THE CHALLENGES FACING TRADE PROMOTION IN TODAY’S WORLD
Mr. Hector Casanueva Director of ProChile CHILE
The goal of this Conference is not only to share our mutual experiences but also our organization’s different points of view regarding trade promotion in a new world, in a different world, in a world that has changed very rapidly over the past ten years and even more so over the past five. We are actors in a new unchangeable reality in which we function with the sensation that there are aspects that we are not able to control. There is a growing complexity. Today, our world is much more open, but at the same time, much more difficult.
Within this context, trade promotion has to make policies, strategies and instruments adapt and I think that this might be this conference’s greatest added-value: supporting the liberalization process of world trade.
There is a word used often these days: globalization. Today, our planet is much more integrated from a point of view of politics, economics, social issues, trade and communications in which international relations go beyond those of a State. The latter has had a strong impact on trade because communications today allow consumers and producers to be informed of what is happening in any part of the world. This leads to more informed and more sophisticated consumers and, subsequently, more demanding and more informed and efficient producers. All of this has an enormous impact on cultural patterns that are becoming more universal and global.
There are new actors in the international system. International economic relations are no longer only issues involving agreements between Governments and States, but also carry over into the daily work of companies, universities and even non-governmental organizations.
In today’s world, the bases are democracy and the market. The first, generates the possibilities for free citizens to exist, free to choose politically, free to choose culturally, free to choose regarding all aspects and dimensions of their lives. The other base of the international system is the market in the allocation of resources. The important thing is that consumers concur freely. Today we have a world that is increasingly advancing toward greater proportions of political and economic freedom: free citizens and consumers.
This global economy is also characterized by a greater diversity, increasing competition, more countries competing, more companies competing and traditional comparative advantages beginning to erode.
Competitiveness is systematic. One competes systematically and not only with a product. Competitiveness is linked to infrastructure, ports, information systems, elements of management that make it increasingly important for companies and countries to take into account these new perspectives. It also has to be mentioned that new factors of competitiveness such as technical standards, environmental regulations, etc., are emerging. As a consequence, the distinguishing trait of this new world we are living in is that of international competitiveness.
Increasingly, relations are about competition, and therefore, the challenge facing our countries, our companies and ourselves is that of supporting and working to improve the competitiveness of our products, companies and our countries.
Competitiveness factors that are both exogenous and endogenous to companies have to be the focal point of export promotion efforts and, for that matter, the overall promotion of foreign trade. Within this context, I would say that international competitiveness has two basic components.
One is productive development, which is technological innovation, development of new products and on-site training. And the other is trade promotion which is positioning products in the international market through a complementary association between productive development and synergetic trade promotion, where productive development adjusts the export supply, but the inducing agent behind the adjustment of the export supply is trade promotion. The latter has the market information which allows to perceive consumer tendencies, and consumer potential, with importers and the demands of the international market.
Thus, in this scenario marked by increased political and economic freedom, with free citizens and consumers, a situation arises that is important to understand from the point of view of foreign trade promotion organisms.
In this setting of free trade, where countries and companies compete against each other, not all compete under the same conditions. Economic freedom, the free trade that we have been achieving and the gigantic stimulus to international trade provided by the Marrakech Agreement has led to greater trade opportunities for companies and countries. However, not all of them are in the condition to favorably take advantage of them.
Today, 17% of the goods and services exported in the world are from developing countries and more advanced economies participate in almost 80% of the exports of goods and services.
I am not referring to an issue of unfairness “per se”, nor an ideological nor political issue. What I am setting forth is a reality that effectively reveals that the increased trade and international freedom we have mentioned is mainly taken advantage of by those countries with more technology, financing and a better productivity track record and, hence, greater international competitiveness.
If we look at it from the point of view of the companies, I have some statistics from Chile that one could extrapolate to many developing or intermediate countries. Of the total of Chilean export businesses 83% are small and medium-sized companies; however, the value exported by the small and medium-sized companies only represents 3.5% of the total exported. This also reveals at the micro level a serious competitiveness problem. Naturally, companies with more support and technology or that can acquire technology or have access to more favorable credit terms are more competitive.
Therefore, we can see that in the promotion of exports, and in general, foreign trade promotion the key is to support the competitiveness of the companies and the countries to propitiate the participation of all in the benefits of free trade. We consider that this is the fundamental mission of our trade promotion agencies: to collaborate in order for those that do not yet have the possibilities to compete under favorable conditions in this free environment of free trade, to improve their positioning in the world.
What kind of trade promotion do we need to achieve this objective?
In first place, trade promotion needs to put an end to the distinction made between importing and exporting, between only promoting exports and not imports. When we see a trade mission we have the tendency to ask if they are coming to buy or sell: if they come to sell we are not interested and if they come to buy we are interested. We have to cease this attitude because all business activity is now integral.
Today, the issue is that of generating foreign trade opportunities in general.
In second place, trade promotion has to be associative amongst companies and between the private and public sectors. It also has to be systematic and continuous from the moment the decision to produce is taken to the moment the product reaches the final consumer. It is very important not to confuse export promotion or foreign trade promotion with product publicity.
In this sense, the promotion of foreign trade covers a wide spectrum of factors that range from the organization of the exportable national supply, to the adjustment of the exportable supply incorporating also investment promotion and strategic alliances. Trade promotion also needs to concentrate on those sectors that require more capital and technology and, lastly, on the promotion of joint-ventures and international marketing.
The essence of this focus of foreign trade promotion is the market- product axis where the market generates what is produced. And it is the market that that helps to answer those classic questions regarding what to produce, whom to produce for and how to produce it. The emphasis must be placed on the intelligence of the market or on the acquiring of information relevant to markets that allow promotion organisms to process that information, place it at the disposal of the private sectors of our countries and by means of this information take the decisions to adjust the export supply and to take decisions regarding the positioning of these products in the international market.
The key is a systematic focus and the strategic base is the permanent adjustment of the export supply.
With this objective in mind, our agencies need to evolve based on the logic and dynamics of the private sector without leaving aside the point of view of the public sector. We, the public sector, are guided by the principle of common good and must act accordingly with a long term perspective in support of our businessmen but not forgetting that we are public servants and that we have to protect the interests of our entire society.
We have to work closely with the private sector and under the unwavering principle of co-responsibility regarding the programs of foreign trade promotion with the principle of co- financing these programs with the private sector and the principle of free access by all exporters to these promotion programs. Our policies have to look, I insist, at the long term and our services have to be fundamentally based on demand, responding to an effective demand, and have to be flexible and not slowed down by bureaucracy.
What is the main challenge we are facing today within an international context and according to the regulations of the international community?
Our organisms have to adjust their policies, programs and instruments. Therefore, our promotion efforts must respect international standards and this will be one of the main issues dealt with at this conference.
