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AGRICULTURE NEGOTIATIONS: BACKGROUNDER

Domestic support: Amber, Blue and Green Boxes

In WTO terminology, subsidies in general are identified by “Boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. be reduced), red (forbidden). In agriculture, things are, as usual, more complicated. The Agriculture Agreement has no Red Box, although domestic support exceeding the reduction commitment levels in the Amber Box is prohibited; and there is a Blue Box for subsidies that are tied to programmes that limit production. There are also exemptions for developing countries (sometimes called an “S&D Box”).

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UPDATED 1 DECEMBER 2004

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This briefing document explains current agricultural issues raised before and in the current negotiations. It has been prepared by the Information and Media Relations Division of the WTO Secretariat to help public understanding about the agriculture negotiations. It is not an official record of the negotiations.


For more information see:
Fact sheet explaining “the Boxes” in domestic support

The discussions cover: Green Box, Article 6.2 (special and differential treatment), Blue Box and Amber Box.

By the time of the preparations for “modalities”, each heading contains a list of subheadings such as: general comments; scope/definitions; base periods points; reduction/expansion formulas; transparency and notification; and so on. Some countries raise “other” domestic support issues such as animal welfare. There are over 200 interventions in the 23-25 September 2003 session.

During the discussion, developing countries, new members and transition economies repeatedly argue for special and differential treatment.

For the new members that are transition economies, the call is based on the state of their economies and because the new members are still implementing commitments under their membership agreements. Some call for special and differential treatment to be based on “objective criteria” such as the level of development and per capita income, arguing that some “developing countries” are richer and have more developed agriculture sectors than some transition economies.

Amber Box: who can use it?

34 WTO members have commitments to reduce their trade-distorting domestic supports in the Amber Box (i.e to reduce the “total aggregate measurement of support” or AMS). Members without these commitments have to keep within 5% of the value of production (i.e. the “de minimis” level) — 10% in the case of developing countries.

Argentina
Australia
Brazil
Bulgaria
Canada
Colombia
Costa Rica
Croatia
Cyprus
Czech Republic
EU
Hungary

Iceland
Israel
Japan
Jordan
Korea
Lithuania
Mexico
Moldova
Morocco
New Zealand
Norway

Papua New Guinea
Poland
Slovak Republic
Slovenia
South Africa
Switzerland-Liechtenstein
Chinese Taipei
Thailand
Tunisia
United States
Venezuela

For more details, see WTO Secretariat background paper “Domestic Support” TN/AG/S/4.

Some developing countries repeatedly stress their argument that small vulnerable economies need special treatment, including trade preferences and longer times to adjust.

Proposals containing positions on domestic support
submitted in Phase 1
(see also proposals on developing countries and on non-trade concerns)

  • Croatia included domestic support in its discussion paper G/AG/NG/W/141

 

The ‘Amber Box’: Phase 1  back to top

For agriculture, all domestic support measures considered to distort production and trade (with some exceptions) fall into the Amber Box. The total value of these measures must be reduced. Various proposals deal with how much further these subsidies should be reduced, and whether limits should be set for specific products rather than having overall “aggregate” limits.

 

The ‘Amber Box’: Phase 2  back to top

From the broad ideas of the first phase, greater detail is developed in the second phase. Some countries propose steeper cuts on higher levels of support, with some disaggregation according to products (current Amber Box reductions are aggregates over all products). Some countries want Amber Box subsidies to eventually be eliminated completely.

Some of the discussion is linked to the two other categories of domestic supports, the “Blue” and “Green” boxes: whether the concepts should be retained, whether the Blue Box should be restricted or eliminated, whether some Green Box subsidies should be moved into the Amber Box because they distort trade. Some speak of overall caps covering subsidies in all categories.

Amber box details. There has been some discussion of the idea (not accepted by everyone) that some domestic supports have the same effect as export subsidies because the supports vary according to market prices (rising when prices fall, and vice versa), and large proportions of production are exported. Opinions also differed on whether commitments to reduce Amber Box subsidies should be disaggregated according to product, or stay at total AMS (aggregate measurement of support).

