World Trade Organization
Complex WTO rules on state subsidies affect countries’ export credit activities. These rules are intimately linked with the OECD Arrangement for export credits.
Decisions at the World Trade Organisation (WTO) are made by the governments that form its membership, and the WTO rules are the outcome of negotiations among members.
WTO on subsidies
The WTO’s 'Agreement on Subsidies and Countervailing Measures (ASCM)', adopted during the Uruguay Round of Multilateral trade negotiations has complex rules. In summary, it:
- regulates the use of subsidies by member states
- describes measures countries may take to counter the effect of subsidies by others, the so-called ‘countervailing measures’
The Agreement recognises that governments use subsidies to achieve various policy objectives. It defines different forms of government subsidy that are, or are not, permissible in the area of international trade, and constrains the right of governments to grant subsidies that are seen to have significant trade-distorting effects.
The WTO, the OECD and ECAs
The WTO ASCM is explicitly linked to the OECD Arrangement for export credits by a clause known as the ‘safe haven’ or ‘carve-out’ clause. This stipulates that WTO member states may not facilitate finance at interest rates lower than the country’s own cost of borrowing unless they comply with the interest rate provisions of the OECD Arrangement.
In other words, the export credit practices of a country that might otherwise be classed as a prohibited export subsidy under the ASCM are allowed, provided they follow the OECD’s rules on interest rate provisions. This is true whether the country involved is a member of the OECD or not. In short, the WTO tolerates violations of the free market by state subsidies by ECAs, as long as these violations take place in all countries, in the same way, under a framework set out by the OECD.
As the OECD Arrangement rules on interest provisions can be negotiated only by OECD member states, non-OECD countries which have signed up to the ASCM are therefore bound by a set of provisions over which they can have no influence.