Trade promotion favors and does not obstruct free trade. Trade promotion allows us to compete more effectively and to increase international trade. In this sense, I would like to mention three elements which I do not think that we should lose from sight as a promotion agency. In first place, fair play, which means that trade promotion must be effectively used as an instrument to strengthen free trade and not hamper it, nor convert it into protectionist or covert measures.
The second principle is that of good faith, because good faith is the basis of international trade and we, as promotion organisms, have to practice this doctrine. None of us should use as a protectionist argument the trade promotion used by another country for its products, as long as it meets international standards.
And lastly, I would say that today foreign trade, in an international context, is an instrument of equity that helps decrease the gap between the different sectors of world trade.
In this sense, trade promotion is a social investment. TRADE PROMOTION ORGANIZATIONS: PAST AND FUTURE
Mr. J. Denis Belisle Executive Director International Trade Centre UNCTAD/WTO
The International Trade Centre (ITC) is an international trade promotion organization (TPO) itself and that has also probably worked with TPO’s in all developing countries’ at one time or another. In the case of ProChile, our host, I understand that collaboration started in 1974, when it was created.
Globalization, trade liberalization and the Uruguay Round Agreements have changed the world of international trade. As a result, TPO’s are facing new challenges. My remarks will focus on ITC’s perspective of these challenges and will highlight some suggestions to overcome them.
The Challenge
During most of this decade the relevance of TPO’s in developing countries has been debated. In practically all countries, we are facing at least four challenges.
1. We continue to be affected in some quarters by the simplistic view on trade development that the magic of the market does all. There may be a growing consensus on the importance of the institutional infrastructure for trade promotion, but the lack of clarity on how to go about creating it has often led to unsatisfactory structures, inadequate funding and, at times, the inability to recruit and retain enough well-trained staff.
2. At the interface between the public and the private sector, we have to develop an operational culture, which is compatible with both. In most cases, governments are the paymasters and increased exports the bottom line. Complying at the same time with the political priorities of governments and with the business requirements of our clients is a challenge indeed.
3. We are operating in an increasingly diversified and competitive market. Trade support services are now available in the majority of countries not only from a variety of public and private non-profit organizations, but also from a growing number of commercial suppliers. This underlines the importance of our sector, but does not facilitate the delineation of our activities, particularly if we seek to complement, rather than compete with, available services.
4. Finally, the environment in which we promote international business is evolving swiftly. For example, the rapid development and use of the Internet have resulted not only in easier access to information, but also in changes in the way trade is conducted. Electronic commerce is not a thing of the distant future. From the comfort of their homes, consumers can already import goods and services from many parts of the world and pay for them by credit card. For exporting companies, it cannot be business as usual. For us, the suppliers of trade support services, even less so.
Viewed against these changes, the TPO’s ´ role and future are both challenging and critical. In spite of these challenges, a review shows that our service sector has become quite important, in terms of both numbers and annual expenditure. Our World Directory of Trade Promotion Organizations, which you can find on the Internet, lists 1,201 TPO’s , including 166 official national TPO’s , in close to 200 countries and territories. We estimate that the combined annual budget of trade promotion organizations has reached US $10 billion, or about 0.2 percent of world trade. This is a sizeable amount of money, taxpayers´ money in most instances. Which prompts us to ask two questions: one, is trade promotion only a matter of money, and two is there a direct link between expenditure on trade promotion and export performance? The answer to the first question is, of course, no. The answer to the second question is more difficult to provide, but brings us straight to the heart of our conference: how can we assure our stakeholders, public and private alike, that we, the TPOs of the world, offer value for money, that our services are fully attuned to the needs of our clients, and that we are as performance conscious as the enterprises we serve?
Successful TPOs
The effectiveness of TPOs hinges upon their structure, strategy and services. A successful TPO has to have the right structure, including a clear mandate, adequate resources and appropriate staff; it needs to formulate and implement winning trade development strategies and offer cost-effective services in line with demand from the business community. To you as TPO managers, this may sound like stating the obvious, but we find that the stakeholders in quite a few developing countries have not yet fulfilled all of these requirements.
Structure
To be successful, a TPO must have credibility and close links with the export community it serves. It must not be seen as a mere regulatory or policy implementing arm of the ministry of trade, yet it must have the full support of the government. Further, on its part, the government must be seriously committed to export development. A pragmatic public - and private - sector partnership structure is essential for success.
A related issue is the scope of TPO activities. Should TPOs cover only non-traditional exports of all sectors, including primary goods, manufacturers and services? Should TPO services relate primarily to exports or to international business development in the broad sense, including foreign direct investment? To what extent should the program focus on offshore activities – i.e. promotion in foreign markets, or onshore activities – i.e. addressing weak points within the local business community?
Different models of successful export promotion agencies have been reviewed in ITC publications. Ultimately, a country must put in place an institutional structure which best suits its own environment and needs. Whereas ITC can offer benchmarking suggestions, the actual institutional framework must be tailor-made to the country’s particular circumstances to succeed and must be attuned to the particular stage of that country’s development. In fact, this issue is best left to the judgement of national stakeholders. One thing, however, is clear: the structure of a TPO has to enable it to get as close to the “deal”, to the export transaction, as possible, and to function in the same performance-driven fashion as the business community. In developing countries, public funds are required in order to develop services which exporters require and which the market does not provide. This will remain so even if several TPO’s are moving towards a cost-recovery position for many of their services.
Appropriate staff – both in numbers and quality – are essential to the success of any Organization. CEO’s must be experienced, knowledgeable, credible, creative and command the respect of both the business community and the government. This is critical. Suitably trained, sufficiently experienced and highly professional staff will also be necessary to the success of the agency. No organization is able to recruit and retain a good staff unless it has the resources and the authority to pay competitive salaries.
Strategy
Globalization speeds up the rate at which international supply and demand patterns, and opportunities for trade, change. This requires a continuous and sharper redefinition of country and company strategies and their product/market mix.
In our view, the TPO is the natural focal point for the formulation of the national export strategy and the spearhead for its implementation. TPO’s should formulate strategies building on the vision and experience of the private sector, reflecting the plans and priorities of the government, and integrating their own knowledge of the conditions prevailing in foreign markets. Admittedly, designing a credible and effective national export strategy is a complex task, but a number of TPO’s have done it.
Services
Successful TPO’s determine, on a continuous basis, the scope and positioning of their services in line with the changing needs of customers and the evolving profiles of other suppliers of trade promotion services. What are the priority sectors? Which are the key markets? What are the most effective modes of delivery: information, publications, advisory services, training, and market research missions?
The answers will differ inevitably from country to country. And they evolve over time like moving targets. The criteria for determining the best product mix, however, remain the same. They involve three fundamental questions. Is there a real need for the service under review? Is it cost effective? Can it make a visible difference to the bottom line of exporting companies? The answers to these questions can and are being measured in terms of customer satisfaction, the growth of exports of companies which have benefited from TPO services, and – in some cases – the income from services provided.
