The release on November 6 of three working documents on agricultural export competition by Crawford Falconer, Chairman of the Committee on Agriculture of the Doha Round of WTO trade negotiations, has brought attention to issues that have had a low profile while member countries have argued about market access and domestic subsidies. The three documents provide specific language on export credit programs, exporting state trading enterprises and food aid. If agreements on market access and domestic subsidy language are not achieved, the export competition language could become part of a limited agreement.

The export credit language is the least controversial. Export credit programs of developed countries would be limited to 180 days in duration and be self financing over a rolling four or five year time period. Developing countries would be allowed to provide credit for 360 days and be self financing over 6-7.5 years. Provisions are made for exceptional circumstances where an additional 180 days of credit could be provided.

This is a key issue for the U.S. because the WTO found in the Brazilian cotton case that U.S. export credit guarantee programs for cotton and other commodities were export subsidies inconsistent with U.S. trade commitments. In July 2005 USDA implemented a more risk-based fee structure that reflects country risk ratings. The Bush Administration submitted legislative proposals to Congress to eliminate fee caps to provide greater flexibility and assist USDA in maintaining a risk-based fee structure. The 2007 farm bills in the House and Senate generally follow the proposals from the Bush Administration.

The U.S. has long complained about state trading enterprises (STE) such as the Canadian Wheat Board. The Falconer language would make changes in STE “parallel and in proportion to the elimination of all forms of export subsidies including those related to food aid and export credits.” The changes would end STE export subsidies that are now allowed under the WTO rules, eliminate government financing of STE, prevent government underwriting of STE losses and by 2013 end the monopoly powers of STE. The last item is bracketed in the Falconer text indicating there is yet to be wide acceptance among countries of that point. Developing countries would be given two exceptions to the new requirements. They could maintain STE to “preserve domestic consumer price stability and to ensure food security” as long as they meet their other WTO commitments. A monopoly could also be maintained if the country’s share of world exports of the commodity was less than 5 percent for three consecutive years and other WTO commitments were met. Countries with STE would need to report yearly to the Committee on Agriculture on the nature and operations of the STE.

The food aid language may be the hardest for the U.S. to accept. The goal of the changes is to prevent displacement of commercial exports. Food aid would be needs-driven, provided fully in grant form, not tied directly or indirectly to commercial sales, not linked to market development objectives and food could not be re-exported. The aid is to take into account market conditions for the commodity and substitutes. Emergency food aid would be considered to be in a “Safe Box” of meeting the above requirements as long as there was a declared emergency by the recipient country or the Secretary General of the UN or an appeal for aid from the country or a UN agency and an assessment of need by a UN agency.

The difficult language for the U.S. is “Members are encouraged to procure food aid from local or regional sources to the extent possible, provided that the availability and prices of basic foodstuffs in these markets are not unduly compromised. Members commit to making their best efforts to move increasingly towards more cash-based food aid.” None of this language is bracketed indicating that Chairman Falconer believes there is wide acceptance of the language outside the U.S. The U.S. has generally provided in-kind aid rather than cash for purchases in other markets. The U.S. government is the largest supplier of food aid, and a deal is likely to be reached that allows these reforms to move forward to some degree.

The Bush Administration proposed in its last three budget messages to Congress that up to 25 percent of P.L. 480 Title II funds be used for local or regional purchase and distribution of emergency food aid because food purchased in the U.S. normally takes four months or longer to arrive at its destination which is too slow for emergencies. The change would also lower transportation costs. The food would be purchased from developing countries within the region, with Africa being the most likely region where the authority would be used. The Administration’s proposal seems to meet the minimum of moving increasingly towards more cash-based food aid. The 2007 farm bill in the House has no provisions for cash food aid. The Senate farm bill as passed by the Agriculture Committee has $25 million (1-2 percent of expected P.L. 480 Title II funding) for a pilot program for local purchases of food aid.

The language of these three documents plus an earlier EU commitment to end export subsidies by the end of a transition period provide one “pillar” of the often mentioned three pillars of the agricultural talks. If consensus cannot be reached on the other two pillars of market access and domestic supports, the export competition provisions should move forward in some fashion. While a comprehensive agreement on agriculture is the best outcome, opportunities for progress on issues like agricultural export competition should not be passed up without some attempt to lock those changes in place for the long term.