The next House majority leader, Representative Kevin McCarthy, has recently shocked the U.S. business community by stating that he would oppose the U.S. Export-Import (Ex-Im) Bank being reauthorized in the fall. He said that “one of the biggest problems of government is they go and take hard-earned money so others do things that the private sector can do.” According to those in agreement with Mr. McCarthy, various export loans and guarantees provided by the U.S. Ex-Im Bank may be tantamount to “corporate welfare.” Other U.S. lawmakers are against this position and called for the Ex-Im Bank’s reauthorization. In a letter to the House Speaker, Mr. John Boehner, these lawmakers argued that “failure to reauthorize Ex-Im would amount to unilateral disarmament in the face of other nations’ aggressive efforts to help their exporters.”
Then, would these export loans and guarantees offered by the Ex-Im Bank (Note that many other countries have their own versions of the Ex-Im Bank.) violate the WTO Subsidy Code? Well, the answer appears to be predictably unclear. Here is what the relevant part of the Illustrative List of Export Subsidies says:
(k) The grant by governments (or special institutions controlled by and/or acting under the authority of governments) of export credits at rates below those which they actually have to pay for the funds so employed (or would have to pay if they borrowed on international capital markets in order to obtain funds of the same maturity and other credit terms and denominated in the same currency as the export credit), or the payment by them of all or part of the costs incurred by exporters or financial institutions in obtaining credits, in so far as they are used to secure a material advantage in the field of export credit terms.
Provided, however, that if a Member is a party to an international undertaking on official export credits to which at least twelve original Members to this Agreement are parties as of 1 January 1979 (or a successor undertaking which has been adopted by those original Members), or if in practice a Member applies the interest rates provisions of the relevant undertaking, an export credit practice which is in conformity with those provisions shall not be considered an export subsidy prohibited by this Agreement.
And, here is what the relevant part of the WTO Analytical Index says:
632. Rather than considering the terms of export credits available to a purchaser in the absence of the PROEX interest equalization payments, the Appellate Body in Brazil — Aircraft held that the determination of whether a payment is “used to secure a material advantage” implies a comparison between the export credit terms available under the measure at issue and some other “market benchmark”. The Appellate Body further viewed the second paragraph of item (k) as “useful context for interpreting the ‘material advantage’ clause in the text of the first paragraph”.(963) In this respect, the Appellate Body stated that the Commercial Interest Reference Rate (the “CIRR”), defined in the Arrangement on Guidelines for Officially Supported Export Credits (the “OECD Arrangement”), could be “appropriately viewed as … a market benchmark” for assessing whether a payment “is used to secure a material advantage”.(964)
633. The Appellate Body in Brazil — Aircraft (Article 21.5 — Canada)agreed with the Panel that a Member may under the first paragraph of item (k), as interpreted by the Appellate Body, establish that a payment is not used to secure a material advantage in the field of export credit terms, even if it resulted in a below-CIRR interest rate.(965) The Appellate Body then set forth the manner in which Brazil could prove that the PROEX interest equalization payments did not secure a material advantage to Brazilian exporters:
“To establish that subsidies under the revised PROEX are not ‘used to secure a material advantage in the field of export credit terms’, Brazil must prove either: that the net interest rates under the revised PROEX are at or above the relevant CIRR, the specific ‘market benchmark’ we identified in the original dispute as an ‘appropriate’ basis for comparison; or, that an alternative ‘market benchmark’, other than the CIRR, is appropriate, and that the net interest rates under the revised PROEX are at or above this alternative ‘market benchmark’.
… Brazil contends … that the revised PROEX is not ‘used to secure a material advantage in the field of export credit terms’ within the meaning of the first paragraph of item (k) of the Illustrative List.
To prove this argument, Brazil must establish both of two elements: first, Brazil must prove that it has identified an appropriate ‘market benchmark’; and, second, Brazil must prove that the net interest rates under the revised PROEX are at or above that benchmark.”(966)
