1 Introduction
The growing importance of international trade for world development is undeniable. Trade is an increasing share of the world’s GDP. The importance of trade increases with the liberalization of international trade rules. Countries compete for a share in world trade perceiving it as a tool for stronger economic development, setting up special mechanisms for national export support, inter alia, by providing financing through special agendas and state-owned institutions (so-called export credits). State actions aimed at export support may lead to disruption of international trade rules and distort the competitiveness of traded goods and services (export and import). This is the main reason why the national systems of export credit support need to be regulated on the international level. Two international organizations, the World Trade Organization and the Organisation for Economic Co-operation and Development, set the legal framework for the principles of export credit support provided by all international trade actors. The rules ensure the retention of the basic characteristics of global public goods (GPG s), that they are non-excludable and non-rivalrous.
As generally accepted, public goods are both non-excludable and non-rivalrous. In other words, they are goods from the consumption of which no one can be excluded, and therefore their provision remains in the domain of the state. The process of globalization has given rise to a new category of goods which transcend national borders and which are characterized by collective consumption on a global scale. Research conducted by Inge Kaul in 1999 became crucial in the development of the concept of GPG s (Kaul et al., 1999).1 In light of the considerations that have been made so far, it can be assumed that GPG s are a specific type of public good that have become internationalized
The institution that provides public goods is the state, which creates its supply through taxation and ensures open consumption by all market participants. At the international level, however, there are no institutions that can play a commensurate role. The benefits of consuming GPG s are geographically dispersed and spread over time, making it more difficult to provide (and finance). It seems that the entities that can take the most effective actions in the context of managing GPG s are international organizations.
Of special interest to the author are the rules defining the principles of financing global trade (so-called export credits and export insurance2). There are two important organizations responsible for setting up the regulatory framework for all the export credit and insurance principles, namely the World Trade Organization (WTO) and the Organisation for Economic Co-operation and Development (OECD).3
It is worth emphasizing that 80% of world trade requires some form of financing (Napiórkowski & Stolarczyk, 2018; Antras & Fritz Foley, 2011). In this context, the non-discriminatory nature of the rules specifically related to financing trade is one of the fundamental conditions for its sustainable development. The WTO and the OECD have long emphasized the crucial importance of companies’ access to finance for trade development. The studies confirm the positive impact of trade financing on the volume of international trade (Napiórkowski & Stolarczyk, 2018; Manova & Zhang, 2012; Chor & Manova, 2012; Auboin, 2009). The value of insurance was used as a proxy for the amount of financing. Therefore, it was established that the higher the value of export insurance to a given country, the higher the value of international trade in that country.
Export credits, which are a special form of foreign trade financing insured by state agencies, can also be a tool of foreign policy. They can be used, for example, to encourage export in directions considered by the government to be strategic. They can also be used to support selected industries in the economy (Dewit, 2001). Ahn et al. (2011) showed that the decline in US exports was greater in sectors more dependent on external financing. Amiti and Weinstein (2011) emphasize the relationship between export sales of companies and the
The analysis is based on the tests of both WTO and OECD regulations, which, in the author’s opinion, relate to the rules of financing international trade. In the context of issues concerning trade finance rules, these regulations, as the author shows, are inextricably linked, forming a coherent whole. The starting point for the analysis is the definition of the essence of international organizations in the context of GPG s.
In the next section the relevant provisions of the Agreement on Subsidies and Countervailing Measures, the Agreement on Agriculture, and the OECD Consensus are analyzed.
2 The Background of Institutionalization of International Trade as a GPG
Created in 1947, the General Agreement on Tariffs and Trade (GATT) was a treaty regulating trade policy.4 Its main task was to liberalize trade. GATT pursued its objectives through so-called negotiating rounds, which mainly concerned the abolition of non-tariff barriers and lowering tariffs. The WTO is a continuation of GATT. It was established in 1994 in Marrakech within the framework of the so-called Uruguay Round of GATT. The WTO commenced its activities on January 1, 1995. The objectives of liberalizing international trade in goods and services and protecting equal access to the global market remained unchanged.
