The WTO’s Agreement on Agriculture (AoA) classifies policies for agriculture into three: tariff (market access), domestic support (domestic subsidies) and export subsidies. But the most controversial as well as the important one is the set of domestic support measures for agriculture. These domestic support measures are nothing but subsidies given by the member countries to their agricultural sector.
What are domestic supports? How are they classified?
Domestic supports are subsidies given by member countries to promote their agricultural sector. Different types of subsidies are given to support the agricultural activities –including input subsidies, subsidies for R&D, subsidies for food security etc. The AoA classifies domestic support into trade distorting (reducible or to be reduced) and non-distorting (which are non-reducible or need not be reduced) categories. For trade distorting type of subsidies, the WTO sets limit beyond which members can’t give support (de minimis box).
Of the three clauses of AoA, domestic support is the most important one because domestic supports or subsidies are the most actively used set of policy instruments by countries for promoting their agricultural sector. Simultaneously, it is the controversial part of the AoA as several countries extend high level of subsidies to their domestic agriculture sector.
Often domestic support related issues are a cause for conflict at various Ministerial Conferences. Given the diverse feature of different agricultural systems and import and export status of the member countries, the domestic support measures under AoA have divided the WTO members into different pressure groups.
Different types of subsidies
The Agreement on Agriculture classifies domestic subsidies into different types; under various boxes with assigned colours- Green Box, Blue Box and AMS (Amber Box). This classification is based upon their effects on trade (whether they distort trade or not). The colour of the boxes is quite symbolic as in traffic lights: green (permitted), amber (slow down — i.e. be reduced) and a red box (prohibited). Colors symbolically indicate whether they are permissible or not. The AoA signed at Uruguay has no red box. But subsidies above the reduction commitment levels in the AMS are often expressed as red box.
The AoA instructs member countries to reduce trade distorting domestic supports. As indicated, trade distorting domestic support are those which influence price and production. Though the prominent boxes are three; a broad classification based upon all type of specific exemption categories will make them five:
(a) Aggregate Measurement of Support (AMS) or Amber box which includes product specific and non-product specific support
(b) Green box support
(c) Blue box support
(d) De minimus support and
(e) Special and differential (S&DT) treatment box.
The amber box is directly linked to production and prices and hence is considered to be trade distorting. Blue box is production limiting programs that may not distort trade. The green box doesn’t distort trade or may cause only minimum distortion. Out of these domestic support measures, WTO agreement requires reduction (nonexempt/not permissible/reducible) only in AMS (amber box), whereas, support under all other heads is exempted (permissible).
1. Green Box
Green Box is domestic support measures that doesn’t cause trade distortion or at most causes minimal distortion. Hence they don’t have any reduction commitments (non-reducible and exempt). These subsidies are government funded without any price support to crops. They are implemented as programmes aimed at income support to farmers without influencing (decoupled) the current level of production and prices. Green box subsidies are therefore allowed without limits provided they comply with relevant criteria.
The ‘green box’ measures are large in number. They 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 which are fully decoupled from production. 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.
2. Blue Box
Blue box supports are subsidies that are tied to programmes that limit production. Hence it is an exemption to the general rule related to agricultural support. The Blue box subsidies aim to limit production by imposing production quotas or requiring farmers to set aside part of their land. It covers payments directly linked to acreage or animal numbers (reduction). The blue box measures are exempt from reduction commitments.
3. AMS (Aggregate Measurement of Support)
The AMS represents trade distorting domestic support measures. It is referred as the “amber box” in the Agreement on Agriculture.
The AMS means annual level of support (subsidies) expressed in monetary terms, provided for an agricultural product in favour of the producers (product specific) of the basic agricultural product and non-product specific support provided in favour of agricultural producers in general.
The Aggregate Measurement of Support (AMS) consists of two parts—product-specific subsidies and non-product specific subsidies. Product-specific subsidy refers to the total level of support provided for each individual agricultural commodity. Non-product specific subsidy, on the other hand, refers to the total level of support to the agricultural sector as a whole, i.e., subsidies on inputs such as fertilizers, electricity, irrigation, seeds, credit etc. Usually, these non-product subsidies are given to all crops.
In India, the price support given in the form of Minimum Support Prices is an example for AMS.
4. Special and Differential Treatment Box (S&DT)
WTO gives special concessions to the developing countries under the S &DT box given the backwardness of their agricultural sector. The S&DT measures generally comprises of (i) investment subsidies like tractors and pump sets to farmers (ii) agricultural input services like fertilizers to farmers. These subsidies should be provided only to low income and resource poor producers (or poor farmers) in developing countries. Domestic support to producers in developing country members to encourage diversification from illicit narcotic crops is also qualified under S&D treatment box.
5. De-minimis support
De minimis support indicate the minimum level of trade distorting (AMS) subsidies that can be given by a country to its agricultural sector. This de minimis subsidy is expressed as percentage of the country’s agricultural GDP. The de minimis level is 5 per cent of agricultural GDP for developed countries whereas for the developing countries including India, the de minimis ceiling is 10 per cent.