RESTRICTED
WORLD TRADE G/STR/Q1/USA/5
7November 1996
ORGANIZATION(96-4718)
Original: English Working Party onState Trading Enterprises
Replies toQuestions Posed byARGENTINA1
Concerning theArticle XVII Notification oftheUNITED STATES2
Thefollowing communication, dated 1November 1996, hasbeenreceived fromthePermanent
Mission oftheUnited States.
_______________
Q1. Isapproval oftheFAIR Actof1996 going tohavespecific implications onthewaytheUSis
administering itssupport programmes, thatcould surpass thescope ofthenormal adaptation ofthose
programmes tothenewrules? Ifthelatter isthecase,could youmention thenewguidelines andconcrete
examples? (Thequestion isaimed atknowing ifthemeasures arehaving implications ontheUSWTO
commitments onDomestic Support andExport Subsidies; please stateglobal andsectoral figures if
theyareavailable.)
Answer
TheFederal Agricultural Improvement andReform (FAIR) Actof1996 isnotexpected to
affect USWTO commitments intheareaofDomestic Support andExport Subsidies. Ondomestic
support, theFAIR Actgoesfurther thananypastUSfarm legislation toremove thelinkbetween
government payments andfarm prices andproduction. Production Flexibility Contracts, whereby
participatingproducersreceivegovernmentpaymentsindependentoffarmpricesandcurrentproduction,
mean thatmuch ofourdomestic support nowconforms withAnnex 2,paragraph 6oftheAgreement.
Concerning export subsidies, authorized funding levels fortheExport Enhancement Program (EEP)
andDairy Export Incentive Programme (DEIP) areconsistent withUSexport subsidy commitments
under theAgreement. Infact,themulti-year funding level forEEPissignificantly below theUS
commitment.
Q2. Inthelastsentence ofpage2(Doc. G/STR/N/2/USA), there isacomment onthegoals ofthe
UScommodity support operations thatmaybecompared withthethirdparagraph starting fromthe
bottom inthisfashion: Ifloans aredesigned to“keepcommodities competitive ”,torespect “target
prices ”,and“designed toreflect thecostofproduction ”,itseems obvious ifweunderstood correctly
thetext,thatthe“interest onborrowings fromtheTreasury..... ”(paragraph 3starting fromthebottom)
maylead,inmany cases, tothegranting ofsubsidies. Itissupposed thatthose subsidies areaccounted
forintherelevant mandatory notifications totheWTO Committee onAgriculture (please confirm that
thisisthecase).
1G/STR/Q1/USA/4.
2G/STR/N/2/USA.
./.G/STR/Q1/USA/5
Page2
Answer
Itisnottruethatinterest onborrowings [byUSDA] from theTreasury maylead, inmany
cases, tothegranting ofsubsidies. Interest onborrowings inthiscaseisbetween theUSDA andthe
Treasury anddoesnotresult inaproducer subsidy. Ontheother hand, itistruethattheproducers ’
interest rateonborrowings fromtheUSDA ’sCommodity Credit Corporation (CCC) forcommodity
loans doesresult ininterest subsidies toproducers. These producer subsidies occur because theinterest
ratecharged producers bytheCCC islessthanthemarket interest rate. Themarket rateisassumed
tobetheratecharged producers bycommercial banks fornon-real estate loans. Under theFederal
Agricultural Improvement andReform (FAIR) Actof1996, theratecharged toproducers bytheCCC
willincrease to1percentage point above theCCC’sborrowing ratefromTreasury, andtherefore the
producer subsidy willbereduced.
Interest onCCC'sborrowings fromtheTreasury isnotincluded asacomponent oftheAMS.
Buttheproducer subsidy related tothebelow market interest ratethattheCCC charges producers
isincluded intheAMS andislisted inthesupporting tables toourURschedule (AGST/USA). This
interest subsidy isincluded inthecategory oftheAMS called “Other Product Specific Support, ”and
isreferred toas“Commodity Loan Interest Subsidy. ”Theinterest subsidy isthedifference between
theinterest theproducer would havepaidontheloanifborrowed fromabankandtheactual interest
paidtotheCCC atsettlement.
Q3. Inaddition towhatisexpressed above, please confirm thattheinterest rateincludes adjustments
related toanynonperforming loanintheconcept of“Interest onborrowings... ”.Thiswould mean
thecorresponding upward adjustment oftherateofinterest offuture operations andtheinclusion of
thatdeficit portion intheDomestic Support Activity. Ifthisisnotthecasecould youexplain why?
Answer
TheCCC interest ratedoesnotinclude anyadjustment fornon-performing loans. TheCCC
interest rateafter1995 isbased onCCC’sborrowing ratefrom Treasury plus1percentage point as
noted above. Ontheother hand, theactual interest paidbyproducers totheCCC issometimes less
thantheinitial contract interest ratetimes theamount oftheloan. Thisoccurs because theCCC forgives
theaccrued interest onnon-recourse commodity loans when theproducer chooses todeliver the
commodity totheCCCinstead ofpaying offtheloanwithcashatmaturity. Interest forgiveness reduces
theeffective average interest rateandincreases thesubsidy. However, thisisnotanon-performing
loansituation, since producers weregiven therighttosettle theirloans incashorbydelivery oftheir
commodity totheCCC, atwhich point theCCC becomes theowner ofthegrain.