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The OECD, the WTO and Agricultural Subsidies

(ECAW, Paris, 21 December 2005) The OECD facilitated Arrangement does not cover agricultural commodities. However, in November 2000 OECD ECAs came close to negotiating an agreement on agricultural subsidies which could have changed the face of subsequent WTO discussions on agricultural subsidies.

The OECD talks had been triggered by an OECD study which said the use of export credits distorts trade and does not lead to new business. The OECD study, "An Analysis of Officially Supported Export Credits in Agriculture," was released in Paris just before Christmas 2000.(1) The OECD study found that "The U.S. export credits are calculated to be almost twice as distorting on a per unit basis as any other country's and, given the U.S.'s relatively large program, account for the majority of the distortions in world markets caused by officially supported export credits".

"Discussions at the OECD on the use of export credits in agricultural commodity trade broke down in November 2000 over disagreement between the US and several Cairns Group countries on state trading enterprises and the amortisation periods for export loans. At that time, US rules allowed debtors three years to pay back state-guaranteed loans used to purchase US farm commodities. At the OECD talks, the US conceded that it could reduce this time to 18 months, but Canada and Australia, for example, both argued that this payback term was still uncompetitive and should be further reduced to 12 months. Also, the US wanted Canada and Australia to report on the credit terms extended by their state-trading enterprises even though these loans are not state-guaranteed." (2)

At the same time as the OECD negotiations were going on, seeking to regulate the use of export credits in agricultural commodity trade, the WTO Committee on Agriculture and the Fourth Special Session of the Committee on Agriculture was meeting in Geneva from the 14th to the 17th of November 2000. The WTO meetings were aimed at negotiating agreed disciplines on export credits and subsidies, domestic support and market access. Several WTO Members acknowledged that negotiations on export credit disciplines were coincidently ongoing in the OECD, but were unwilling to recognise these disciplines as applicable to WTO rules. Instead, they argued that under Article 10.2 of the WTO Agreement on Agriculture Members are obligated to seek export credit disciplines at the WTO and not in other fora such as the OECD. These Members included the EU and several large non-OECD Cairns Group (agriculture-exporting) Members. It is quite possible to speculate that the failure of the OECD ECA discussions negatively influenced the WTO talks, and that an ECA breakthrough could have helped avoid the subsequent rounds of WTO failures through Doha, Cancun and now Hong Kong.

The OECD Arrangement is recognized by Article K of Annex I of the WTO Agreement on Subsidies and Countervailing Measures (ASCM) as providing a safe haven for limited subsidies (3). However, today and back in 2000, there are /were ongoing disputes by non-OECD members as to the propriety of allowing a gentlemens' agreement defined and regularly modified only by 9 OECD Arrangement participants to determine conditions of trade for all 149 WTO members. (4)

So in the ongoing WTO negotiations over agriculture subsidies, the OECD could come to play a role. With a new Mexican Secretary-General taking office in June 2006 who wants to expand OECD membership and has aspirations at helping groups like the G-8 and the G-20 - groups that don't have a permanent secretariat - the history of OECD agricultural export credit subsidies could become a subject of renewed interest.

(1) http://www.gene.ch/genet/2001/Feb/msg00007.html

(2) http://www.ictsd.org/html/weekly/story2.21-11-00.htm

(3) http://www.dfat.gov.au/trade/efic_review/int_dev/section_11.html

(4) Brazil is currently disputing the procedural fairness and contravention of sovereignty of allowing the OECD Arrangement to govern WTO subsidies. http://www.eca-watch.org/problems/fora/oecd/Brazil_WTO_Dispute_re_Arrangement_31mar05.htm