Our experience shows that focus as well as an intimate knowledge of the products offered and the marketing techniques involved are the key to success. This implies narrow and a deep service, targeted to export-ready firms and positioned as close as possible to business transactions.
Strengthening the competitiveness of local firms: the onshore services
Trade promotion begins at home. Bottlenecks to international competitiveness are often best addressed in sector- or company- specific services provided by industry specialists from TPO’s . There is a clear trend away from export promotion and towards more comprehensive trade development encompassing product adaptation, design and development, sourcing of inputs, compliance with standards, quality control, marketing concepts, logistics and access to trade finance. The quality of these services hinges upon the caliber of the TPOs’ industry specialists. They are the gateway for all the more specialized services available from TPO consultants and other trade support institutions. This integrated approach is particularly important in relation to new exporters and SME’s.
Promotion abroad: the offshore services
One area where significant changes are taking place is how trade promotion activities are organized abroad. Traditionally, the link between the national business community and the international market place was developed and maintained by commercial attachés. Except in a few countries, these individuals were often career civil servants, attached to the ministry of foreign affairs or trade, and located in embassies in countries of significant economic or political importance. These traditional arrangements have a number of well- known shortcomings.
A tactful mix
Numerous countries are trying to co-ordinate onshore and offshore trade promotion activities more effectively. First: trade representatives are recruited and managed by the TPO and their performance is measured in terms of impact, quality and efficiency. Second: the role of trade representative is changing from a reactive conduct for general trade information to a proactive member of a team with clear performance targets within the framework of a national export development strategy. Third: as a result of more hands-on involvement in market development work, the trade representative is no longer a civil servant, but a business consultant recruited for a specific task and limited duration. Fourth: an increasing amount of work in foreign locations is performed by local staff, who often have a better understanding of local business practices. We believe that these trends will accelerate in the coming years, with a continuous shift towards product and market expertise, business experience and network approaches. Developing countries’ TPO’s will have to progress along these lines.
Trade Information
The supplying of trade information is undoubtedly a core business for TPO’s. Many will judge the overall success of a trade promotion organization by the quality of its trade information services. Some of the East Asian TPO’s have built their excellent reputation on providing business contacts within 24 hours. The proliferation of information has not obliterated the demand for information services from TPO’s. On the contrary: identifying the most relevant and reliable information, combining it with own data and analyzing it properly represent a value added which is in high demand among exporters. Converting isolated trade information into customized market intelligence is the challenge. The emphasis is shifting progressively from traditional libraries to computerized trade information services and to Internet home pages and bookmarks. What seems to be essential is to create focused, reliable and sustainable information services reaching clients rapidly. South-South trade and micro-producers TPO’s of developing countries can seize unique opportunities for tapping a relatively untouched but significant potential for expanding exports. One possible area of activity is presented by South-South trade, still considered by many a lesser option to trading with the North. We in ITC have a different view. We believe that the South- South market offers numerous attractive trading possibilities and an effective stepping-stone to more competitive global markets. We have documented such potential through trade flow analysis and supply-and- demand surveys, and obtained confirmation from the results of buyers- sellers meetings.
Why does the ITC methodology for promoting South-South trade present special opportunities to TPO’s ? The absence of trading links between developing countries is caused, in part, by an extremely weak trade promotion infrastructure. This means a lack of information, communication channels and insight into business practices, as well as a paucity of mutually reinforcing or complementing trade support services normally offered by TPO’s and in which they can make a difference. Furthermore, in the South-South context TPO’s can act as each other’s agents. Recognizing the mutual benefits to be gained from interregional trade expansion, they do not have to be competitors, but partners.
Another opportunity exists at the level of the micro-producer. TPOs can help bring groups of micro-producers into export markets by linking them with exporters and by providing, directly or indirectly, the array of trade support services needed. This is the concept behind export production villages (EPV). While they have been difficult to implement, EPV programs supported by ITC have obtained good results and have shown that they can be effective means of reducing poverty in the rural areas. The use of the ITC methodology for export-led poverty reduction will also enable TPO’s to take on the role of co-ordinator for trade development in relation both to such public-sector activities as agriculture extension services, and to the export development work of non-government organizations and other organizations serving micro-producers.
The ITC/TPO Partnership
ITC has a long tradition of working with TPO’s and other trade support institutions. We offer support programs in most of the critical marketing areas, which I identified earlier. We are anxious to continue and to expand this partnership. We wish to intensify our work with TPO’s and the international community in providing effective answers to exporters of developing countries. Together with IMF, UNCTAD, UNDP, The World Bank and WTO, we have recently established an Integrated Framework for trade-related technical assistance to all LDC’s. This integrated approach, which is serviced by an Administrative Unit located at ITC, should benefit the TPO’s of all the countries concerned.
Development of tools and services for trade promotion
ITC is developing a comprehensive range of new interrelated multi- client tools for trade promotion, in many cases in close collaboration with TPO’s and other trade support institutions. All these tools are available to TPO’s under the ITC/TPO product-network approach, which refers to generic tools developed jointly by ITC and its partners and which are customized and implemented at the national level. With respect to the assessment of needs, we have made considerable headway. We have developed a number of diagnostic tools and methodologies for assessing export potential, constraints and needs at the enterprise and at the macro level and for identifying bottlenecks to accelerated international business development. An example of our diagnostic tools developed for enterprises is the Competitiveness Gauge, a benchmarking and business improvement tool, with which some of you may be familiar. The Business Information Reviews identify gaps between the demand and the supply of trade information at the national level. Our Trade Map service assists TPO’s in identifying priority sectors and markets for trade promotion on the basis of an in-depth analysis of national trade performance and international demand patterns. In view of the increasing importance of sourcing, we have designed a wide range of tools for international purchasing and supply management referred to as Buying into Competitiveness.
Facilitating the exchange on best practices
Exchanging experience on best practices helps to avoid costly mistakes. Against this background, we are keen to serve as a platform for research and dialogue on best practices in trade promotion. This applies to all our six areas of specialization, namely product and market development, trade support services, trade information, human resource development, international purchasing and supply management, and needs assessment and program design.
As part of our efforts to enhance the exchange of experiences and best practices, we will hold an annual trade Executive Forum in Geneva. We will begin by inviting 20 senior representatives from the public and private sectors of 10 countries to the inaugural Executive Forum to be held in mid 1999. The overall theme of this first event is “national export strategy planning and management for the new trade promotion equation.”
