National Export Strategy 2002 - International Trade Administration ...

The 2002 National Export Strategy
of $10.3 billion per year) and the fact that Japan seems to be able to switch between its
tied and untied aid programs with great ease, untied aid has become an issue of
concern equal to tied aid prior to the Helsinki Package of disciplines. In early 2001,
the United States challenged three Japanese tied aid financed power projects in China.
Japan argued that the transactions were commercially nonviable. When an OECD
Tied Aid Consultations Group found the projects to be commercially viable, Japan
changed its support from tied to untied aid to allow the projects to be financed with
aid financing and avoid the tied aid rules. Such switching of financing sources creates
powerful pressures on other tied aid donors to create untied aid programs to be able
similarly to avoid the tied aid rules.
Therefore, undisciplined untied aid not only provides the direct opportunity for trade
distortions but also threatens to undermine the tied aid rules. If these rules unravel,
trade-distorting financing faced by U.S. exporters is likely to be $20 billion annually,
based on historical averages. U.S. budget resources necessary to protect the U.S.
market share of this amount of exports would be more than $1 billion annually on top
of existing levels of Ex-Im Bank appropriations.
Recommendation
Use the Ex-Im Bank War Chest to leverage OECD negotiations to achieve multilateral
disciplines for untied aid. Use War Chest resources to secure the cooperation of untied
aid donors (primarily Japan) in agreeing to untied aid disciplines by competing for key
projects that they finance with their tied or untied aid. The idea would be to match or
counter through initiation for projects of high priority to these governments for which
it has offered either tied or untied aid or otherwise is prepared to support its exporters,
and for which there is U.S. exporter interest. Negotiated disciplines are required
because these countries’ aid programs are far too large, and tied aid is too expensive,
for the United States to compete with them on an ongoing basis in the absence of
disciplines. Therefore, the War Chest would be used to conclude OECD negotiations
for untied aid disciplines. These negotiations could take several years to complete.
We would inform U.S. exporters of this new policy. We would also institute an
interagency consultation process to prioritize projects that are being considered for
matching or countering through initiation. Different tools and different methods
would be used, appropriate to the case at hand. This effort would draw on U.S.
Government personnel in both donor and recipient countries to identify projects of
strategic interest to these donors so as to both support U.S. negotiators and effectively
utilize the War Chest to maximize our overall leverage in the negotiations process.
Front-End Engineering and Design (FEED) Studies
Another major means by which Japan appears to steer untied aid to their exporters is
via concessionary financing of FEED studies. Exporters have pointed to Japan as
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