Info Service on Trade and WTO Issues (July08/20)
No real cuts in subsidies from WTO text
18 July (Martin Khor) -- When the WTO mini-Ministerial week begins on
21 July, perhaps the most anticipated question is what the United States
will offer in reducing its overall trade-distorting domestic support
in agriculture. The EU's own offer is presumably also linked to what
G20 has insisted that agriculture is the "locomotive" of the
Round and the most politically-charged issue is whether agricultural
subsidies in the major developed economies are going to be reduced,
in terms of bound commitments
latest modalities paper (10 July) of the Chair of the agriculture negotiations,
Crawford Falconer, remains basically the same as the previous three
versions on this question of reduction of the bound or allowable level
of the Overall Trade Distorting Support (OTDS). For developed countries,
the base OTDS shall be the sum of (I) the final bound total AMS; plus
(ii) 10% of value of production in the
The reduction of the developed countries' OTDS base level will be in accordance with the following tiered formula: (a) Where the OTDS base level is over US $60 billion, the reduction shall be [75-85] per cent; (b) Where the OTDS base level is over $10 to 60 billion, the reduction shall be [66-73] per cent; ( c) Where the OTDS base level is less than or equal to $10 billion, the reduction shall be [50-60] per cent.
the above proposed formula by the Chair, the following is the estimated
reduction for the
2. The EU OTDS base allowable level is estimated at Euro 110 bil. It is thus in category (a) and thus would have to cut its OTDS by 75-85 per cent. After the cut the OTDS would be in the range of Euro 16.5-27.6 bil.
BACKGROUND TO BOUND AND APPLIED (ALLOWED AND ACTUAL) DOMESTIC SUPPORT
On domestic support, there is a lot of confusion: (a) on the difference between the allowed levels (i. e. the maximum levels) that members commit not to exceed, and the applied (or actual) levels of the various subsidies; and (b) on the different types or "boxes" of subsidies. The WTO's Agreement on Agriculture (AoA) distinguishes between different types of domestic support. Firstly a distinction is made between "trade-distorting" and non-trade-distorting subsidies. Members are obliged to fix maximum levels for trade-distorting subsidies and to reduce some of these allowed maximum levels. For subsidies considered non-trade-distorting (the Green Box), there are no maximum levels, and thus members can increase these subsidies without limit.
The Green Box subsidies (such as payments to farmers to protect the environment) are supposed to be "decoupled" from production, and thus they supposedly do not distort trade; however, some experts have pointed out that many of these subsidies are also distorting in that they provide grants to recipients which assist them to maintain farming as a viable occupation, and that without these payments some of the farms or some of their production would not exist.
On the first category of domestic support, the developed countries have been permitted by the AoA to maintain high allowed levels of trade-distorting domestic support or TDS. These trade-distorting subsidies are in three categories:
(1) the Aggregate Measurement of Support (AMS) or Amber Box, which is linked to intervention on agriculture prices and considered the most trade-distorting; (2) de minimis support (certain amounts of domestic subsidy that are allowed, calculated as a percentage of the value of agricultural production); and (3) the Blue Box subsidies (which are supposed to be linked to setting limits on production), which are also considered trade-distorting but less distorting than the Amber Box.
The OTDS thus comprises these three types. The AoA obliges developed countries to reduce their total AMS by 20% by 2000 below the 1986-88 level, and to limit their de minimis support to 5% of production value; developing countries have to reduce their AMS by 13% and limit de minimis support to 10%. No limit was set on the Blue Box.
the Uruguay Round, the developed countries have been reducing their
actual levels of AMS to below the allowed levels, and they were able
to do this partly by shifting the subsidies from one box to other boxes.
In a dispute settlement case on cotton, it was found that the
EU and US have considerable leeway to (1) move trade-distorting subsidies
from the Amber Box to the Blue Box and de minimis in order to make fuller
use of their total allowed TDS; (2) make creative use of the Green Box
which has no limits and has loose criteria at present, and thus enable
some subsidies that are in effect trade-distorting to be counted as
non-trade- distorting subsidies. The level of the total actual OTDS
is presently far below the level of total allowed OTDS for the
the informal language of WTO negotiations, this would mean the
TWN Info Service on Trade and WTO Issues (July08/16)
21 July 2008
Published in SUNS #6521dated 21 July 2008
October 2005, the
argued that the
2001 onwards (to now), the allowed levels of trade-distorting support
for the US were estimated as follows: (1) Amber Box $19.1 billion; (2)
de minimis $19.8 billion (being 10% of production value), made up of
$9.9 billion for product-specific support (5% of production value) and
$9.9 billion for general support (5% of production value); and (3) an
implied level of Blue Box subsidy of about 5% of production value. The
total allowed TDS is estimated at $48.2 billion. The
The US offer of October 2005 was that it would: (1) reduce allowed AMS by 60% to $7.6 billion; (2) reduce the allowed de minimis to 5% of production or $10 billion [made up of $5 billion product-specific support (2.5% of production) and $5 billion general support (2.5% of production)]; and cap the blue box to 2.5% of production value or $5 billion. The total allowed TDS would be $22.7 billion (or a 53% cut from the present total allowed TDS of $48.2 billion).
