USDA is making changes in three export credit guarantee programs as the first stop on the long road to complying with the World Trade Organization ruling in the case brought by Brazil against the U.S. cotton program.

Agriculture Secretary Mike Johanns said USDA will alter the Export Credit Guarantee Program (GSM-102), the Intermediate Export Credit Guarantee Program (GSM-103) and the Supplier Credit Guarantee Program (SCGP), beginning July 1, the deadline the WTO set for the initial U.S. response to the ruling.

He also said the Bush administration will ask Congress to make statutory changes in Step 2 of the Three-Step Competitiveness program for cotton as part of its overall response in the Brazilian case.

“Today's announcement demonstrates the U.S. intent to live up to its WTO obligations,” said Johanns on July 5. “By implementing these changes, we ensure continued U.S. leadership in the WTO Doha negotiations as we work toward an ambitious outcome that will be beneficial for U.S. agriculture.”

The proposed statutory changes would eliminate the Step 2 program, remove a 1-percent cap on fees that can be charged under the export credit programs, and terminate the Intermediate Export Guarantee Program (GSM-103).

Repealing the Step 2 program would remove both the export subsidies and import substitution subsidies that the WTO cited and address issues related to suppression of cotton prices in world markets. Eliminating the 1-percent fee cap would make the Export Credit Guarantee Program more risk-based. Terminating the GSM-103 program would reinforce the recent U.S. decision to stop using longer-term export credit guarantees.

On June 30, Johanns announced that CCC will use a risk-based fee structure for the GSM-102 and SCGP programs, beginning July 1. Fee rates 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.

Also as of July 1, the CCC will no longer accept applications for payment guarantees under the GSM-103 program USDA is asking Congress to terminate. Any remaining country and regional allocations for GSM-103 coverage under fiscal 2005 program announcements will be reallocated to the existing GSM-102 program for that country or region.

“We have worked closely with the Congress and our agricultural industries to respond to the WTO cotton decision,” Johanns said. “The export credit guarantee programs are one part of the WTO case. The administration continues to evaluate other steps that could be taken to respond to the WTO cotton decision.”

The announcements came as press reports said Brazil was expected to file a request with the WTO for retaliation rights in the case against the United States.

Reports quoted Brazilian officials as saying they were taking the step to preserve their rights, but that the government had not made a formal decision to retaliate against damages purportedly caused by the U.S. cotton program.

National Cotton Council leaders have been consulting with USDA and the U.S. Trade Representative's office on responses to the ruling, but have declined comment on what direction those responses might take.

Details of the changes to the export credit guarantee programs can be found on the Foreign Agricultural Service Web site at http://www.fas.usda.gov.

Additional Information: USDA changes its fees to risk-based method for the gsm-102 and supplier credit guarantee programs (http://www.usda.gov/documents/0093RiskBasedFeesGSMSCGP.doc), and notice to GSM-103 program participants (http://www.usda.gov/documents/0094GSM103Notice.doc).


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