The removal of trade restrictions, including the lowering of tariffs, was accompanied by a dynamic increase in international competition which domestic enterprises had to face. As trade liberalization progressed, the struggle for foreign markets became more intense. Under such conditions, it became important, especially for open economies, firstly, to address the issue of available export support instruments and those allowed by international
The WTO is a regulator of GPG s, namely open and non-discriminatory international trade. The WTO also acts as a watchdog guarding respect for the established rules of the game. It is worth noting that WTO member countries account for 98% of world trade (Berthelot, 2019). In 2020 global trade constituted 50% of world GDP, whereas in 2010 it was 60% (World Bank, n.d.).5 Exports account for more than a quarter of global income. International trade (including exports) is therefore a key aggregate of world income and a determinant of its growth. In this context, the principles governing world trade and the role played in this area by the WTO seem to be of crucial importance. It should also be emphasized that the shape of regulations (WTO decisions) has a huge impact on sustainable development of the world. Striving for sustainable development is one of the fundamental principles of the WTO. The system of preferential rules and special trade policy measures introduced for less developed countries aims at facilitating access to the world trade system and a fuller and more equal use of economic benefits resulting from the liberalization of trade exchange. The author devotes particular attention to this issue.
The second organization analyzed in this chapter is the Organisation for Economic Co-operation and Development (OECD). The OECD is an international organization of 38 highly developed countries. It was established by the Convention on the Organisation for Economic Co-operation and Development, signed in Paris on December 14, 1960. The OECD works out the “rules of the game” in international economic relations and introduces standards of
3 Principles of Export Credit Functioning in WTO and OECD Regulations
3.1 WTO Regulations
As a general rule, the WTO, which replaced GATT,6 introduced the prohibition of export subsidies that distort international trade. The rules concerning subsidies were already introduced under c and then extended to industrial products in the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and to agricultural commodities in the Agreement on Agriculture (AoA). Both agreements are part of the treaties establishing the World Trade Organization.
This sections is structured as following. Analysis of the SCM Agreement constitutes the first subsection, where author provide definition of subsidies, rules on prohibited subsidies, and export credit and insurance as a form of subsidy. The SCM Agreement defines subsidies that are not prohibited. The second subsection introduces briefly the main rules concerning the subsidies under AoA. Export credit rules under the OECD Agreement are described in last subsection.
3.1.1 The SCM Agreement
The SCM Agreement refers to subsidies, as defined (Berthelot, 2019)7 in Article 1 (of the Agreement), which are specific to a particular enterprise, a group of enterprises or an industry as defined in Article 2. Support, which falls within the definitions indicated in Article 1 and Article 2, is prohibited under Article 3.8
The main principle is that “if the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain enterprises, such subsidy shall be specific.” Thus, if a subsidy is specifically limited to a single trader, a group of specific traders, a specific industry or economic sector, certain undertakings located in a specific geographical region,9 it shall be considered a specific subsidy. This is set out in Article 2, which introduces criteria necessary to determine whether a subsidy as defined in Article 1 is specific to a particular enterprise. According to Article 2, “the use of a subsidy program by a limited number of certain enterprises, the predominant use of subsidies by certain enterprises, the granting of disproportionately large subsidies to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy.”10
It should be noted that even if a subsidy is not formally restricted, but a disproportionate share of the funds is allocated to a certain group of entities, such a subsidy may be considered specific. Of course, this does not mean that in all similar situations, the above will determine the specificity of the subsidy. What is important is that the criteria or conditions for obtaining a subsidy are objective, so that if they are fulfilled, the subsidy can automatically be granted.11
The next step is to verify the “financial contribution” under Article 1, i.e., to check whether it is provided by the government and whether it constitutes a benefit to the recipient.
