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Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals

Report by Meléndez-Ortiz, Ricardo; Bellmann, Christophe; Hepburn, Jonathan/ICTSD, 2009

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Current WTO requirements set no ceiling on the amount of green box subsidies that governments can provide, on the basis that these payments cause only minimal trade distortion. Governments are thus increasingly shifting their subsidy spending into this category, as they come under pressure to reduce subsidies that are more directly linked to production. However, growing evidence suggests that green box payments can affect production and trade, harm farmers in developing countries and cause environmental damage. This information note summarises some of the findings.

INFORMATION NOTE NUMBER 16 , SEPTEMBER 2009


Agricultural Subsidies in
the WTO Green Box: Ensuring
Coherence with Sustainable
Development Goals


ICTSD


Do the World Trade Organization’s rules on ‘green box’ farm subsidies


allow both rich and poor countries to achieve important goals such


as food security, or do they worsen poverty, distort trade and harm


the environment?


Current WTO requirements set no ceiling on the amount of green


box subsidies that governments can provide, on the basis that these


payments cause only minimal trade distortion. Governments are


thus increasingly shifting their subsidy spending into this category,


as they come under pressure to reduce subsidies that are more


directly linked to production. However, growing evidence suggests


that green box payments can affect production and trade, harm


farmers in developing countries and cause environmental damage.


This information note summarises some of the fi ndings of the


forthcoming ICTSD book “Agricultural Subsidies in the WTO Green Box:


Ensuring Coherence with Sustainable Development Goals”, eds. Ricardo


Meléndez-Ortiz, Christophe Bellmann and Jonathan Hepburn. For further


information about this publication, please visit:


http://www.cambridge.org/uk


Agricultural
Subsidies in the
WTO Green Box
Ensuring Coherence with
Sustainable Development Goals


edited by
Ricardo Meléndez-Ortiz
Christophe Bellmann
Jonathan Hepburn




2 Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals September 2009


The idea of replacing agricultural price support with direct


payments to farmers decoupled from production dates back to


the late 1950s, when a Panel of Experts, chaired by Professor


Gottfried Haberler, was established at the at the twelfth


session of the GATT Contracting Parties to examine the


effect of agricultural protectionism, fl uctuating commodity


prices and the failure of export earnings to keep pace with


import demand in developing countries. The 1958 Haberler


Report stressed the importance of minimising the effect of


agriculture subsidies on competitiveness, and recommended


replacing price support by direct supplementary payments


not linked with production, anticipating discussion on green


box subsidies. Only more recently, though, has this shift


from price support to producer support become the core of


the reform of the global agricultural system.


By the 1980s, government payments to agricultural producers


in industrialised countries had caused large crop surpluses,


which were unloaded on the world market by means of export


subsidies, pushing food prices down. The fi scal burden of


protective measures increased, due both to lower receipts


from import duties and higher domestic expenditure. In


the meantime, the global economy had entered a cycle of


recession, and the perception that opening up markets could


improve economic conditions led to calls for a new round of


multilateral trade negotiations.2 The round would open up


markets in services and high technology goods, and ultimately


generate much needed effi ciency gains. With a view to engaging


developing countries in the negotiations, many of which were


“demandeurs” of new international disciplines, agriculture,


textiles and clothing were added to the grand bargain.


History


What is the green box?
The WTO Agreement on Agriculture negotiated in the Uruguay Round (1986-1994) includes the classifi cation of sub-
sidies into ‘boxes’ depending on their effects on production and trade: amber (most directly linked to production
levels), blue (production-limiting programmes that still distort trade), and green (causing not more than minimal
distortion of trade or production).1While payments in the amber box had to be reduced, those in the green box
were exempt from reduction commitments. Detailed rules for green box payments are set out in Annex 2 of the
Agreement on Agriculture. However, all must comply with the ‘fundamental requirement’ in paragraph 1, to cause
not more than minimal distortion of trade or production, and must be provided through a government-funded pro-
gramme that does not involve transfers from consumers or price support to producers.


Rising incomes, urbanization, and shifting consumption


patterns have increased food consumption in many areas of the


world. According to the Millennium Ecosystem Assessment,


the prospect of providing suffi cient food to sustain another


2 billion people by 2020 has rightly focused attention on


the very real threats to food security if the productivity of


agricultural systems cannot keep pace with this demand.


As these systems are under increasing pressure to meet the


growing need for food, it is also vital that the environmental


challenges associated with food production are addressed


effectively – water pollution, pesticide use, land degradation


and greenhouse gas emissions, amongst others.


Government policies are a major driver of food production


and consumption patterns, both locally and globally.


In developed countries, government subsidies have


stimulated over-production, while imports of politically


sensitive products remain heavily protected using tariffs


and other measures. Such policies have in turn undermined


developing countries’ ability to promote rural development,


and develop their export sectors. While national budget


concerns, political controversy and demands from trading


partners have initiated a shift away from the most damaging


types of subsidies, a signifi cant proportion of developed


country spending remains linked to farm production levels.