accordance with the Chair's July 2008 text, the
other countries, while cautiously welcoming this indication, have also
stated that the
when the US indicated its acceptance of the Chairs' range of $13-16.4
billion, it was not far off from the provisional offer of $17 billion
that the US Trade Representative Susan Schwab had made at the Potsdam
meeting of the G4 Ministers in June. She later explained to the media
that if the OTDS level the
agriculture domestic support simulations paper (JOB(06)/151 dated 22
May 2006) prepared by
any case, as the Indian Minister has correctly stated several times,
domestic subsidies in agriculture are structural flaws which should
not be permitted at all, similar to industrial subsidies (which are
banned in the WTO). "The flaws have no exchange rates," said
Kamal Nath. "Correcting flaws and distortions have no exchange
rates." What he meant was that the
THE EU OTDS, ITS OFFER AND THE CHAIR'S PROPOSAL
The European Union made its offer on domestic support on 28 October 2005. This comprised the following: 70% cut in allowed AMS; 80% cut in allowed de minimis; and restriction of the Blue Box to 5% or production. The total allowed OTDS would be cut by 70%.
Some independent analysts have estimated that the EU would also not have to reduce its already planned level of actual domestic support with its proposal. In fact there will be some "water" between on one hand what the EU has already scheduled to do under its CAP reform, and on the other hand the proposed new level of allowed trade-distorting support in its WTO proposal; and thus the proposal enables the EU to have a level of domestic support beyond what it had planned in the CAP. According to one estimate, this "water" is around Euro 6 to 13 billion, depending on the assumptions, according to the agriculture analyst Jacques Berthelot in a 2005 paper.
In an analysis of the EU offer on domestic support, Berthelot concludes: "The claim by the EU that it is offering huge cuts in agricultural domestic supports is not backed by the evidence. In fact, the EU has given itself room to increase its supports beyond what the CAP reforms have mandated it to do. This analysis shows that [EU Trade Commissioner Peter] Mandelson's offers are actually compatible with the CAP reforms of 2003-04, in that they do not commit the EU to do more than what it has already planned to do, and in fact give it the space to have supports at levels higher than it had planned under the CAP reforms."
The present estimated allowed levels of trade-distorting support of the EU are as follows: AMS Euro 67.2 billion; de minimis Euro 19 billion; and with the inclusion of the actual blue-box level (of year 2001/2) of Euro 23.7 billion, the total allowed OTDS is estimated at Euro 110 billion. In 2001/2, the actual levels of trade-distorting support of the EU were: AMS Euro 43.7 billion; de minimis Euro 1 billion; Blue Box Euro 23.7 billion. Total actual OTDS was Euro 68 billion.
the CAP reform, these actual levels are planned to be scaled back so
that by 2008 the actual levels are expected to be: AMS Euro 18.8 billion;
de minimis Euro 1 billion; Blue Box Euro 7 billion; Total OTDS Euro
26.8 billion. The EU's
significant conclusion is that the EU offer to cut its allowed total
TDS by 70% to Euro 33 billion still allows it to have "water"
of Euro 6.2 billion above the Euro
accordance with the Chair's 17 July 2007 draft modalities text, the
EU (being in category (a) of the tiered formula) would have to reduce
its OTDS by 75-85 per cent from its base level of Euro 110 bil. Thus,
after the cut, the OTDS would be in the range Euro 16.5-27.6 bil. The
EU had earlier said it could undertake a reduction rate ten percentage
points higher than the
the EU were to make an offer for a 80% cut (mid-way between the Chair's
75-85 range), it implies taking its allowed or bound OTDS to Euro 22
billion. Assuming the negotiations conclude in 2008 and take effect
in 2009 or 2010, and assuming that there will likely be a 5-year implementation
period, the allowed level would then be Euro 22 billion in 2012 or 2013.
And this compares with the estimate of euro 12 billion at the end of
the CAP reform in year 2014. There will thus be a lot of "water".
At a meeting on 24 July to provide feedback to the Chair's text, the
G20 stated that the EU and
ON DOMESTIC SUBSIDY OFFERS, CHAIR'S RANGES AND THE
conclusion from the above is that even when considering only the trade-distorting
to the trade expert Chakravarthi Raghavan, it was significant that the
so long as the green box category of subsidies is not disciplined and
capped, it would not matter what the
"peace clause" in the Agreement on Agriculture exempted WTO
members from being taken to a dispute settlement panel if they were
in violation of certain aspects of disciplines relating to agricultural
subsidies. The peace clause has expired, thus opening members to dispute
procedures. However, it is believed that the
The Green Box can be expected to be even more the major category of domestic support in future, as this constitutes an escape from having to really reduce overall subsidies. The developed countries can continue to use the Green Box subsidies without limit as the August 2004 Framework and the Hong Kong Declaration do not put a cap on these. Some of these Green Box subsidies are actually trade-distorting (as the cotton dispute decisions have shown) and should have been allocated to the trade-distorting boxes such as Amber or Blue or de minimis.
the trade expert Bhagirath Lal Das has pointed out: "The really
significant escape route is the Green Box which amounts to US$50 billion
and Euro 22 billion in 2000 respectively in the