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Ag groups want export credit update

WASHINGTON -- Farm and agribusiness groups are urging U.S. Trade Representative Ron Kirk to ask the World Trade Organization to establish a new compliance panel to update the recent WTO Brazil cotton case.

WASHINGTON -- Farm and agribusiness groups are urging U.S. Trade Representative Ron Kirk to ask the World Trade Organization to establish a new compliance panel to update the recent WTO Brazil cotton case.

The groups want the WTO to take into account changes the 2008 farm bill made in the U.S. Department of Agriculture export credit guarantee program.

The ruling affects the U.S. cotton industry, but analysts have said competitor countries also could use the theory behind it to attack the use of the export credit programs when they are used to encourage exports of other U.S. farm products.

In a letter dated Sept. 21, CoBank, the National Cotton Council, the American Farm Bureau Federation and key commodity groups said that under the new rules, the export credit program will make an overall profit for the government, rather than just be a subsidy. But the letter said the WTO panel did not take this into account when it said that Brazil would be entitled to place tariffs or other import penalties on an amount of U.S. products based on the use of the program.

"We also believe, if implemented, the WTO decision would cause unwarranted harm to U.S. agricultural producers and U.S. agribusinesses," the groups wrote.

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Todd Van Hoose of CoBank, the biggest financier of U.S. agricultural exports, said in an interview that Brazilian banks that serve South American importers of U.S. agricultural products have been the biggest users of the U.S. export credit program since 2002. He contended the programs had indirectly helped maintain Brazil's trade finance liquidity during its financial crisis from 2002 to '03 and in last year's global financial crisis.

Program changes

In the letter, the groups outlined the history of changes in the credit programs. They wrote that in 2005, USDA adopted measures to bring its three export credit guarantee programs into compliance with WTO obligations. Specifically, they noted that:

n USDA adopted risk-based guarantee premiums for the GSM-102 Program and the Supplier Credit Guarantee Program and suspended the GSM-103 program and that Congress made these changes permanent by enacting them into law as part of the 2008 farm bill.

n Congress eliminated the GSM-103 program and abolished the statutory

1 percent "cap" on guarantee premiums that could be charged by USDA.

n Congress also eliminated the Supplier Credit Guarantee Program, leaving GSM-102 as the sole remaining USDA export credit guarantee program and included language requiring USDA to operate the GSM-102 program at no net cost to the government, thereby ensuring that the program would not be a subsidy and would comply with the WTO obligation that guarantee premiums received under the program would cover its operating costs and losses.

'Makes no sense'

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According to the U.S. Office of Management and Budget, in 2010 the GSM program will generate a positive return to the federal government of $54 million, more than offsetting the cost of program operations, including any credit losses, the group said.

The WTO panel's decision to award Brazil retaliatory authority in amounts based on the future use of a program that is compliant with WTO rules "makes no sense" and "seems to punish the U.S. for its compliance efforts," the groups said.

They also claimed that the panel's decision "is inconsistent with the WTO Doha trade negotiating text which permits export credit guarantee programs that have been subject to appropriate 'disciplines.'"

Costs and benefits

The benefits that Brazil has accrued from using the U.S. export credit guarantee programs "far outweigh the costs arrived at by the arbitration panel," the groups said. "Ironically, Brazil's banks have been by far the largest users of the GSM-102 program since 2002 -- the year in which Brazil initiated its WTO case against the United States. Since that time, Brazilian banks have taken more than $5.4 billion in loans under the GSM-102 program," the group noted.

They said "the $2 billion in GSM-102 loans taken by Brazil's banks during the country's 2002-2003 financial crisis constituted a vital source of foreign exchange liquidity at a time when Brazil was virtually cut off from the international credit and trade finance markets. In fact, the liquidity afforded by the GSM-102 program was instrumental in allowing Brazil to avert a collapse of its banking system, its balance of payments, and its economy as a whole. With the onset of the global credit crisis, Brazilian banks have again turned to the GSM-102 program as a source of vital trade finance liquidity, taking more than $1.1 billion in GSM-102 loans during" fiscal year 2008 to fiscal year 2009.

The groups that signed the letter are AMCOT American Cotton Shippers Association; American Farm Bureau Federation; American Soybean Association; American Sugar Alliance; American Feed Industry Association; CoBank Farm Credit Council; National Association of Wheat Growers; National Barley Growers Association; National Cattlemen's Beef Association; National Chicken Council; National Corn Growers Association; National Cotton Council; National Council of Farmer Cooperatives; National Farmers Union; National Grain and Feed Association; National Grange; National Milk Producers; Federation National Oilseed Processors Association; National

Sorghum Producers; National Turkey Federation; North American Export Grain Association; North American Millers' Association; Pet Food Institute; USA Dry Pea and Lentil Council; USA Poultry and Egg Export Council; USA Rice Federation; U.S. Dairy Export Council; U.S. Grains Council; U.S. Meat Export Federation; US Rice Producers Association; U.S. Wheat Associates United Egg Producers; and United Egg Association.

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