WTO and Subsidies

In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. need to be reduced), red (forbidden). In agriculture, things are, as usual, more complicated. The Agriculture Agreement has no red box, although domestic support exceeding the reduction commitment levels in the amber box is prohibited; and there is a blue box for subsidies that are tied to programmes that limit production.

Agreement on Agriculture:

  • WTO’s agreement on agriculture was concluded in 1994, and was aimed to remove trade barriers and to promote transparent market accessand integration of global markets.
  • Subsidies regime included in the AoA has three forms of subsidies, ranging from those that were considered “non-distorting” or “minimally distorting” (the “Green Box” and “Blue Box” subsidies), to those that seriously “distorted” markets (the “Amber Box” subsidies).

The World Trade Organization (WTO) compares the “boxes” it uses for classifying trade subsidies to traffic lights. When it comes to agricultural trade and commodity subsidies, however, it’s not that simple.

 

The World Trade Organization (WTO) compares the “boxes” it uses for classifying trade subsidies to traffic lights. When it comes to agricultural trade and commodity subsidies, however, it’s not that simple.

 

subsidies

 

Green boxAgriculture-related subsidies that fit in WTO’s green box are policies that are not restricted by the trade agreement because they are not considered trade distorting.

To qualify for the green box, WTO says a subsidy must not distort trade, or at most cause minimal distortion.

These green box subsidies must be government-funded — not by charging consumers higher prices, and they must not involve price support. They tend to be programs that are not directed at particular products, and they may include direct income supports for farmers that are decoupled from current production levels and/or prices, reports the Information and Media Relations Division of the World Trade Organization.

Amber box

 

Agriculture’s amber box, according to the WTO, is used for all domestic support measures considered to distort production and trade.

As a result, the trade agreement calls for 30 WTO members, including the United States, to commit to reducing their trade-distorting domestic supports that fall into the amber box. WTO members without these commitments are required to maintain their amber box supports to within five to 10 percent of their value of production.

Blue boxIncluded in the blue box are any support payments that are not subject to the amber box reduction agreement because they are direct payments under a production limiting program.

To be blue box policies, Hudson says, direct payments must be made on fixed areas and yields, or payments must be made on 85 percent or less of the base level of production. Livestock payments must be on a fixed number of head.

The blue box, WTO says, “is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal levels. It covers payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their land.”