WORLD TRADE  
ORGANIZATION  TN/RL/W/177 
31 March 2005 
 (05-1310) 
Negotiating Group on Rules Original:   English 
  
 
TREATMENT OF GOVERNMENT SUPPORT FOR 
EXPORT CREDITS AND GUARANTEES UNDER THE 
AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES 
 
Paper from Brazil
 
 
  The following communication, dated 31 March 2005, is being circulated at the request of the Delegation of Brazil.  
_______________ 
 
 1. Brazil supplements its communication dated 25 April 2002 (TN/RL/W/5), to further explain 
its views and propose specific new language for Items (j) and (k) of Annex I of the Agreement on 
Subsidies and Countervailing Measures  (ASCM) to avoid any negative impact on developing country 
Members of the WTO. 
 2. Brazil’s proposals have the aim of clarifying the provisions addressed and making them unambiguous.  These proposals should not be construe d as signifying that the rights and obligations 
they make explicit are not already contained in the provisions in their current ASCM formulation.  
 
Items (j) and (k)
 
 3. Brazil’s concerns regarding Items (j) and (k ) can be divided into two basic categories:  
(i) procedural fairness and soverei gnty; and (ii) the substance of It em (j) and (k) and the relationship 
of the ASCM ( via Item (k)) to the Arrangement on Guidelines fo r Officially Supported Exported 
Credits  (“Arrangement”), whose participants are all the members of the Organization for Economic 
Cooperation and Development (OECD).   Procedural Fairness and Sovereignty
 
 
4. Paragraph 2 of Item (k) of Annex I of the ASCM refers to, and incorporates by reference, 
interest rates provisions of the Arrangement.  Item (k) creates a safe harbour for the grant of 
government export credits in conformity with the in terest rate provisions of the Arrangement.  WTO 
panel reports have interpreted Item (k) as referri ng not to the interest rate provisions of the 
Arrangement as they existed at the conclusion of th e Uruguay Round, but to whatever version of the 
Arrangement is in force at the time the financing support is offered. 
 5. This so-called “evolutionary interpretation” raises profound systemic concerns regarding 
procedural fairness and sovereignty, as not all WT O Members are Participants to the Arrangement 
(“Participants”).   
6. Non Participants do not vote, take part in di scussions or even review or have advance notice 
of decisions taken in that forum.  TN/RL/W/177 
Page 2  
7. Thus, for non-Participants to be subject to Arrangement rules via Item (k) evinces a patent 
lack of fairness that should not be countenanced in  a multilateral trade regime ostensibly devoted to 
establishing a level playing field among all WTO Members.  8. Moreover, this aspect of the ASCM repr esents an unacceptable encroachment on the 
sovereignty of non-Participants that  cannot be bound by rules established by any procedure short of a 
consensus of all WTO Members. 
 9. To be sure, Members of the WTO (as a whole) ha ve the right to select a set of rules to refer to 
for the purpose of creating a safe harbour for governme nt grants of permissible export credits.  Under 
no circumstances, however, should a small group of WT O Members be allowed to change those rules 
through decisions taken in another forum.  Any re nunciation of sovereignty by the Members of the 
WTO must be explicit and unambiguous, in accordance with customary rules of public international 
law.  10. In other words, a minority of WTO Members mu st never be allowed to unilaterally to change 
the rules that have been negotiate d and agreed to by all WTO Member s.  This aspect of the current 
ASCM must be clarified, so as to avoid mistaken interpretations such as those adopted by the above 
mentioned panels (see proposed language below).  The Substance of Items (j) and (k) and Proposed New Text
 
 
11. The substantive concerns raised by Items (j ) and (k) and by the relationship between the 
ASCM ( via Item (k)) and the Arrangement are also im portant.  The fundamental concern is that 
Items (j) and (k) favour countries with lower per ceived risk (i.e. developed countries), to the 
disadvantage of countries with higher risk (e.g. de veloping countries).  Unfortunately, Items (j) and 
(k) tilt further in favour of the developed countri es a playing field – the provision of guarantees and 
financing for sales – in which these countries already hold a significant advantage. 
 Item (j)
 
