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Report: WTO Best Defense Against Foreign Export Subsidies

Many argue that the Export-Import Bank is necessary to counteract foreign export credit agencies, but a report released by the Heritage Foundation on Friday suggestst a better approach would be to rely on World Trade Organization rules against export subsidies.

Export subsidies, like protective tariffs before them, tend to be mutually reinforcing, such that when they are raised by one country, other countries raise their own in retaliation. Through a series of international agreements, though, the average tariff rate in industrial countries has fallen from 40 percent in 1947 to less than 3 percent today.

“This huge reduction would not have occurred,” author Bryan Riley claims, “if the United States had decided to [employ]… the type of approach many supporters of the Ex-Im Bank advocate with respect to export subsidies.” (RELATED: Ex-Im Criticized for Lending to State-Controlled Foreign Companies)

Ex-Im and its foreign counterparts engage in a variety of activities that are technically prohibited by WTO rules, but “there is an exception to WTO rules for export credit agencies that comply with interest rate guidelines set by the OECD.” However, Riley claims that, “about two-thirds of global export support takes place outside the OECD Arrangement,” and so remains subject to WTO rules.

For instance, Ex-Im has domestic content requirements to ensure that it only finances exports that were produced in the United States, but the WTO “prohibits subsidies that are contingent upon the export of the subsidized product or that require the use of domestic goods.” (RELATED: WTO Rules Some U.S. State Support for Boeing Illegal)

Ironically, the U.S. has criticized India for the very same behavior. Riley quotes U.S. Trade Representative Michael Froman as saying, “These domestic content requirements discriminate against U.S. exports,” and that, “this kind of discrimination is against WTO rules.”

“Reauthorizing the Ex-Im Bank,” would only serve to undermine such complaints, and “would do absolutely nothing to encourage other countries to reduce their export subsidies.”

However, the U.S. could increase pressure on other countries to eliminate export subsidies by leading an effort “to scrap the safe harbor provision that allows countries to circumvent WTO anti-subsidy rules,” by following OECD interest rate guidelines.

“In the past,” Riley says, “many governments were more interested in protecting their own subsidies than in reducing other countries’ subsidies,” but due to budget concerns and the rapid expansion of Chinese export assistance, “this is no longer the case.” (RELATED: WTO Decides that Chinese Export Restraints Violate Global Rules)

Riley cautions that, “relying on the WTO may not be a magic bullet,” but maintains that it is “a wiser policy than engaging in a subsidy competition among dozens of government-backed export credit agencies.”

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