Order Code RS20840
March 13, 2001
CRS Report for Congress
Received through the CRS Web
Farm Program Spending: What's Permitted
Under the Uruguay Round Agreements
Geoffrey S. Becker
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
Congress is examining farm income and commodity price support proposals that
might succeed the programs due to expire in 2002. A key question being asked of
virtually every new proposal is how it will affect U.S. commitments under the 1994
Uruguay Round Agreement on Agriculture (URAA), which commits the United States
to spend no more than $19.1 billion annually on domestic farm supports most likely to
distort trade. The URAA spells out the rules for countries to determine whether their
policies are potentially trade distorting, and to calculate the costs. This report, which
will be updated if events warrant, describes the steps for making these determinations.
Introduction
Major farm income and commodity price support provisions of the last omnibus farm
bill, the Federal Agriculture Improvement and Reform (FAIR) Act of 1996 (P.L. 104-
127), are set to expire in 2002, and the 107th Congress is beginning to examine options for
modifying and extending the programs. One major constraint affecting future policy
choices will be U.S. obligations under the multilateral Uruguay Round Agreement on
Agriculture (URAA), which took effect on January 1, 1995.

Under the URAA, the United States and other World Trade Organization (WTO)
members agreed to “discipline” their domestic farm and agricultural trade policies in order
to facilitate more open trade. Regarding domestic farm programs, the URAA contains
detailed rules and procedures to guide countries in determining which of their programs
are the most likely to distort production and trade, in calculating their annual cost, and in
reporting that total cost to the WTO. This total is known as the “aggregate measurement
of support” (AMS).
The United States currently is committed, under the URAA, to spending no more
than $19.1 billion per year on such potentially trade-distorting domestic support. So, a
key question that policymakers are asking of virtually every new farm proposal is: How
Congressional Research Service ˜ The Library of Congress

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will it affect U.S. commitments under the URAA? The answer to that question rests not
only on its cost, but also on the proposal’s design and objectives.1
URAA Provisions for Domestic Farm Spending
The URAA procedures for classifying and counting trade-distorting support are
somewhat complex. However, four questions might be asked to determine whether a
particular farm measure will cause total U.S. domestic support to be above or below the
$19.1 billion annual limit:
1.
Can the measure be classified as a “green box” policy – one presumed to have the
least potential for distorting production and trade and therefore not counted?
2.
Can it be classified as a “blue box” policy – that is, a production limiting program that
receives a special exemption under the URAA and also therefore not counted?
3.
If it is a potentially trade-distorting “amber box” policy, can support still be excluded
from the AMS calculation because the total is no more than 5% of annual production
value (the so-called 5% de minimis exemption, explained later in more detail)?
4.
If such support does exceed the 5% threshold, when it is added to all other forms of
non-exempt support, is total U.S. AMS still beneath the $19.1 billion maximum?
Can this measure be placed in the green box?
To qualify for the green (exempt) box, a program must:2
1.
Be a publicly-funded government program (defined to include either outlays or
forgone revenue) that does not involve transfers from consumers, and also:
2.
Not have the effect of providing price support to producers, and also:
3.
Meet the following policy-specific criteria and conditions:

A “general service” benefitting the agriculture or rural community in general
cannot involve direct payments to producers or processors. Such programs can
include: research; pest and disease control; training, extension or advisory
services; inspection services, including for health, safety, grading, or
standardization; marketing and promotion services, including information advice
and promotion (but not spending for unspecified purposes that sellers could use
to provide price discounts or other economic benefits to purchasers); and
generally available infrastructure like utility, transportation, or port facilities;
water supply facilities, or other capital works construction);
1 See also: CRS Report RL30612, Farm Support Programs and World Trade Commitments,
January 9, 2001; and CRS Report RL30847, Agriculture: Previewing the 2002 Farm Bill.
2 URAA, Annex 2, Domestic Support: Basis for Exemption from the Reduction Commitments.

