WORLD TRADE
ORGANIZATIONG/AG/NG/W/34
18 September 2000
(00-3689)
Committee on Agriculture
Special SessionOriginal:  English
EUROPEAN COMMUNITIES PROPOSAL
EXPORT COMPETITION
I. INTRODUCTION
1. As the second largest exporter of agricultural and food products, the European Communities
(EC) consider that export competition is an important issue in the negotiations. It is the EC view that
there is an urgent need for a more level playin g field in export competition since the current
provisions of the WTO Agreement on Agriculture fully cover only one of the means of support to
exports, namely export subsidies. Other instruments, some of which are increasingly used by someWTO Members, are subject to less stringent rules and fewer transparency requirements although they
potentially distort trade significantly.  This is notably the case of subsidised export credits, abuse of
food aid, state-trading enterprises and some market support systems.
2. The EC consider that WTO disciplines and rules should be developed in order to deal with all
instruments affecting export competition on an equitable  basis. This would result in an improvement
of the conditions of export competition in international trade in agricultural and food products for the
benefit of all WTO exporters/Members, in particular developing countries.
II. EXPORT SUBSIDIES
3. Since the inception of the GATT, export subsidies for agricultural products have always been
permitted, albeit on the basis of certain disciplines. As a result of the Uruguay Round negotiations,
further disciplines and strict limits on WTO Members' use of export subsidies were imposed. Export
subsidies as defined in the Agreement on Agriculture were capped and subject to annual reductioncommitments throughout the implementation period. The volume of exports benefiting from such
subsidies and the budgetary expenditure on export subsidies in the base period had to be reduced by
21% and 36% respectively. The extent to which WTO Members could use export subsidies was
clearly defined (limited), in specific quantitative terms, for each individual exporting Member,
product category and year, in the Country Schedule of each Member.
4. The EC are often targeted as being the largest user of export subsidies among WTO
Members.  However, the EC use of export subsidie s is transparent, fully notified to the WTO and in
compliance with its WTO obligations.
WTO rules and limits have had a real impact on EC use of export subsidies. In 1998 (the most
recent data on agricultural exports), expenditure on export refunds amounted to 9.4% of the totalvalue of agricultural exports compared with 55% in 1992. This reduction in the use of export
subsidies reflects the significant structural adjustment undertaken by the EC farming sector.G/AG/NG/W/34
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5. As already stated in document WT/GC/W/273 of 27 June 1999, the EC are willing to
continue to negotiate further reduction in export subsidies provided that all forms of support to
exports of agricultural and food products are treated on a common footing.
Disciplining only this one form of export measure is discriminatory and gives the misleading
impression that export subsidies are inherently more trade-distorting than other measures affectingexports. In fact, trade distortion depends as much on the way a measure is employed and the context
within which it is employed as on the nature of the measure concerned. Certainly export subsidies
used aggressively as a means of undercutting world prices and thereby expanding market share can
legitimately be regarded as trade distorting.  But the risk that export subsidies will in practice be used
in this way, and not mainly as a means of enabling exporters to react to changes in world prices
without interference with domestic price support, was greatly diminished by the disciplines on budget
and volume agreed in the context of Uruguay Round. An alternative means of providing domestic
producers of a product which is also exported with stable per unit returns despite fluctuating world
prices is to allow domestic market prices to fluc tuate in line with world prices and to make variable
payments (e.g. deficiency payments or loan deficiency payments) to producers. This practice is not, at
present, subject to any product-specific WTO disciplines.
Officially subsidised credits used to provide commercially more- attractive terms than those
commonly available, or food aid, used not as a means of dealing with food emergencies but rather as a
means of surplus disposal and market penetration, are still not effectively disciplined.  Yet the effect
of these policies, when used in this way is similar to that of the most trade distorting use of export
subsidies.
III. EXPORT CREDITS
6. In the URAA, WTO Members undertook 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 guarantees orinsurance programmes only in conformity therewith " (Article 10.2 of the Agreement on Agriculture).