The reform of the global agriculture trading system initiated


during the Uruguay Round attempts to correct these


ineffi ciencies by requiring heavily subsidising countries to


decrease their level of support over time. However the round


also established a special category of subsidies that are


exempt from reduction commitments. Developed countries


would be allowed to retain subsidies that deliver various


kinds of public goods in exchange for bringing agriculture


within the WTO system and committing to future reductions


of trade-distorting support. Subsequently, the green box has


been increasingly seen as representing the future direction of


agricultural trade policy, with governments announcing that


they will decouple support from production, and notifying an


ever-greater share of subsidy spending as green box.


Agriculture and sustainable development


1 For more information, see http://www.wto.org/english/tratop_e/agric_e/agboxes_e.htm
2 Stancanelli, N. (2009), “The Historical Context of the Green Box”, In Agricultural Subsidies in the WTO Green Box: Ensuring Coherence


with Sustainable Development Goals. Eds. Meléndez-Ortiz, R., Bellmann, C., and Hepburn, J. Cambridge University Press, UK.




3


Evolution of Reform: the EU, US and Japan
Domestic policy makers in the EU began to decouple


domestic support from production with the 1992


MacSharry reform, which introduced set-aside schemes


for crop production and agri-environmental payments.


Since then, agriculture support in the EU has been


signifi cantly decoupled from production, and its focus has


switched from agriculture to the wider rural economy and


the protection of the environment. The 2003 CAP reform


created the Single Payment Scheme, which ensured that


future payments would no longer be linked to crops


grown or animals kept.4 The expected dramatic increase


in green box spending is only partly evident in the EU’s


subsidy notifi cations to the WTO, however, as the most


recent of these only covers the 2005-06 marketing year


(Fig. 2). In the US, the economic philosophy of decoupling


began to play a role in farm policy as early as 1981,


culminating with the 1996 Freedom to Farm legislation,


which completely decoupled a portion of farm payments


from production. Since then, decoupled payments have


remained an important part of US farm policy even if


the move toward decoupling has been stalled or even


reversed in the 2008 farm bill (Fig. 1).5


Japanese agricultural policy remains dominated by price


support and high tariffs on key products such as rice.


Japan allocates high levels of green box subsidies in the


form of general services, but has eliminated domestic


price supports leading to lower annual AMS (Fig. 3). In


2007, a new scheme was introduced under the Farm


Management Stabilization Programme to guarantee


large-scale farmers a certain level of income, regardless


of the commodities produced.6


In leading up to the 1986 GATT Ministerial Conference,


developed country farm groups that had benefi ted from


protectionist policies strongly resisted any specifi c


compromise on agriculture. In this context, the idea of


exempting production and ‘trade-neutral’ subsidies from


WTO commitments was fi rst proposed by the US in 1987,


and echoed soon after by the EU.3 The proposal appeared


to have the merit of providing an adjustment mechanism


that could offset the potential losses that farmers might


incur as a result of the agricultural reform process. By


guaranteeing farmers a continuation of their historical level


of support, it also contributed to neutralising opposition to


the round. In exchange for bringing agriculture within the


disciplines of the WTO and committing to future reduction


of trade-distorting subsidies, developed countries would


be allowed to retain subsidies that cause ‘not more than


minimal trade distortion’ in order to deliver various public


policy objectives.


In a fi eld so heavily riddled with controversy, this one


fragile point of consensus has been the hinge upon which an


extraordinary reform project has depended. As other types of


trade-distorting subsidies have been reduced over time, green


box subsidies have come under closer scrutiny. Do green box


measures affect production, and do these impacts generate


spill-over effects on other countries? Can green box rules be


improved in order to reduce the impacts on production? Is


it always possible to achieve domestic objectives with ‘not


more than minimal trade-distorting effects or effects on


production?’ Are the policy objectives upon which green


box subsidies depend themselves well defi ned?


Field of sunfl ower near Caldarusani Monastery, Flickr. Com Creative Common License 2.2


3 Stancanelli, N. (2009), “The Historical Context of the Green Box”, In Agricultural Subsidies in the WTO Green Box.
4 Swinbank, A. (2009), “The reform of the EU’s Common Agricultural Policy”, In Agricultural Subsidies in the WTO Green Box.
5 Orden, D (2009), ‘’Farm Policy Reform in The United States: Past progress and Future Directions.’’ In Agricultural Subsidies in the WTO Green Box.
6 Homna, M. “. (2009), “Agricultural trade policy reform in Japan”, Agricultural Subsidies in the WTO Green Box.




4 Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals September 2009


de


de


de


Source: Antón, J. (2009), “Agricultural support in the green box: an analysis of EU, US and Japanese green box spending.” Agricultural
Subsidies in the WTO Green Box.