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Public acquisition (at current market prices) and stockholding of products for
food security
must be integral to a nationally legislated food security program
and be financially transparent;

Domestic food aid is to be based upon clearly-defined eligibility and nutritional
criteria, be financially transparent, and involve government food purchases at
current market prices;

“Decoupled” income support is to use clearly-defined eligibility criteria in a
specified, fixed base period; not be related in any way after the base period to
(a) domestic or world prices, (b) type or volume, of crop or livestock
production, or (c) factors of production; and, further, not be contingent on any
production in exchange for payments;

Government financial participation in an income insurance or income safety
net
program should define eligibility as agricultural income loss exceeding 30%
of average gross income (or equivalent in net income terms) in the preceding 3-
year period (or preceding 5-year period, excluding the highest and lowest years
– the so-called olympic average), with such payment compensating for less than
70% of the income loss in year of eligibility, and payments based solely on
income – not production, price or production factors [and total annual payments
under this and natural disaster relief (see below) cannot exceed 100% of a
producer’s total loss];

Payments (whether direct or through government crop insurance) for natural
disaster relief
are to use eligibility based on formal government recognition of
the disaster, payments determined by a production loss exceeding 30% of
production in the preceding 3-year (or 5-year olympic average) period, applied
only to losses of income, livestock, land or other production factors, and for not
more than the total replacement cost, and not requiring types/quantities of
future production (and total annual payments under this and the above measure
cannot exceed 100% of a producer’s total loss);

Structural adjustment through producer retirement shall tie eligibility to
clearly defined criteria in programs to facilitate producers’ “total and
permanent” retirement from agricultural production or their movement into non-
agricultural activities;

Structural adjustment through resource retirement shall be determined
through clearly defined programs designed to remove land, livestock, or other
resources from marketable production, with payments: (a) conditioned on land
being retired for at least 3 years and on livestock being permanently disposed;
(b) not contingent upon any alternative specified use of such resources involving
marketing agricultural production; and (c) not related to production
type/quantity, or to prices of products using remaining productive resources;

Structural adjustment provided through investment aids must be determined
by clearly-defined criteria for programs assisting financial or physical
restructuring of a producer’s operations in response to objectively demonstrated
structural disadvantages (and may also be based on a clearly-defined program

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for “reprivatization” of agricultural land). The amount of payments (a) cannot
be tied to type/volume of production, or to prices, in any year after the base
period; (b) shall be provided only for a time period needed for realization of the
investment in respect of which they are provided; (c) cannot be contingent on
the required production of designated products (except to require them not to
produce a designated product); and (d) must be limited to the amount required
to compensate for the structural disadvantage;

Environmental program payments must have eligibility determined as part of
a clearly defined government environmental or conservation program, and be
dependent upon meeting specific program conditions, including conditions
related to production methods or inputs; and payments must be limited to the
extra costs (or loss of income) involved with program compliance;

Regional assistance program payments shall be limited only to producers in a
clearly designated, contiguous geographic region with definable economic and
administrative identity, considered to be disadvantaged based on objective,
clearly-defined criteria in the law or regulation, which indicate that the region’s
difficulties are more than temporary. Such payments in any year: (a) shall not
be related to or based on type/volume of production in any year after the base
period (other than to reduce production) or to prices after the base period; (b)
where related to production factors, must made at a degressive rate above a
threshold level of the factor concerned; and (c) must be limited to the extra
costs or income loss involved in agriculture in the prescribed area.
In conclusion, the above measures are eligible for placement in the green box (i.e.,
exempted from AMS) as long as they (1) meet general criteria one and two, above; and
(2) additionally comply with any criteria specific to the type of measure itself. If these
conditions are satisfied, no further steps are necessary; the measure is exempt. However,
if not, then the next step is to determine whether it qualifies for the blue box
exemption.

Can this measure be placed in the blue box?
To qualify for the blue (exempt) box, a program must:3
Be a direct payment under a production limiting program, and also either:

Be based on fixed areas and yields or:

Be made on 85% or less of the base level of production or:

If livestock payments, made on a fixed number of head.
If these conditions are satisfied, the measure is exempt. However, if not, then they
are considered to be amber box policies, and the next step is to determine whether
spending is above or below the 5% de minimis rate (see below).