Trade information, a forte of ITC, is another area in which we strive to facilitate the exchange of experience. In close Cupertino with various TPO’s , ITC has developed an online inventory of Internet sources and plans to launch an alert bulletin by email on new information sources and resources. There has been a growing demand from trade information services of TPO’s to use ITC as a help desk and to conceptualize or launch initiatives such as the review of charging for services, workshops and study tours, the development of Internet mega-sites with links to TPO home pages, and one-stop virtual exhibitions on specific products and services. ITC’s recently established home page for exporters of services is another means of encouraging exchange on best practices.
Assisting trade support institutions in adopting best practices is also the overriding objective of our programs in the areas of trade finance, quality control, packaging and human resource development.
Joint product development and promotion
Another area where we are joining hands with TPO is generic product development and promotion. For products such as leather, coffee, jute of cocoa, we have teamed up with major producers and producers’ associations as well as national TPO’s in developing countries with the objective of strengthening supply and marketing, and stimulating international demand. Participants are getting more mileage from their limited resources. Our numerous market studies, commodity handbooks and other market research reports and services are available to you at no cost.
Institutional Advisory Service
Finally, we are intensifying our assistance to TPO’s and related organizations through our Institutional Advisory Service. The objective of this Service is to assist exporters by providing direct support to agencies involved in trade promotion. We will continue to monitor the conditions of success of TPO programs on a worldwide basis and we will assist TPO’s , upon request, in adapting and implementing current best practices.
Let me say in closing that ITC is committed to working with renewed vigor with all institutions engaged in trade promotion – TPO’s , exporters’ associations, chambers of commerce and industry, and trade support institutions in our partner countries as well as import promotion institutions in developed countries. This is our raison d’etre. URUGUAY ROUND AGREEMENTS ON SUBSIDIES AND ON ANTI-DUMPING
Mr. Jesse Kreier Secretary and Sub-Director of the Committee on Subsidies and Countervailing Measures and Senior Legal Officer of the Rules Division WTO (World Trade Organization)
Subsidies and dumping, although often categorized together as unfair trade practices, are different phenomena and therefore basic principles and relevant definitions ought to be discussed separately.
A. AGREEMENT ON SUBSIDIES (SCM Agreement: Subsidies and Countervailing Measures)
1. The use of subsidies presents one of the most difficult problems in international rule making: the exercise of national sovereignty over political delicate and difficult decisions of domestic economic policy-making coming into conflict with the maintenance of economically optimal conditions for the conduct of international trade.
2. The evolution of rules on subsidies in the GATT and the WTO Agreements can be described as an attempt to place progressively increasing disciplines on trade-distorting subsidies and identifying clearly the subsidies that do not cause such distortions.
3. Compared to its Tokyo Round predecessor the SCM Agreement makes major progress in elaborating the rules on subsidies and considerably enhances the vigour of disciplines.
4. The most important achievement of the Uruguay Round negotiations is the inclusion in the SCM Agreement, for the first time in any multilateral trade agreement, of a definition of a subsidy. The definition contains three basic elements; (i) a financial contribution; (ii) by a government or any public body within the territory of a Member; (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist.
5. Subsidies within the meaning of the SCM Agreement are subject to discipline only if they are specific, i.e. if they are specifically provided to an enterprise or industry or group of enterprises or industries. Specific subsidies include by definition export subsidies and subsidies contingent upon the use of domestic over imported goods. The basic principle is that a subsidy that distorts the allocation of resources within an economy should be subject to disciplines; where a subsidy is widely available within an economy (i.e. it is not specific), such a distortion in the allocation of resources is presumed not to occur.
6. Subsidies within the meaning of the SCM Agreement have been sub- divided into prohibited, actionable, and non-actionable categories, following what has been described as the traffic light approach (red, yellow and green subsidies). In general terms, the more likely a subsidy is to distort trade flows, the more vigorous the disciplines to which it is subject.
7. Article 3 of the SCM Agreement prohibits two categories of subsidies, which are specifically intended to affect trade. The first is subsidies contingent in law or in fact on export performance (export subsidies). The second is subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods.
8. Under the WTO rules the prohibition of export subsidies applies, at this time, only to developed countries. Developing countries with GNP per capita of less than US$ 1,000 are not subject to this prohibition while developing countries with GNP per capita over US$ 1,000 are exempted from this prohibition only for an eight-year period starting 1 January 1995.
9. The Agreement defines two groups of non-actionable subsidies: those which are not specific and those which belong to one of the three categories (research assistance, regional aids and environmental adjustment) and which meet all the conditions specified in Article 8.
10. Any subsidies, except those that satisfy the criteria for non- actionability, may be challenged, either through multilateral dispute settlement or through countervailing duty actions. Conditions under which such challenges can be made are discussed in part G of this paper.
B. AGREEMENT ON ANTI-DUMPING (A-D AGREEMENT)
11. The A-D Agreement regulates governmental responses to injurious dumping. It defines the practice of dumping and sets forth detailed substantive and procedural disciplines on the investigation, application and duration of anti-dumping measures.
12. Dumping is, in general terms, defined as the sale of a good for export at a price less than its “normal value” (the price of the product in the country of origin or export in the ordinary course of trade). Detailed and specific technical rules govern the calculation of the normal value and the export price, and the “fair comparison” of normal value and export price. The application of these rules in particular factual circumstances requires careful gathering and rigorous analysis of information concerning the prices of products, the costs of producers, and facts about the complex adjustments needed to ensure that the comparison is fair.
13. The basic difference between the practice known as subsidies and the practice known as dumping is that the former is a governmental measure while the latter is a private enterprise or industry practice. Dumping is not prohibited by any WTO rules which are rules regulating behaviour and policies of Member governments and not those of private enterprises. Article VI of the GATT condemns dumping if it causes injury to a domestic industry in another Member country but even such dumping is not prohibited. There is, therefore, no multilateral remedy system against dumping. Actions against dumping are only of a unilateral nature and WTO rules governing such actions are discussed together with unilateral actions against subsidies in part G of this paper.
C. AGRICULTURAL SUBSIDIES
14. Agricultural subsidies, which are in full conformity with the provisions of the Agreement on Agriculture, are subject to different rules than subsidies to non-agricultural products. 15. The Agreement on Agriculture (Article 9.1) lists export subsidies which are prohibited unless they are provided with regard to a product specified in a Member’s list of commitments and respect the budgetary outlay and quantity commitment levels specified for that product.
16. Those, which are specified, are subject to reduction commitments:
(i) for developed countries: 21% over 6 years in volume of the subsidized product and 36% in value of subsidies over the same period;
(ii) for developing countries: 14% over 10 years in volume and 24% in value
During the implementation period, developing countries may make use of marketing cost subsidies and internal transport subsidies, provided that these are not applied in a manner that would circumvent export subsidy reduction commitments.
17. In addition to specific commitments on export subsidies, the Agreement on Agriculture contains general anti-circumvention provisions. These are designed to prevent the use of export subsidies that are not specifically listed in Article 9.1 in such a way as to circumvent commitment.