Figure 1: US domestic support


Figure 2: EU domestic support


Figure 3: Japan domestic support




5


When comparing different countries’ green box


expenditures, it is important to note that the diversity of


payments types in this category means that spending can


have very different kinds of effects on trade. In 2007,


the US notifi ed US$76.2 billion in green box payments:


however, of this, US$54.4 billion was on domestic food


aid, which is widely seen as assisting poor consumers


at the national level and having relatively little effect


on international trade. In contrast, the EU notifi ed in


2005 €48.28 billion (or $90.75 billion, of which €14.73


billion was on decoupled income support ($27.55 bn), a


category that has been much more controversial in the


eyes of the EU’s trading partners. The sharp increase in


decoupled income support refl ects the result of the EU’s


2003 CAP reform, which introduced the new Single Farm


Payment for EU producers.


Focus, extent and economic impact: are green box subsidies
trade-distorting?


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Figure 4: EU Green Box Expenditure


Figure 5: US Green Box Expenditure




6 Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals September 2009


Source: Antón, J. (2009), “Agricultural support in the green box: an analysis of EU, US and Japanese green box spending.” Agricultural
Subsidies in the WTO Green Box.


One major concern with green box subsidies is whether or


not payments made under this category meet compliance


requirements described in paragraph 1 of Annex 2 of the


AoA. The WTO Panel on the cotton dispute between the


US and Brazil7 for example found that direct payments for


cotton farmers in the US did not qualify as green box because


producers were prohibited from planting fruits and vegetables,


and therefore effectively linked support with production.


Beyond compliance issues, the basic question remains as to


whether or not green box subsidies ultimately have distorting


effects on production and trade. Would the trade-liberalizing


impact of a reduction of one dollar in the amber box be


outweighed by the impact of a larger increase in the green


box? What types of effects on production and trade may


green box subsidies cause?8 While there are solid arguments


in favour of the more decoupled payments, a broad


consideration of the economic effects of such programmes


suggests that the absence of production and trade effects


is very unlikely. In the EU for example, payments under the


Single Payment Scheme are related to: the land area at a


farmer’s disposal in that year; the recipient’s status as a


farmer; whether the land has been kept in “good agricultural


or environmental condition;” and whether various cross-


compliance requirements have been respected. All these


reinforce the notion that payments are ‘related to, or based


on, the factors of production employed’. More broadly,


existing studies show that green box subsidies encourage


agricultural production by creating a guaranteed income


stream and a lower perceived income risk for farmers, which


raises the potential for overproduction.


Furthermore, cross-subsidisation, when subsidies on a


certain crop indirectly fi nance losses on another crop or on


total production, creates an exit-deterrence effect. Farms


are encouraged to produce what they otherwise would not,


and other farms that would be unprofi table producing only


a limited amount, fi nd it profi table to produce a larger


amount to qualify for the subsidy.9 Finally, the G-20 has


argued that the accumulation of subsidies, when producers


receive simultaneously support classifi ed under different


boxes, may present a cumulative impact on the producer’s


decision of what and how much to produce.


‘In the presence of distorting payments, ‘green’
policies do not properly perform their function. On
the contrary, their neutral nature is being abused
and they merely follow the general orientation
of the distorting policy. As a consequence, ‘green’
money is merely added to ‘blue’ and ‘amber’moneys
and becomes undifferentiated in relation to them.’ 10


- the G-20 developing country group in the WTO


Figure 6: Japan Green Box Expenditure


7 US — Upland Cotton, Brazil vs. United States, DS267, http://www.wto.org/english/tratop_E/dispu_e/cases_e/ds267_e.htm
8 Galperin, C. and Miguez, I., (2009) “Green box subsidies and trade-distorting support: is there a cumulative impact?”. In Agricultural


Subsidies in the WTO Green Box.
9 De Gorter, H. (2009), “The distributional structure of US green box subsidies”, In Agricultural Subsidies in the WTO Green Box.
10 WTO document JOB (06)/145 Committee on Agriculture, Special Session, “G-20 Comments on the Chair Reference Paper on Green


Box”. May 16, 2006




7


Agriculture in developing countries has suffered from


unfair competition in part due to subsidised exports in


developed countries, and chronic underinvestment in


infrastructure, research and development. With a a vast


share of their population depending on agriculture for


their livelihood, developing countries face a set of major


challenges: they will have to produce more food, with less


water, as more water is being used in cities, and in several


cases, with lower productivity resulting from climate


change including less precipitation and more extreme


weather. To what extent can green box subsidies support


such adjustment in the developing world?


The green box and developing countries


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Source: Nassar et al (2009), “Agricultural subsidies in the WTO green box: opportunities and challenges for developing countries,”
Agricultural Subsidies in the WTO Green Box.11


An analysis of agriculture subsidy notifi cations to the WTO by


developing countries shows that a large portion of their total


domestic support falls under the green box. Nonetheless,


the amount spent as a share of agriculture GDP remains


very low compared to some developed countries. Among


developing countries, payments are highly concentrated


among a few, with China accounting for about 80 percent


(see Fig. 8).12 For most other developing countries,


green box spending is relatively small in absolute terms.


