The Role of State Trading Enterprises and Their Impact on Agricultural Development and Economic Growth in Developing Countries

Current Agriculture, Food & Resource Issues

The other parameter mentioned above that affects trade is the export credit system.
Export credits include

... direct financing support, comprising direct credits/financing,
refinancing and interest rate support; risk cover, comprising export credit
insurance or reinsurance and export credit guarantees; government-to-
government credit agreements covering the imports of agricultural
products exclusively from the creditor country under which some or all of
the risk is undertaken by the government of the exporting country; and
any other form of governmental export credit support, direct or indirect,
including deferred invoicing and foreign exchange risk hedging.
(WTO, 2003c)

It is obvious that a variety of bank products and services are included under the term, and
each one has its own positive or negative impact on trade, prices and market share. One of
the most distorting ways of applying export credits is to establish trade agreements that
depute exclusively the exporting rights to the creditor. In many cases the creditor is an
exporting STE from the developed world. All the other forms of financing aim to manage
and minimize the operational risk included in a trade act, or to motivate structural
adjustment of the agricultural sector. When a STE has exclusive rights for exports through
an export credit agreement, every market force is ignored. The importing country does not
have the ability to negotiate the price or quality of the product; the STE can reduce its
stock through a closed agreement and create revenue with what is usually a low-quality
commodity; and the STE can also create more profit, as a side effect, through the interest
rates. Export credits that are granted to meet short-term consumer needs in developing
countries can satisfy the demand for the products in question, but when this practice is the
common route chosen to solve such problems, the long-term prospects for internal
production are not auspicious (Canadian Committee on Agriculture, 2006).

Developing countries facing food shortage problems - even, in some cases, famine
problems - cannot act as equal members of the WTO when they are being used by
developed countries as part of a diffusion mechanism to balance their production and
trading systems. The argument the developed countries make, especially the United
States, is that export credits, STEs and export subsidies are mechanisms that keep prices
of agricultural commodities low in order that developing countries will be able to acquire
such products without worsening their debts and trade deficits. The U.S. Department of
Agriculture maintains that elimination of these mechanisms would, because the
agricultural market is characterized by imperfect competition, increase market prices on
an international level, thus reducing the ability of developing countries to acquire the
agricultural products they need (USDA, 1998). This argument has two weak points with
regard to the developed countries, one internal and one external. The first is that it ignores
the fact that the primary sector is not competitive and appears feasible only through the

117

<<   2   3   4   5   6   7   >>

More intriguing information