As noted in the WTO Secretariat's document G/AG/ NG/S/13 of 26 June 2000, efforts to develop such
disciplines have been underway amongst participan ts to the OECD Arrangement and Argentina since
1994. However, they have so far been unsuccessful, notably due to the lack of willingness to agree on
strict disciplines from the main user of export credits. As a consequence, export credits covering
exports of agricultural and food products have not been governed by any specific discipline within the
Agreement on Agriculture, including transparency requirements. This has resulted in a great deal of
flexibility for those WTO members that use this instrument to support their exports.
7. The Secretariat's paper G/AG/NG/S/13 makes a clear presentation of export credits, including
officially supported export credits. It appears that officially supported export credits can take many
different forms inter alia  direct credits or financing, refinancing, interest rate support, aid financing
(credits and grants), export credit insurance and/or guarantee. In concrete terms, an importer that hastaken out an export credit which is officially supported, may receive a loan at an interest rate below
the normal market rate, for a length time which exceeds that which the market would offer (generally
60 to 120 days although 180 days are allowable under the Berne Union rules), or a repayment
schedule which is abnormal in timing or grace period, without having to pay a fee adequate to offset
these special conditions.  In addition to that, an insurance system with premia that are unlikely tocover the losses imply that a subsidy is given.
8. Such officially supported export credits may  have a similar effect as aggressively used export
subsidies, if the total costs for financing the purchase of the exported goods are lower than would
otherwise occur. Whilst export subsidies may do no more than bridge the gap between higher internal
prices and the world market price, officially supported export credits as described above give aG/AG/NG/W/34
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supplementary commercial advantage to an exporter which is nominally exporting at the prevailing
world market price.
9. Some WTO Members resort to subsidised export credits for a significant part of their trade in
certain commodities such as grains. Given the wide range of forms that officially supported credits
can take and the confidential nature of some of th e data regarding subsidised export credits, it is
generally difficult to determine the exact magnitude of support that is provided to exports by this
instrument and the extent to which trade is distorted.
The Secretariat of the WTO gathered some data on Members' usage of export credits in
document G/AG/NG/S/12/Add.1 of 27 June  2000. However, this data is not comprehensive. This lack
of transparency combined with the absence of discip lines in this field tend to favour trade-distorting
practices, which may unravel the effects on world trade of WTO disciplines on other forms of
support. There is a need for further analysis of the extent to which different forms of export credits areused and their impact on trade in order to develop rules and disciplines in the WTO.
10. The EC acknowledge that the use of export credits may, under certain circumstances, be
justified  to assist countries facing liquidity constraints. Nevertheless, the use of officially supported
export credits to some developing countries, in particular the net-food importing developing countriesand least-developed countries must not be abused for the benefit of developed exporting countries. It
should be recalled that export credits are not necessarily a panacea, since they can contribute to
increasing the debt-burden of the recipient countries.  In addition, justifying the use of export credits
as a tool to decrease the food bill of developing countries is called into question by the very low share
of export credits granted to Net-Food Importing De veloping Countries (NFIDC) and Least-Developed
Countries, as demonstrated in a recent OECD survey based on confidential data.
The EC are of the view that the right way to provide food aid is in the form of grants not
credits. If, however, a situation arose in which a country was unable to purchase necessary food
supplies because of a temporary problem of finance, then, if this problem is to be addressed by credit,
the recipient should be able to use this to purchase from the most appropriate supplier of the foodrather than being tied to the credit provider.
11. The EC consider that it is important to recognise that officially supported export credits can
act as export subsidies and that they should fall within the WTO rules and disciplines as is the case for
exports of industrial goods. In that respect, the EC wish to reiterate their interest in a prompt and
satisfactory conclusion of the OECD understanding on export credits for agricultural products, which
should be incorporated into the future WTO agreemen t on Agriculture in order to ensure that there is
equal treatment of all export competition tools.
