Technical note: Agricultural domestic support categories in the WTO

This technical note accompanies many blog posts tagged “agriculture negotiations”
including “New proposals stir WTO agriculture negotiations from deep sleep”
See also “Technical note: OECD agricultural support data for 28 countries”

By Peter Ungphakorn
POSTED JUNE 25, 2023 | UPDATED JANUARY 2, 2024

For agriculture, the World Trade Organization (WTO) puts different types of domestic support into a number of categories, using coloured boxes as shorthand. From time to time the concepts are borrowed for negotiations involving subsidies in other sectors.

Domestic support refers to direct and indirect subsidies provided to farmers and agricultural trade within the country.

It does not include export subsidies which are now largely outlawed in the WTO since an agreement in 2015 expanded the ban to agricultural products.

The concern here is about support that affects markets, prices, production and competition.

Broadly speaking, that covers a wide range of policies. It includes money paid by governments directly to farmers to boost their incomes or to supplement the prices they receive for their produce. It also includes various other actions such as import duty or import restrictions that raise the prices consumers pay — consumers indirectly subsidise farmers.

How domestic support is measured and what it includes can vary considerably. The Organization for Economic Co-operation and Development (OECD) uses “producer support estimates” — the proportion of farmers’ incomes that come from government actions — as its main method (see this technical note).

The WTO’s methods are slightly different.

First the “boxes”, then the legal and technical details.

JARGON BUSTER — THE BOXES
Agricultural domestic support categories in the WTO:

● Amber Box — price, income or other support that distorts market prices and production (“trade-distorting”), anything that is not in the Blue or Green Box. In the WTO calculated as aggregate measurement of support (AMS). The Amber Box has limits (Article 6 of the Agriculture Agreement)

● Blue Box — Amber Box support, where the distortion is constrained by production curbs. Currently no limits on use (Article 6.5 of the Agriculture Agreement)

● Green Box — support that causes no or minimal distortion. Currently no limits on use (Annex 2 of the Agriculture Agreement)

● De minimis — Amber Box support permitted because considered to be small amounts (in theory). The limits for developed countries are 5% each of the value of production for support given to specific products and given to agriculture in general, ie, a total of up to 10% of the value of agricultural production. For developing countries the figures are double: 10% each for product-specific and non-product-specific support, ie, up to 20% of the value of production. De minimis entitlements expand as the agriculture sector grows. (Article 6.4 of the Agriculture Agreement)

● (Final) Bound AMS — Amber Box entitlements exceeding de minimis that some countries negotiated in the 1990s because of historical support and subsequent commitments to cut it. Bound AMS is fixed. (“Current total AMS” is the amount of trade-distorting support actually provided in total, which should not exceed the bound limit.)

● Development Box — support allowed for developing countries without limits for development and to help poor farmers (Article 6.2 of the Agriculture Agreement)

The colours are based on traffic lights. Red = stop (but there is no Red Box). Amber = slow down. Green = go. Blue is between Amber and Green.

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The 1994 WTO Agriculture Agreement introduced limits on market-distorting domestic support.

For most members the limits are notionally small percentages — called “de minimis” — of the value of production (see below).

About 60 members (or 33 if the EU is counted as one) (see below) had higher support levels before the agreement came into force or before they joined the WTO.

They were allowed to continue to support more than “de minimis”. But those that were original WTO members had to cut the support over a period: by 20% over six years for developed countries, 13% over 10 years for developing countries, but no cuts for least-developed countries. (For the handful that joined later, the limits and whether they were phased in, depended on the membership negotiations)

Those periods ended decades ago, leaving “final” committed limits (“final bound AMS”), which still apply. Attempts to negotiate further reductions have failed persistently.

Domestic support is disciplined by Article 6, which covers all categories but does not call them “boxes”. The nickname is unofficial.

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Article 6.1 — support that has to be cut. In other words Amber Box, calculated as “aggregate measurement of support” (AMS, see below). Conceptually this is trade-distorting, meaning it affects prices and production. The legal obligation is simpler: everything has to be cut except support that is exempt:

1. The domestic support reduction commitments of each Member contained in Part IV of its Schedule shall apply to all of its domestic support measures in favour of agricultural producers with the exception of domestic measures which are not subject to reduction in terms of the criteria set out in this Article and in Annex 2 to this Agreement. The commitments are expressed in terms of Total Aggregate Measurement of Support and “Annual and Final Bound Commitment Levels”.

About 60 WTO members (33 if the EU is counted as one) are allowed AMS above de minimis levels (see below).

