G-20 CIRCULATES NEW PAPERS ON BLUE BOX, GREEN BOX FARM SUBSIDIES

In two informal papers issued on 16 May, the G-20 group of developing countries fleshed out their views on how farm subsidies could be reformed through the WTO agriculture negotiations.

Specifically, the group proposed some conditions for payments under the 'blue box' (which include subsidies that are partially decoupled from production), aimed at ensuring that they are indeed less trade-distorting than 'amber box' support. They are also seeking to prevent blue box payments from being concentrated on particular crops.

The G-20 also reiterated its ideas for reforming the reduction-exempt 'green box,' to ensure that it remains minimally trade-distorting and becomes more useful for developing countries.

Both submissions commented on the 'reference papers' issued on 12 and 13 April by agriculture Chair Ambassador Crawford Falconer (New Zealand). These papers described the state of the negotiations on the two subsidy categories.

Blue box: G-20 wants cap lower than 2.5 percent

Developed countries with significant levels of domestic support have been keen to maintain an important role for the 'blue box,' arguing that it serves as an essential stop in the process of shifting domestic support away from the more heavily trade-distorting 'amber box' (which includes all payments that have not been even partially decoupled from production).

In order to avoid the possibility that developed countries might simply reclassify subsidies from one box to another in order to dodge reduction commitments -- a practice known as 'box-shifting' -- the G-20 is seeking disciplines on many kinds of farm payments.

In their submission, the G-20 expressed support for Falconer's assessment that an agreement to halve blue box support to 2.5 percent of the average total value of agricultural production would be an important step towards an agreement on restraining subsidies. Furthermore, the group would like this 2.5 percent ceiling to enter into force from the moment Members begin to implement their Doha Round commitments, and wants to retain the possibility of capping it at an even lower level by the end of the implementation period.

G-20 members also contend that a cap on overall spending alone will not be sufficient to discipline blue box support effectively. Instead, they believe that new rules are necessary to prevent such payments from distorting trade. Most significantly, they called for rules to prevent the concentration of support on particular products.

To address this, the group proposed a 'double trigger' for Members' blue box spending on a particular product: it must not exceed a certain proportion of their total blue box spending limit, and should also remain below a threshold proportion of the value of production of the product in question.

The G-20 cited US cotton subsidies to bolster its case for this double trigger. It noted that a WTO dispute panel found that USD 1.2 billion in countercyclical payments (grants that rise when world market prices fall) had been sufficient to cause 'serious prejudice' to the interests of other Members. This sum, it pointed out, would amount to only 25 percent of the US' blue box spending entitlement -- and therefore a substantially lower threshold percentage would be required to inhibit concentration effectively.

For Members that have never used the blue box before, the G-20 supports the chair's recommendation that a mechanism be established requiring new or additional blue box expenditure to be offset by a corresponding reduction in amber box support.

In the paper, the G-20 implied that it would be open to some compromise in the case of one Member -- commonly understood to be the EU -- "that has placed an exceptionally large percentage of its trade-distorting trade support in the blue box," as a result of which slashing such spending would affect it relatively more than other countries. It stressed that this did not mean that the EU should be allowed to make no contribution at all.

The G-20 reaffirmed its commitment to a blue box spending cap for developing countries that is no less than 5 percent of the value of production. It also called for blue box-specific monitoring and surveillance requirements to ensure that Members adhere to the new disciplines.

G-20 outlines ideas for 'development-friendly' green box

The paper on the green box focused on two issues: making it more accessible to developing countries, and ensuring that payments classified in it have no, or at most minimal, effects on production and trade.

Arguing that certain agricultural policies typical of developing countries are not trade-distorting, the G-20 has called for payments associated with land reform and related measures to be exempt from reduction commitments. Members are largely favourable to this, as Falconer noted in his reference paper.

The G-20 also seeks to exempt some other measures from reduction commitments, including: developing country government purchases from low-income or resource-poor farmers to establish public stockpiles for food security; as well as the subsidisation of 'domestic food aid' -- the subsidised sale of food procured from such farmers "with the objective of fighting hunger and rural poverty." Both have elicited some concerns from other Members; however, the group emphasised its willingness to work towards language that would address these concerns. The G-20 submission also implied that some of the objections raised with regard to these ideas held the 'small money' involved to a different standard than the "more lenient approach followed in relation to the 'big money'" -- that is, developed countries' far bigger subsidies to their farmers and agribusiness.

Current rules on green box payments for income safety net programmes or relief from natural disasters are too technically complex for developing countries to use, contend the G-20. They therefore urged Members to look at their proposed amendments, and to engage in discussions on how they could be improved. More broadly, the G-20 called for an 'expert discussion' to look at making green box provisions more 'development-friendly.'

Stresses need for green box to be de-linked from production

G-20 members are sceptical that subsidies in the green box really have no trade-distorting effects. They would like to see a combination of cuts, disciplines and strict notification requirements to assuage their concerns. In contrast, the EU and the G-10, with their heavily-subsidised agriculture sectors, emphasise the importance of the green box as a means to address various 'non-trade concerns' such as the protection of the environment, poverty alleviation and food safety, and have opposed calls for reform.

The G-20 reiterated that in order to remain non-trade distorting, direct payments to farmers cannot be linked to production and production inputs. They argued that the existing rules effectively encourage "farmers to bet in favour of frequent update of the basis for the direct payments," and that to prevent this, Members need to establish "fixed and unchanging" reference points for areas, yields and animal numbers." Finally, they warned that the updating of base areas and yields could end up effectively 're-coupling' grants to production. The group did acknowledge that such fixed parameters may be inappropriate for the purposes of 'newcomers' seeking to create green box subsidy programmes, as well as for regional assistance schemes.

The new paper responds to criticism of the group's June 2005 proposal to amend the conditions under which decoupled income support payments would be eligible for the green box. Specifically, it emphasises that the group's proposed stipulation that land should not have to be 'in agricultural use' in order for farmers to receive income support referred to "active commercial production," and would certainly allow for minimal usage necessary to avoid environmental degradation.

G-20 members also indicated willingness to consider expanding the range of 'green box' programmes to include payments to farms in the event of sanitary and phytosanitary emergencies caused by natural disasters -- on condition that the production affected is destroyed.

Falconer is expected to issue revised reference papers on a range of domestic support issues this week, and hold consultations on them next week.

ICTSD reporting.