18. During the implementation period export subsidies on agricultural products that conform fully to the provisions on export subsidy reduction commitments can not be challenged through multilateral dispute settlement. However, they may be subject to countervailing measures in the same way as non-agricultural products, except that “due restraint” must be shown in initiating a countervailing duty investigation.
19. If an export subsidy on an agricultural product does not conform fully to relevant provisions of the Agreement on Agriculture, then it is challengeable under the provision of the SCM Agreement.
D. HOW DOES THE SCM AGREEMENT AFFECT EXPORT PROMOTION?
20. The degree to which the SCM Agreement affects export promotion depends on three basic considerations: (i) whether the export promotion measure or activity constitutes a specific subsidy; (ii) if yes, whether the country granting such a subsidy is a developed or developing country and (iii) whether or not the product benefiting from such a subsidy is covered by the Agreement on Agriculture.
21. The SCM Agreement prohibits developed countries from using any export promotion measure, which would be found to constitute an export subsidy. As said earlier this prohibition does not apply until the end of year 2002 for more advanced developing countries and does not apply at all to specified developing countries with a GNP per capita of less than US$ 1,000. However, a developing country export subsidy may be challenged through multilateral dispute settlement if such an export subsidy causes adverse effects to the interest of another WTO Member, or if it increases the level of its export subsidies during the eight-year transition period. Any export subsidy, whether prohibited or not, may be subject to countervailing duty action. 22. The impact of the SCM Agreement as far a countervailing action against export promotion activities is concerned is the same as in the case of other alleged subsidies in the sense that the SCM Agreement controls whether such activities constitute countervailable subsidies and imposes a number of restrictive conditions on the use of countervailing measures which render any countervailing duty action much more difficult to take than would be the case in the absence of multilateral rules.
E. WHAT ARE THE RELEVANT RULES TO DETERMINE WHAT TYPE OF ACTIVITIES CAN BE DEVELOPED TO PROMOTE EXPORTS?
23. A country or a company engaging in export promotion activities certainly would like to know to what extent related measures may conflict with the WTO rules or without being in such a conflict, may attract countermeasures, in particular countervailing duties. There is no general, simple answer to such a question. Each measure has to be carefully analyzed and all details taken into consideration. However any such analysis should be conducted within a general framework, which could be outlined as follows:
(i) Is the measure in question a subsidy? Article 1 and to some (limited) extent Article 14 of the SCM Agreement should give some important guidance in this respect.
(ii) If the measure is a subsidy – is it a specific subsidy or is it a prohibited subsidy (here careful examination of Article 2 for specificity and Article 3 – together with Annexes I, II and III – will be necessary)?
(iii) If the subsidy under consideration falls under Article 3 then the question of the application of the Article 3 prohibition becomes very important. Article 27 in the case of developing countries and Article 29 in the case of countries in transition should clarify this matter. (iv) If products benefiting form subsidy are agricultural products, Article 9 of the Agreement on Agriculture will provide a list of export subsidies subject to reduction commitments and Articles 8 and 10 will give additional guidance on the applicable disciplines.
F. UNDER WHAT CIRCUMSTANCES CAN AN ACTION BE INITIATED AGAINST SUBSIDIES?
24. If as a result of this examination the answer is that the examined measure is a prohibited subsidy or a non-prohibited but actionable subsidy (i.e. a subsidy other than one which is widely available or is described in Article 8 of the SCM Agreement) then either countervailing duty or multilateral action through the WTO dispute settlement system becomes possible. Where agricultural products are concerned Article 13 of the Agreement on Agriculture is also relevant.
25. Under the WTO dispute settlement system, if a prohibited subsidy is found to exist, it has to be withdrawn. If a subsidy is not a prohibited one, but it has resulted in adverse effects to the interest of another Member, the Member granting such a subsidy has to take appropriate steps to remove the adverse effects of has to withdraw the subsidy.
26. For any subsidy other than subsidies that satisfy the criteria of the SCM Agreement regarding non-actionability, countervailing measures may be applied if subsidized imports are found to cause injury to the domestic industry producing the like product in an importing country.
G. WHAT ARE THE PROCEDURES TO BE FOLLOWED TO IMPOSE COUNTERVAILING MEASURE?
27. The SCM Agreements sets forth certain substantive requirements that must be fulfilled in order to impose a countervailing measure, as well as in depth procedural requirements regarding the conduct of a countervailing investigation and the imposition and maintenance in place of countervailing measures. These procedural requirements and the requirements concerning injury are almost identical both for anti-dumping and countervailing measure investigations.
28. A Member may not impose a countervailing measure unless it determines that there is a specific subsidy and injury to the domestic industry caused by subsidized imports. As previously noted, the existence of a specific subsidy must be determined in accordance with the SCM Agreement. Second, the value of the subsidy must be established in order to be able to calculate the rate of subsidization, and consequently the amount of any duty, for the imported products. Subsidies may be valued either by reference to the cost to the government providing the subsidy, or the benefit to the recipient.
29. The basic requirement for determination of injury and causal link is an objective examination, based on positive evidence, of the volume and price effects of subsidized imports and the consequent impact of such imports on the domestic industry. Detailed rules define the domestic industry, establish factors to be considered, and make clear that all relevant factors must be considered, with no one factor being determinative. The authorities must not attribute any injury caused by factors other than subsidized imports to these imports.
30. Countervailing measures (or anti-dumping measures) are applied to imports from particular identified sources, in amounts no greater than the rate of subsidization (or margin of dumping) determined to exist. Members are encouraged to impose measures in a lesser amount, if such “lesser duty” is sufficient to eliminate the injury found. The Agreements establish a five-year duration for measures, subject to extension if a review investigation establishes the need to continue the measure to prevent the continuance or recurrence of dumping and injury. While a measure is in force, Members are required to periodically review the continued need for measures upon request by interested parties.
31. A principle objective of the procedural requirements of the Agreement is to ensure transparency of proceedings, a full opportunity for parties to defend their interests and adequate explanations by investigating authorities of their determinations. Extensive procedural requirements govern the collection and verification of information, access to information for all interested parties, and reasonable opportunities for parties to present their views and arguments. Other requirements related to undertakings given by exporters in lieu of the imposition of duties. Members are required to provide for judicial review of final determinations in investigations and reviews. A failure to respect either the substantive or procedural requirements of the SCM (or A- D) Agreement can be taken to dispute settlement and may be the basis for invalidation of the measures.
H. PERIODS AND MECHANISMS USED IN ACTIONS AGAINST SUBSIDIZED EXPORTS
32. There are two types of actions that may be taken against subsidized exports.
33. Countervailing duty action is a unilateral action taken against subsidized imports, which are causing injury to the domestic industry producing a like product. The WTO as such is not involved in any such action unless there is a complaint that relevant WTO rules have been violated in the conduct of a countervailing duty investigation or the imposition of duties.