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Article 6.4 — de minimis, not counted. This is not included in Amber Box calculations (AMS, see below). It applies to all members. Developed countries are allowed up to 10% of the value of production, split into 5% each for agriculture in general and for specific products. Developing countries have double that: up to 20%, split into 10% each for agriculture in general and for specific products. When it joined the WTO, China negotiated 17% (8.5% each for agriculture in general and for specific products).

4. (a) A Member shall not be required to include in the calculation of its Current Total AMS and shall not be required to reduce:

(i) product-specific domestic support which would otherwise be required to be included in a Member’s calculation of its Current AMS where such support does not exceed 5 per cent of that Member’s total value of production of a basic agricultural product during the relevant year; and

(ii) non-product-specific domestic support which would otherwise be required to be included in a Member’s calculation of its Current AMS where such support does not exceed 5 per cent of the value of that Member’s total agricultural production.

(b) For developing country Members, the de minimis percentage under this paragraph shall be 10 per cent.

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Article 6.5 — distorting but with conditions that constrain the impact, allowed with no limits. This is the Blue Box, not included in AMS calculations. Theoretically at least, the market distortion is curbed by production limits, some based on fixed planted area or heads of livestock:

5. (a) Direct payments under production-limiting programmes shall not be subject to the commitment to reduce domestic support if:

(i) such payments are based on fixed area and yields; or

(ii) such payments are made on 85 per cent or less of the base level of production; or

(iii) livestock payments are made on a fixed number of head.

(b) The exemption from the reduction commitment for direct payments meeting the above criteria shall be reflected by the exclusion of the value of those direct payments in a Member’s calculation of its Current Total AMS.

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Annex 2 — not or minimally distorting, no limits. The Green Box. Article 6.1 says support covered by Annex 2 is allowed without limits — it’s not included in AMS calculations. The Annex is long, but the key part is paragraph 1, which defines Green Box support. It must “have no, or at most minimal, trade-distorting effects or effects on production”. “Minimal” is not defined.

Annex 2: Domestic Support — The Basis for Exemption from The Reduction Commitments

1. Domestic support measures for which exemption from the reduction commitments is claimed shall meet the fundamental requirement that they have no, or at most minimal, trade-distorting effects or effects on production. Accordingly, all measures for which exemption is claimed shall conform to the following basic criteria:

(a) the support in question shall be provided through a publicly-funded government programme (including government revenue foregone) not involving transfers from consumers; and,

(b) the support in question shall not have the effect of providing price support to producers;

plus policy-specific criteria and conditions as set out below.

The annex continues with a long list of government services and payments to farmers that are candidates for the Green Box. Most interpretations suggest the listed measures are not automatically in the Green Box. In other words, they still have to comply with the definition of not or minimally distorting, although this has never been tested in WTO dispute settlement. The listed items, each with additional details, are:

general services, public stockholding for food security purposes, domestic food aid, direct payments to producers, decoupled income support, government financial participation in income insurance and income safety-net programmes, payments (made either directly or by way of government financial participation in crop insurance schemes) for relief from natural disasters, structural adjustment assistance provided through producer retirement programmes, structural adjustment assistance provided through resource retirement programmes, structural adjustment assistance provided through investment aids, payments under environmental programmes, payments under regional assistance programmes

The Cairns Group produced a 15-page paper on December 21, 2023 (revised from its October 18, 2023 version) analysing the use of the Green Box. Its conclusions include

Green Box support is equal to three times that of all other types of domestic support combined
Green Box support more than doubled from 2000–2019, outpacing growth in any other domestic support category
Over 90% of Green Box support is provided by five members (China, the US, EU, India and Japan
Support for over half of the Green Box support categories is dominated by either one or two members
Four of the top five providers of Green Box support focus spending on a single category of support

The scale of Green Box use raises the question of whether that distorts markets, for example by keeping farmers in business, when any particular item might not affect prices and production or do so minimally.

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Article 6.2, for developing countries — no limits. This is the Development Box. It covers:

assistance and investment generally available for agricultural and rural development programmes in developing countries
subsidies for inputs such as seeds, fertiliser, feed and water for low-income or resource-poor farmers in these countries
programmes to help farmers grow new crops instead of illicit narcotics

2. In accordance with the Mid-Term Review* Agreement that government measures of assistance, whether direct or indirect, to encourage agricultural and rural development are an integral part of the development programmes of developing countries, investment subsidies which are generally available to agriculture in developing country Members and agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members shall be exempt from domestic support reduction commitments that would otherwise be applicable to such measures, as shall domestic support to producers in developing country Members to encourage diversification from growing illicit narcotic crops. Domestic support meeting the criteria of this paragraph shall not be required to be included in a Member’s calculation of its Current Total AMS.

