WTO domestic support disciplines

The WTO Agreement on Agriculture distinguished between three types of domestic support, informally known as boxes. Support policies which mean that farmers receive an effective price higher than the world market price were regarding as the most trade distorting and are classified in an amber box. However, if these support policies are accompanied by production controls, they are regarded as somewhat less trade distorting and classified in the blue box. Direct payments to farmers which are deemed to be not or minimally trade distorting controls and which satisify a range of specific criteria are placed in the green box. In the WTO Agriculture Agreement, only amber box support is disciplined. Furthermore, if the amount of support provided to a particular commodity is less than 5% of the value of that commodity's output, or if support to the farm sector which is not commodity-specific is less than 5% of the total value of agricultural output, then it is considered 'de minimis' and is not counted against a country's ceiling for total allowed domestic support (the Aggregate Measure of Support, AMS). These percentages are increased to 10% for developing countries.

The latest available revised draft modalities in the Doha Round negotiations were presented in July 2008. This page reviews what these modalities had to say about domestic support disciplines.:

Overall Reduction of Trade-Distorting Domestic Support (OTDS)

The modalities introduce a new discipline on OTDS, defined as the sum of Total AMS, de minimis and Blue Box support.

The Base OTDS will be reduced by a three-tiered formula, with higher linear cuts in higher bands. Where the Base OTDS is greater than $60bn, the reductions will be in the 75-85% range. For Base OTDS greater than $10bn, the reductions will be in the 66-73% range. For Base OTDS less than $10bn, the reductions will be 50-60%. The exact percentages remain to be finalised, however it has been agreed that implementation will be in six steps over five years.

Developing country Members with no Final Bound Total AMS commitments will not be required to undertake reduction commitments in their Base OTDS. For developing countries with AMS commitments, they will be required to reduce their base OTDS by two-thirds of the percentage agreed for developed countries with Base OTDS less than $10bn. Reductions for developing countries will be implemented in nine steps over eight years.

Final Bound Total AMS (Amber Box)

Final Bound Total AMS supports will also be cut using the three-tiered formula, so that higher supports have steeper cuts. Where the Final Bound Total AMS agreed in the Uruguay Round is greater than $40bn, the reduction will be 70%. Where the Final Bound Total AMS is greater than $15bn and less than $40bn, the reduction will be 60% and where it is less than $15bn, the reduction will be 45%. Developed country Members with high relative levels of Final Bound Total AMS shall also undertake an additional effort in the form of additional reductions. Reductions will be implemented in six steps over five years.

Developing countries which have scheduled trade-distorting support in their AMS will be required to reduce their Final Bound Total AMS by two-thirds of the reduction applicable for developed countries and implementation will be in nine equal annual instalments over eight years, commencing on the first day of implementation.

Product-Specific AMS Limits

There will be limits on supports for specific products in order to avoid shifting support between different products. Since the tiered formula applies to the total support on all products, the result will be cuts in support specified for some products.

The product-specific AMS limits for all developed country Members other than the United States will be the average of the product-specific AMS during the Uruguay Round implementation period (1995-2000). For the United States, the limits will be the result of applying proportionately the average product-specific AMS in the 1995-2004 period to the average product-specific total AMS support for the Uruguay Round implementation period (1995-2000).

Developing countries will be given freedom to establish their product-specific AMS limits by choosing between; the average product specific AMS during the base period 1995-2000 or 1995-2004, two times the Members’ product-specific de minimis level or 20% of the Annual Total Bound AMS in the relevant year during the Doha Round implementation period.

De minimis

De minimis exemptions were introduced under the Uruguay Round to allow small amounts of support for a particular product to be excluded from the calculation of a country’s AMS. It is likely under the Doha Framework that the allowances for de minimis support will be reduced by 50-60%, although it is still unclear whether this will be effective on the first day of the implementation period or through instalments. For developing countries obligations in this regard will be at least two-thirds of this reduction rate, with an implementation period of three years longer than that for developed countries.

Blue Box

Specific payments that were linked to quantities produced but subject to output controls were classified in the Blue Box.

Blue Box support will be limited to 2.5% of the average total value of agricultural production in the 1995-2000 base period, except where a Member has an exceptionally large percentage of its trade-distorting support (defined as 40% during the 1995-2000 base period) where the limit will be a percentage reduction in the average base period amount.

Product-specific limits on Blue Box payments will also be introduced. For all Members other than the United States, the limit of support that may be provided to specific products as Blue Box entitlements shall be the average value of support provided to those products at an individual product level during the 1995-2000 period.

For the United States, the limits to the value of support that may be provided to specific products will be between 110-120% of the average product-specific amounts that would result from applying proportionately the legislated maximum permissible expenditure under the 2002 Farm Bill for specific products at an individual product level to the overall Blue Box limit of 2.5% of the average total value of agricultural protection during that period.

For developing country Members, the maximum permitted value of support will be 5% of the average total value of agricultural production in the 1995-2000 or the 1995-2004 base period as may be selected by the Member concerned.

Green Box

In order to qualify for the green box subsidies must not distort trade, or at most cause minimal distortion. They must not involve price support but can include direct income payments to farmers that are not related to (are decoupled from) current production levels or prices. Other examples of green box measures include environmental protection and regional development programmes.

In the WTO Agriculture Agreement, green box subsidies are therefore allowed without limits, provided they comply with policy specific criteria.

Under the Doha Round, negotiations over Green Box payments have centred on what should and should not qualify. Subsidies, including decoupled income support and government financial support for income insurances and income safety net programmes, have some under scrutiny for their possible trade distorting effects. On the other side, other countries have been arguing that the current criteria might need to be made more flexible to take better account of non-trade concerns such as environmental protection and animal welfare.

Links:

WTO Website – Domestic Support
Specific section of the WTO Agricultural Portal that presents an explanation of domestic support in the WTO

WTO Doha Negotiations Agricultural Backgrounder
Go to the marekt access section for a description of the negotiating issues in the market access pillar.

Resources:

CTA Technical Centre for Agricultural and Rural Cooperation, WTO agreement on agriculture: Implications for the ACP, Agritrade Executive Brief, 2010
Provides an update on the state of play of WTO negotiations as of April 2010 looking particularly at the implications for ACP countries.

International Centre for Trade and Sustainable Development, Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals (PDF), Information Note 16, 2009
This note summarises findings from a longer book on developments in expenditure on green box policies and why developing countries should be alarmed.

Gifford, M. and Montemayor, R., An Overview Assessment of the Revised Draft WTO Modalities for Agriculture, International Centre for Trade and Sustainable Development
Provides an overview assessment of the implications of the revised modalities text in terms of its ambition and balance as viewed from the perspective of both developed and developing countries, and identifies the key issues which will likely require ministerial decisions.

FAO, Domestic support: Trade related issues and the empirical evidence (PDF), Trade Policy Technical Note No. 5, 2005.

FAO, Reducing the trade-distorting impact of domestic support (PDF), Trade Policy Brief, 2005