IV. ABUSE OF FOOD AID
12. Article 10.4 of the URAA contains language to prevent the circumvention of export subsidy
commitments by food aid transactions. WTO Members shall ensure that the provision of international
food aid is not tied directly or indirectly to commercial exports of products to recipient countries, thatinternational food aid transactions shall be carried out in accordance with the FAO "Principles of
Surplus Disposal and Consultative Obligations", and that such aid shall be provided to the extent
possible in fully grant form or on terms no less concessional than those provided for under Article IV
of the 1986 Food Aid Convention. However, since 1994 the Food Aid Convention has been reviewed
twice and developments in recent years suggest that  the current WTO provisions may not be sufficient
to prevent abuse of food aid.
13. The EC believe that the existing WTO provisions should be revised and strengthened in order
to prevent abuses of food aid as a mechanism for the disposal of surpluses. As recently pointed out byG/AG/NG/W/34
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the Committee of Surplus Disposal, the rapid decline of food aid donations over the period 1994-1997
was reversed as from 1998. According to the FAO Consultative Committee on Surplus Disposal, the
volume of food aid transactions reported to that Committee increased by more than 120% between
1997 and 1999.
14. It is a disgrace that food aid availability should increase when prices are low and be curtailed
when it is most needed against a background of hi gh commodity prices. The EC have noted that some
large exporters of agricultural and food products resorted significantly more to food aid donations as
their surpluses were growing in recent years. In certain cases, the main objective of food aid donations
seems to be to help reduce price-depressing surplus stocks in the donor countries as well as promoting
market development. Food aid is thus viewed as a "valuable market development tool". This is clear
abuse of food aid. Not only are development objectives relegated to a position of secondary
importance but also such practices highly distort trade. To a certain extent, abuse of food aid iscomparable to an export subsidy of 100% of the price of the product. In addition, abuse of food aid is
often associated with predatory commercial prac tices where food aid transactions may be used to
force  competitors out of the market. It is therefore necessary to adopt strict rules in order to put an end
to such practices, which distort trade without helping the economic and social development of the
recipient countries.
15. The EC are firmly committed to achieving food security for all and to an ongoing effort to
eradicate hunger. The EC consider, in accordance with the Preamble of the Food Aid Convention
1999 that the capacity of the international community to respond to food emergency situations and to
improve food security should be enhanced through the assurance of supplies of food aid irrespective
of world food price and supply fluctuations. The EC also wish to recall that the same preamble statesthat parties to the Food Aid Convention recognise that the ultimate objective of food aid should be the
elimination of the need of food aid itself and that the effectiveness of food aid as a tool in support of
food security in developing countries should be improved. The EC fully support the principles
contained in the 1999 Food Aid Convention regarding objectives, the needs, the forms and terms of
food aid and its effectiveness and impact. However, the FAC covers only a limited part ofinternational food aid  (minimal commitments) and therefore more should be done in order to prevent
abuse of food aid.
16. The EC believe that food aid should be given in fully grant form and that it should not be used
as a market promotion tool to displace normal co mmercial transactions and local production. To that
end, the EC are convinced that food aid in general would benefit from tighter rules and greater
transparency in the WTO in order to avoid abuses of food aid practices. With this in view,  it is urgent
to start concrete discussions in the WTO about what should be considered as food aid, i.e. which typeof transactions, in which circumstances, under which conditions. In addition WTO notification
procedures regarding the provision of food aid should be strengthened. Food aid should be a response
to official requests, it should be targeted to the needs of the recipient, and it should be carefully
distributed with due attention to the impact in the recipient country and to the local habits and
nutritional needs of the beneficiaries. Food aid should not be used to subsidise the exports of thedonor country.
