WTO Disciplines of Domestic Support for Agriculture

WTO Disciplines of Domestic Support for Agriculture

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Updated April 17, 2015
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
any distortion, and how to report those costs to the WTO in
Notes: U.S. notifications are complete through 2012.
a public and transparent manner.
WTO Classification of Domestic Support
Under the AoA, U.S. amber box (AMS) outlays are limited
Programs
to no more than $19.1 billion annually, but are subject to de
minimis exemptions. Most U.S. price and income support
The WTO uses a traffic light analogy to group programs.
outlays have been notified as amber box: either product- or

Green Box programs are minimally or non-trade distorting
non-product-specific (Figure 2). An exception was direct
and are not subject to any spending limits.
payments (DPs), which were notified as decoupled green

Blue Box programs are described as market-distorting but
box, and thus excluded from the AMS limit. However, DPs
production-limiting. Payments are based on either a fixed
were repealed by the 2014 farm bill (P.L. 113-79).
area or yield, or a fixed number of livestock, and are made
on less than 85% of base production. As such, blue box
Figure 2. U.S. Amber Box Outlays, De Minimis
programs are not subject to spending limits.
Exclusions, and the WTO Spending Limit

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 and accepted in the WTO legal texts.

De minimis exemptions are spending that is sufficiently
small (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
countries to design their domestic farm support programs to
be more green box compliant and less market distorting.

The majority of U.S. domestic agricultural support outlays
Source: U.S. annual notifications to the WTO through 2012.
have been categorized as green box (Figure 1) and thus not
Notes: The current U.S. amber box limit is $19.1 billion.
subject to the amber box limit.
Since 1995, the United States has stayed within its AMS
limits (Figure 2). However, U.S. compliance has hinged on
judicious use of the de minimis exemptions in a number of
years (e.g., 1999-2001 and 2005) to exclude substantial
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WTO Disciplines of Domestic Support for Agriculture
amber box spending (including crop insurance subsidies)
U.S. Policy Choices Under Scrutiny
from counting against the AMS limit.
Because U.S. farm commodities play such important roles
in so many markets, U.S. farm policy is often subject to
The Agreement on Subsidies and Countervailing
intense scrutiny both for compliance with WTO rules and
Measures (SCM)
for its potential to diminish or impede the success of future
In addition to payment limits, a market-distorting program
multilateral negotiations—in part because a farm bill locks
may be challenged under the WTO’s SCM rules when the
in U.S. policy for several years, during which it would be
program’s effects spill over into international markets—that
difficult to accept new restrictions on U.S. farm programs.
is, if it can be established that a subsidy causes significant
adverse market effects.
WTO Cotton Case—The Ultimate Example
SCM Rules on Adverse Market Effects
The importance of SCM rules was made salient by the
“WTO cotton case,” in which a WTO dispute settlement
Based on past WTO decisions, several criteria are used to
panel ruled against both U.S. cotton support programs and
establish whether a subsidy for a particular commodity could
GSM-102 export-credit guarantees. As a result of the ruling
result in significant market distortions with resultant adverse
and the potential for WTO-sanctioned retaliation, the
effects. First, the subsidy must meet the following criteria:
United States made substantial policy changes to bring the

the subsidy constitutes a substantial share of farmer returns
related programs into WTO compliance.
or of production costs for a commodity;

the subsidized commodity is important to world markets as
Evaluating WTO Compliance
either a significant share of production or trade; and
Based on AoA and SCM rules, a farm program can be

a causal relationship exists between the subsidy and adverse
evaluated against five successive questions to determine
effects in the relevant commodity market.
how it is classified, whether spending is within the AMS
Then the “market distortion” of a policy must have measurable
limit, and whether it is vulnerable to WTO challenge.
market effects on trade and/or market price for the commodity:

1. Do outlays qualify for the green box?

did the subsidy displace or impede the import of a like
product into the domestic market;
2. Do outlays qualify for the blue box?

did the subsidy displace or impede the export of a like
3. If amber, do outlays qualify for de minimis
product by another WTO member country;
exclusion?

did the subsidy (via overproduction and resultant export of
4. Are remaining amber box outlays less than the $19.1
the surplus or displacement of previous imports) result in
billion amber box limit?
significant price suppression, price undercutting, or lost
sales in the international market; or
5. Even if within AoA limits, does the program result

in adverse effects in the international market?

did the subsidy result in an increase in the world market
share of the subsidizing member?
2014 Farm Bill Changes U.S. Farm Policy Direction
For an SCM violation to be meaningful, another WTO
Current U.S. farm policy is authorized by the 2014 farm bill
member country must successfully challenge the violation
through FY2018. The 2014 farm bill made substantial
under the WTO dispute settlement process.
changes to the farm safety net, including repeal of
Dispute Settlement Understanding (DSU)
decoupled (and green box) DPs and the creation of new
The WTO DSU provides a means for members to resolve trade
shallow-loss programs. However, USDA has not yet
disputes. For a farm program that is challenged under the SCM,
announced what WTO classification it will give spending
members must first attempt to settle their dispute through
under the new programs, and their potential market effects
consultations, but if these fail, the challenging member may
remain unknown. Furthermore, outlays under the first year
request a WTO dispute settlement panel to review the matter.
of the new programs—2014—will likely not be notified by
The panel will review relevant trade and market data and make a
USDA until early 2017.
determination of whether the program resulted in a significant
More Information
market distortion. Following the SCM guidelines cited above, a
subsidy may be found to be actionable or prohibited.
For more analysis, see CRS Report R43817, 2014 Farm
Bill Provisions and WTO Compliance, CRS Report
WTO actionable subsidies (i.e., policies that incentivize
RS20840, Agriculture in the WTO: Rules and Limits on
overproduction and result in lower market prices or altered
Domestic Support, CRS Report RS22522, Potential
trade patterns) must be withdrawn or altered to minimize or
Challenges to U.S. Farm Subsidies in the WTO: A Brief
eliminate the subsidy’s distorting aspect.
Overview, and CRS Report R43336, The WTO Brazil-U.S.
WTO prohibited subsidies (i.e., certain export- and import-
Cotton Case.
substitution subsidies) must be stopped or withdrawn “without
delay” in accordance with an abbreviated timetable.
Randy Schnepf, Specialist in Agricultural Policy
If the violating policies are not withdrawn or altered
IF10192
according to the timetable announced by the WTO ruling
panel, then the WTO member bringing the challenge may
take appropriate countermeasures.

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WTO Disciplines of Domestic Support for Agriculture

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