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The Cairns Group’s Analysis of Trends in Green Box Support (December 21, 2023)
Text: the Cairns Group’s 2023 proposal on agricultural domestic support
with notes and explanations
Posted by Peter Ungphakorn
NOVEMBER 4, 2023 | UPDATED JANUARY 17, 2024
The Cairns Group of agricultural exporting countries has circulated a detailed proposal to slash trade-distorting farm support in World Trade Organization members, halving the total global entitlement to subsidise, and to resolve the deadlock over food security stocks procured through subsidy.
The proposal circulated on November 2, 2023, is drafted as a decision for the next WTO Ministerial Conference in Abu Dhabi, February 26–29, 2024. It is extremely ambitious and is unlikely to receive consensus support by February. Whether agreement on it can be reached at all, even after negotiated changes, remains to be seen.
(A revision was circulated on January 12, 2024, adding Ukraine as a new sponsor)
Its focus is on lowering the ceilings (reducing the “entitlements”) for each WTO member. This will impact countries whose present domestic support for agriculture is close to their limits but not those who have already cut their actual subsidies to much lower levels.
The proposal tries to address some concerns, particularly about the imbalances in entitlements among the WTO membership. For smaller players, some of the limits could be expanded.
It contains complex calculation methods for setting new limits while halving total global entitlements to provide the kind of support that distorts prices and output.
The above formula was applied for nine iterations
in order to obtain the results in Column 3
— footnote in Annex 1
The group also sees the proposal as a way to settle the question of subsidies used to procure food security stocks in developing countries after years, if not decades, of deadlock. The proposed solution in the new paper is in the reconfigured limits on trade-distorting domestic support per product (“product-specific AMS limits”).
The Cairns Group’s members are successful agricultural exporters. They generally favour liberalising agricultural trade and are against keeping high levels of protection and subsidy, although the group’s members vary in their commitment to those objectives.
Only 14 of the group’s members are sponsoring the paper — Argentina, Australia, Brazil, Canada, Chile, Colombia, Costa Rica, Malaysia, New Zealand, Paraguay, Peru, Thailand, Uruguay and Vietnam.
Of the five remaining members, Guatemala, Indonesia, Pakistan and the Philippines are also members of the G33 group, which takes an opposing view on using subsidies to buy food into security stocks. The fifth, South Africa, increasingly aligns itself with India, a driving force behind the G33 position.
Principles
Within a pretty complex paper (presented here with notes and explanations) are some key principles:
- Big subsidisers — principally those with a large share of entitlements among all WTO members, but with some additional details — cut their entitlements more.
- Global entitlements to be halved — the sum of all support entitlements across all WTO members would be cut by 50%.
- “Blue Box” and “Development Box” to have limits. These two types of support are currently allowed without limit. The formula brings them into a new overall entitlement envelope. The “Blue Box” is subsidies whose distortions are weakened by production limits. The “Development Box” is support allowed for developing countries without limits, for development and to help poor farmers, including input subsidies.
A table at the end of the paper shows that India is a large user of the Development Box, $25 billion per year according to FAO figures, while the EU and China are large users of the Blue Box.
- The smallest subsidisers are allowed upward adjustments so their final entitlements never fall below $250 million per year, $500mn or $750mn depending on how low their limit would be without the adjustment.
- For specific products, big exporters have lower entitlements, while importers have larger entitlements or are exempt limits completely depending on the significance of the imports. These entitlements are a sliding scale of percentages of the amount the country produces (the “value of production”).
- New to WTO agriculture rules would be a novel means to defend farmers against subsidised imports. Importing countries would be able to raise tariffs temporarily on products receiving more support than 10% of the value of production in the exporting countries, even if the entitlement is not breached — the Domestic Support Trigger Mechanism.
This new mechanism would be a defence against subsidised competition from imports, but not for competition in third markets. (Costa Rica originally called it “special countervailing measures” — the name taken from the WTO Subsidies Agreement but with different criteria. The new version is modified slightly).
