TWN Info Service on WTO and Trade Issues (Aug21/09)
25 August 2021
Third World Network

Dear friends and colleagues,

As the World Trade Organization (WTO) heads towards its Twelfth Ministerial Conference, agricultural trade remains a critically important issue for developing countries and least developed countries in the negotiations.

The WTO’s Agreement on Agriculture (AoA) lays down rules for three pillars of agricultural trade, namely, market access, domestic support and export support. Of these, domestic support has been the most dynamic and controversial area, mainly because of inequitable rules dividing developed and developing countries.

While most attention has gone to the rules regarding the Amber Box or Aggregate Measurement of Support ), it is the Green Box subsidies listed under Annex 2 of the AoA – which can be given without limit due to their so-called “non-trade-distorting” nature – that reinforce the strong element of inequity in the domestic support rules of the AoA.

With the objective of informing the Green Box discussion with recent data, TWN has analysed data submitted by Canada in 2020 and identifies some recent trends in total Green Box support, component-wise expenditure, the share of direct payments under paragraphs 5-13 or the trade-distorting support, and also the comparison of the Green Box as a percentage share of value of production.

A summary of key findings is below. The full paper is available here:

https://twn.my/title2/briefing_papers/twn/Green%20Box%20TWNBP%20Jul%202021%20Ranja.pdf

With best wishes,
Third World Network

WTO Green Box subsidies: Recent trends and lessons going forward

by Ranja Sengupta

Executive Summary

Green Box (GB) subsidies listed under Annex 2 of the WTO Agreement on Agriculture (AoA) – which can be given without limit due to their so-called “non-trade-distorting” nature – reinforce the strong element of inequity in the domestic support rules of the AoA. With the objective of informing the GB discussion with recent data, this brief analyzes data submitted by Canada in 2020 and identifies some recent trends in total GB support.

a) There are 28 countries that gave total GB subsidies of over USD 100 million in 2016. The top five countries are China, the USA, the European Union, India and Japan. There is a significant gap between the amounts of subsidy given by the first three countries, at USD 197,631 million (China), USD 119,492 million (USA) and USD 68,245 million (EU) respectively, and the rest. Of the top five users, three are developed countries – the USA, the EU and Japan – while the other two – China and India – are large, populous developing countries.

b) China is the highest user of subsidies on general services at USD 91,285 million. The USA and Japan follow with USD 12,540 million and USD 11,913 million each. The USA is by far the largest user of domestic food aid, having spent USD 102,243 million, with Cuba, Indonesia and the EU following far behind with USD 3,211 million, USD 1,659 million and USD 1,360 million respectively. China (with USD 17,295 million) and India (with USD 16,271 million) are the only major users of the GB for public food stockholding purposes.

c) The Green Box subsidies of 13 countries have growth of above 200 per cent between average 2001-03 and average 2016-18 values, which means their total GB support more than tripled over this period. Another four countries have growth of over 100 per cent, which means their GB expenses more than doubled over the period. Total Green Box support of all WTO Members increased by 66 per cent over this period. It is important to note that some countries with lower increases still have high absolute amounts of support while for others, subsidies grew much more but are still pretty low in absolute terms.

d) A total of 16 countries devoted more than 50 per cent of their GB support to general services, with Thailand, Chile, Colombia, New Zealand, Saudi Arabia, Canada and the Philippines contributing the top shares. The USA and Ecuador, followed by Indonesia, Cuba and Brazil, allocate most of their GB support to domestic food aid. However, all of these countries other than the USA are relatively small users in absolute terms. China and India are almost the only users of subsidies on public food stockholding programmes, but while for India this occupies the largest share of total GB expenses, for China the share in total GB support is small.

Trade-distorting direct payments under the Green Box (covered by paragraphs 5-13, Annex 2, AoA)

e) China is the highest user of direct payments, which are deemed to be production-boosting and trade-distorting, with expenses of USD 89,041 million (2016), followed by the EU at USD 61,035 million, and then by Japan and the USA at much lower USD 5,427 million and USD 4,709 million respectively.

f) The EU devoted the highest share of 88.61 per cent of its total GB support to direct payments, followed by Norway at 88.01 per cent, Turkey at 86.4 per cent and Switzerland at 71.8 per cent (averaged over 2016-18), though the latter three countries have much lower expenses in absolute terms. But this shows that these countries are using largely trade-distorting subsidies in the name of decoupled Green Box support.

g) Six countries, namely, Norway (28.18 per cent), Switzerland (18.65 per cent), the EU (15.06 per cent), Iceland (9.87 per cent), Japan (6.26 per cent) and China (5.89 per cent), are giving direct payments to farmers in excess of 5 per cent of their annual value of production (VOP). Eight other countries are using direct payments ranging between 1 and 5 per cent of their VOP in 2016. These direct payments result in an additional entitlement over the de minimis limits prescribed under Article 6.4 of the AoA for trade-distorting subsidies. This is also additional to the Final Bound Aggregate Measurement of Support entitlements that some of these countries, e.g., the EU, Norway, Switzerland, Iceland and Japan, already enjoy.

h) The EU’s direct payments are the second highest in absolute terms and the third highest as a share of annual VOP (15.06 per cent). Japan, Norway, Switzerland and Iceland (which is not even among the top 28 GB users) are all relatively smaller users of direct payments in absolute values but have high shares as a percentage of VOP (at 6.26, 28.18, 18.65 and 9.87 per cent respectively). Therefore all these countries are using direct payments that are high in comparison with the size, and therefore the needs, of their agriculture sector.

i) China is the highest absolute user of direct payments and has higher shares of direct payments in total GB (45.05 per cent) and annual VOP (5.89 per cent) compared with most other countries. However, the share in VOP is lower compared with the five countries above. This is because China is a very large economy with a very large agriculture sector and VOP.

j) Some other countries have a high share of total GB to VOP but the share of direct payments is lower than 5 per cent of VOP. The most important example of this is the USA, whose total GB as a percentage share of VOP stands at a high 33.61 per cent but whose direct payments are only 1.32 per cent of VOP. These countries are high users of the Green Box in comparison with the size of their agriculture sector but not of trade-distorting direct payments.

While the massive amounts of total GB support by some countries may themselves be problematic for other countries, it is the trade-distorting component of direct payments under the GB that needs specific scrutiny. Such support should be compared with the size of the country’s agriculture sector as expressed in terms of VOP.

Ideally all direct payments to producers, except for special circumstances such as natural disasters and other types of crisis, should be eliminated. At the minimum, direct payments should be capped based on VOP and/or other indicators such as farming population or employment, income and asset holdings.