The WTO is an organization standing for trade liberalization. It has many agreements that members have to ratify while joining. The TRIPs, TRIMs, GATS and Agreement on Agriculture are the main agreements of the WTO that contain extensive trade liberalization measures.
The Agreement on Agriculture (AoA)
The AoA contains various agricultural policies to be adopted by the member countries. These includes reduction of tariffs (market access) on imports, elimination of export subsidies (export competition) and reduction of domestic subsidies (domestic support) and limiting it to permissible types of subsidies.
The domestic support is nothing but subsidies given by member countries to their domestic agriculture sector. According to WTO, some of the domestic support measures or subsidies are distorting trade. Trade distortion means a high cost producing country becoming exporter by giving high domestic subsidies to farmers. The AoA hence prohibits such subsidies. On the other hand, there are other types of subsidies that don’t distort trade. AoA says that such subsidies can be continued.
In terms of the trade distortionary effect, the WTO classifies subsidies given by governments into different boxes – Green Box, Blue Box (these two subsidies are permitted and hence non- reducible) and Amber Box (not permissible or to be reduced). The colours simply indicate whether they are permissible or not permissible.
Green Box contains those types of subsidies that don’t distort trade or that cause only minimum distortion. Hence they are permitted subsidies and thus are non-reducible subsidies. The Green box subsidies are provided by governments through variety of programmes like the provision of income support to farmers during crop failure, incentives to farmers to protect environment, subsidies for research and development, food aid to the poor people etc. These subsidies are provided through programmes; without influencing (decoupled) the current level of production and prices. Member countries thus can give green box subsidies without limits; provided they comply with relevant criteria.
The ‘green box’ measures comprises of several type of support measures or subsidies. They basically comprise of two support groups. The first involves public services programmes (for example, research, training, marketing, promotion, infrastructure, domestic food aid or public food security stocks). The second involves direct payments to producers by the government. These mainly involve income guarantee and security programmes (natural disasters, state financial contributions to crop insurance, etc.); programmes aimed at adjusting structures and environmental protection programmes, regional development programmes.
The direct payments are also known as decoupled income support measures as these measures are not influencing market price or production decisions of farmers. Green box measures are compatible with the WTO framework and hence are totally exempted from reduction commitments (non-reducible).
Green Box and developed countries
An important fact file about green box subsidies is that they are mostly given by developed countries. Since these domestic supports are exempted, the developed countries provide such subsidies in huge amount. On the other hand, the developing counties are not able to provide such big subsidies because of lack of financial resources. Similarly, the green box subsidies are not efficient in promoting agriculture in the developing world because of their backwardness. Many developing world countries are of the opinion that indirectly, the green box subsidies are trade distorting. Hence they are demanding that the green box should also be brought under the reducible category of subsidies.