EU Halves Production-Linked Farm Subsidies, But Delinked Support Jumps

26 January 2011

The EU's production-linked farm subsidies fell to a record low of 12.3 billion euros in marketing year 2007/08, according to the bloc's latest formal report to the WTO. At the same time, payments that are supposedly unrelated to trade and production reached a new high of 62.6 billion euros.

Successive reforms of EU farm support policies have sought to delink payments from production levels, leading to a sharp decline in the payments deemed under WTO rules to be  highly trade-distorting and belonging to the 'amber box' under the global trade body's traffic-light scheme for classifying farm subsidies. In 2007, subsidies in this category were little over half the level reached the year before, and nearly a third of 2004 levels.

At the same time, moves to provide farmers with direct payments to compensate for the lost income have led to a corresponding rise in 'green box' support - a WTO category intended for payments deemed to cause no more than minimal distortion of trade or production. Green box support tripled between 2004 and 2007, the new figures show.

Indeed, 'decoupled' income support payments accounted for half of all green box spending, at 31.3 billion euros. Other major sub-categories of support included spending on general services (6.7 billion euros); investment aids (7.6 billion), environmental programmes (6.3 billion) and regional assistance (4.5 billion).

How subsidy payments are classified is central to their fate under any deal in the WTO's Doha Round of global trade talks: while the EU's ceiling for ‘amber box' payments is slated for a hefty cut, green box subsidies are to escape the axe altogether.

The EU reported that it also provided around 5.2 billion euros in 'production-limiting' payments: this amount is fairly similar to that reported for the previous year, after sharp declines in 2005 and 2006. While still considered to be ‘trade-distorting', blue box payments are generally seen as less damaging than amber box support.

Small amounts of support - known as 'de minimis' payments - are allowed under WTO rules without having to count towards overall reduction commitments: the EU reported that it spent 2.4bn on this kind of spending in the 2007-08 marketing year.

For the first time ever, the recent figures would put the EU's overall trade-distorting support below the proposed new ceiling of 22 billion euros that would be established by a Doha Round accord under the terms currently being considered at the WTO. The Doha deal would create a new subsidy cap that limits the total amount of amber, blue and de minimis support that countries are allowed to provide.

Asked about the new EU data, one Geneva-based delegate was unimpressed. "Subsidies, in one form or another, are still being provided in large quantities - so obviously it has an effect on global trade," the official said. "We may see the US and EU agreeing to cut their [overall trade-distorting support] further - because their spending is no longer classified as amber box." A continuation of the box-shifting trend would require WTO members to contemplate changes to WTO rules for agricultural subsidies. "Or, have an end date [for farm subsidies]. Let's start talking about that."

In 2006-08, subsidies and tariff barriers meant that EU farmers could sell produce at 15 percent above world market prices, a recent ICTSD study finds - although a succession of reforms has dramatically narrowed this price gap from two decades previously, when it stood at 76 percent. (Disclosure: ICTSD is the publisher of Bridges Weekly.)

"EU figures show that the share of direct payments and total subsidies in agricultural factor income is 28% and 40% respectively for the EU-27", notes the study's author, Professor Alan Matthews of Trinity College Dublin, "suggesting that much EU agricultural production would not be economically sustainable with current farm structures in the absence of this support".

The subsidy notification (G/AG/N/EEC/68) is available online at: http://docsonline.wto.org/.

ICTSD reporting.

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