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TWN Info Service on WTO and Trade Issues (June 07/02) 3 June 2007
The second installment
of the "Challenge Paper" by the Chair of the WTO's agriculture
negotiations indicates his view that the Green Box domestic support
provided by developed countries cannot be further disciplined by the
If this view were to prevail in the final outcome, then the road will be open for the major subsidizing developed countries to continue high domestic subsidization of their agricultural sector, by continuing to shift their subsidies. This "box shifting", if it takes place, threatens to negate any positive effects that may be achieved by the reduction of the subsidies in the "non-trade distorting" category, which is the subject of almost all the negotiations on agricultural domestic supports. Below is a commentary on the treatment of the Green Box in the paper. It was published in the SUNS on 1 June With best wishes ----------------------------------------------------------------------------------------------------------- Falconer paper dismisses Green Box reforms, enables more agri-subsidies By Martin Khor (TWN), 28 May 2007 The
second installment of the "Challenge Paper" by the Chair of
the WTO's agriculture negotiations, Ambassador Crawford Falconer of
If this view were to prevail in the final outcome, then the road will be open for the major subsidizing developed countries to continue high domestic subsidization of their agricultural sector, by continuing to shift their subsidies. This "box shifting", if it takes place, threatens to negate any positive effects that may be achieved by the reduction of the subsidies in the "non-trade distorting" category (which contains the amber box, blue box and de minimis supports), which is the subject of almost all the negotiations on agricultural domestic supports. The Falconer second installment, dated 25 May, covers many issues left out from the first installment issued at the end of April. The other issues include special safeguard mechanism, cotton, LDCs, recently acceded members, small and vulnerable economies, preference erosion and tariff escalation. On the Green Box, para 16 of the July 2004 framework on agriculture states that "Green Box criteria will be reviewed and clarified with a view to ensuring that Green Box measures have no, or at most minimal, trade-distorting effects or effects on production. Such a review and clarification will need to ensure that the basic concepts, principles and effectiveness of the Green Box remain and take due account of non-trade concerns. The improved obligations for monitoring and surveillance of all new disciplines foreshadowed in paragraph 48 below will be particularly important with respect to the Green Box." Developing countries have made two types of proposals to reform the existing Green Box. The first (including proposals by the Africa Group and the G20) is to allow some types of agricultural subsidies made by developing countries themselves to be included in the Green Box. The second (made mainly by the G20) are proposals to put disciplines on certain types of existing Green Box subsidies so that those that have the potential to be trade-distorting (such as direct payments to producers) are curbed or disallowed. The Falconer paper indicates sympathy for the first type of proposals, but seems to almost flatly reject the second type. By doing so, he is indicating that the developed countries are inflexible and do not want to entertain any changes to rules affecting their use of the Green Box, and that not much can be done about that. By accepting or acquiescing in this, Falconer appears to be saying that the developing countries have to live with the present Green Box as it pertains to developed countries, and in return some accommodation can be made for the developing countries by allowing the expansion of their own use of the Green Box. On the developing countries' use of the Green Box, the paper states the following: -- Government service programmes (General Services): There does not seem to be any objection to extending specific coverage of paragraph 2 of Annex 2 to specifically cover land reform programmes in developing countries and include associated administration and legal services. But there are some objections to extend it to cover programmes related to other objectives, such as rural development and infrastructure provision. -- Public stockholding for food security and domestic food aid: There is some support for the proposal that footnote 5 of Annex 2 should be amended so that the acquisition of stocks for food security should not be accounted for in the AMS or that such stocks acquired with the objective of supporting low-income or resource-poor producers would not have to be accounted for in the AMS. "I remain at least of the view expressed in my reference papers on this as a way to respond." The deletion of the phrase "provided that the difference between the acquisition price and the external reference price is accounted for in the AMS" from the end of footnote 5, as proposed by the African Group, might be a more clear-cut way to achieve this. There is also support for the proposal to amend footnote 5 & 6 to cover the acquisition of food stuffs