In China’s case, the majority of green box support has


been concentrated on infrastructural services and public


stockholding. China is believed to have provided green


box subsidies worth as much as USD 33.8bn in 2005,


compared to the USD 50.1bn provided by the EU and the


USD 71.8 bn provided by the US. However, support at


the individual farmer level is far below the per capita


support of developed countries, but also lower than that


of several developing countries.13


Figure 7: Green Box Expenditure as a Share of Total Support


11 Note: for each country, an average value of its last three WTO notifi cations was calculated. Argentina, 1999–2001; Brazil, 2001–2003;
Chile, 2000–2002; China, 1999–2001; India, 1995–1997; South Korea, 2002–2004; Malaysia, 1996–1998; Mexico, 2002–2004; Pakistan,
1997–1999; the Philippines, 1999–2001; Thailand, 2002–2004; South Africa, 2002–2004; Colombia, 2002–2004; Venezuela, 1996–1998;
Indonesia, 1998–2000; US, 2003–2005; Japan, 2001–2003; EU, 1999–2001; Norway, 1999–2001; Switzerland, 2002–2004.


12 Dhar, B. (2009), “Use of green box measures by developing countries: an assessment”. In Agricultural Subsidies in the WTO Green Box.
13 China has recently announced increases in subsidies, probably green box; however. it is unclear how these will affect future


notifi cations. See “Implications for China of the December 2008 Draft Agricultural Modalities,” by Tian Zhihong, http://ictsd.net/i/
publications/50467/




8 Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals September 2009


Japan


Source: Papers by Dhar, B., and Antón, J, in Agricultural Subsidies in the WTO Green Box; also Tian, Z. (2009) “Implications for China of
the December 2008 Draft Agricultural Modalities,” and Gopinath, M and Laborde, D, (2008) “Implications for India of the May 2008 Draft
Agricultural Modalities,” ICTSD/IPC/IFPRI. Data for China (2002-2004) are ‘shadow notifi cations’ rather than offi cially notifi ed fi gures,
as are data for India (1998-2004).14


Figure 8: Green Box spending by major developed countries and China


Figure 9: Green Box spending by major developing countries


14 Projections cited by Professor Tian suggest that, based on China’s notifi cations under current WTO commitments, their total green box
expenditure will reach about $67.5 billion by 2013. For more information, see “Implications for China of the December 2008 Draft
Agricultural Modalities,” by Tian Zhihong, http://ictsd.net/i/publications/50467/. Shadow notifi cation data for India is drawn from
Gopinath, M and Laborde, D, “Implications for India of the May 2008 Draft Agricultural Modalities”, ICTSD/IPC/IFPRI, online at: http://
ictsd.net/downloads/2008/07/126.pdf




9


African countries are spending less on agriculture


than other developing countries. However, green box


spending is decreasing while total public sector spending


is increasing, a trend which can be attributed to the


emphasis that poverty reduction strategy papers place on


social spending as opposed to agriculture.15


Overall, the relatively low level of support to


agriculture in many developing countries has been seen


by some analysts as indicative of a broader pattern of


under-investment in developing country agriculture


rather than constraints that the green box criteria


impose on policy design (see Fig. 10). That said,


several countries have argued that certain restrictions


in disciplines governing the use of public stockholding


for food security purposes, disaster relief, or regional


assistance programmes have affected their ability to


use green box subsidies.16


Source: USDA, author’s elaboration; in Nassar et al (2009). “Agricultural subsidies in the WTO green box: opportunities and challenges for
developing countries,” Agricultural Subsidies in the WTO Green Box.


Figure 10: Green box expenditure and its relevance based on agricultural gross
domestic product


Green box as % of agriculture GDP


Low (<10%) High (>10%)


Agriculture
GDP


High
(> US$ 10bn)


India


Brazil


Indonesia


Pakistan


Mexico


Australia


Thailand


Argentina


Philippines


Colombia


Malaysia


($128; 2%)


($ 56; 4%)


($ 36; 0.5%)


($ 20, 1.7%)


($ 24; 8%)


($ 20; 6%)


($ 16; 9%)


($ 15; 1.7%)


($ 13; 2%)


($ 12; 1.5%)


($ 11; 2%)


China


EU-15


US


Japan


South Korea


($ 250; 14%)


($ 205; 12%)


($ 125; 38%)


($ 76; 30%)


($ 22; 22%)


Low
(> US$ 10bn)


Morocco


New Zealand


Chile


Peru


Kenya


Tunisia


Dominican
Republic


Uruguay


Costa Rica


Paraguay


Honduras


Nicaragua


Jamaica


($ 7.8; 5%)


($ 7.3; 3%)


($ 5.0; 4%)


