture, including ag commodities, production inputs and processed products, in the global marketplace.” * *NCFC statement of objectives and principles on WTO negotiations and US agriculture