The term “government” should be interpreted broadly. It refers not only to public authorities or government agencies but also to all entities that are directly or indirectly controlled by the state. This includes state-owned companies as well as the central bank. The term “financial contribution” includes a broad catalogue of forms of financial support that is provided by the state treasury. They include:
Donations, loans, and credits (including export credits) or capital contributions granted by the government that are a direct flow of funds
Potential flows of funds or transfers of liabilities, e.g., in the form of loan guarantees Tax exemptions granted to entrepreneurs, such as tax credits (e.g., reduction of the CIT rate or exemption from part of the tax)
The provision of goods and services by the government other than in the form of general infrastructure or the purchase of goods and services from a particular enterprise by the government
Financial support can be direct and indirect. Indirect is the use of private entities in which there is no government involvement to provide a “financial contribution” that constitutes a benefit and is specific to the enterprise in question. This happens when a government induces a private bank to grant a preferential loan to a designated enterprise. Article 1(iv) of the Arrangement on Officially Supported Export Credits states that “a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out functions which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments” (OECD, 1978). In addition, within the meaning of Article XVI of GATT, a subsidy is also any form of income or price support which could lead to an increase in exports or a reduction in imports. It should be noted that this wording includes export support systems in the form of insurance and export credits.
The second condition for the existence of “subsidies” is the existence of a benefit from the provision of the “financial contribution.” A benefit must be deemed to exist where the recipient obtains better conditions for the financial contribution provided than it could obtain on the market.
The determination of whether there is a benefit can create room for interpretation. A good example of a “financial contribution” is a credit provided by a development bank (e.g., an export bank) to a private entity. In order to determine the existence of a “benefit” and thus qualify a credit as a subsidy under Article 1(1), the parameters of the credit itself must be verified. If it is determined that the credit is made available on terms more favorable than those available in the banking market (private commercial banks), then it should be considered that the entity obtained a benefit under the provided “financial contribution.”
Article 14 of the SCM Agreement sets forth the guidelines for the calculation of the amount of a subsidy in terms of the benefit to the recipient. The remainder of Article 14 applies analogous logic to equity instruments12 granted by a government and an examination of the benefit that could potentially
Export subsidies are prohibited under Article 3. The text of the article refers to Annex I of the Agreement, which lists a set of export subsidies. The list is not exhaustive and is to be considered as an illustrative list of measures and instruments that constitute prohibited export subsidies used by countries. The list consists of 12 examples. It is understood that subsidies provided in the form indicated in Annex I are prohibited.
The prohibited export subsidies include the following: direct subsidies to a firm or industry dependent on export activity; exemptions, remissions, or deferrals of direct or indirect taxes as well as reductions in the tax base; foreign exchange deductions; the application of more favorable freight and shipping charges to exported goods than to domestic cargo; the remission or refund of shipping charges; and the provision by governments or their agencies of goods or services for use in the production of exported goods on terms more favorable than for production destined for the domestic market.
The first point refers to the provision of export guarantees or insurance provided by governments directly or through government-controlled institutions. When granting support in the form of guarantees or insurance, attention shall be given to the pricing conditions of the guaranteed products offered. The price of a guarantee or insurance policy shall not be set at a level that is insufficient to cover the long-term costs and damages associated with the products offered.14
The second point refers explicitly to the granting of export credits by governments or by financial institutions controlled by or acting on behalf of governments. Export credits cannot be granted at a price below the one which can be obtained on the market. In order to verify the level of interest rates, the cost of borrowing on international capital markets and the main parameters of the credit, such as the tenor of the credit, shall be taken into account. Export credits cannot cover costs incurred by exporters or financial institutions in obtaining the credits either.15
It should be borne in mind that the prohibition of export subsidies may result from both de jure regulations and de facto situations. A de jure prohibition of export subsidies is verified on the basis of the regulations. In order to prove the use of prohibited export subsidies by a country, it is sufficient to indicate the text of the regulation introducing the subsidy in question. In the
Attention is drawn to whether the bank obtains information on the export activity of the company as part of the information necessary to apply for financing. Requiring data on, e.g., export sales or anticipated export sales, may constitute grounds for verifying whether the credit in question is an export subsidy.