($ 4.7; 3%)


($ 4.1; 2%)


($ 3.3; 2%)


($ 2.0; 2%)


($ 1.5; 3%)


($ 1.5; 2%)


($ 1.4; 1.5%)


($ 0.9; 1.1%)


($ 0.8; 1.2%)


($ 0.5; 1.3%)


South Africa


Switzerland


Venezuela


Norway


Israel


Zambia


Jordan


Trinidad and
Tobago


($ 6.4; 11%)


($ 4.4; 49%)


($ 4.4; 15%)


($ 3.6; 16%)


($ 1.9; 17%)


($ 1.2; 16%)


($ 0.3; 12%)


($ 0.1; 16%)


15 Oduro, A. (2009) “African countries and the green box”. In Agricultural Subsidies in the WTO Green Box.
16 Oduro argues for example that, in the case of payment for relief from natural disasters, the initial requirement that the production


loss should exceed 30 percent is particularly stringent for small-scale farmers for whom a much smaller production loss could have
a signifi cant impact on their incomes and welfare. She also recommends exempting developing countries from the condition that
payments under regional assistance programmes can only be made when a disadvantaged region is a clearly designated contiguous
geographical area with a defi ned economic and administrative identity. She advocates explicit provision for spending to address
land reform and farmer settlement programmes in general and proposes, in the case of public stock holding, the striking out of the
requirement that the difference between the acquisition and external reference be included in the calculation of the Aggregate
Measure of Support. Proposals along these lines have indeed been under extensive consideration at the WTO, and appear likely to be
adopted as part of an eventual Doha Round agreement.




10 Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals September 2009


Thriving wildlife, beautiful landscapes and clean water


are all products of agriculture. While wider society values


these outcomes, this often is not refl ected in market value.


This may result in a market failure in which sub-optimum


levels of these public goods are delivered, resulting


in biodiversity decline, water pollution and degraded


landscapes and soils. In this context, the question is not


so much whether government intervention is needed, but


rather whether green box subsidies are the most effective


tools in delivering these public goods.


Since the 1980s, subsidies have become a large component


of farmers’ incomes and consequently of land use decisions.


The way in which these subsidies are allocated plays a


major role in shaping land use patterns, particularly in the


EU and the US, and therefore has important impacts on


the environment in rural areas.


Amber box subsidies often create the strongest incentives for


increasing outputs, intensifying the use of chemical inputs,


and thus negatively affecting the environment. In principle,


reducing amber box expenditure and increasing green box


expenditure should thus be good for the environment.17


Modern agriculture’s contribution to greenhouse gas


emissions is indeed symptomatic of this reality. The


production of fertiliser is not only energy intensive; it


acidifi es the soil, requiring the regular application of


lime which in turn produces more carbon dioxide. From


an environmental perspective, organic agriculture is


probably one of the best alternative production methods


available in reducing greenhouse gas emissions and


enhancing sustainable practices. In most cases, however,


these production methods are not economically viable and


require support from the government.18


While some green box subsidies are closely targeted


at the achievement of concrete environmental goals,


others remain little more than disguised income support


payments, and some may even provide support for


activities that are damaging to the environment. In the


EU, the 2003 decoupling reform was effective in removing


the incentive to overproduce, while also establishing


several schemes with explicit environmental objectives.


However, such environmental programmes are only


effective if they have clear goals expressed in terms of


measurable outcomes and target. Without strict rules to


ensure its proper use, Brunner and Huyton argue that the


tool will be abused both accidentally and wilfully, as a


means for disguising income or even production support.


This is particularly apparent in cases where the cost to the


farmer is disproportionately small relative to the size of the


payments. The authors report that, on a 181-ha arable farm


in Cambridgeshire, England, the costs of implementing


cross-compliance were approximately €27, although the


The green box and the environment


Shredded wheat farm by ricmarthur Flickr.com Creative Common License 2.2


17 Steenblik, R, and Tsai, C (2009), “The environmental impact of green box subsidies: exploring the linkages”. In
Agricultural Subsidies in the WTO Green Box.


18 Cavero, T. (2009), “Subsidy reform in the EU context: options for achieving change”. In Agricultural Subsidies in
the WTO Green Box.




11


farm received some €27,000 in direct payments.19 In the


US, Jane Earley goes further in arguing that green box


payments have perpetuated environmental problems in


that they encourage production on marginal lands, for


example through regular disaster assistance or some farm


credit, and incentivise maintaining production rather than


retiring land in environmentally fragile areas.20


For Steenblik and Tsai, some policies are less cost-effective


than they might otherwise be, because they have been


designed to conform with green box criteria rather than


to achieve an environmental objective21. For example,


the green box requires environmental payments to be


based exclusively on “the extra costs or loss of income


involved in complying with the government programme.”


