Bridges Weekly Trade News Digest • Volume 10 • Number 20 • 7th June 2006
Domestic Farm Subsidies: Members Continue To Tinker Round The Edges
WTO Members remain broadly divided on how to cut farm payments, less than two weeks before the chair of the negotiations is supposed to produce a draft framework agreement on both agricultural subsidies and tariffs. They did, however, signal some flexibility on minor technical issues related to relatively less trade-distorting forms of support during informal discussions on 1 June.
Countries have an end-June deadline to agree on agriculture ‘modalities’ — the formulae and figures that will determine the depth of tariff and subsidy cuts, as well as any exemptions from these measures (see BRIDGES Weekly, 31 May 2006).
Director-General Pascal Lamy has asked agriculture Chair Ambassador Crawford Falconer (New Zealand) to produce a first draft of a potential modalities deal around 19 June. This text is intended to be a key stepping-stone on the way towards an overall agreement, which WTO officials hope that ministers and senior trade officials will be able to hammer out during a meeting at the end of the month. Falconer has stressed that the high-level gathering must be presented with a manageable number of political decisions; this would require Geneva-based negotiators to resolve several underlying issues before then.
At the 1 June meeting, Members responded to Falconer’s revised ‘reference papers’ on ‘green box’ and ‘blue box’ subsidies. The two documents are part of a series intended to structure debate between Members, whilst gradually evolving into the basis for draft text.
Green box: Members show some flexibility
Members continue to struggle with the question of how to ensure that green box subsidies fulfil the "fundamental requirement" that they have no, or at most minimal, distorting effects on trade or production. The green box covers expenditures such as government programmes for research, infrastructure, and building public food stocks, as well as specific kinds of direct payments to farmers which are supposed to be de-linked from production.
The G-20 developing countries and the Cairns Group of farm exporters have expressed scepticism about the purported absence of distorting effects, especially with regard to direct payments. They have proposed reforms aimed at minimising any distortion. The EU, in contrast, opposes extensive changes to the green box. These differences persisted at the recent meeting.
Falconer’s 30 May reference paper on the green box contains a section with text incorporating Members’ proposed changes to parts of the existing provisions for such payments in the WTO Agreement on Agriculture. These include some of the G-20’s suggestions for making it easier for developing countries to make use of the green box (see BRIDGES Weekly, 24 May 2006). For instance, under existing rules, direct payments for income insurance and compensation for natural disasters qualify for the green box only after losses cross a certain threshold percentage of farm income or production value. However, developing countries often lack data for farm households. The proposed amendments would establish different eligibility criteria for developing countries, allowing them to assess income losses over the agricultural sector as a whole rather than for individual farms.
The fact that Members are at a stage where they can discuss concrete textual changes may signify some convergence. However, in his reference paper the chair challenged Members to decide quickly whether or not to negotiate on all of the proposed amendments, noting that they had not even started technical discussions on some of them.
Some movement came when Cairns Group member Canada offered to drop its pursuit of changes to the rules governing some kinds of direct payments to farmers — specifically those seeking to place constraints on environmental and regional assistance grants, as well as those in support of restructuring farm operations. Instead, Canada urged Members to focus on its outstanding proposals to introduce new ceilings and time limits on payments for income support and relief from natural disasters.
Canada also clarified its compromise proposal on the contentious issue of the ‘base periods’ for areas, yields and animal numbers used to calculate various green box payments. The G-20 has argued that these base periods must be ‘fixed and unchanging,’ in order to prevent farmers from altering production decisions in anticipation that governments will update these periods, thus effectively establishing a link between subsidies and production. Countries such as Switzerland — a heavy subsidiser — have nonetheless resisted this move, arguing that the G-20 proposal could mean they might never again be able to revise their base period figures, even long in the future when programmes may have become irrelevant.
The Canadian proposal would permit new base periods for new subsidy programmes, if it could be clearly shown that these were indeed different from their predecessors. Canada argues that this should allay Members’ concerns about being left unable to restructure subsidy programmes. It would also allow existing programmes to use new base periods if the old ones were sufficiently far in the past. Although some Members expressed their willingness to consider these options, others responded less warmly.
Blue box discussed briefly
Members also repeated longstanding differences in the brief discussions on ‘blue box’ payments, which currently cover grants that are partially de-linked from production requirements.
Falconer’s 24 May revised reference paper on the issue noted that it "appears that Members would be open to" halving the amount of permissible blue box spending from the 5 percent of production value set out in the July 2004 Framework (WT/L/579) to 2.5 percent.
The paper paid significant attention to the issue of how to "prevent concentration of permitted support on a single product or a narrow range of products," a major demand of several Members including the Cairns Group and G-20. The two groups favour a "double trigger" approach which would impose two ceilings on blue box support to a particular commodity: a maximum share of total blue box entitlements along with a proportion of the production value of the product in question. They have generally supported new disciplines on the blue box that go over and above the lowered cap.
The ‘concentration’ of payments was high on the agenda during the meeting on 1 June. The US indicated that it would be willing to discuss the double trigger, so long as it did not turn into a pretext for pushing the effective limit on blue box payments to lower than 2.5 percent of the value of production. One source said that the US currently spends 40 percent of its blue box entitlements on corn. Japan and Korea also indicated that they would be open to talking about the double trigger, though they sought assurances that the needs of Members that produced only a limited number of agricultural products would be taken into account. Both are part of the G-10 group of primarily developed countries that afford a high degree of protection to their farm sectors.During the meeting, the G-20 and New Zealand suggested another potential option for preventing the concentration of trade-distorting support on particular commodities: capping the sum of blue box and amber box subsidies for individual products. Amber box payments are the most trade-distorting form of support permitted under WTO rules.
In his paper, Falconer outlined some potential options for draft blue box modalities text. He reported that he had the impression Members would want to see their counterparts required to specify their blue box entitlements in value (rather than percentage) terms in their schedule of Doha Round commitments. One of the sections of potential rules includes a bracketed option — which ministers could ultimately decide to retain — reflecting the G-20 proposal to reduce the cap on blue box payments further than the 2.5 percent level towards which Members are currently leaning.
Sources report that the US and the EU indicated a willingness to engage with Benin, Burkina Faso, Chad and Mali, the four West African countries that have called for the ceiling on blue box cotton payments to be one-third of the overall cap. Falconer’s reference paper observed that the ultimate treatment of cotton would be "intimately related" to the overall agreement.
When summing up the week’s discussions on 2 June, Falconer reported that Members had engaged on some of the green box issues, though he had heard little that was new. In spite of the persistent divisions on domestic support, Members have now turned their attention to market access, on which they are, if anything, even further apart.
ICTSD reporting.