WTO agriculture negotiators face challenge of thinking outside the box(es)

Monday’s retreat is an attempt to produce fresh thinking that might break the deadlock in the two remaining pillars.

Photo of soft fruits in boxes, taken from above

By Peter Ungphakorn

See also the report on the retreat (published October 26, 2022):
WTO agriculture retreat said strong on context but weak on give-and-take

Brain-storming. Blue sky thinking. Wiping the slate clean. Thinking outside the box. Pick your cliché. World Trade Organization (WTO) members’ ambassadors and agriculture attachés go on a “retreat” tomorrow (October 24) as they try to discover solutions where none have been found for over a decade.

The common impression is that the WTO agriculture negotiations have achieved nothing since they started almost a quarter of a century ago in 2000.

This is partly because after just over a year (in 2001), the talks were rolled into the newly launched and broader Doha Round of WTO negotiations. And now the Doha Round is widely considered to be dead.

Officially the position is more complicated. Some members say the Doha Round is over. Others say the original mandate continues — they refuse to endorse the end of the round.

In practice some parts of the Doha Round have been concluded, such as the Trade Facilitation and Fisheries Subsidies agreements. Other parts are in limbo or the talks have dried up, at least among the full membership. What has faded away is the idea of the talks as one unified package or “single undertaking”.

(An aside here. What almost no one has noticed is that the Trade Negotiations Committee of the WTO membership — with the director-general ex officio in the chair — still meets. This committee was set up specifically within the Doha Round. If the round has ended so should the Trade Negotiations Committee. That would also mean the director-general has no official position in any council or committee of the WTO membership.)

Photo of withered flower
Half-dead: the farm talks have one major success and two deadlocks | Pawel Czerwinski, Unsplash licence
Two sides of the agriculture negotiations

The perceived death of the agriculture negotiations is linked to the view that the Doha Round is dead.

But the agriculture negotiations began before the Doha Round under a mandate for unfinished business, Article 20 of the 1994 Agriculture Agreement. Whether or not the round itself is dead or alive, the agriculture talks continue under that original mandate.

At the same time, many ideas developed while the farm talks were in the Doha Round are still being discussed.

The truth about the state of the agriculture negotiations is twofold.

First, one of the three original “pillars” in the negotiations was settled some time ago, except for the small-print. This pillar deals with export subsidies. They were originally considered the worst distorting policy in agricultural trade. WTO members have now outlawed them, although work continues on closing loopholes on government-guaranteed finance and other activities that may contain export subsidies in disguise.

Second, the two other pillars are completely deadlocked — domestic support when it distorts trade, and market access in the form of tariffs and quotas on lower-than-normal tariffs (known as “tariff-rate quotas”).

Monday’s retreat — if it can be called that since it is taking place at the WTO headquarters, the normal venue for meetings — is an attempt to produce fresh thinking that might break the deadlock in those two pillars.

Market access is the most difficult area of the negotiations. Most countries resist opening their markets for agricultural products they consider to be politically sensitive. A few new ideas have been heard from members over the last few years, but not much.

Some new ideas have also been presented on domestic support.

The most revolutionary emerged within the past month. Chris Horseman reported in Borderlex on October 3 that the WTO Secretariat had floated the idea of tearing up the traditional structure used to approach domestic farm support in the WTO (“Outside the box: How the WTO is trying revive long-stalled talks”).

He attributed his report partly to remarks at the WTO’s Public Forum by Secretariat official Edwini Kessi, who heads the Agriculture Division.

Photo of traffic lights at night
No red: the colours of the domestic support boxes come from traffic lights | Jonny Rogers, Unsplash licence
Binning the boxes

The idea, understood to have come from some officials in Kessi’s team, is to simplify the categories of domestic support — identified as coloured “boxes” — as a means of simplifying the negotiations.

The reason for the different categories is because support given to farming has a variety of effects. Important here is the concept of trade-distortion.

Support “distorts” trade if it artificially raises prices and encourages overproduction, resulting in surpluses that have to be offloaded cheaply onto world markets — think of butter mountains or milk lakes. Trade-distorting support is put in an “Amber” Box.

The colour “amber” comes from traffic lights. It means “slow down”. This type of support is not banned outright, otherwise the colour would be red. It is allowed but at reduced levels.

Support that does not distort — or causes minimal distortion — is allowed without any limits. It goes in the “Green” Box.

Here “green” does not mean environmentally friendly although the box does include that type of policy, alongside others. It is “green” as in the traffic lights’ “go”. A long list of candidates for the Green Box includes support for research and development, infrastructure projects, environmental protection, and much more.

Between the two is the “Blue” Box, essentially amber box support but with limits on acreage or livestock sizes to reduce the trade distortion.