 12. Item (j) prohibits governments from providing export credit guarantee or insurance programmes (or other specified risk guarantees) at premium rates that are inadequate to cover “long-
term operating costs and losses of the programmes”.  Th e net effect of some interpretations of this 
provision is to provide developed countries a much la rger safe harbour than is provided to developing 
countries.  This is due to the fact that develope d countries generally have higher credit ratings than 
developing countries.  Based on their higher credit ratings, developed countries are able to provide 
export credit guarantees or insurance programmes that lower the overall interest rate to below market 
levels, if compared to the overall interest rate offered by international capital markets without the 
cited guarantee.  13. This safe harbour institutionalizes a bias in favour of developed country Members of the 
WTO at the expense of developing country Members.  
14. To remedy these problems, Brazil propo ses new text for Item (j), as follows: 
 
"(j) The provision by governments (or special institutions controlled by 
governments) of export credit guarant ee or insurance programmes, of 
insurance or guarantee programmes agains t increases in the cost of exported 
products or of exchange risk progr ammes, at premium rates which are 
inadequate to cover either: (i) the long term operating costs and losses of the programmes or (ii) the difference between the amount that the firm receiving the guarantee pays on a loan guaranteed by the government and the amount that the firm would pay on a comp arable commercial loan absent the 
government guarantee.”  TN/RL/W/177 
 Page 3 
 
 
15. The net effect of the new language at the end of proposed Item (j) would be to help establish a 
level playing field for all WTO Members regarding the provision of export credit guarantees or insurance programmes.  The added language would include in the illustrative list, for the sake of 
clarity, the practice where developed countries provid e guarantees at rates that are so low that the 
overall interest rate is below market, thus confe rring a benefit as measured in Article 14(c) of the 
ASCM. 
 Item (k)
 
 16. Item (k) raises similar concerns.  One of the biggest disadvantages of developing countries 
vis-à-vis  developed countries relates to financing for sales of large capital goods.  The cost of capital 
for developing countries is higher than that for deve loped countries, due primarily to perceived risk.  
First paragraph of Item (k) ties each Member to its cost of capital, precluding negotiation of more 
competitive rates, such as those o ffered by Members with lower cost of funds.  This aspect of the 
ASCM regime, therefore, creat es a larger safe harbour for developed countries as opposed to 
developing countries. 
 17. As indicated above, the second paragraph of Item (k), in its current formulation, raises serious 
systemic concerns about procedural fairness and sovereignty.  18. To address these problems, Brazil proposes new text for Item (k) as follows: 
 
"(k) The grant by governments (or special institutions controlled by and/or acting 
under the authority of governments) of export credits at rates below those available on international capital mark ets (absent any government guarantee 
or support), for funds of the same maturity and other credit terms and 
denominated in the same currency as the export credit, or the payment by 
them of all or part of the costs incurre d by exporters or financial institutions 
in obtaining credits, in so far as they are used to secure a material advantage 
in the field of export credit terms; 
 Provided, however, that if a Member is a party to an international 
undertaking on official export credits to which at least twelve original 
Members to this Agreement are parties as of 1 January 1979, or if in practice 
a Member applies the inter est rates provisions of the relevant undertaking, an 
export credit practice which is in confor mity with those provisions shall not 
be considered an export subsidy prohib ited by this Agreement.  For purposes 
of this provision, the relevant text of the international undertaking shall be the 
text in effect as at the conclusion of the Uruguay Round, unless WTO 
Members by consensus adopt a subsequent version thereof.” 
19. The changes suggested in the first paragraph would ensure that export credits are not supplied 
at rates below market level.  In the second para graph, the final sentence would clarify that the 1992 
Arrangement, and not any of its s ubsequent versions, is the “int ernational undertaking” used to 
determine whether Member-provided export cr edits fall within the safe harbour, unless WTO 
Members, by consensus, agree otherwise. 
 
__________