* The Mid-Term Review was a ministerial meeting in Montreal, December 5–9, 1988. Originally intended as the half-way point in the Uruguay Round negotiations, the meeting ended in deadlock. Officially, the Mid-Term Review Agreements on how to proceed were “put on hold”. They were eventually agreed in Geneva in a meeting of senior officials the following April 5–8. Launched in September 1986, the Uruguay Round continued until almost double its planned four years. It ended in Marrakesh in April 1994, setting up the WTO to replace the General Agreement on Tariffs and Trade (GATT). The new WTO Agriculture Agreement was part of the Marrakesh package.

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Measurement (1) — AMS. The main method for measuring trade-distorting support is the annual “aggregate measurement of support” (AMS).

How it is calculated is complicated, and an alternative is also available when AMS is impractical. The calculation method is spelt out in detail in Annex 3 of the Agriculture Agreement.

Essentially, everything is turned into explicit and implicit price support. The measurement then compares two prices — the present government-supported price and the original 1986–88 reference price. The difference between the two is considered to be the extent of the support in the price. That is then multiplied by the quantity of production that is eligible for the support to produce a figure for the value of the support.

Separate calculations are made for support for each product, and also support that’s available generally for agriculture and not specifically for any product.

The reference prices are now almost 40 years old. The reason for fixing them was to prevent backsliding. Inflation would also force down the entitlements in real terms, but some countries want this changed for developing countries. (The rationale and the debate are discussed here.)

Blue Box, Green Box and Development Box supports are not counted at all. For any other support — whether for agriculture in general or for specific products — if the measurement is below the de minimis percentage, nothing more needs to be done. The calculations have to be notified through the WTO, but the results are usually reported as zero.

Any AMS calculation above de minimis is counted. Both AMS types — for agriculture in general and for specific products — are added up. The result is a single figure: “current total AMS”. This is compared with the country’s legally binding committed limit (the “final bound AMS”). The country has to keep its current total amount within its legally bound limit.

Most countries only have de minimis limits. If the support is within those limits, then the current total AMS can be reported as zero.

There is one politically important and controversial exception allowing de minimis limits to be breached. For Amber Box support used when developing countries’ governments buy produce into food security stocks, the breach — as India has done for rice — escapes legal challenge, provided certain conditions are met, under a “peace clause” in a 2014 decision (explained here).

There seems to be no up-to-date official list of the countries with bound AMS limits above de minimis.

However, based on one prepared by the WTO Secretariat, which draws on notifications and is authoritative, the total is 60 WTO members.

The 60 are 32 non-EU plus the EU itself and its 27 member states. Several are developing countries. Some are members that joined after 1995, so their commitments are in their accession agreements:

Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Croatia, Cyprus, Czechia, Denmark, Estonia, EU*, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Jordan, Rep. Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, North Macedonia, Norway, Papua New Guinea, Poland, Portugal, Romania, Russia, Saudi Arabia, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Thailand, Tunisia, UK*, Ukraine, US, Venezuela, Vietnam

* Some countries still have reservations about the the UK’s post-Brexit commitments, including the AMS limit, so they have not been legally certified yet. But the UK had a share of the EU’s commitment and is working within its own calculation of the limit (originally about €6bn, more recently converted to about £5bn — the UK said it actually used £9mn in 2022). There has been no legal challenge so far. The EU’s commitment for its expansion to 28 members, and then down to 27, has not been certified either. But actual AMS is less than 10% of the declared limit so this has not been challenged legally either.

The list supplied by the WTO Secretariat is here. It’s based on notifications (mainly for 2020), so there is only one entry for the EU.

The latest official source is a WTO Secretariat background paper that has not been updated since 2002. In 2021, Canada listed 32 notifying members (with a single entry for the EU) in a paper circulated in the agriculture negotiations (JOB/AG/219, look for the Excel file and the tab “FBTAMS”). It doesn’t include the post-Brexit UK with its own bound AMS limit.

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Measurement (2) — EMS. Collecting data on domestic support can be difficult and governments in poorer countries can struggle. The Agriculture Agreement recognises that getting data on supported prices can be tricky. It offers an alternative in Annex 4 — an “equivalent measurement of support” (EMS) — allowing estimates of the prices or actual government payments to be used.

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More: WTO booklet “The WTO Agreements Series — Agriculture”

Updates:
January 2, 2024 and October 23, 2023 — adding the link to the Cairns Group paper and inserting its conclusions, at the end of the Green Box section and updating for the December 21, 2023 revision
October 2, 2023 — re-working the description of how AMS is calculated
June 27–29, 2023 — adding the explanation of the Uruguay Round Mid-Term Review; correcting the list of countries with bound AMS above de minimis, using information compiled by the WTO Secretariat, and expanding the list to include EU member states

Image credits:
Grain (background in main image) | Shalitha Dissanayaka Unsplash licence

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