WTO Disciplines of Domestic Support for Agriculture

WTO Disciplines of Domestic Support for Agriculture

October 22, 2014
WTO Disciplines of Domestic Support for Agriculture
Trade is critical to the U.S. agricultural sector—exports
Figure 1. U.S. Domestic Spending by WTO Category
account for about 20% of total U.S. agricultural production.
Some commodities, such as cotton, wheat, and soybeans,
have export shares of nearly 50% or greater. As a member
of the World Trade Organization (WTO), the United States
has committed to abide by WTO rules and disciplines,
including those that govern domestic farm policy.
WTO Disciplines of Domestic Support
A farm support program can violate WTO commitments in
two principal ways—first, by exceeding spending limits of
certain market-distorting programs, and second, by
generating distortions that spill over into the international
marketplace and cause significant adverse effects.
The Agreement on Agriculture (AoA)
The WTO’s AoA spells out the rules for countries to
determine whether their policies for any given year are

Source: U.S. annual notifications to the WTO.
potentially trade-distorting, how to calculate the costs of

Note: U.S. notifications are complete through 2011.
any distortion, and how to report those costs to the WTO in
a public and transparent manner.
Under the AoA, U.S. amber box (AMS) outlays are limited
to no more than $19.1 billion annually, but are subject to de
minimis exemptions. Most U.S. price and income support
WTO Classification of Domestic Support
outlays have been notified as amber box: either product- or
Programs
non-product-specific (Figure 2). An exception was direct
The WTO uses a traffic light analogy to group programs.
payments (DPs), which were notified as decoupled green
•
Green Box programs are minimally or non-trade
box, and thus excluded from the AMS limit. However, DPs
distorting and are not subject to any spending limits.
were repealed by the 2014 farm bill (P.L. 113-79).
•
Blue Box programs are described as market-distorting
but production-limiting. Payments are based on either a
Figure 2. U.S. Amber Box Outlays, De Minimis
fixed area or yield, or a fixed number of livestock, and
Exclusions, and the WTO Spending Limit
are made on less than 85% of base production. As such,
blue box programs are not subject to spending limits.
•
Amber Box programs are the most market-distorting
programs and are subject to strict aggregate annual
spending limits. They are cumulatively measured by the
aggregate measure of support (AMS).
•
Prohibited (i.e., Red Box) programs include certain
types of export and import subsidies and non-tariff trade
barriers that are not explicitly included in a country’s
WTO schedule or identified in the WTO legal texts.
•
De minimis exemptions are spending that is
sufficiently smal (less than 5% of the value of
production)—relative to either the value of a specific
product or total production—to be deemed benign.
By leaving no constraint on spending in the green box while
imposing limits on AMS spending, the WTO encourages

