Todd Tucker points me to this from the NY Times:
Shut out from borrowing in traditional markets, Ecuador turned to China to fill the void. PetroChina, the government-backed oil company, lent Petroecuador $1 billion in August 2009 for two years at 7.25 percent interest. Within a year, more Chinese money began to flow for hydroelectric and other infrastructure projects.
...
The Chinese money, though, comes with its own conditions. Along with steep interest payments, Ecuador is largely required to use Chinese companies and technologies on the projects.
International rules limit how the United States and other industrialized countries can tie their loans to such agreements. But China, which is still considered a developing country despite being the world’s largest manufacturer, doesn’t have to follow those standards.
Does this sound right to others? What international rules are they referring to? Maybe something OECD-related? If so, I'm not sure anyone is effectively required to follow those standards -- there's not really an enforcement mechanism, is there? But it would be interesting if other countries were following some international standards in practice, while China was not.
As a general matter, this is kind of a tricky issue. Normally, we talk about protecting domestic products from "imports," and GATT Article III and SCM Agreement Article 3.1(b) would have something to say about it. But here we are talking about government actions to favor domestic products in foreign markets. (I wrote an op-ed about this a long time ago.)
So what trade rules, if any, apply here? If the interest rates are "steep," it may not be a subsidy.
Feel free to weigh in if you know something about this!