At the stage of application for a credit by an entrepreneur, it is important whether the criteria for granting financing refer to or depend on current or future export activity. Where a credit agreement takes into account covenants that relate to the export activity of the borrower, the presence of such provisions may constitute grounds for verifying whether the credit in question is an export subsidy. An example of a contractual obligation that meets this condition may be an obligation for the debtor to export a given volume of production or to generate a portion of the proceeds from the sale of products abroad. Conversely, a credit agreement may prohibit the sale of all or a given proportion of production in the country. These provisions may be analyzed in the context of the size and absorption capacity of the domestic market. Where a credit agreement sets minimum sales limits and, at the same time, an insufficiently absorptive domestic market, the sales target can be regarded as an implicit export target. This would be a sufficient indication to start verifying whether the credit is not an export subsidy.
Subsidies that do not qualify as prohibited subsidies under Article 3 of the Agreement16 may also be subject to sanctions if they cause “adverse effects,” which are defined in Article 5 of the Agreement, according to which “no Member should cause, through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other Members” (Table 7.1).
Adverse effects as defined by the agreement on subsidies and countervailing measures
| Agreement on subsidies and countervailing measures, Article 5, adverse effects |
|---|
| (a) injury to the domestic industry of another Member; |
| (b) nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994 in particular the benefits of concessions bound under Article II of GATT 1994; |
| (c) I serious prejudice to the interests of another Member |
SOURCE: AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES
Where the term “serious prejudice” is defined in Article 6 of the Agreement. For example, serious prejudice may occur in the event of a reduction in liabilities towards the state, whether through direct cancellation of debt or the granting of subsidies for debt repayment.17 The text of the same article also lists the observed effects that may indicate the existence of serious prejudice to
The agreement also identifies situations where the restrictions and practices in question will not have adverse effects. For example, these are external events beyond control, i.e., force majeure, including transport disruptions, natural disasters, or strikes. Within the content of the same article, there are also internal elements, such as technical standards in force in the importer’s country, which the foreign supplier is unable to meet.19
Apart from subsidies that are not specific according to Article 2,20 the Arrangement allows, as non-sanctioned subsidies, support for research and development,21 aid for regions that are lagging behind,22 and support for environmental protection.23 In the case of support for research and development, Article 8 of the Agreement lists the following costs to which support should be limited: personnel costs, costs of equipment, materials, consultancy, and overheads directly related to the research carried out. Support for regions is limited to regions fulfilling the relevant economic development criteria. The
3.1.2 WTO Rules Provide Special Treatment for Developing Countries
It is understood that subsidies can play an important role in stimulating the economic development of less developed countries. The rules relating to these countries are less restrictive than the general rules.27
The ban on export subsidies does not apply to the following:
Least developed countries (LDC s) as classified by the United Nations.28
Developing countries with a GDP per capita level of less than US$1,000 per year. These are: Bolivia, Cameroon, Congo, Ivory Coast, the Dominican Republic, Egypt, Ghana, Guatemala, Guyana, India, Indonesia, Kenya, Morocco, Nicaragua, Nigeria, Pakistan, the Philippines, Senegal, Sri Lanka, and Zimbabwe.29
Other developing countries which are treated differently from the general regime.30
This treatment is linked to the implementation of specific programs.
In summary, 49 WTO member countries are excluded from the application of the general rules prohibiting the maintenance of export subsidies, and 32 of these countries are on the UN list of LDC s. Table 7.2 shows the countries that receive special treatment under the Arrangement and therefore are not affected by the export subsidy ban. The exemption from the need to apply the general rules is not temporary.