17. Food aid is a very important element for developing countries, in particular the poorest ones.
It needs predictability, transparency and consistency with some basic development principles. It
should not be misused for the benefit of some developed countries depending on the extent of their
surpluses. That is why the EC are of the view that it  is high time that the conditions and forms of food
aid transactions were discussed in the WTO with a view to developing rules and disciplines to
improve the effectiveness and impact of food aid and enhance food security in developing countries.G/AG/NG/W/34
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V. STATE-TRADING ENTERPRISES (STEs)
18. The WTO Understanding on the interpretation of Article XVII of the GATT 1994, defines
STEs as " governmental and non-governmental enterprises, including marketing boards, which have
been granted exclusive or special rights or privileges, including statutory or constitutional powers, in
the exercise of which they influence through their purchases or sales the level or direction of importsand exports ". STEs can thus vary widely in terms of structure, operation, power and functions. STEs
are not specific to agriculture but they are most prevalent for agriculture and food products. In some
WTO Members, they control a high share—in certain cases 100%—of the exports of some
agricultural products such as wheat and other grains or dairy products. As a result, "single desk
exporters" (enterprises with responsibility for domestic and export sales) account for large shares of
world trade in certain products: about 40% for wheat and 30% for dairy products.
19. Their "exclusive or special rights or privileges" confer to STEs considerable market power,
which can result in unfair competition against other world market traders. STEs can distort trade in
several ways and, as a result, they can circumvent the export subsidy disciplines and commitments of
the URAA. Three highly trade-distorting practices of STEs, i.e. cross-subsidisation, price-
discrimination and price pooling, can be identified as "hidden" export subsidies. Thanks to their
market power resulting from their exclusive or special rights or privileges, STEs can practicedifferential pricing and thus generate additional revenues that can be used to subsidised exports. For
example, a monopoly operating across all marketing channels has the capacity to cross-subsidise its
activities. It can inflate domestic prices to consumers, then divert some of those artificial gains into
export sales at or below world market prices. It can also provide cheap inputs to domestic processing
industries to facilitate the export of their finished products.
A recent study "State Trading in Agricultural markets: a conceptual analysis", which was
prepared for the OECD Working Party on Agriculture Policies and Markets and the Joint Working
Party of the Committee for Agriculture and the Trade Committee of March 2000, has pointed out that
"…insofar as exclusive rights create enterprises with 'single desk status', i.e. enterprises with
responsibility for domestic and export sales, STEs may be able to cross-subsidise sales in exportmarkets." In addition to these practices, there are other anti-competitive effects (such as hidden
subsidies, subsidised export credits, preferential ex change rates, tax exemptions, State guarantee etc.)
that may arise from the nature of STEs and their market power as well as their close ties with public
authorities.
20. Given the lack of clarity on the activities of STEs and the extent to which these activities
distort trade, further discussions and analysis in the WTO on their impact on world trade arenecessary.  The EC believe that WTO rules and regulations applying to STEs should be strengthened
in light of such analysis. In particular, it is necessary to stop circumvention of WTO export subsidy
disciplines and commitments. This will require in particular increased transparency on the activities of
STEs and stricter notification requirements notably as regards indirect subsidisation of exports.
Lastly, further disciplines may also be required   in order to limit the anti-competitive effect of STEs in
international trade of agricultural and food products.
VI. CONCLUSION
21. The current WTO provisions on export competition focus on export subsidies, which are
strictly regulated and capped. The EC are willing to continue to negotiate further reduction in export
subsidies provided that all forms of support to exports of agricultural and food products are treated ona common footing. There are few WTO provisions regulating the use of the other instruments which
are used to subsidise exports directly or indirectly. In certain cases, this has led to an increase in the
use of such instruments in recent years.G/AG/NG/W/34
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22. The initial aim of the EC in this paper is to draw the attention of all the WTO Members to
certain instruments that can be used to distort export competition. Secondly the EC have demonstrated
the need for further analysis and discussion on these instruments to assess better their impact on trade.
23. Finally, in order to address the export competition issue in a balanced and comprehensive
way, new rules and disciplines, including transparency requirements, must be developed to cover alltypes of support to export.  While the EC have rep eatedly said that they are willing to negotiate in
good faith export subsidies, they are firmly of the view that greater clarity should be achieved on the
other instruments affecting export competition and that stronger rules should be developed.
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