3 URAA, Part IV, Article 6, paragraph 5.

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If amber, will this support exceed 5% of production value?
The URAA states that developed country members (including the United States)
do not have to count, when calculating their total AMS, the following “amber box”
(i.e., potentially trade-distorting) policies:
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Product-specific domestic support where it does not exceed 5% of the member’s
“total value of production of a basic agricultural product during the relevant year.”
Support provided through all of the measures specific to a product – not just a single
measure in question – are tallied to determine whether the 5% level is exceeded; and

Non-product-specific domestic support where it does not exceed 5% of the “value
of the member’s total agricultural production.” All non-product-specific support –
not just a single measure – is tallied to determine whether the 5% level is exceeded.
These provisions are known as the so-called de minimis clause. To reiterate, it is not
enough to determine whether a single amber box measure (i.e., one not classified as either
green or blue) by itself may be beneath the 5% of production value trigger. Its level of
support must be added to the support provided by other non-exempt (amber box)
measures. If the cost of this particular measure effectively boosts total support above
5%, then all such support must be counted toward the U.S. total annual AMS.

Does this total annual AMS now exceed $19.1 billion?
Finally, all such support that exceeds 5% de minimis is added for the year.

If the total does not exceed $19.1 billion, even with the added cost of the newly-
created measure, then the United States has met its WTO commitment.

If it does exceed $19.1 billion, the United States has not met its WTO commitment.
Classification of U.S. Policies
The last U.S. notification to the WTO was for 1997. Following are examples of how
various U.S. domestic policies were classified in that notification:
Green Box Policies

USDA research, cooperative extension, and economics programs;

Animal and Plant Health Inspection Service (APHIS) pest and disease programs;

Food Safety and Inspection Service (FSIS) meat and poultry inspection;

Agricultural Marketing Service (AMS), Grain Inspection, Packers and Stockyards
Administration (GIPSA), and other marketing services, including grading, quality
inspection, and market news;
4 URAA, Part IV, Article 6, paragraph 4.

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Domestic food programs, including food stamps, school food, the special
supplemental food program for women, infants, and children (WIC), and Section 32
food purchases;

Agricultural Market Transition Act (AMTA) (production flexibility) payments; which
are considered "decoupled";

Food security commodity reserve;

Disaster payments for livestock and crop losses due to natural disasters;

Conservation programs like conservation operations and the Environmental Quality
Incentives Program (EQIP);

Farm credit including Farm Service Agency (FSA) farm ownership and operating
loans; and state mediation programs;

The Conservation Reserve Program (CRP, considered to be exempt as structural
adjustment through resource retirement).
Blue Box Policies

Target price deficiency payments (which ended with 1996 farm law).
Amber Box Policies
Product-specific support:

Dairy price support;

Sugar price support;

Peanut price support;

Marketing loan benefits, including gains from repaying marketing loans at less than
the loan rate; loan deficiency payments; user marketing certificates; etc.;

Storage payments.
Non-product specific support:

Irrigation programs;

Grazing programs;

Federal crop insurance (value of indemnities less premiums paid).
Outlook
Negotiations are now under way in the WTO to further reform agricultural trade.
They are not expected to be completed before Congress decides on a new farm bill. As
lawmakers consider policy options, other countries will be evaluating not only whether,
in their view, these options will comply with the U.S. commitments under the URAA, but
also how they reflect on the U.S. negotiating position in the ongoing talks. The U.S.
objective is for negotiations to result in substantial reductions in trade-distorting support
and stronger rules that ensure that all production-related support is subject to discipline
(including the “blue box” policies now used only by the EU), while preserving criteria-
based “green box” policies that can support agriculture in ways that minimize trade
distortions. At the same time, Congress might seek methods that it can justify as URAA-
compliant. U.S. officials also may seek to influence multilateral roles in ways that are
consistent with U.S. domestic support policy aims and measures (See CRS Report 98-254
ENR, Agricultural Negotiations in the World Trade Organization, December 29, 2000.)