“De minimis” levels (subsidies that fall within small limits). There is a general willingness to look at de minimis levels for developing countries and possibly transition economies (most of these countries are bound by de minimis levels rather than AMS reduction commitments). Proposals include: no change; higher levels for developing countries and/or transition economies; lower levels or abolition for developed countries, etc.

Inflation. Some countries say their AMS commitments have been eroded by inflation. They propose that inflation should be built into the commitments. Others disagree.

Phase 2 papers or “non-papers” from: The EU, Australia, and Japan

 

Amber Box: preparations for ‘modalities’  back to top

The main differences are:

Eliminate or substantially reduce? A number of developed and developing countries want Amber Box subsidies eventually eliminated in three to five years for developed countries, in a longer period such as nine years for developing countries. This would bring all members down to de minimis levels (5% of agricultural production in developed countries, 10% in developing countries) — several argue that if everyone cuts these subsidies to de minimis levels, the result will be fair and “harmonized” (same for everyone). Some go further. They say de minimis levels should also be scrapped for developed countries. Some proposals include a downpayment, in which half the reduction would be made at the outset.

Others counter that elimination goes beyond the Doha mandate’s aim to “substantially reduce” these trade-distorting subsidies. They say elimination would be too drastic to allow them to continue with the reform process. Some propose two rates of reduction commitments, one for products that are mainly exported and another for those that are mainly for domestic consumption, as a means of differentiating between supports that distort international trade more and those that distort less — a differentiation that some liberalizers reject. The countries advocating a more cautious approach have not proposed figures for the reductions, saying these should be discussed after the basic rules are clearer.

Total AMS limits or AMS limits for specific products? At present reduction commitments are based on “total aggregate measurement of support” (AMS), allowing subsidies to be shifted between products. Most liberalizers want limits set for specific products, perhaps with some flexibility for certain products. Others, including a few seeking more ambitious reductions, prefer the flexibility of the current method because it allows adjustments and prevents subsidies being locked into specific products which might not have comparative advantage.

De minimis: Some developing countries and transition economies want their limits raised (currently transition economies are treated as developed countries). Some others prefer to keep the limits unchanged, some of them objecting to the use of de minimis subsidies to circumvent reduction commitments.

 

The revised first draft ‘modalities’ on the Amber Box  back to top

Aggregate measurement of support (AMS) would be reduced from final bound levels by 60% over 5 years (40% over 10 years for developing countries. Unlike in the Uruguay Round agreement, there would also be separate ceilings on the support for specific products: the averages for 1999-2001.

Developed countries’ current right to exclude a minimal (“de minimis”) level of support from reduction commitments would be halved from 5% of agricultural production to 2.5% over five years. Developing countries would keep their 10% with additional flexibility, including the right to deduct some “negative support” for specific products.

The draft also looks at some details of how the AMS would be calculated. The current provision on taking inflation into account would be unchanged — Article 18.4 says that “excessive rates of inflation” should be considered when WTO members review a country’s ability to abide by its domestic support commitments. However, a country could express its commitments in a foreign currency.

  

The draft frameworks on the Amber Box  back to top

(see Cancún ‘framework’ proposals)

Before Cancún: The US-EU draft proposes broadly reducing trade-distorting supports by a range of percentages to be negotiated — countries with larger distorting supports are to make a greater effort. Japan’s paper specifies that the reductions should be on “total AMS” (i.e. for the whole agricultural sector, allowing shifts between products). De minimis payments would be disciplined under an overall reduction for Amber, de minimis and Blue Box payments.

The G-20 framework envisages reductions on each product rather than for the whole agricultural sector, with additional conditions to reduce support on more heavily subsidized products, an initial “downpayment” cut, and larger reductions for products with more than a specified share of world exports — Norway also envisages larger reductions on products that are produced for export. The G-20 envisages capping Amber and de minimis payments (but not the Blue Box since it would be scrapped). The European-East Asian group argue that their supports have little impact on world markets and the reductions should be negotiated together with market access and export subsidies. Norway proposes negotiating reductions for the Amber and Blue Boxes combined.

In Cancún: the African Union/ACP/least-developed countries call for substantial reductions in both Amber and Blue Box supports “with a view to their phasing out and elimination”.

The chairs: The Pérez del Castillo text is similar to the US-EU draft. The Derbez paper adds proposed caps on Amber Box supports paid for each product to reduce governments’ ability to shift supports between products. Both envisage reductions on the combination of Amber, de minimis and Blue Box payments.

 

Developing countries’ exemptions under Article 6.2: preparations for ‘modalities’  back to top

This is the article that allows developing countries additional domestic support for example for rural development for “low-income or resource-poor producers”, and for crops grown as substitutes for narcotics. Developing countries stressed the need to keep this, and perhaps add additional flexibilities. Particularly vocal are countries using the provision to diversify production away from illicit crops.

 

The revised first draft ‘modalities’ on Article 6.2  back to top

This provision would be maintained, with possible enhancements for diversifying away from crops that are harmful for human health and for other well-targeted subsidies.

  

The draft frameworks Article 6.2  back to top

(see Cancún ‘framework’ proposals)

The G-20, four Central American countries’ and Kenyan drafts call for expanded provisions under this article. The Pérez del Castillo and Derbez drafts reflect this, with the Derbez text referring to “enhanced” provisions.

 

The ‘Green Box’: Phase 1  back to top

In order to qualify for the “Green Box”, a subsidy must not distort trade, or at most cause minimal distortion. These subsidies have to be government-funded (not by charging consumers higher prices) and must not involve price support. They tend to be programmes that are not directed at particular products, and include direct income supports for farmers that are not related to (are “decoupled” from) current production levels or prices. “Green box” subsidies are therefore allowed without limits, provided they comply with relevant criteria. They also include environmental protection and regional development programmes (for details, see Article 6 and Annex 2 of the Agriculture Agreement). Canada has proposed setting limits on all “boxes” combined, which would mean limits on Green Box subsidies as well.

Some countries say they would like to review the domestic subsidies listed in the Green Box because they believe that some of these, in certain circumstances, could have an influence on production or prices. Some others have said that the Green Box should not be changed because it is already satisfactory. Some say the Green Box should be expanded to cover additional types of subsidies.

 

Green Box: Phase 2  back to top

One proposal would maintain the Green Box as a set of measures that do not distort trade or are minimally distorting. Among the additions would be programmes that reimburse additional costs arising from the protection of animal welfare, and special flexibility for developing countries tackling food security and poverty alleviation.

Another proposal envisages retaining the Green Box but updating the base periods for “decoupled” income supports, changing threshold levels for income insurance and safety net programmes, and similar adjustments on relief from natural disasters.

Several developing countries propose additional flexibility for their needs, including a “development box” added to the Green Box.

Some countries are more critical of the Green Box as it stands, arguing that despite its objectives it does distort trade by encouraging more production and lowering world prices. One country proposes: a quantitative means of measuring whether a policy is “non-distorting”; removing direct payments, decoupled income support, and subsidized income insurance and safety nets; revising criteria for structural adjustment programmes that include factor “retirement”; notification and evaluation criteria for disaster relief, investment aids, environmental programmes, and regional assistance; transparency for food security measures and food aid; and limits on Green Box spending.

A number of critics of the Green Box say this proposal is interesting, but would like to examine it further. A number of other members object to capping the Green Box, arguing that Green Box measures meet the fundamental criteria of non or minimal distortion.

One of the themes taken up, particularly by developing countries, is the view that while individual Green Box programmes may appear to be non-distorting, the cumulative effect of the large amounts spent does distort for a number of reasons.