Source: U.S. annual notifications to the WTO.
countries to design their domestic farm support programs to
Note: The current U.S. amber box limit is $19.1 billion.
be green box compliant. The majority of U.S. domestic
agricultural support outlays have been categorized as green
Since 1995, the United States has stayed within its AMS
box (Figure 1) and not subject to the amber box limit.
limits (Figure 2). However, U.S. compliance has hinged
on judicious use of the de minimis exemptions in a number
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WTO Disciplines of Domestic Support for Agriculture
of years (e.g., 1999-2001 and 2005) to exclude all non-
If the violating policies are not withdrawn or altered
product-specific amber box spending (including crop
according to the timetable announced by the WTO ruling
insurance subsidies) from counting against the AMS limit.
panel, then the WTO member bringing the challenge may
take appropriate countermeasures.
The Agreement on Subsidies and Countervailing
Measures (SCM)
U.S. Policy Choices Under Scrutiny
In addition to payment limits, a market-distorting program
Because U.S. farm commodities play such important roles
may be challenged under the WTO’s SCM rules when the
in so many markets, U.S. farm policy is often subject to
program’s effect spills over into international markets—that
intense scrutiny both for compliance with WTO rules and
is, if it can be established that a subsidy causes significant
for its potential to diminish or impede the success of future
adverse market effects.
multilateral negotiations—in part because a farm bill locks
in U.S. policy for several years, during which it would be
SCM Rules on Adverse Market Effects
difficult to accept new restrictions on its farm programs.
Based on past WTO decisions, several criteria are used to
establish whether a subsidy for a particular commodity could
WTO Cotton Case—The Ultimate Example
result in significant market distortions with resultant adverse
The importance of SCM rules was made salient by the
effects. First, the subsidy must meet the following criteria:
“WTO cotton case,” in which a WTO dispute settlement
• the subsidy constitutes a substantial share of farmer
panel ruled against both U.S. cotton support programs and
returns or of production costs for a commodity;
GSM-102 export-credit guarantees. As a result of the ruling
• the subsidized commodity is important to world markets
and the potential for WTO-sanctioned retaliation, the
as either a significant share of production or trade; and
United States made substantial policy changes to bring the
•
related programs into WTO compliance.
a causal relationship exists between the subsidy and
adverse effects in the relevant commodity market.
Evaluating WTO Compliance
Then the “market distortion” of a policy must have measurable
market effects on trade and/or market price for the
Based on AoA and SCM rules, a farm program can be
commodity:
evaluated against five successive questions to determine
• did the subsidy displace or impede the import of a like
how it is classified, whether spending is within the AMS
product into the domestic market;
limit, and whether it is vulnerable to WTO challenge.
• did the subsidy displace or impede the export of a like
1. Do outlays qualify for the green box?
product by another WTO member country;
2. Do outlays qualify for the blue box?
• did the subsidy (via overproduction and resultant export of
the surplus or displacement of previous imports) result in
3. If amber, do outlays qualify for de minimis exclusion?
significant price suppression, price undercutting, or lost
sales in the international market; or
4. Are remaining amber box outlays less than the $19.1
billion amber box limit?
• did the subsidy result in an increase in the world market
share of the subsidizing member?
5. Even if within AoA limits, does the program result in
adverse effects in international market?
For an SCM violation to be meaningful, another WTO
2014 Farm Bill Changes U.S. Farm Policy Direction
member country must successfully challenge the violation
under the WTO dispute settlement process.
Current U.S. farm policy is authorized by the 2014 farm bill
through FY2018. The 2014 farm bill made substantial
Dispute Settlement Understanding (DSU)
changes to the farm safety net including repeal of DPs and
creation of new shallow-loss programs. However, it is too
The WTO DSU provides a means for members to resolve
early for an assessment of the WTO classification and
trade disputes. For a farm program that is challenged under
potential market effects of the new domestic support
the SCM, members must first attempt to settle their dispute
programs. It is unclear how USDA will classify the new
through consultations, but if these fail, the challenging
programs, many of which have yet to be fully implemented.
member may request a WTO dispute settlement panel to
review the matter. The panel will review relevant trade and
Spending under the first year of the new programs—2014—
market data and make a determination of whether the
will likely not be notified by USDA until early 2017.
program resulted in a significant market distortion. Following
the SCM guidelines cited above, a subsidy may be found to be
More Information
actionable or prohibited.
For more analysis, see CRS Report RS20840, Agriculture
WTO actionable subsidies (i.e., policies that incentivize
overproduction and result in lower market prices or altered
in the WTO: Rules and Limits on Domestic Spending, CRS
trade patterns) must be withdrawn or altered to minimize or
Report RS22522, Potential Challenges to U.S. Farm
eliminate the subsidy’s distorting aspect.
Subsidies in the WTO: A Brief Overview, and CRS Report
R43336, Status of the WTO Brazil-U.S. Cotton.
WTO prohibited subsidies (i.e., certain export- and
import-substitution subsidies) must be stopped or withdrawn
Randy Schnepf, rschnepf@crs.loc.gov, 7-4277.
“without delay” in accordance with an abbreviated timetable.
IF00055
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Document Outline

WTO Disciplines of Domestic Support

The Agreement on Agriculture (AoA)

The Agreement on Subsidies and Countervailing Measures (SCM)

U.S. Policy Choices Under Scrutiny

WTO Cotton Case—The Ultimate Example

Evaluating WTO Compliance

2014 Farm Bill Changes U.S. Farm Policy Direction

Current U.S. farm policy is authorized by the 2014 farm bill through FY2018. The 2014 farm bill made substantial changes to the farm safety net including repeal of DPs and creation of new shallow-loss programs. However, it is too early for an assess...

More Information