Countries receiving special treatment under WTO rules
| Countries to which exemptions apply | |
|---|---|
| Annex VII paragraph (a) – Least developed countries | Annex VII, paragraph (b) – Developing countries fulfilling the development criterion |
| Angola | Bolivia |
| Bangladesh | Cameroon |
| Benin | Congo |
| Burkina Faso | Ivory Coast |
| Burundi | Egypt |
| Cambodia | Ghana |
| Congo | Guyana |
| Djibouti | Honduras |
| Chad | India |
| Central African Republic | Indonesia |
| Gambia | Kenya |
| Guinea | Nicaragua |
| Guinea-Bissau | Nigeria |
| Haiti | Pakistan |
| Lesotho | Philippines |
| Madagascar | Senegal |
| Malawi | Sri Lanka |
| Maldives | Zimbabwe |
| Mali | |
| Mauritania | |
| Mozambique | |
| Burma | |
| Nepal | |
| Niger | |
| Rwanda | |
| Senegal | |
| Sierra Leone | |
| Solomon Islands | |
| Tanzania | |
| Togo | |
| Uganda | |
| Zambia | |
Note: Senegal is on both lists. The status has changed since 2000. Senegal was included in the list of least developed countries.
SOURCE: WORLD TRADE ORGANIZATION, UNITED NATIONS
This specific rule aims to assist the poorest countries in gaining the full access to the global trade system. On the one hand, the WTO maintains a non-discriminatory system of international trade as a general rule and stays in line with the principles of the GPG and, on the other hand, facilitates access for the least developed members to international trade market. By supporting their
The third group of countries are developing countries for which an exemption from the rules is foreseen for a period of 8 years from the entry into force of the Arrangement. This temporary derogation from the Arrangement’s export subsidy rules is conditional, depending on the relationship between the instrument used and the development needs of the applying country.31 Article 27.4 of the Agreement also allows for an exemption period of more than 8 years, subject to approval with clear justification of the necessity of the subsidy and its relation to “economic, financial and developmental” needs.32 Of the 22 countries which applied for an extension of the Article 27.4 waiver period, the WTO granted waivers to 21 countries.33 In July 2007, an extension of the exemption from the Agreement on Subsidies and Countervailing Measures until the end of 2013 was approved, with a two-year phase-out period until the end of 2015.34 Finally, on October 23, 2012, the Committee on Subsidies and Countervailing Measures confirmed the validity of the exemption until the end of 2013. The programs run by the countries mainly concerned free trade areas and tax instruments (tax incentives).
Developing countries also benefit from the so-called de minimis levels for the subsidies applied. This means that all exporters from developing countries are, by law, treated better than producers from other countries. Article 27.10 of the Agreement sets out the maximum levels of subsidies that will not be subject to sanctions. According to this Article, “any countervailing duty investigation of a product originating in a developing country member shall be terminated as soon as the authorities concerned determine that:
- –the overall level of subsidies granted upon the product in question does not exceed 2 per cent of its value calculated on a per unit basis; or
- –the volume of the subsidized imports represents less than 4 per cent of the total imports of the like product in the importing Member, unless imports from developing country Members whose individual shares of total imports represent less than 4 per cent collectively account for more than 9 per cent of the total imports of the like product in the importing Member. (Article 27.10)
Summary of the application of Article 3.1
| Article 3.1. (a) of the agreement prohibiting the use of export subsidies | |||
|---|---|---|---|
| Least developed countries
Annex VII a |
Developing countries with GDP/capita below US$1,000
Annex VII b |
Developing countries with GDP/capita below or above US$1,000 | Other developing countries |
| Exemption from Article 3.1 (a) | Exemption from Article 3.1 (a) | No exemption from Article 3.1 (a), except for countries according to Article 27.4 Temporary exemption | Full application of Article 3.1 (a) taking into account Article 27.10 |
| Angola, Bangladesh, Benin, Burkina Faso, Burundi, Cambodia, Congo, Djibouti, Chad, Central African Republic, Gambia, Guinea, Guinea-Bissau, Haiti, Lesotho, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Senegal, Sierra Leone, Solomon Islands, Tanzania, Togo, Uganda, Zambia | Bolivia, Cameroon, Congo, Ivory Coast, Dominican Republic, Egypt, Ghana, Guatemala, Guyana, India, Indonesia, Kenya, Morocco, Nicaragua, Nigeria, Pakistan, Philippines, Senegal, Sri Lanka and Zimbabwe | Antigua and Barbuda, Barbados, Belize, Costa Rica, Dominican Republic, El Salvador, Fiji, Grenada, Guatemala, Jamaica, Jordan, Mauritius, Panama, Papua New Guinea, St. Kitts and Nevis, St. Lucia, St. Vincent, Grenada, Uruguay | |
