Brazil Challenges the OECD Arrangement on Officially Supported Export Credits

April 26, 2005 (Source: ECA Watch) — Having won its WTO challenge to US cotton export subsidies, Brazil is now questioning the basic fairness of the OECD Arrangement on Officially Supported Export Credits [PDF]. Brazil questions its use as a means for OECD countries to continue subsidies to their national exporters, while supposedly remaining within the guidelines of the WTO Agreement on Subsidies and Countervailing Measures (ASCM). In a recent proposal, Brazil challenged this OECD safe haven within the WTO, claiming that modifications to or evolution of the Arrangement between some 20 OECD members raises questions of procedural fairness and sovereignty; over 100 non-OECD members of the WTO do not take part in decisions made about the Arrangement, yet are subject to the market impact of its provisions. If successful, this new challenge could further limit export subsidies for OECD national exporters and increase pressure on ECAs to become commercial actors rather than slush funds for favoured "sons." A Canada/Brazil aircraft exports dispute led to a 2002 WTO panel ruling which established that the only OECD Arrangement financing which offers "safe haven" (i.e. is not defined as a prohibited subsidy under the WTO ASCM) is that covered by the Commercial Interest Reference Rates (CIRRs), and not risk insurance coverage or other ECA financial mechanisms. The UK Treasury is also leading a charge at the upcoming July G8 meetings to encourage ECAs to truly break even and end subsidies, which also encourage corruption. ECAs might even one day be required to adequately monitor the environmental damage caused by their activities so that these "external" economic costs become factors in their determination of market forces and a level playing field.