Phase 2 papers or “non-papers” from: Argentina, Cyprus, nine developing countries (Cuba, Dominican Rep, Honduras, Nicaragua, El Salvador, Kenya, Pakistan, Sri Lanka, Zimbabwe), the EU, Japan, and Namibia

 

Green Box: additional issues (Phase 2)  back to top

More countries have reservations about proposals on the Green Box. Proposed are: greater flexibility for developing countries under this box, i.e. developing countries would be allowed to use certain measures without restriction by putting them in the Green Box; and some definition for determining whether measures really are minimally trade distorting.

These were based partly on the argument that the large amounts that are being spent under the Green Box and through switching from the Amber and Blue Boxes do have an effect on wealth and income that can significantly distort production and trade.

Some members argue that the Green Box subsidies are defined as those that cause no or minimal distortion. Therefore, they say, any shift in support to the Green Box should be welcomed. Some also opposed putting some of the measures in the Green Box.

Phase 2 papers or “non-papers” from: some Caricom countries (Food aid, Green Box subsidies, non-trade concerns, special agricultural safeguard mechanism for developing countries and small developing economies, trade preferences) and Mauritius (Green Box)

 

Green Box: preparations for ‘modalities’  back to top

There are two broad questions:

Is the Green Box flexible enough to cover non-trade concerns (environmental protection, rural development, animal welfare, etc) and developing countries’ needs?

Several countries call for more flexibility, with one proposing a new paragraph for Annex 2 (which defines the Green Box) to allow compensation for the costs of applying higher standards such as animal welfare that are imposed by consumers and voters (“non-producer concerns”).

A number of developing countries call for more flexibility for their concerns.

The more ambitious liberalizers express concern that many proposals would add trade-distorting subsidies to the Green Box.

Does the Green Box distort trade? Several developed and developing countries say “yes” either because of the sheer scale of Green Box subsidies in some countries, because certain income supports cut farmers’ costs, reduce risks, and sustain supply, or because some programmes have been implemented in a way that distorts (for example base periods used to set supported income levels have been adjusted). One developing country cites the example of a country which spent $1.3 billion on income support for rice farmers in 1999/2000, when that country’s total rice production was worth $1.2 billion.

These countries want Green Box payments capped overall, specific types of programmes limited, or some income support programmes removed from the Green Box. Some want to re-examine the condition that these subsidies should be non- or minimally-trade-distorting.

Other countries reject the view that the Green Box is more than minimally distorting.

 

The revised first draft ‘modalities’ on the Green Box  back to top

The Green Box would be maintained, with some possible amendments:

  • adding fixed or unchanging reference periods (some Green Box provisions allow countries to base their calculations on base periods that can change)
     
  • tightening rules on criteria for compensation that is allowed to be in the Green Box
     
  • allowing compensation for increased costs of protecting animal welfare.

Under special and differential treatment for developing countries, new types of direct payments would be added, some criteria would be adjusted.

  

The draft frameworks on the Green Box  back to top

(see Cancún ‘framework’ proposals)

The US-EU draft says nothing about the Green Box. The G-20 framework proposes reductions on categories of Green Box subsidies (some income supports — paragraphs 5-13 of Annex 2 of the Agriculture Agreement) that the group considers to distort trade, along with additional, unspecified disciplines. Japan, Norway and the European-East Asian group oppose changing or limiting the Green Box. The African Union/ACP/least-developed countries call for developed countries’ “trade distorting” Green Box measures to be limited. Caricom calls for stronger criteria for the Green Box.

The Pérez del Castillo and Derbez texts propose that the criteria for the Green Box be negotiated or reviewed — the Derbez draft narrows the focus by spelling out the purpose: to ensure the Green Box is minimally distorting.

 

Animal welfare and the Green Box: Phase 1  back to top

The discussion on animal welfare includes the idea of compensating farmers for the extra costs they bear when they are required to meet higher standards of animal welfare. Under the proposal, these payments would be in the Green Box of permitted domestic support. The debate has partly been about whether this would be at the expense of human welfare, particularly in poorer countries.