The cuts would be phased in by the end of 2034 (ie, in 10 years if implemented from the end of 2024, the Ministerial Conference year).
The proposal includes an additional constraint based on all entitlements added up worldwide (or rather, over the whole WTO membership).
The Cairns Group proposes halving the global total over the same period. This additional constraint is part of the reason why the calculations involve running the formula through nine iterations, a unique level of complexity, certainly not found anywhere else in the WTO.
In a paper from May 2021, Costa Rica explains how the iterations are needed to achieve that 50% global cut (from page 8 of this).
Examples of the outcome for all WTO members except least-developed countries — based on hypothetical numbers (to be negotiated) and some adjustments — are annexed to the draft text.
“Under the Cairns proposal, the cap on overall trade distorting support for the United States would be a hefty USD 31.183 billion., but the US would have exceeded this cap in 2019 and 2020 (due to record COVID and trade war payments),” commented Joe Glauber on Bluesky. Glauber is a former US negotiator, now senior research fellow at the International Food Policy Research Institute. He also produced this chart:
Subsidies in stockholding
How this would deal with the thorny question of subsidised purchases into food security stocks in developing countries (the misnamed PSH, see box) lies in new entitlements for specific products.
“PSH”: A MISLEADING NAME
Subsidising purchases into food security stocks is nicknamed “public stockholding for food security in developing countries” or just “public stockholding” (PSH) for short.
The name is misleading because WTO rules do not prevent stockholding. They only discipline subsidised procurement. Even that is allowed, so long as the developing country stays within its subsidy limit, usually 10% of the value of production, which can be a large amount.
This could be described as something like “over-the-limit subsidies used to procure food security stocks”.
The practice is not widespread. A 2022 paper by a Canada-led group found tentatively that since 2013 “only five members notified expenditures […] for stocks acquired at [a supported] price at least once” and only nine since 2001.
Only one country — India — has exceeded its domestic support limit when using subsidies to buy into stocks, and for only one product: rice. For 2021–22, the fourth successive year of the breach, India’s subsidy was calculated at $7.55bn, exceeding its $5.0bn limit by 52%. (The following year the excess subsidy fell back to 20%.)
An “interim” 2013 WTO ministerial decision modified by another decision in 2014 — called a “peace clause” — has protected India from facing a legal challenge despite breaching its WTO commitment.
One problem is that the peace clause is only available to countries with “existing” programmes in December 2013. The few covered include China, India, Indonesia, Pakistan, Philippines and Taiwan, according to a November 2023 WTO Secretariat summary.
The present deadlock is over an unresolved permanent solution originally intended to replace the interim one in 2017. Details are here.
(Updated April 22, 2024)
The present limit for developing countries is usually “de minimis” or 10% of the value of production. The Cairns Group proposes a sliding scale of new limits depending on whether the product is imported or exported by the country concerned and how significant the imports or exports are.
These range from total exemption, or 100% of the value of production when the country depends on imports, all the way down to 10% of the value of production (the present “de minimis”) if the country is a major exporter of that product.
In practice that would mean India — the only country to have exceeded its entitlement in this way — would continue to have a limit of 10% of the value of production because its rice exports are well over the proposed threshold of 5% of world exports.
The crucial difference would be that India would no longer be shielded from a legal challenge in WTO dispute settlement if this were to replace the present interim “peace clause”.
The paper was originally drafted by Costa Rica, which has been active in developing analysis and proposals on domestic support (see also JOB/AG/199 from May 2021).
This revision removes the analysis from the original paper, leaving a draft agreement called “modalities” — the methods for cutting the subsidies.
Updates:
January 17, 2024 — mentioning the revision with Ukraine as a new sponsor
January 2, 2024 — adding the link to the group’s paper on Green Box use
November 7, 2023 — adding Joe Glauber’s comment and chart
November 5–7, 2023 — explanations revised (apologies, it is a complex text!)
Image credits:
Harvester | Robert Wiedemann, Unsplash licence
Chart on US support | Joe Glauber, Datawrapper
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