August 2004 framework: domestic support

All developed countries will make substantial reductions in distorting supports, and those with higher levels are to make deeper cuts from “bound” rates (the actual levels of support could be lower than the bound levels). The way to achieve this will include reductions both in overall current ceilings (“bound levels”), and in two components — Amber Box and de minimis supports. The third component , Blue Box supports, will be capped; at the moment the Blue Box has no limits. The fine print contains a number of details but also stresses that these have to meet the long-term objective of “substantial reductions”.

AS OF 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.

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All of these reduction commitments and caps will apply. However, the new ceiling at the end of the implementation period (mathematicians would say “the binding constraint”) will be the lower of the value of trade-distorting support resulting from (i) the overall cut and (ii) the sum of the reductions/caps of the three components. In other words, countries would have to make the required reductions in Amber Box and de minimis support, and be within the capped limit of the Blue Box. Then, if they are still above the overall limit, they will have to make additional cuts in at least one of the three components in order to match the ceiling set by the overall cut.

Developing countries will be allowed gentler cuts over longer periods, and will continue to be allowed exemptions under Article 6.2 of the Agriculture Agreement (they can give investment and input subsidies that are generally available and are integral parts of development programmes, and provide domestic support to help farmers shift away from producing illicit crops).

Overall: tiered formula with downpayment

For the overall level of support (Amber Box, de minimis and Blue Box combined), a “tiered formula” will be used. This will be designed so that higher levels of support (those in higher “tiers”) will have steeper cuts. On top of that, in the first year, each country’s ceiling of permitted overall support will be cut by 20%. Details include how to measure the Blue Box component for the overall cut (“the higher of existing Blue Box payments during a recent representative period to be agreed and the cap established in paragraph 15”, which will be 5% of a country’s agricultural production during a yet-to-be-specified period).

Amber Box: tiered formula with caps on specific products

Amber Box (“final bound total AMS”) supports will also be cut using a tiered formula, so that higher supports have steeper cuts. There will be limits on supports for specific products — “product-specific AMSs will be capped” — in order to avoid shifting support between different products. Since the tiered formula applies to the total of support on all products, the text also says that the result will be cuts in support specified for some products.

De minimis

Currently developed countries are allowed a minimal amount of Amber Box support (“de minimis”). For support that is not given to specific products, this is defined as 5% of the value of total agricultural production. For support given to a specific product, the limit is 5% of production of that product. Developing countries are allowed up to 10% of these. The framework says de minimis will be reduced by an amount to be negotiated, with special treatment for developing countries, which will be exempt if they “allocate almost all de minimis support for subsistence and resource-poor farmers”.

Blue Box

Blue Box supports, currently unlimited, are to be capped at no more than 5% of the value of a country’s agricultural production over a period that still has to be negotiated. Some flexibility will be allowed for countries whose Blue Box supports are an exceptionally large proportion of their trade distorting subsidies.

The framework endorses a point made by countries that defend the use of the Blue Box. They have argued repeatedly that they need to be able to switch from the more trade-distorting Amber Box subsidies to the less distorting Blue Box supports in order to make reform less painful and more feasible. The text therefore says “members recognize the role of the Blue Box in promoting agricultural reforms”.

The definition of the Blue Box will be changed to include direct payments that do not require any production, provided the payments are based on certain fixed production conditions (related to acreages, yields, numbers of livestock, or historical production levels). But new criteria will also be negotiated to ensure the Blue Box really is less trade-distorting than Amber Box measures.

Green Box

Criteria for defining supports as “Green Box” will be reviewed and clarified to ensure that the supports really do not distort trade, or do so minimally. At the same time, the exercise will preserve the basic concepts, principles and effectiveness of the Green Box, and take account of non-trade concerns such as environmental protection and rural development.

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