at subsidized prices when procured generally from low-income and resource-poor producers in developing countries with the objective of fighting hunger and rural poverty. However, there are also concerns that such amendments could cover programmes that have objectives other than the acquisition of stocks for food security or the provision of domestic food aid. This is a matter of getting the right terms of the amendment. -- Direct payments to producers: There is no major objection to the proposals that some of the paragraphs 5 to 13 of Annex 2 should be amended to explicitly cover pilot programmes and new programmes in developing countries. In addition, there did not seem to be any objection to amending paragraph 8 to permit compensation for losses of less than 30 per cent of the average production in cases of destruction of livestock or crops for disease control purposes. Besides the above, Falconer also says (in relation to direct payments to producers) that there was real progress last year emerging on the issue of fixed and unchanging base periods. This, he feels, is "doable", by drafting in a way that avoids having the perverse effect of deterring Members from moving into the Green Box, i. e. to draft in a way that provides for occasional changes in base periods provided these were not done in a way that implied a link to prices or production. Then comes the paper's conclusion with regard to other issues relating to "direct payment to producers", presumably referring to the proposals to discipline the developed countries' use of the Green Box. Falconer says: "Beyond that, I have the impression that there is a strong reluctance to entertain much more by way of amendments to Annex 2. Of course, a number of Members would prefer things otherwise, but I doubt that view will prevail." He offers, as if as a compensation, that as a practical consequence, "there is an absolute requirement to have much more precise and effective provisions on transparency, monitoring and surveillance. It will be inescapable and it will not be relatively light-handed if indeed there turns out to be a relatively scaled down level of textual amendments beyond the areas noted above." In 2005, the G20 put forward a proposal on "Review and Clarification of Green Box Criteria." Its main aim was to ensure that domestic support measures notified conform to the fundamental requirement that they have no, or at most minimal, trade-distorting effects. The G20 explained that "A major flaw of the Agreement on Agriculture derives from the fact that there are no effective controls on the benchmarks of Annex 2, thus generating the incentive for members to notify distorting support in this category not subject to reduction commitments, a type of "box-shifting" which does not change the distorting nature of the support. As a consequence of this, the result of the review and clarification process should, as a general principle, ensure that the value of domestic support commitments to be undertaken, will not be undermined." The G20 stated that the programmes of direct payments to producers (Annex 2: Paragraphs 5-13), especially the way they are currently designed, have been found to influence trade and production and therefore could not be characterised as having "no, or at most minimal, trade-distorting effects or effects on production". Trade
distortions are likely to occur from decoupled payments in the "Such a large amount of money paid to farmers is likely to distort trade and effect production because it allows for, inter alia, effective cross-subsidisation of production through its effects on farmers' ability to cover fixed and/or variable costs; redistributes income with changes in market prices; isolates the farmer from market signals and reduces risk, etc. This problem is compounded, as these payments are not transitory measures and are therefore permanently incorporated into cash flows of farmers, thereby increasing their creditworthiness and serving as an instrument for hedging against risk." The G20 paper also makes analysis of other types of trade distortion, including from expectations about future policies; and incomplete decoupling programmes. As a result, the G20 proposed several amendments to the provisions of the Green Box, which included: (i) Eligibility conditions for receiving these direct payments should be such that the wealth effects of payments are minimised; (ii) Support should continue to be provided through publicly-funded government programmes, not involving transfers from consumers and should not require production: i. e. land, labour or any other input shall not be required to be put to agricultural use; (iii) Credible and time consistent policies with no changes in the eligibility rules, base periods or eligible products or farmers; (iv) Depending on the impact of the programmes, coupled programmes providing support to products receiving direct payments; and (v) Review of benchmarks and conditions for other direct payments. The textual changes proposed for the Green Box (Annex 2 of the Agreement on Agriculture) arising from the above principles were placed in a detailed Annex in the G20 proposal. The G20 carried its arguments further in May 2006 in a document commenting on the reference paper