34. The SCM Agreement does not impose many time periods concerning the conduct of countervailing duty investigations. Such an investigation is normally triggered by an application by or on behalf of the domestic industry. The investigating authority shall, before initiating the investigation invite the government of the subsidizing country for consultations with the aim of clarifying the situation. Once the investigation is initiated, the clock starts ticking and the investigation should be concluded within one year and in no case more than 18 months after its initiation. The Agreement gives two other time periods: provisional measures shall not be applied sooner than 60 days from the date of initiation of an investigation and their duration shall not exceed four months. Otherwise, it is up to the investigating authority to decide other time-periods in its investigation.
35. If a Member considers that the investigating country has violated relevant WTO rules in the conduct of anti-dumping or countervailing duty investigations, it may refer the matter to WTO dispute settlement. The following procedure will then apply:
The panel process (cases other than subsidy cases)
60 days Consultations (Art. 4) M by 2nd DSB meeting Panel established By Dispute Settlement Body (DSB) (Art. 6) M 0-20 days Terms of reference (Art. 7) 20 days (+ 10 if director-general asked to pick panel Composition (Art. 8) M Panel examination (Normally 2 meetings with parties (Art. 12) 1 meeting with third parties (Art. 10) M Interim review stage Descriptive part of report sent to parties for comment (Art. 15.1) Interim. Report sent to parties for comment (Art. 15.2) M 6 months from panel’s Panel report issued to parties Composition; 3 months if urgent(Art. 12.8, Appendix 3 par. 12(j)) M Up to 9 months from Panel report circulated to DSB Panel’s establishment (Art. 12.9, Appendix 3 par. 12(k)) M 60 days for appellate procedure Appellate review (Art. 16.4 and 17.14) M 60 days for panel report, DSB adopts panel/appellate report(s) if not appealed; 30 days including any changes to panel for Appelate Body report report made by appellate report (Art. 16.1, 16.4 and 17.14) M “REASONABLE PERIOD OF TIME” Implementation determined by: Member proposes,Report by losing party of proposed DSB Agrees; or parties in dispute implementation within “reasonable agree; or arbitrator (approx. 15period of time” (Art. 21.3) months if by arbitrator) M In cases of non-implementation parties negotiate compensation pending full implementation (Art. 22.2) M 30 days after “reasonable Retaliation period” expires If no agreement on compensation, DSB authorizes retaliation pending full implementation (Art. 22.2 and 22.6) M Cross-relation; same “sector”, other sectors, other agreements (Art. 22.3)
Similar procedures would apply in case of violation of WTO subsidies rules, except that time-periods in any such dispute would be shorter and for prohibited subsidies even much shorter. In the latter, the period for consultation is only 30 days and the panel, if requested, has to be established at the first meeting of the DSB. The panel has to be composed within 15 days and it has 90 days from its composition to submit its report to the DSB. The DSB must adopt the report, if not appealed, within 30 days. If appealed, the Appellate Body has 30 days and then the DSB 20 days to adopt the Appellate Body report. The report’s recommendations are to be implemented without delay (the meaning of which is specified by the panel itself). If a recommendation is not followed, the DSB shall grant authorization to the complaining Member to take appropriate countermeasures. In the case of subsidies other than prohibited (or non-actionable) subsidies the composition and the terms of reference of a panel shall be decided within 15 days from the date when it is established. The panel has 120 days from the date of its composition to review the matter and submit its report to the DSB. The report shall be adopted by the DSB within 30 days of its issuance, unless the report is appealed. The Appellate Body report shall be adopted within 20 days. In the event the subsidizing Member has not taken appropriate steps to remove the adverse effects of the subsidy or withdraw the subsidy within 6 months from the date when the DSB adopts the report, the DSB shall grant authorization to the complaining Member to take appropriate countermeasures. EXPORT PROMOTION AND WTO SUBSIDIES RULES
Mr. Gary Horlick Permanent Member and Former Chairman of the Group of Exports in Subsidies of the TWO (World Trade Organization) UNITED STATES
In summary, the WTO Subsidies Agreement prohibits government financial assistance to exporters, with a phase-in for certain developing countries (and an exemption for a few less developed countries).
The remedies are a countervailing duty (CVD) imposed on imports into the importing country or a WTO dispute resolution decision that the subsidy is prohibited and must be removed.
In practice, the CVD remedy is usually meaningful only for big countries. CVD’s protect a home market. A company which must export because its home market is small does not receive much help. For that and many other reasons the United States brings 85 to 90% of all CVD cases. For most others, a WTO ruling that the subsidy must be removed is more effective.
1. Since the WTO went into effect January 1, 1995, there have been apparently only four CVD cases involving the activities of export promotion agencies. The EU examined Norwegian export promotion activities for Salmon, but ascertained that the funding came from the producers, so it was not a subsidy. Canada countervailed an export promotion grant by Italy on Pasta. In two other cases, the U.S. Department of Commerce determined that certain activities by Italian and Chilean export promotion agencies constituted a subsidy on Italian exports of Pasta to the United States, and a subsidy of 0.04% on Chilean exports of Salmon to the United States. Specifically, the U.S. Commerce Department determined that direct cash payments for marketing efforts are countervailable. However, Commerce’s reasoning would include not only direct financial payments, but also any assumption of cost by the export promotion agency as a countervailable subsidy (as well as being a subsidy expressly prohibited under the WTO rules, except as to certain developing countries).
This reasoning raises important issues. Under the WTO Subsidies Agreement, it is usually as much a subsidy if a government assumes a cost as if it provides cash. Presumably there are very few activities of export promotion agencies that the benefited companies could not perform themselves (or contract for) at some cost level. Indeed, with the increasing privatization of export promotion agency functions, and the parallel rise of trading companies’ activities around the world, it is increasingly possible to find a commercial “yardstick.” For example, the Australia and New Zealand governments apparently charge for most export promotion services. The amount by which the fee charged by another export promotion agency is less than that Australia and New Zealand yardstick (or a higher commercial yardstick) would be considered an export subsidy under WTO rules, according to the U.S. position.
The irony of this is that export subsidies are not prohibited for most developing countries at present, while they are prohibited for all developed countries. Consequently, Commerce, in finding the Chilean export promotion activities countervailable, does not therefore imply that they are prohibited for Chile, while they would be prohibited for the United States, a developed country, if any other WTO member bothered to complain to Geneva.
Whether an export promotion agency provides a service (e.g., by having the agency identify export opportunities for an exporter) or the agency gives cash to an exporter to purchase the service, both are equally countervailable, and prohibited for developed countries (and many developing countries by 2003). Indeed, this is a necessary result; or else large rich countries could operate a global network of export promotion officers while smaller or poorer countries, which could not afford a similar network, could not compete through cash grants (which might even be more efficient).