Although this formula can work in intensive agricultural


landscapes where payments are being made for some


form of extensifi cation, it is much harder to apply to


situations where the benefi ts are already being delivered


and there is very little income in the fi rst place. In other


words, it is also good economic and environmental sense


to focus conservation efforts on maintaining existing


biodiversity rather than losing it and paying to recreate


it in the future.


Josling and Blandford note the a priori assumption that


biofuel subsidies that expand corn and soybean production


are ill-suited for the green box. As they note, “payments


that take crops off the food market and into the energy


market would in ‘normal’ circumstances be seen to be


helping to reduce the oversupply of farm products and raise


agricultural prices. From this point of view, why should


other activities that are included under rural development


policies (for example, the development of ecotourism)


be encouraged and rewarded but biofuel production be


penalized?” Arguably, the green box was designed for the


support of public goods. Josling and Blandford ask whether


or not the case could be made that ethanol and biodiesel


are benefi cial to society and should be encouraged. The


question then becomes how to encourage biofuels without


discriminating against imported sources of, say ethanol from


Brazil, or without providing an incentive to export biofuels.22


Pig by Howard Gees , Flickr. Com Creative Common License 2.2


19 Brunner, A. and Huyton, H. (2009), “The Environmental Impact of European Union green box subsidies”. In Agricultural
Subsidies in the WTO Green Box.


20 Earley, J. (2009), “The Environmental Impact of US green box subsidies”. In Agricultural Subsidies in the WTO Green Box.
21 Steenblik, R, and Tsai, C (2009), “The environmental impact of green box subsidies: exploring the linkages”. In Agricultural


Subsidies in the WTO Green Box.
22 Josling, T. and Blandford, D. (2009), “Biofuels subsidies and the green box”. In Agricultural Subsidies in the WTO Green Box.




12 Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals September 2009


The shift towards decoupled supports designed to sustain


farm incomes and the wider rural economy responds


partly to a genuine public concern for the welfare of small


farmers and for the need to promote equity. As green box


support come under closer public scrutiny, this raises the


issue of the distributional structure of green box subsidies.


It is diffi cult politically to defend to taxpayers a system


that absorbs 50 percent of the European budget, benefi ts


roughly two percent of the population, and concentrates


80 percent of support on 20 percent of farmers.23


Similarly, Harry de Gorter fi nds that, in the US, “the


distribution of farm payments is skewed towards the


large farm that needs the government payments less.


Large farms derive a disproportionate share of their farm


income from government payments in total.… Large farms


make signifi cant income from farming and so should not


need taxpayer support as much as small farmers, yet the


former receive by far the largest share of payments.”24


Interestingly, in Japan, Homma argues that if the


country’s agriculture is to become competitive, direct


payments should be targeted to large-scale farmers.25


Recent assessments of the CAP reform tend to show that


in most EU countries the benefi ts of farm programs were,


de facto, passed on to the owners of primary factors such


as land or production rights whereas labour only keeps a


fraction of the support.26


In this context, Teresa Cavero argues that “to tackle properly


the needs of small farms, direct payments should not be


based on historical acreage or anticipated crop yields but


rather on the basis of a farmer’s fi nancial need”. 27 She notes


that a cap on payments, imposing upper and lower limits,


is one obvious measure that can be taken – such as the


300,000 euro maximum subsidy per recipient suggested


by EU Agriculture and Rural Development Commissioner


Mariann Fischer Boel. Cavero points out that “this would


affect 0.04 percent of farms, mostly in Germany and the


UK, releasing close to €1bn.”


Rural development and equity


In 2005, the G-20 proposed amending the
requirements for decoupled income support
payments (paragraph 6, Annex 2 of the Agreement
on Agriculture). Text proposed for deletion is
crossed out, and new insertions are underlined:


Eligibility for such payments shall be
determined by clearly-defi ned criteria
such as of low levels of income, status as
a producer or landowner, landholding and
production level in a notifi ed, defi ned
and fi xed and unchanging base period.


However, in April 2006, the chair of the negotiations
on agriculture noted “fi rm resistance” to all the
G-20’s proposals on decoupled income support.


Chickens by Broterham, Flickr. Com Creative Common License 2.2


23 Cavero, T. (2009), “Subsidy reform in the EU context: options for achieving change”. In Agricultural Subsidies in the WTO Green Box.
24 De Gother, H (2009) ‘’The International structure of US green box subsidies In AG Subsidies in Other WTO Green Box.’’
25 Homna, M. (2009), “Agricultural trade policy reform in Japan”. In Agricultural Subsidies in the WTO Green Box.
26 See, Bureau and Mahé, “CAP Reform beyond 2013: An Idea for a Longer View”, Notre Europe, Studies and Research No 64, 2008.
27 Cavero, T. (2009), “Subsidy reform in the EU context: options for achieving change”. In Agricultural Subsidies in the WTO Green Box.




