International Trade Daily | October 1, 2001 | By Daniel Pruzin
GENEVA--Members of the World Trade Organization have put forward new proposals for reforming rules covering the use of so-called "green box" and "blue box" subsidies in agriculture.
The European Union, Japan, Argentina, and a group of nine developing countries--Cuba, the Dominican Republic, El Salvador, Honduras, Kenya, Nicaragua, Pakistan, Sri Lanka and Zimbabwe--presented their proposals on reforming the green box at a Sept. 24-26 WTO informal negotiating session on agriculture. The 18-member Cairns Group of agricultural exporting nations also put forward their ideas for phasing out the use of blue box subsidies at the same meeting.
The farm negotiations began early last year as mandated under Article 20 of the WTO's Agriculture Agreement, which calls for continuation of the reform process leading to substantial progressive reductions in support and protection. Many trade officials however admit that further progress in the negotiations will be difficult unless the talks are wrapped up in a broader trade round which the WTO is hoping to launch at its fourth ministerial conference in Doha, Qatar in November.
Under the WTO's Agriculture Agreement, green box subsidies are exempted from reduction commitments as long as they have a minimal or no impact on trade. Examples of green box subsidies include spending on agricultural research, pest control, marketing, and promotional services; income insurance and income "safety-net" programs; payments for natural disasters; structural adjustment assistance; and payments for environmental and regional assistance programs.
Blue box subsidies cover direct payments to farmers by governments under production-limiting programs. Such payments, which are based on fixed areas or yields, or (for livestock) on fixed numbers of heads, are also exempt from subsidy-reduction commitments.
According to a report issued by the Organization for Economic Cooperation and Development last April, of the annual $360 billion in domestic support provided by OECD governments to their farmers, more than 60 percent of the support qualifies as green box or blue box subsidies. The report also noted that the use of green box subsidies has been increasing, particularly by the EU, the United States and Japan.
EU Seeks to Exempt Animal Welfare Costs
The latest EU proposal on green box subsidies calls for additional flexibility in the use of such subsidies, in particular to cover payments for animal welfare. Animal welfare, or improving the handling and treatment of farm animals, is one of the issues which Brussels wants addressed as a non-trade concern under the Article 20 mandate for the negotiations. Other such as the Cairns Group have scoffed at the proposal, arguing that animal welfare is an issue best addressed at the domestic level.
The EU noted that legislation aimed at protecting animals may increase costs to producers. It "is legitimate that compensation for additional costs be exempted from reduction commitments whenever it can be clearly shown that these additional costs stem directly from the higher standards in question and thus have no, or at most minimal, trade-distorting effects," Brussels said.
Japan also called for additional flexibility in regards to restrictions that prevent the use of green box subsidies that link payments with farm output levels. According to Japan, this "decoupling" requirement makes it difficult to provide adequate levels of support to farmers when commodity prices are low. As a result, Japan argued, payments should be allowed to relate to factors of production such as the production area and the number of animals. Japan also proposed lowering the threshold level for providing minimum income loss compensation and raising the 70 percent compensation rate for income loss.
Argentina, LDCs Urge Shrinking Box
On the other side of the spectrum, Cairns Group member Argentina proposed stricter criteria on the use of green box subsidies as well as an overall cap on the amount of subsidies provided by each WTO member. Argentina argued that certain types of support such as direct payments to producers and government-financed income insurance and income safety nets should be excluded from green box coverage because of their effect on farmers' income and production. Argentina also argued for the establishment of notification and evaluation criteria related to disaster relief, investment aid for structural adjustment, environmental programs and regional assistance in order to ensure that such programs do not have a distorting effect on trade.
The group of nine developing countries questioned the legitimacy of maintaining the green box, arguing that green box subsidies have more than a minimal impact on trade and that the criteria for their use are not clearly defined and thus are subject to abuse. The nine also argued the green box appears designed to benefit developed rather than developing countries and gives countries a loophole to shift their farm support away from the "amber box" of subsidies subject to reduction commitments.
The nine proposed that the green, blue and amber boxes be combined into a single general subsidies box and that a common subsidies cap be fixed within the box, such as 10 percent of agricultural production with a 20 percent "non-actionable" cap fixed for developing countries. The nine also said that the "due restraint" clause in the Agriculture Agreement prohibiting WTO dispute settlement challenges against green box subsidies should be terminated as soon as possible.
Cairns Targets Blue Box
In regards to the blue box, the Cairns Group further elaborated its earlier call for the eventual elimination of the blue box exemption, a position also supported by the United States. The group said that capping, reducing and eliminating blue box subsidies would help ensure substantial reduction in trade-distorting farm supports.
The group said in a joint paper that a formula approach should be established to deliver major reductions in amber box and blue box supports with the aim of their elimination at a date to be agreed to in the agriculture negotiations. As part of this, the Cairns Group called for a substantial down payment in the form of a 50 percent cut in blue box subsidies during the first year of implementation. The blue box was mainly created to accommodate the EU's reform of the Common Agricultural Policy and its shift away from subsidization based on production.
The EU, Japan, Norway, Slovakia, Slovenia, and Iceland are the only WTO members which currently provide blue box subsidies.
Copyright c 2001 by The Bureau of National Affairs, Inc., Washington D.C.International Trade Daily:
