USDA Announces Changes to Export Credit Guarantee Programs and Proposes Other Changes to Comply With WTO Findings (Certain Changes Effective July 1, 2005)

The Foreign Agriculture Service (FAS) has issued a press release stating that the U.S. Department of Agriculture (USDA) has announced changes to three export credit guarantee programs to comply with a recent World Trade Organization (WTO) decision on cotton subsidies in a case that was brought by Brazil against the U.S. The USDA has also submitted proposed legislation to Congress to amend and repeal certain provisions of law in order to implement the WTO's rulings and recommendations in this case.

FAS states that the three Commodity Credit Corporation (CCC) programs that will be changed are: (1) the Export Credit Guarantee Program (GSM-102), (2) the Intermediate Export Credit Guarantee Program (GSM-103), and (3) the Supplier Credit Guarantee Program (SCGP). According to USDA sources, these changes to the CCC programs affect all commodities, not just cotton.

In addition, a USDA press release indicates that the proposed legislation would eliminate the "Step 2" program, remove a one-percent cap on fees that can be charged under the export credit programs, and terminate the Intermediate Export Guarantee Program (GSM-103). (According to USDA sources, the "Step 2" program provides incentives for domestic use of U.S. cotton as opposed to imported cotton and also provides certain export incentives for U.S. cotton.)

USDA to Use Risk-Based Fees, No Longer Accept GSM-103 Applications, Etc.

According to FAS, beginning July 1, 2005, the following changes will be made to the three CCC programs as a result of the WTO decision:

Risk-based fee structure for GSM-102 and SCGP. For applications for payment guarantees and amendment requests received on or after July 1, 2005, 12:01 a.m., CCC will use a risk-based fee structure for the GSM-102 and SCGP programs. FAS states that fee rate will be based on the country risk that CCC is undertaking, as well as the repayment term (tenor) and repayment frequency (annual or semi-annual) under the guarantee. The new fees respond to a key finding by the WTO that the fees charged by the programs should be risk based.

FAS further explains that for the GSM-102 program, country risk will be based on the country of the foreign obligor (opening bank), as determined by the CCC. For the SCGP, country risk will be based on the country of the foreign obligor (importer) as determined by the CCC.

Applications no longer accepted for GSM-103. FAS states that as of July 1, 2005, applications for payment guarantees under GSM-103 will no longer be accepted. FAS states that any remaining country and regional allocations for GSM-103 coverage under fiscal year (FY) 2005 program announcements will be reallocated to the existing GSM-102 program for that country or region.

Background

The Office of the U.S. Trade Representative (USTR) has issued a statement announcing that on July 5, 2005, the U.S. and Brazil entered into a procedural agreement that suspends further retaliation proceedings in this WTO dispute. Under the agreement Brazil will not be able to take further steps to retaliate unless Brazil challenges U.S. actions to implement earlier WTO findings and a WTO panel agrees with Brazil.

In 2003 Brazil requested a WTO Dispute Settlement Panel (DSP) examine certain subsidies provided to U.S. producers, users and/or exporters of upland cotton. According to the USTR, specific programs that Brazil identified as inconsistent with the U.S.' WTO obligations included export credit guarantees, marketing loans, loan deficiency payments, commodity certificates, direct payments, counter-cyclical payments, Step 2 certificate payments, and crop insurance.

(Media reports indicate that in March 2005 a final WTO ruling was issued which declared the bulk of U.S. government subsidies to the U.S. cotton industry illegal. A dispute settlement panel (DSP) had previously found that $3.2 billion in annual cotton subsidies and $1.6 billion in export credits paid by the U.S. in cotton and other commodities were illegal under WTO rules.)

FAS News Release (dated 06/30/05) available at http://www.fas.usda.gov/scriptsw/PressRelease/pressrel_dout.asp?Entry=valid&PrNum=0092-05

FAS Table of GSM-102 Risk-based Rates available at http://www.fas.usda.gov/scriptsw/PressRelease/pressrel_dout.asp?Entry=valid&PrNum=0093-05

FAS Notice to GSM-103 Program Participants (dated 06/30/05) available athttp://www.fas.usda.gov/scriptsw/PressRelease/pressrel_dout.asp?Entry=valid&PrNum=0094-05

USDA News Release (No. 0242-05, dated 07/05/05) available at http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2005/07/0242.xml

USTR Statement (dated 07/05/05) available via email by emailing documents@brokerpower.com

USDA Proposed Legislation (dated 07/05/05) available via fax by emailing documents@brokerpower.com