13


In the Doha Round of negotiations at the WTO, effi cient


agricultural exporters such as those in the Cairns Group have


expressed concerns about the extent to which green box


programmes may be causing more than minimal distortion


to production and trade, and the possibility that existing


green box criteria may need to be tightened in order to


ensure consistency with the fundamental requirement set


out in paragraph 1. A number of developing countries have


also expressed similar concerns, with the G-20 in particular


emphasising these after its formation in 2003. Both the


Cairns Group and the G-20 have historically sought to


establish a cap or reductions on green box subsidies.


In contrast, members of the import-sensitive G-10 group of


countries, which includes Japan, Norway and Switzerland, have


argued that there is only a limited mandate for changes to the


green box. They have historically emphasised the role of green


box programmes in addressing countries’ ‘non-trade concerns’,


and have argued that agriculture has a ‘multifunctional’ role


in delivering other public goods in parallel.


The EU and US have also resisted substantial reform of the


green box. The EU has taken positions that are close to


those espoused by the G-10, in the past suggesting that,


if anything, the green box should be expanded in order


to take into account issues such as animal welfare. Like


Canada, however, the US has supported modest changes


to the green box to cover, for example, experience with


implementing disaster relief programmes.


A number of developing countries, including G-20


members and the African Group, have consistently


underscored the need for the green box to be amended so


as better to refl ect developing countries’ concerns. Many


have argued that the green box, in the form in which it


was devised during the Uruguay Round, primarily refl ects


developed country programmes and is therefore ill suited


for developing countries to use. They have pushed for


specifi c changes to rectify what they see as imbalances in


the existing text.


Broadly speaking, the resistance of importing countries


to many of the more far-reaching proposals put forward


by exporting countries, combined with the resistance of


the latter to any dramatic expansion of the green box


to address additional ‘non-trade concerns’, has meant


that the negotiations have focused relatively heavily on


modifi cations aimed at providing greater fl exibility to


developing countries.


Figure 11 below summarises the main negotiating positions


historically taken by Members, simplifying in some cases


the more nuanced arguments around the various issues.


While the debate on green box criteria has increasingly


narrowed down to a handful of measures that Members


feel are politically feasible, some of the issues that


negotiators raised early on in the round may still resurface,


for example as part of a post-Doha agenda of negotiations


on agricultural trade reform.


Doha Round negotiations


Cow herd by James Jordan, Flickr.com Creative Common License 2.2




14 Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals September 2009


Green box reform remains on the agenda of the Doha Round,


although – as noted above – negotiations have increasingly


focused on a limited set of changes primarily aimed at


ensuring that developing countries will be able to make use


of this category of payments without undue diffi culty. In the


meantime, green box criteria could be reinforced through


panels and litigation. As an increasing proportion of subsidies


are being categorized as green box payments, poor


compliance with existing criteria is at least an important


an issue as the adequacy of the criteria themselves.


Defi ciencies in the current monitoring mechanism


relate both to delays in notifi cations and the type of


information notifi ed to the WTO. For example, in the


EU, notifi cation reports do not specify how the green box


is divided between Member States. Chatellier examines


this by comparing the EU’s fi gures with national data


in France, and fi nds that national public expenditures


which would theoretically fall into the green box


appeared to be higher than those notifi ed by the EU.28


For Cerda, an effective monitoring mechanism would


require “full transparency, making explicit all criteria


of eligibility and the specifi c ways in which they are


fulfi lled, and providing as much information as possible


on type, volume and area of production of payment


recipients, starting from base levels.29


In the longer term, several authors agree that any


signifi cant reform implies a new approach altogether –


moving away from the amber, blue and green categories.


Looking forward: How can change take place?


28 Chatellier, V. (2009), “The distributional structure of green box subsidies in the European Union and France”. In Agricultural Subsidies
in the WTO Green Box.


29 Cerda, A. (2009), “Improving monitoring and surveillance of green box subsidies”. In Agricultural Subsidies in the WTO Green Box.


Figure 11: Membersʼ positions on some key issues in the green box negotiations


African
Group


‘Like-minded
group’ G-20


Cairns
Group Canada US EU G-10


Cap / reductions? Yes Yes Yes Yes Yes No No No


Ensure base periods
are ‘fi xed and
unchanging’?


Yes Yes Yes Yes Yes Allow
occasional
updates


Allow
occasional
updates


Allow
occasional
updates


Preclude new types
of direct payments?


Yes Yes No No No


Time limit
structural


adjustment
payments?


Yes Yes No No No


Substantial
new fl exibility
for developing


countries?


Yes Yes Yes


New fl exibility
for disaster relief


payments?


Yes Yes Yes Yes Yes


Expand to cover
new ‘non-trade


concerns’?


No No No No No No Yes Yes


Source: J. Hepburn and C. Bellemann (2009), “Doha Round negotiations on the green box and beyond.” Agricultural Subsidies in the
WTO Green Box.