There is also a “Development” Box containing some specific exemptions for developing countries.

The proposal includes scrapping the Blue and Development Boxes, perhaps with some existing entitlements shifted elsewhere.

Horseman wrote:

“In a striking example of fresh thinking, it has emerged that the WTO secretariat has now informally floated the idea of abolishing the ‘amber’, ‘blue’ and ‘green’ boxes which have been used to categorise farm subsidies since the WTO agreement on agriculture came into effect in 1995.

“WTO officials have suggested that this structure be replaced by a much simpler concept whereby all members simply agree to keep farm spending within ‘de minimis’ levels — currently 5% of the value of agricultural production for developed countries, and 10% for most developing countries.

“The one rather important exception would be a new ‘sustainability box’, under which farm support payments would be exempt from disciplines if they contributed towards sustainability objectives — however these might be defined.

“The idea is that creating a new concept for agricultural subsidy classification might make it a little easier for negotiators to work out politically viable ways of scaling subsidies back.”

Horseman did question whether the idea will be taken up. He was right.

Photo of a market
Distortion: it’s not exactly about the money but the distorted prices and output | Annie Spratt, Unsplash licence
It’s complex anyway

There are two problems here. One is how the membership would react to ideas coming from a Secretariat that is supposed to support the members’ work passively.

But there is a more fundamental problem. Domestic support is complex because some types are considered more damaging than others — the trade-distorting effects. For similar reasons, domestic support is also complex politically. Simplifying the concepts does not necessarily simplify the politics.

Nor is the support defined by money spent directly by governments. It could include transfers from consumers to farmers as a result of government action.

A number of methods are used to calculate the scale of support. The WTO has one main method and an alternative. The Organization for Economic Cooperation and Development (OECD) has its own set, including the percentage of a farm’s income that arises from various actions taken by governments.

Horseman’s report speaks of keeping “farm spending” within limits. If the idea is really to focus only on spending, then many WTO members will reject it because they have always been concerned about distortion rather than actual outlays.

For example, one of the toughest current battles over domestic support is about developing countries’ entitlement to buy produce at artificially high prices as they build up food security stocks. Here, what the government spends if it buys at market prices is not a problem at all. The problem is non-market prices and how to detect distortion.

India has already breached its entitlement, although a patch in the rules is shielding it from legal challenge. The talks are deadlocked on this subject for a number of reasons, some of them technical but with practical implications. But the concerns raised by both developed and developing countries is that the practice could depress world prices when the stocks are released — trade distortion.

According to one official, the purpose of the new thinking is to make it easier to negotiate cuts in domestic support by simplifying the domestic support categories. It would not get rid of all the boxes. It would actually expand the Green Box to focus more on sustainability and avoid measures that might be environmentally harmful.

What this would do to disciplines on trade-distorting support remains to be seen. The present limits for large subsidisers are based on reductions from support levels in the mid-1980s. They include the US, EU, UK, Japan, Canada, Norway, Switzerland and others.

The largest entitlements are expressed as values in dollars and cents or whatever currency applies, using the specified formulas. Members have struggled to agree on how to reduce those limits further.

One idea seems to be to scrap those limits completely and replace them with amounts based only on percentages of the value of agricultural production. The percentages might be larger than are already allowed under “de minimis” provisions — notionally small permitted amounts based on production value, sometimes pretty large in practice for example in China.

Also being floated is to include additional allowances to compensate for scrapping the “Development” Box.

This would fundamentally change the way limits work for big subsidisers such as the US and EU. At present, their Amber Box limits are fixed in dollars and euros. Inflation reduces the entitlements in real terms. Switching to a percentage of the value of production would allow the support in dollars and euros to increase as production value increases.

But even that would not get rid of the Amber Box even if it’s called something else. There would still be a category and limits for trade-distorting support.

One or two governments might balk at the idea of scrapping the Blue Box, but few use it anyway. So this might at least be easier to do.

Will box binning fly? We won’t have to wait long to know. But it will take a lot longer to see if this helps the negotiations.

October 24, 2022 — minor editing, adding some hyperlinks, adding reference to single undertaking

Image credits:
Fruit boxes | William Felker, Unsplash licence
Dying flower | Pawel Czerwinski, Unsplash licence
Traffic lights | Jonny Rogers, Unsplash licence
Market | Annie Spratt, Unsplash licence

Author: Peter Ungphakorn

I used to work at the WTO Secretariat (1996–2015), and am now an occasional freelance journalist, focusing mainly on international trade rules, agreements and institutions. (Previously, analysis for AgraEurope.) Trade β Blog is for trialling ideas on trade and any other subject, hence “β”. You can respond by using the contact form on the blog or tweeting @CoppetainPU

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