on the Green Box issued at that time by Falconer as chair of the agriculture negotiations. In its paper, the G20 explained that its approach to the Green Box was guided by the objective of keeping measures notified under the Green Box as "green". It said: "The G-20 is of the view that the credibility of the Agreement on Agriculture rests on the assumption that measures exempt from reduction commitments will indeed have no, or at most minimal trade-distorting effects or effects on production. Therefore, a review is to be undertaken on those direct payments and decoupled support which require close scrutiny, for developed countries are likely to transfer substantial amounts of support to those types of programmes." The G20 paper included comments on issues relating to direct payments and decoupled income supports that had been dealt with in the reference paper. It must thus come as quite a shock that in the latest Challenge Paper, Falconer seems to be brushing aside further discussion on the possibility of amendments to the Green Box in the crucial area of direct payment to farmers through his almost off-handed statement that "Beyond that, I have the impression that there is a strong reluctance to entertain much more by way of amendments to Annex 2. Of course, a number of Members would prefer things otherwise, but I doubt that view will prevail." The importance of amending the Green Box to prevent it from continuing to be an escape clause for developing countries to continue "box shifting" to avoid genuine reduction in domestic support has been highlighted by the international trade expert Bhagirath Lal Das. Das describes the Green Box as "a vast loophole and a wide escape route". He says that the US and EU may reduce their tariffs and trade-distorting support and, at the same time, increase their Green Box subsidy without limit, thus neutralizing the effects of reduction of TDS and tariff. "This
fear is real as is evident from the practices of the "There
is no reason to believe that they will not do the same again and use
to their advantage the loopholes and escape routes available in the
newly emerging agreement. In case of the EU, the Common Agriculture
Policy (CAP) of 2003 would shift a large bulk (about 75 percent) of
the Blue Box subsidy to the Green Box. The latest Five Year Farm Bill
of the "The Green Box subsidy is immune from reduction in the WTO as it is presumed to be non-trade-distorting. This presumption is a mistake as the subsidy, even though not strictly in the form of direct market intervention, enhances the staying capacity of the farmer in agriculture by its wealth effect and by assisting the farmers to take risk. It encourages and supports unviable agricultural production and thereby distorts agricultural trade." Das cited a recent study by the UNCTAD India office which came out with revealing conclusions that without the Green Box subsidies in the major developed countries: * Agricultural exports of the US and EU will decrease by 39 percent and 45 percent respectively, while the exports of the developing countries will increase by 22 percent; *Agricultural production of the US and EU will decrease by US$ 20.9 billion and US$ 53.8 billion respectively, while the production in the developing countries will increase by US$ 41.9 billion; *
Agricultural employment will decrease in the *
The cost of production will rise in the Das concluded that the developing countries should cast aside the myth that the Green Box subsidies are non-trade-distortive and set about having them eliminated or minimized. According to Das, the G20 proposals are not specific in terms of quantitative targets as those on TDS and tariff. Further, the G20 has not so far insisted on integrating the Green Box criteria in the mainstream negotiation on agriculture. In
fact, "It is important to insist that the Green Box is brought into the mainstream of agriculture negotiation and given the same priority and importance as the tariff and TDS," stressed Das. And the irony or double standards as pointed by Das is that "while the major developed countries are firmly defending their Green Box, they are trying to weaken the provisions for SP that addresses the food security, livelihood security and rural development needs of the developing countries." He concluded that in the agriculture negotiations, the Green Box criteria should be brought into the mainstream of negotiation along with TDS and tariff and the provisions for SP should be effective and useful. In the light of the incisive comments by Das above, it is most unsatisfactory that Falconer's second instalment of his "Challenge Paper" has so marginalised the importance of the proposals of the developing countries to discipline the use by developed countries of the Green Box. Indeed,
if the Green Box is allowed to be used as before and as at present,
the intense The developed countries can continue subsidising, through the mechanism of shifting the colour of the boxes under the domestic support scheme of the Agreement on Agriculture, while at the same time attempt to extract maximum and onerous concessions from developing countries not only in agriculture but also in NAMA and services and elsewhere. +
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