15


Farm by hockadilly, Flickr.com Creative Common License 2.2


The Uruguay Round set the stage for the establishment of a


“fair and market oriented agricultural trading system,” but


this goal still remains to be achieved. As trade distorting


measures are phased out, the remaining domestic support


would thus include green box measures, paragraph 6.2


(special and differential treatment) and a “de minimis”


clause. Under this scenario, de Camargo and Henz argue


that a reviewed and improved green box classifi ed as


non-actionable subsidies in Part IV of the SCM Agreement


would become the central element of the WTO agriculture


disciplines as the only support accepted at the end of the


reform process.30


This approach raises a fundamental question about the


underlying purpose of the green box. Are green box subsidies


a temporary adjustment tool, or do they perform a permanent


function of correcting market failures and delivering public


goods? Tutwiler notes that “the concept that tax revenue


should provide for public goods that are available to the


citizenry as a whole and not be transferred to a few private


citizens - or “public money for public goods” - has become a


mantra in European policy reform circles, but did not take


hold in the United States.31 From a sustainable development


perspective, the notion of targeted, non trade distorting state


interventions to address market failure and deliver essential


public goods is clearly more attractive. It does however raise a


few questions. Are direct payments the best tool for achieving


social and environmental goods? Should it be permissible to


continue to subsidize production on some of the world’s


largest and most profi table farms? The possibility of


permanent government support inevitably raises the issue of


inequity between developed and developing countries, given


that the latter probably will not have the resources to


provide the support in order to deliver public goods. This


calls for a wider debate going beyond trade negotiations and


involving the notion of cross-border fi nancing as an integral


part of any eventual solution. Unless policymakers and all


other stakeholders examine these questions, they arguably


risk undermining the entire structure of agricultural policy


reform on which the long-term stability of the broader


multilateral trading system depends.


30 De Camarago Neto, P, and Henz, R. (2009), “Towards a green box subsidy regime that promotes sustainable development: strategies
for achieving change”. In Agricultural Subsidies in the WTO Green Box.


31 Tutwiler, A. (2009), “Subsidy reform in the US context: deviating from decoupling”. In Agricultural Subsidies in the WTO Green Box.




The International Centre for Trade and Sustainable Development (www.ictsd.org) is an independent non-profi t and non-governmental
organisation based in Geneva. Established in 1996, ICTSD’s mission is to advance the goal of sustainable development by empowering
stakeholders to infl uence trade policy-making through information, networking, dialogue, well-targeted research and capacity-
building. This Information Note is produced as part of ICTSD’s Programme on Agricultural Trade and Sustainable Development. More
information about ICTSD activities in this area can be found on: www.ictsd.org


ISSN 1817 3551


Agricultural Subsidies in the WTO Green Box:
Ensuring Coherence with Sustainable Development Goals


“This book constitutes a long-awaited and valuable contribution to clarifying what has become the core of
agricultural negotiations: the fear that abusive migration toward so-called green-box subsidies might render
meaningless any apparent progress in reduction of the more obvious distorting modalities. It is a well-balanced
and thoughtful analysis of all relevant arguments in the debate and provides trade negotiators with an enlightened
guidance to help the Doha Round deliver on its promise of putting world trade to the service of development needs
and environmental improvement.”


Ambassador Rubens Ricupero,
Former Secretary-General of the United Nations Conference on Trade and Development (UNCTAD)


“The meaning and practice of Green Box subsidies is central to the future of agriculture reform. This collection of
essays provides an excellent, thorough and comprehensive analysis of this complex topic which has great ramifi cations
for developing countries agriculture. A must-read for all stakeholders!”


Eveline Herkens,
Special Advisor to the UN Millennium Campaign and former Netherlands Minister for Development Cooperation


“I fi nd it the most comprehensive book that I have read so far on Green Box Subsidies in the context of existing
WTO Law and the WTO DDA negotiations. It should be a must-read for all those concerned with and interested in
appreciating the implication of green box subsidies to the world trade in agricultural products, food security in the
developed, developing countries and LDCs, as well as the protection of the environment.”


Ambassador Arsene M. Balihuta,
Permanent Representative to the WTO at the Mission of Uganda in Geneva


“ICTSD has done the cause of agricultural trade reform a genuine service with its initiative to commission and edit this
collection of papers on the impacts of existing Green Box subsidy expenditures and the case for changes in the WTO rules
governing them. The book brings together thoughtful contributions from some of the best known experts in the fi eld …
[It] is a valuable compilation of analysis, comment and suggestions on the issues and deserves wide exposure.”


Joanna Hewitt,
Former lead Australian WTO negotiator and previous Head of Division in the OECD’s Agriculture Directorate


“This volume is most timely and relevant to the current Doha Round negotiations. The various chapters in the volume
address all the above issues from an expert, NGO and government negotiators perspective. It is essential reading
for all those interested in a sustainable and development oriented outcome of the Doha Round multilateral trade
negotiations.”


Faizel Ismail,
Head of the South African Delegation to the WTO




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