This is from an article by Kristen Hopewell about China's growing use of export credits:
6.2. Inadequacy of World Trade Organization disciplines
Amid the weakening of the OECD Arrangement’s authority and the inability to reach agreement on a new version to replace it, one might expect the US and other advanced-industrialized states to turn to the WTO to compel China and other emerging economies to reign in their use of export credit. However, for the purposes of disciplining export credit, the WTO is a poor substitute for the Arrangement. Export credit is covered by the WTO Agreement on Subsidies and Countervailing Measures (ASCM), which disciplines the use of export subsidies. The OECD Arrangement is incorporated into the ASCM as a carve out to the illustrative list of prohibited export subsidies. This operates as a “safe harbor clause,” ensuring that any use of export credit by a WTO member that conforms to the Arrangement’s disciplines will not be considered a prohibited export subsidy under WTO rules (Wright 2011). Consequently, any WTO member who acts within the conditions set out in the Arrangement, regardless of whether they are a participant to it, is deemed to be in compliance with their WTO obligations (Shaffer et al. 2015).
This means that, technically, the Arrangement’s disciplines are incorporated into WTO rules. However, they are nearly impossible to enforce at the WTO. Part of the reason the Arrangement was created in the first place is that the dispute settlement mechanism provided in the WTO, and its predecessor the General Agreement on Tariffs and Trade (GATT), is largely ineffective for disciplining export credit (Moravcsik 1989). First, WTO dispute settlement is generally considered too cumbersome and not fast enough to work well in this area. Given the lengthy nature of the WTO dispute settlement process, which often takes many years for a case to reach a conclusion, even if a country were to succeed in winning a determination that a competitor’s financing for a specific transaction constituted a prohibited export subsidy, the case would not be concluded until years after that transaction had been completed and its exporter had lost the contract.
Second, in contrast to the real time transparency provided by the Arrangement, the WTO contains no comparable mechanism for the routine exchange of detailed and confidential transaction data. While Arrangement participants are required to share extensive information about their practices with one another, the export credit practices of non-participants are generally secretive and non-transparent, with the result that their competitors lack detailed information about their export credit policies and programs, as well as the specific terms of individual transactions. This lack of information renders it extremely difficult to challenge export credit practices at the WTO.
Third, each time a state provides export credit, whether or not it is considered a subsidy will depend on the specifics of that transaction. As one negotiator stated, in order to challenge a state’s export credit policies at the WTO:
[Y]ou would need to bring a systemic case, but the terms and conditions of each transaction are different, so it is difficult if not usually impossible to bring a systemic case. Since it is very difficult to challenge a whole program, you would be left challenging individual transactions.
Consequently, there have only been two cases to date on (non-agricultural) export credit in the history of WTO dispute settlement – out of a total of over 500 disputes.
There are thus fundamental differences in how disciplines work in the Arrangement compared to the WTO, with crucial implications for the governance of export credit. As one WTO official stated:
The Arrangement works very well. Our rules are completely different in how they work and what they do. Short of prohibiting all use of export credit, there’s little the WTO can do. Our structure and the way our rules work are not well-suited to this issue. The system at the WTO really only works for broad systemic issues, and it is almost completely useless for dealing with export credit because it’s ex-post. Our system would never provide the day-to-day working and certainty of the OECD Arrangement.
As a result of the way its rules and dispute settlement mechanism are designed and function, the WTO is ill equipped to regulate export credit and cannot provide a viable alternative to the Arrangement.
Thus, while it would be theoretically possible to use the WTO’s dispute settlement mechanism to challenge the use of export credit by China and the other emerging economies, WTO trade lawyers indicate that in practice this would be “extraordinarily difficult if not usually impossible.” As one indicated:
China’s use of export credit is potentially actionable at the WTO, yes. But the reason they created the system for governing export credit in the OECD in the first place is because our rules [at the WTO] have some profound weaknesses. Here, it’s a two to three year process to take a case, plus 18 months of implementation, so maybe five years later – long after you have lost the contract – you could get a finding that the exporting country violated its WTO obligations. But by then, it’s not like the transaction and the financing can be undone. So, in theory, one could challenge China on export credit, you could litigate it for five years, but what would you have at the end of five years?
In sum, “China could be vulnerable to a WTO challenge, but it would be expensive, take years to occur and be very hard to get a meaningful victory.” The WTO system is thus inadequate for disciplining state-backed export credit and provides little means for the US and other traditional powers to compel China to restrict its use of export credit.
(footnotes omitted)
I have more hope for a systemic case against China's export credit practices than the lawyers quoted in the piece do. The claim would be that the practices constitute a prohibited export subsidy under Article 3.1(a), and any attempt by China to invoke Item (k) of the Illustrative List of Export subsidies would fail because the terms of the OECD Arrangement are not met. The article provides, in parts not quoted above, some evidence of China's practices, and I think that a complainant could gather more evidence on its own. It could also request that the panel ask China for information under DSU Article 13.1. If China didn't supply it, the panel could draw adverse inferences.
It would have made sense to start this case many years ago, but starting it now would still be useful. For one thing, doing so could discipline China's practices and force China to change its approach going forward. For another, the article suggests that it is a U.S. objective to convince China to sign on to rules on export credits. Pursuing a WTO complaint might help achieve this.