SOURCE: OWN ELABORATION
The Agreement on Agriculture contains important provisions from the point of view of the tightness of the system aimed at limiting export subsidies.35 Article 10 deals explicitly with the prohibition of circumvention. It follows from the wording of the article that “export subsidies not listed in paragraph 1 of Article 9 shall not be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments.”
The next paragraph of Article 10(2) is devoted to a form of support that was not mentioned before, namely export credits and insurance. The intention is to regulate the system of export support in the form of the abovementioned financial instruments. “Members undertake to work toward the development of internationally agreed disciplines to govern the provision of export credits, export credit guarantees or insurance programs and, after agreement on such disciplines, to provide export credits, export credit guarantees or insurance programs only in conformity therewith.”36
The Agreement on Agriculture also provides for differential treatment for the least developed countries. The reduction commitments adopted in the Agreement do not apply to the poorest countries.37 The remaining developing
3.2 Characteristics of Export Credit Provision and Export Guarantees Under the OECD Arrangement
The aim of the Arrangement is to increase transparency in offering export credit support by various countries, creating a level playing field, and, ultimately, to limit the use of export subsidies in the form of export credit. The main idea is to give special guidelines for export credit support schemes present in different countries, the use of which ensures compliance with the international rules.
The rules governing the granting of export credits are set out in Annex I of the Arrangement. As a general rule, it is prohibited to grant export credits at a price below the one offered by the market. The Arrangement makes an exception to this rule in the same paragraph. Subsidies provided in the form of export credits are not prohibited if they are provided under the terms of the Arrangement on Officially Supported Export Credits (OECD Consensus). Consistency with the OECD Consensus must be applied to all export credit parameters set out therein.
The Arrangement on Officially Supported Export Credits was signed in 1978 within the OECD Group on Export Credits.38 It is worth noting that the principles set out in the OECD Consensus have been accepted by both the WTO and the EU (Council of the European Union, 1998). The Arrangement applies to all capital goods and services export from OECD countries.39 They concern rules for insurance and long-term credit with repayment terms above 2 years. In the case of short-term insurance not regulated by the OECD, it is specified within the EU that support is only possible if exports are directed to the so-called high-risk countries because then the risks (commercial and political) are classified as non-marketable.40 The above principles must be respected by institutions
The OECD Arrangement introduces minimum parameters for export credits to be officially backed by government-guaranteed insurance. These insurances significantly improve the risk profile of financed projects, which may translate into lower prices and their wider accessibility. In other words, the insurance increase competitiveness of export project (support export). The aforementioned parameters set a maximum financing range of up to 85% of the contract, which introduces the need for the foreign buyer to make a payment of at least 15% of the contract value. The permissible repayment period depends on the risk classification of the importer’s country. In the case of rich countries in the so-called Category I, it is 8.5 years, while in the case of exports to poorer countries in the so-called Category II, it is 10 years. The regulations also introduce the possibility of a longer period for the so-called project finance, which is set out in Annex X. These rules apply to the so-called long-term loans with a repayment period of at least 2 years. The repayment of the principal of the credit is either straight-line amortization (equal installments) or non-standard, but with an appropriate weighted average length of credit (WALoc). The maximum grace period allowed is 6 months.