Another distinction which has been suggested is between general export promotion assistance and assistance for specific products. This distinction is debatable, for WTO reasons. First, it appears that most export promotion agencies at any given moment are helping specific exporters with specific opportunities. The U.S. Commerce Department, for example, in its monthly publication Business America, explains in great detail how it arranges for sectors as specific as medical equipment or bowling balls. Second, even if the assistance were general to all exporters, the WTO Agreement in effect defines all general export assistance as prohibited and countervailable unless equal marketing assistance is given to local enterprises selling in the home market (which seems an unlikely activity for an export promotion agency).
2. Another important activity of export promotion agencies involves export financing. Under the WTO Subsidies Agreement rules, any subsidized financing or guarantees is per se a prohibited export subsidy. The only exception is export financing pursuant to the OECD (Organization for Econmic Cooperation and Development) agreement on export credit financing or “the interest rate provisions” of that agreement. It needs to be noted that at least the United States interprets this exception very narrowly. If the export financing in question is not directly subject to the OECD Agreement, Commerce might well take the position that the difference between the subsidized rate and the market rate – which can be quite high for small and medium enterprises, especially in developing countries – is a countervailable subsidy. In addition, at least until 1995 Commerce took the position that while OECD – level financing was not a prohibited subsidy, any difference from market rates was nevertheless a countervailable subsidy, notwithstanding that it was within the OECD guidelines. It appears that is no longer permitted, because of the unified definition of subsidy in the WTO Agreement.
3. What needs to be done? The WTO negotiating countries in 1994 – virtually all of which had export promotion activities and export financing schemes – did not intend, or even realize, that they were prohibiting such activities through the WTO Subsidies Agreement. The financing rules are so stringent that it is doubtful that there is much room for accommodation to reality except by formal renegotiations or amendment of the Agreement, both of which can be difficult. (The current necessary renegotiations of certain aspects of the Agreement opens up some possibilities.) The question as to export promotion activities may be more hopeful. The WTO Subsidies Committee has a working group which offers a forum for reaching and agreed interpretation or understanding on which export promotion activities are permitted, and which are not. In that type of negotiation, the U.S. Government could reverse its role, and seek to protect all activities of its export promotion agencies, rather than to prohibit them. CHILE: HARMONIZING REGIONAL, BILATERAL AND MULTILATERAL AGREEMENTS
Ambassador Juan Gabriel Valdes Director of International Economic Affairs CHILE
The Internationalization of the Chilean Economy
In the last twenty years, in the context of very diverse general policies, the economy of Chile has been immersed in a notable process of internationalization, going from a single export economy (copper) based on an import substitution model, to a very open and diversified economy based on a development model where the foreign sector is a dynamic factor in the economy as a whole.
An initial stage of this process to internationalize the Chilean economy took place during the military government (1973-1990), basically through the liberalization and unilateral opening up of the economy with the significant reduction in tariffs and a simplification of trade and investment regulations. This process began in the seventies, long before the rest of Latin America that continued to follow a protectionist model of industrialization based on import substitutes.
During the first decade, the military government policies experienced adverse economic and social effects in many aspects (de- industrialization, negative growth, unemployment, an increase in poverty, financial crisis). Towards the mid-eighties, changes in the economic policy began to result in sustained economic growth, a boom in foreign trade, and improvements in the international competitiveness of the Chilean economy. This process has accelerated in the nineties, achieving new elements of economic and social policy. Thirteen years of uninterrupted economic growth at an average of nearly 7% has transformed the economy and the rural and urban landscape of Chile.
Today, Chile ranks 15th in the world in terms of international competitiveness (World Economic Forum) and has the best risk rating in Latin America (A- from Standard & Poor’s). In terms of human development (social, economic and citizen participation indicators), our position has also improved significantly: despite many problems that we are still facing, Chile ranks No. 1 in Latin America and thirtieth in the world (PNUD).
Since the democratic transition in March 1990, the Chilean economy has undertaken a second stage of internationalization where the continuation of the unilateral opening has combined with an active multilateral and trade agreement negotiation policy. In 1991, the government of President Aylwin reduced the customs tariff from 15% to 11%. At the same time, the government began negotiating bilateral and subregional agreements in the Western Hemisphere. The Congress just approved a new progressive tariff reduction of 1% annually over the next 5 years, which will reduce the Chilean foreign tariffs to 6% by the year 2003. This is a truly bold measure in the current international context and one that we think will contribute to increasing the productivity levels and international competitiveness of the Chilean economy. The economic policy has favored foreign trade, which currently represents nearly 50% of the national product. There has been a two- digit increase in trade during the last 8 years and a diversification both in terms of products as well as markets and number of companies. The actual situation in the foreign sector is not only very different from what it was in 1970, but also substantially different from how it was in 1985 (exports have tripled since then) and even in 1990. There can be no doubt that democracy has not only been good for society as a whole but also for business.
Chile has historically been an exporter of natural resources, particularly copper. However, thanks to the policies developed in the last decade and a half, while all exports increased, the percentage of unprocessed natural resource exports has been reduced from two-thirds of the total in 1985 to approximately one-half of the total in 1997. Simultaneously, the exports of processed natural resources and manufactured products have incremented. One of the economic objectives pursued by Chile with particular interest is an increase in the production and export of goods with a higher added value. In this area of diversification of the export basket, the work of ProChile, an agency that searches for and promotes new niches in the international market, endeavoring to go far beyond the traditional exports of Chile has been fundamental. The boom of salmon, fruit and Chilean wine on more demanding international markets is closely linked to the efficient work of our export promotion agency.
The products exported by Chile differ as well, according to the region of destination. For example, Japan – the second destination of Chilean exports – mainly imports unprocessed natural resources that are subsequently refined. Latin American countries, on the other hand, import a higher percentage of industrial products.
Chile has diversified its export markets in such a way that today Chilean trade with different regions in the world is balanced.
The figures for the most recent years show a balanced share of the different export markets, with around 30% for Asia and Europe, respectively – although exports over the last year to Asia have decreased because of the crisis – and approximately 20% to Latin America and NAFTA countries, respectively. This market diversification increases the bargaining capacity of a small economy like ours and allows us to face more efficiently the problems in specific markets, as has been the case recently with the Eastern Asian economies.
Trade policy in the Nineties
For a small country like Chile, unilateral trade opening is a good policy, since it contributes to a more appropriate allocation of resources and consequently maximizes the welfare of the community as a whole. The unilateral trade opening, which began in the mid-seventies, contributed to the accelerated growth of our exports, both traditional and non-traditional, and stimulated a greater diversification in terms of products and destination markets. As stated earlier, the current administration has not only maintained but also expanded this unilateral opening. Additionally, the telecommunications sector, financial sector, public infrastructure and privatizations have helped open up the economy even further. In other words, the emphasis in trade policy has been placed on non-traditional areas.