Proposals on animal welfare submitted in Phase 1

  

The ‘Blue Box’: Phase 1  back to top

The Blue Box is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal (“de minimis”) levels. It covers payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their land. Countries using these subsidies — and there are only a handful — say they distort trade less than alternative Amber Box subsidies. Currently, the only members notifying the WTO that they are using or have used the Blue Box are: the EU, Iceland, Norway, Japan, the Slovak Republic, Slovenia, and the US (now no longer using the box).

At the moment, the Blue Box is a permanent provision of the agreement. Some countries want it scrapped because the payments are only partly decoupled from production, or they are proposing commitments to reduce the use of these subsidies. Others say the Blue Box is an important tool for supporting and reforming agriculture, and for achieving certain “non-trade” objectives, and argue that it should not be restricted as it distorts trade less than other types of support (see non-trade concerns). The EU says it is ready to negotiate additional reductions in Amber Box support so long as the concepts of the Blue and Green Boxes are maintained.

 

Blue Box: Phase 2  back to top

A number of developed and developing countries favour getting rid of the Blue Box (moving it into the Amber Box). They propose additional disciplines while it is being phased out. These countries see the Blue Box as an interim or transitional measure to help subsidizing countries move away from Amber Box subsidies. The counter argument is that the Blue Box should be preserved — although some members are prepared to discuss modifications — arguing that it distorts less than the Amber Box and helps make reforms easier to undertake.

Phase 2 papers or “non-papers” from: The Cairns Group.

 

Blue Box: preparations for ‘modalities’  back to top

Some liberalizers call for the Blue Box to be phased out over a period to be negotiated. Others propose five years for developed countries and nine years for developing countries — the same as the Amber Box phase out. They consider the Blue Box to have been a temporary measure that distorts trade and has outlived its usefulness.

Others vigorously defend the Blue Box, saying it distorts trade less than the Amber Box, and is necessary to allow reform to take place in their countries — they see it as a staging post in the move away from the Amber Box.

 

The revised first draft ‘modalities’ on the Blue Box back to top

Current Blue Box payments would be capped and bound. Then, they would either be halved over five years (cut 33% over 10 years for developing countries), or merged into the Amber Box (i.e. included in “current total aggregate measurement of support” or AMS) — developing countries would be allowed to delay the merger until the fifth year.

  

The frameworks on the Blue Box  back to top

(see Cancún ‘framework’ proposals)

Before Cancún: The US-EU draft proposes modifying the definition of the Blue Box (removing the reference to “production-limiting programmes” from Article 6.5 of the Agriculture Agreement) and limiting this to 5% of the value of agricultural production by the end of the implementation period. The G-20 wants the Blue Box eliminated. Japan wants it maintained but is willing to modify it.

In Cancún: Norway’s Cancún paper proposes giving governments the option of either adopting the US-EU revised definition and limit, or halving the present Blue Box from 2000-02 levels. Israel proposes leaving the final limit open for negotiation. The African Union/ACP/least-developed countries want the Blue Box eliminated along with the Amber Box.

The chairs: The Pérez del Castillo and Derbez texts start off from US-EU draft but go some way towards the G-20’s call for elimination by adding further reductions beyond the end of the “implementation period”, to be negotiated. The Derbez text would also require a reduction in the combined value of supports in the Blue Box, de minimis and Amber Box, compared to the levels in 2000.

 

General comments on domestic support: preparations for ‘modalities’  back to top

Some countries express concern that others’ proposals are so ambitious that they would be impossible to implement in their countries and disrupt the reform process. If the reform process is to continue and if the negotiations are to meet the deadlines and mandate set in Doha, then negotiators should stick to the “substantial reduction” mandate and the “architecture” set in the Uruguay Round, they say. One major trader complains that some proposals are formulated in a way that would force it to make far-reaching changes while other major traders would not have to do much. It adds that supports that vary according to market prices and enhance exports should be disciplined under export subsidies.

Others responded by arguing that the worst offenders should expect to have to do most.

 

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