The OECD Arrangement gives special treatment to projects financing marine vessels, nuclear power plants, civil aircraft, renewable energy projects, green projects aiming at the mitigation of climate change, rail transport, and coal-fired power plants. In recent years, the OECD has supplemented the Arrangement with rules governing environmental and social requirements relating to transactions covered with export credit. Separate rules also apply to tied aid loans. It is worth noting, that by introducing the rules of different treatment, the OECD may effectively affect world trade flows. Making the financing rules more flexible for selected sectors (e.g., renewable energy or important social projects), the OECD creates incentives for the financial market, to facilitate the access of financing and, consequently, support specific key projects. The influence of the OECD by creating adequate provisions is notable. It results from the close interdependence of financing and world trade.
International trade plays an extremely important role in world economic development. Exports are often called the engine of economic growth. The scale of their significance is confirmed in the statistics of global GDP. The data show a consistent increase in the importance of countries’ openness to cross-border exchange of goods and services and an increasing share of world income generated from trade in total world income. The value of exports – goods only – amounted to US$19 quintillion in 2019. To ensure the sustainable development of the world, issues concerning an open and, above all, non-discriminatory system of international trade become crucial, i.e., a system which ensures equal opportunities to benefit from the effects of global economic growth, taking into account differences in income of individual countries, i.e., participants of the system.
The focus of the analysis was on the export support instruments, i.e., export credits. Assuming that financing is of key importance for trade, special attention should be paid to the conditions of granting such loans in order to eliminate practices leading to privileging one of the parties to the transaction that is the basis for the international trade development as a GPG.
The World Trade Organization is the key body that upholds respect for openness and elimination of discriminatory practices in international trade. The WTO introduced the prohibition of export subsidies, i.e., instruments that distort competition in the international exchange of goods and services, as a basic principle. The regulations define the parameters for which practices become prohibited. In a clear way, the regulations also define situations in which existing subsidies are not prohibited. In the regulations concerning prohibition of forbidden subsidies, exemptions for countries with a lower level of income/development are also introduced. The author has analyzed one of the export support instruments, i.e., export credits. Assuming that financing is of key importance for trade, special attention should be paid to the conditions of granting such loans in order to eliminate practices leading to privileging one of the parties to the transaction what is the basis for the international trade development as a GPG. The intention of OECD regulations is to ensure fair competition in this area as one of the elements moving the global economy towards the fulfillment of the Sustainable Development Goals.
Both organizations ensure to retain the basic characteristics of GPG s – that are non-rivalrous and non-excludable in relation to international trade.
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Kaul, I., Grunberg, I., & Stern, M. A. (Eds.). (1999). Global public goods: International cooperation in the 21st century. Oxford University Press.
Manova, K., & Zhang, Z. (2012). Export prices across firms and destinations. Quarterly Journal of Economics, 127(1), 379–436. https://doi.org/10.1093/qje/qjr051
Napiórkowski, T., & Stolarczyk, P. (2018). Rola kredytu eksportowego jako czynnika determinującego sprzedaż międzynarodową na przykładzie wybranych krajów UE [The role of export credit as a determinant of international sales on the example of selected EU countries]. Studia Europejskie – Studies in European Affairs, 2, 169–185.
OECD. (1978). Arrangement on Officially Supported Export Credits, with later amendments. Organisation for Economic Co-operation and Development. http://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-understandings/
Samuelson, P. (1955). Diagrammatic exposition of a theory of public expenditure. Review of Economics and Statistics, 37, 350–356.
Stephens, M. (1998). Export credit agencies, trade finance and South East Asia. IMF Working Paper, WP/98/175.
World Bank. (N.d.). Database Trade (% of GDP) – Data.
