Bridges Weekly Trade News Digest • Volume 11 • Number 36 • 24th October 2007
AG Negotiators Haggle Over Base Periods For Green Box Payments
The mediator of the struggling Doha Round farm trade talks says that Members are at long last moving forward, albeit incrementally. However, the movement has been on ‘technical’ issues rather than the big ‘political’ questions, such as subsidy spending caps, which negotiators say can only be resolved at the ministerial level.
Even on these technical issues, officials indicate that progress has been modest, serving principally to make clearer the obstacles to agreement.
For example, the Cairns Group of farm exporters and the G-20 developing countries continue to disagree with some heavy subsidisers on the rules governing the ‘base period’ for calculating three types of direct payments to farmers: decoupled income support payments, regional development assistance, and investment aid to help disadvantaged farmers restructure operations. Such payments fall into the ‘green box’ for subsidies that cause not more than minimal trade distortion.
The G-20 and the Cairns Group want payments to be based on income or production levels during a "fixed and unchanging" base period. They are concerned that the existing stipulation for periods to be "defined and fixed" has allowed countries to periodically update base periods - notably the US in its 2002 farm bill — thus encouraging farmers to increase production in expectation of future payouts. Negotiations Chair Ambassador Crawford Falconer (New Zealand) used the phrasing they proposed in his July draft text.
Countries’ positions in the debate have unsurprisingly reflected their current payment schemes. The EU, for instance, is believed to be particularly concerned about the proposed changes’ ramifications for its ongoing attempts to shift farm payments into the green box under its 2003 Common Agricultural Policy reform. Restrictions on investment aid and regional assistance programmes could affect this. The EU also expects to increase its use of decoupled income support; it has called for clear rules for ‘newcomers’ to initiate green box subsidy programmes, echoing comments made by some developing countries.
The US was reportedly less vocal in the recent consultations on the green box, though delegates said it was unclear whether this indicated a softened stance, or whether Washington was merely content to hide behind the objections voiced by the EU and the G-10 countries (which have heavily protected farm sectors).
The US and the EU both expressed opposition to the chair’s proposal to allow base periods for decoupled income support to be exceptionally updated only if they did not lead to increased payments to producers, sources say. Falconer told negotiators that, even if exceptional updates were eventually permitted, payments would still have to conform to the basic requirement to cause no more than minimal trade distortion.
Some Cairns Group countries argued that the subsidisers’ concerns arose from a misunderstanding of the issue. For instance, they emphasised that prohibiting base period updates would not affect eligibility for regional assistance programmes, but only the relationship between payments and production volumes. Sources say that Canada had sought to bridge differences by suggesting that genuinely new programmes would not be covered by the restrictions, but it remained unclear what this would mean in practice.
A different potential amendment to green box provisions in Falconer’s draft text drew concern from the EU as well as Argentina - an extremely competitive exporter and Cairns Group member. Both said that the chair’s suggested change to rules for government disaster relief payments under crop insurance schemes could actually lower the bar for support to qualify for the green box. Under existing rules, such payments only qualify if losses resulting from a disaster exceed 30 percent of average production over some or all of the preceding five years. Falconer’s text would change the period against which losses would be measured to one "demonstrated to be actuarially appropriate," a modification which the EU and Argentina reportedly believe could open the door to increased payments.
Members also debated a G-20 proposal to allow developing countries to exempt food security-related stockholding purchases from counting towards their spending entitlements for trade-distorting ‘amber box’ support, when this food is purchased from poor farmers. Developing countries are allowed to place public food stockholding in the green box, so long as the difference between the price they pay and world market rates is classified as amber box spending. China, India and Indonesia in particular make significant use of domestic stockholding. However, several developed countries opposed the notion of exempting any price premium for domestic purchases from the amber box, arguing that it would effectively allow trade-distorting price support into the green box. The chair has proposed a compromise solution, requiring the support to be categorised as ‘de minimis’ — still trade-distorting (and thus not exempt from reduction), but affording developing countries a greater measure of flexibility than the amber box.
Well concealed behind the arcane rules that govern them is the fact that green box payments account for the bulk of farm spending in Japan and the US, and a substantial proportion in the EU - dwarfing by far the amounts of trade-distorting subsidies that have been such a bone of contention in the Doha Round negotiations. Although much green box spending goes to environmental protection or programmes such as the US’ food stamps for poor people, several developing countries have questioned whether billions of dollars in direct payments to farmers can truly fail to affect trade or production. The G-20 and Cairns Group have long sought tighter rules on these payments to ensure that they are non-distorting.
Falconer has given Member governments until 2 November to iron out their differences in consultations. He is expected to issue a revised draft text for final-stage negotiations in mid-November. He has warned negotiators that he will be compelled to guess where agreement might lie on issues where they fail to approach consensus. With regard to the green box, at least, some delegates suggested that in the absence of any real convergence, provisions resembling those in the chair’s current draft text may prevail.
ICTSD reporting.