WTO Disciplines on U.S. Domestic Support for Agriculture

WTO Disciplines on U.S. Domestic Support for Agriculture

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Updated June 3, 2019
WTO Disciplines on U.S. Domestic Support for Agriculture
Trade is critical to the U.S. agricultural sector: Exports
Most U.S. commodity support outlays are notified as amber
account for about 20% of total U.S. agricultural production.
box: either product- or non-product-specific (Figure 2).
Some commodities—such as cotton, wheat, and soybeans—
However, direct payments (DPs) were notified as
have export shares of nearly 50% or greater. As a member
decoupled, green box income support and were excluded
of the World Trade Organization (WTO), the United States
from the amber box limit. DPs were repealed by the 2014
has committed to abide by WTO rules and disciplines,
farm bill (P.L. 113-79).
including those that govern domestic farm policy.
Figure 1. U.S. Annual WTO Notifications by Category
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
potentially trade distorting, how to calculate the costs of
any distortion, and how to report those costs to the WTO in
a public and transparent manner.
WTO Classification of Domestic Support
The WTO uses a traffic light analogy to group programs.
 Green box programs are minimally or non-trade

distorting and are not subject to any spending limits.
Source: U.S. annual notifications to the WTO through 2016.

Note: PS = product specific; NPS = non-product specific.
Blue box programs are described as market-distorting but
production-limiting. Payments are based on either a fixed
Since 1995, the United States has stayed within its AMS
area or yield or a fixed number of livestock and are made
limits (Figure 2). However, U.S. compliance has hinged on
on less than 85% of base production. As such, blue box
judicious use of the de minimis exemptions in a number of
programs are not subject to spending limits.
years (e.g., 1999-2001 and 2005) to exclude substantial
 Amber box programs are the most market-distorting
amber box spending (including crop insurance subsidies)
programs and are subject to strict aggregate annual
from counting against the AMS limit.
spending limits. They are cumulatively measured by the
aggregate measure of support (AMS) subject to the de
Figure 2. U.S. Amber Box Outlays, De Minimis
minimis exemption (explained below).
Exemptions, and the Amber Box Spending Limit
 Prohibited 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
have been categorized as green box (Figure 1) and thus not
subject to the amber box limit.

Under the AoA, U.S. amber box outlays are limited to
Source: U.S. annual notifications to the WTO through 2016.
$19.1 billion annually, subject to de minimis exemptions.
Notes: PS = product specific; NPS = non-product specific.
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link to page 1 WTO Disciplines on U.S. Domestic Support for Agriculture
The Agreement on Subsidies and Countervailing
U.S. Policy Choices Under Scrutiny
Measures (SCM)
Because U.S. farm commodities play such important roles
In addition to payment limits, a market-distorting program
in so many markets, U.S. farm policy is often subject to
may be challenged under the WTO’s SCM rules when the
intense scrutiny both for compliance with WTO rules and
program’s effects spill over into international markets—that
for its potential to diminish or impede the success of future
is, if it can be established that a subsidy causes significant
multilateral negotiations—in part because a farm bill locks
adverse market effects.
in U.S. policy for several years, during which it would be
difficult to accept new restrictions on U.S. farm programs.
SCM Rules on Adverse Market Effects
WTO Cotton Case: The Ultimate Example
Based on past WTO decisions, several criteria are used to
The importance of SCM rules was made salient by the
establish whether a subsidy for a particular commodity could
“WTO cotton case,” in which a WTO dispute settlement
result in significant market distortions with resultant adverse
panel ruled against both U.S. cotton support programs and
effects. First, the subsidy must meet the fol owing criteria:
GSM-102 export-credit guarantees. As a result of the ruling

The subsidy constitutes a substantial share of farmer
and the potential for WTO-sanctioned retaliation, the
returns or of production costs for a commodity.
United States made substantial policy changes to bring the

The subsidized commodity is important to world markets
related programs into WTO compliance.
as a significant share of either production or trade.
Evaluating WTO Compliance

A causal relationship exists between the subsidy and
Based on AoA and SCM rules, a farm program can be
adverse effects in the relevant commodity market.
evaluated against five successive questions to determine
Then the “market distortion” of a policy must have
how it is classified, whether spending is within the AMS
measurable market effects on trade and/or market price for
limit, and whether it is vulnerable to WTO challenge:
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
4. Are remaining amber box outlays less than the $19.1
of the surplus or displacement of previous imports)
billion amber box limit?
result in significant price suppression, price undercutting,
or lost sales in the international market?
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?
2018 Farm Bill Sets U.S. Farm Policy Direction
Current U.S. farm policy is authorized by the 2018 farm bill
For an SCM violation to be meaningful, another WTO
(P.L. 115-334) through crop year 2023. The 2018 farm bill
member country must successfully challenge the violation
largely maintains the farm safety net established under the
under the WTO dispute settlement process.
2014 farm bill (P.L. 113-79), including the revenue-support
programs—Agriculture Risk Coverage (ARC) and Price
Dispute Settlement Understanding
Loss Coverage (PLC). Because of their decoupled design,
The WTO Dispute Settlement Understanding (DSU) provides
the U.S. Department of Agriculture has notified spending
a means for members to resolve trade disputes. For a farm
under ARC and PLC as non-product specific. Combined
program that is challenged under the DSU, members must
outlays for ARC and PLC were $5.3 billion in 2014, $7.8
first attempt to settle their dispute through consultations, but
billion in 2015, $7.0 billion in 2016, and an estimated $2.3
if these fail, the challenging member may request a WTO
billion in 2017. These rather substantial outlays have been
dispute settlement panel to review the matter. In the event of
exempted from counting against the U.S. amber box limit
a SCM challenge, the panel would review relevant trade and
under the de minimis non-product-specific (NPS)
market data and make a determination of whether the
exemption (Figure 2).
program resulted in a significant market distortion. Fol owing
More Information
the SCM guidelines cited above, a subsidy may be found to be
actionable or prohibited.
For more analysis, see CRS Report R45305, Agriculture in
the WTO: Rules and Limits on U.S. Domestic Support;CRS
WTO actionable subsidies (i.e., policies that incentivize
Report R45730, Farm Commodity Provisions in the 2018
overproduction and result in lower market prices or altered
Farm Bill (P.L. 115-334); CRS Report R43817, 2014 Farm
trade patterns) must be withdrawn or altered to minimize or
Bill Provisions and WTO Compliance; CRS Report
eliminate the subsidy’s distorting aspect.
RS22522, Potential Challenges to U.S. Farm Subsidies in
WTO prohibited subsidies (i.e., certain export- and
the WTO: A Brief Overview; and CRS Report R43336, The
import-substitution subsidies) must be stopped or withdrawn
WTO Brazil-U.S. Cotton Case.
“without delay” in accordance with an abbreviated timetable.
Randy Schnepf, Specialist in Agricultural Policy
If the violating policies are not withdrawn or altered
according to the timetable announced by the WTO ruling
IF10983
panel, then the WTO member bringing the challenge may
take appropriate countermeasures.
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WTO Disciplines on U.S. Domestic Support for Agriculture

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https://crsreports.congress.gov | IF10983 · VERSION 3 · UPDATED