WTO. (1995a). Agreement on Agriculture. World Trade Organization. https://www.wto.org/english/res_e/booksp_e/agrmntseries3_ag_2008_e.pdf
WTO. (1995b). Agreement on Subsidies and Countervailing Measures. World Trade Organization. https://www.wto.org/english/docs_e/legal_e/24-scm.pdf
Export financing takes the form of either export credit insurance, export credit, or official development assistance.
Agreement signed in Geneva in 1947. GATT entered into force on January 1, 1948.
In 2010 it was 60 percent.
It was established in 1994 in Marrakech as part of the so-called Uruguay Round of GATT. It came into effect on January 1, 1995.
There is a ongoing criticism of the definition perceived to be unfair for developing countries.
Further comment below.
Article 2 (a).
Article 2 (c).
Article 2.1. “if the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, the subsidy, provided that eligibility is automatic, that such criteria or conditions are strictly adhered to, and that they are clearly spelled out in an official document so as to be capable of verification.”
Article 14 (a).
Article 14 (d).
Annex I of the Agreement (Agreement on Subsidies and Countervailing Measures).
Ibidem.
Consistent with the analysis presented above.
Article 6 (d) of the Agreement.
Article 6.3 of the Agreement.
Article 6.7 of the Agreement.
Article 8.1.
Article 8.2 (a).
Article 8.2 (b).
Article 8.2 (c).
GDP/capita must not be higher than 85% of the average for the territory.
The unemployment rate exceeds 110% of the average rate for the territory.
Article 8.2 (c).
Article 27 of the Agreement.
Annex VII (a) of the Agreement.
Countries are listed in accordance with the content of Annex VII (b) of the Agreement. The Dominican Republic, Guatemala, and Morocco have so far been removed from the list, having exceeded a certain level of GDP/capita.
For a period of 8 years from the date of the Agreement, i.e., until 2002.
Article 27.4 of the Agreement.
Article 27.4 of the Agreement.
WTO Ministerial Conference, Doha, November 9–14, 2001.
Countries are required to present plans for phasing out support instruments.
The Agreement on Agriculture is the basic document that governs international trade in agricultural commodities. The content of the Agreement was determined during the negotiations of the GATT Uruguay Round, which took place between 1986 and 1994, the latter being the date of the creation of the WTO. This document addresses issues in three basic areas, namely: access to one’s own market for foreign products beyond the level of protection; the system of support for one’s own market; and the system of export subsidies. An important achievement of the Uruguay Round is the replacement of most non-tariff instruments by tariff instruments and the establishment of a maximum level of own market protection and the use of export subsidies. Subsequent rounds of negotiations aimed at further liberalization of trade. In 2001, agricultural negotiations began as part of the ninth negotiating round, known as the Doha Round. In the following years, talks were held within the framework of the Ministerial Conference in Cancun (2003) and then the Ministerial Conference in Hong Kong (2005). Among the most important postulates of the Conference in Hong Kong, attention is drawn to the further reduction of the level of agricultural support. The draft declaration includes agreements concerning the reduction of export subsidies aimed at an increase in trade liberalization. Attention was drawn to the reduction of all export support instruments, including export credits, guarantees, and export credit insurance granted for a period of 180 days. The lengthy process of negotiating trade liberalization, which often ends in a lack of agreement among WTO members, is due to several important elements that are worth noting. The agricultural sector is often a very sensitive subject in many countries. Each country pursues a policy of protecting and strengthening its domestic agriculture for economic, social, and political reasons. Agricultural commodities are a product which can be traded quite easily.
Article 10.2 of the Agreement.
Article 15.2.
Arrangement on Officially Supported Export Credits: http://www.oecd.org/trade/topics/export-credits/arrangement-and-sector-understandings/.
This is one of the biggest challenges that the regime faces and applies only to OECD countries.
The rules were introduced to address the problem of unauthorized state aid and to ensure a level playing field for companies from different countries where export finance support systems exist.