Therefore, the question that needs to be asked is what role do international trade agreements play? The answer is very simple: international, multilateral and bilateral trade agreements have complemented and completed the unilateral opening in those aspects where the opening up can not intervene or resolve.
International agreements tend to reduce the cost of international economic transactions, specially at this time since they provide a set of rules applicable to the members that offer stability, stimulate transparency through specific obligations, and guarantee performance through binding instruments that reduce incentives to evade the regulations.
The question that arises in this context is if the WTO, which is a multilateral institution with 130 member countries, exists, why must bilateral trade agreements be negotiated? The answer to this question has both economic and political elements.
The multilateral trade system is, from the viewpoint of Chile, the most important forum for international trade negotiations since it involves the main companies with which Chile does business. A negotiation in this area represents the best option for Chile and earns it greater benefits because it is multilateral in nature: Chile benefits from the economic concessions that are exchanged between members, independent of its size, relative weight and level of development. However, this is also an imperfect institution with certain limitations.
We can also state that although the results of the Uruguay Round - which concluded finally in 1993- were very significant, not all of the advances expected by Chile were achieved (such as in the area of access to markets for agriculture). Accordingly, the speed and depth of trade expansion that can be achieved multilaterally is limited.
In this political-economic context, characterized by conflicts between economic powers and the formation of exclusive economic blocs (NAFTA, EU, Asia Pacific, Mercosur, etc.), Chile is seeking a way to “protect” and expand the scheme of development adopted in the last two decades, characterized by its economic opening and through growth stimulated by its foreign trade. This explains the search for international economic agreements as a complement to its policy of unilateral opening. Chile was forced to enter into an active policy of regional agreements in order to progress and consolidate the liberalization of its foreign trade.
Chile has made significant efforts and has insistently sought negotiation opportunities with the countries with which it does business (United States, Mercosur, Andean Pact countries and the European Union) and which at the same time are also the ones who have undertaken an integration process that can have very significant economic repercussions on our country.
The trade negotiation policy with countries or subregional blocs in the Americas as well as the negotiation for the Free Trade Area of Americas (ALCA) has taken on a special relevance. The American continent is the economic area closest to Chile, with which a true integration is possible and it concentrates 40% of the country’s foreign trade.
The objectives of Chile when negotiating trade agreements have been: to open up markets, to guarantee access and stability in exports, to eliminate trade barriers that would otherwise prove very difficult, to progress in all areas of trade (services, anti-dumping), to protect access by our exports in respect of preferences granted by other countries, and to promote the export of manufactured goods.
What is the evaluation of the agreements negotiated thus far?
In order to answer this question, I would like to highlight first of all that preferential access to markets of nearly 500 million inhabitants has resulted in an increase and in a diversification of Chilean exports. At this time, approximately 20% of Chile’s exports are made in the framework of trade agreements.
I can also say that the agreements have taken place in macroeconomic environments in the midst of an unpredictable international economy, which is an element of reality, and the negative effects of which we are trying to ward off. We must recall the impact of the Tequila crisis in Mexico, the adjustment problems in Brazil and Argentina, and the political and economic instability prevailing in recent years in Colombia, Venezuela and Ecuador, as well as the protectionist tendencies caused by the current international financial turbulence.
This partially explains, together with the evolution of the bilateral exchange rate, why we have been unable to take advantage of all new options. But this also means that when we exit this cycle, which may currently be related to the Asian crisis but which has to do, above all, with economic reforms, Chile will have a preferential framework that will know how to use it.
The actual Asian crisis also gave us some indications of how trade has been with these countries. Exports to those countries with which we have signed trade agreements, have expanded in the first six months of 1998 by 8% while overall they have fallen 11.4%. This dynamic indicates the importance of having a privileged relationship in these markets.
We can be satisfied with the agreements in effect with Mercosur, Mexico, Colombia and Venezuela after evaluating them. If we consider the effects of the deviation and creation of trade, a criteria used to measure its impact on welfare, those effects are very small. Furthermore, if one looks at what was happening before the Asian crisis in trade between Chile and its trade partners in the rest of world, we can observe that overall the trade has continued to expand between Chile and those countries with which it has signed agreements and with the rest of the world.
In terms of export composition, studies show that the agreements have promoted or protected the exports of goods with a higher added value. They have been one of the leading concerns of the Coalition governments. However, the increase in exports with a higher added- value has also been accompanied by an increase in traditional Chilean exports and agricultural products that in some cases were not exported due to different hindrances that affected their possibilities of access to foreign markets.
These concepts have guided the negotiation of the 8 trade agreements in effect (MERCOSUR, Canada, Mexico, Ecuador, Venezuela, Colombia, Peru and Bolivia) and are also what orient actual negotiations or which are pending approval by Congress:
• Trade agreements in the framework of ALADI (Bolivia, Central America, Panama and Cuba) • Free Trade Area of the Americas (ALCA) • Association with the European Union • APEC Liberalization Program
Additionally, we are expanding and exploring some of the agreements already in effect (MERCOSUR and Colombia) and aspire to a growing convergence of the agreements we have signed and are negotiating. Within this framework, the negotiation of ALCA, undoubtedly the most ambitious economic and political project we have undertaken on the American continent thus far, takes on a particular relevance.
Furthermore, we met just 10 days ago in the United States at the first session of the Chile-United States Joint Trade and Investment Commission where we discussed the principal issues of trade policy, both bilateral and multilateral, including, of course, the issue of trade promotion agencies.
As some of you surely know, the claim filed last year by U.S. producers against Chile for alleged subsidies to Chilean salmon exports included, among others, action by ProChile. Although the final ruling was favorable to Chile, the Trade Department decided that some programs could be appealed. This may be a precedent in the case of future claims for subsidies. However, we know that exporters in the United States used several programs similar to those of ProChile, sponsored by government entities like the Trade Department and the U.S. Department of Agriculture. We explained to the United States government that we would like to create a Task Force to examine the treatment of export promotion programs that both companies have and to discuss the compatibility of the same with WTO provisions. We believe that this type of exercise is useful in avoiding the establishment of trade barriers by citing an alleged unfair trade practice. Chile recognizes that the distinction made by the WTO between permitted and prohibited subsidies is significant progress, but we consider that the criteria for interpretation and implementation of this rule must still be standardized.
By suitably combining the different trade policy instruments—whether unilateral, bilateral or multilateral—we propose perfecting the international political, economic and juridical institutional framework that will allow us to continue with the economic export dynamism that has characterized recent years. To again double our exports in the next 8 years will not be easy, above all in the actual context of international financial turbulence, but it is not impossible under appropriate policies and efficient tools like ProChile.