Course on WTO Law and Jurisprudence Part I: Basic WTO Legal Principles

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1 Course on WTO Law and Jurisprudence Part I: Basic WTO Legal Principles The Agreement on Agriculture (II) Session May 2016

2 DOMESTIC SUPPORT UNDER THE AOA In WTO non-legal terminology, domestic subsidies for agricultural products are identified by special "boxes" which are given the colours of traffic lights: "Green" meaning permitted because they have no, or minimal, distortive effect on trade; Annex 2 to the Agreement on Agriculture. "Amber" meaning possibly legal or illegal depending their trade-distortive nature; "Blue" meaning possibly trade-distorting nature but permitted as the measures are linked to production limitation programmes.

3 AMBER BOX What types of measures are included in the amber box? All domestic support measures which do not correspond to the exceptional arrangements in the "Green" and "Blue" boxes are considered to distort production and trade, and therefore fall into the "Amber Box" category. Therefore, to determine whether a measure falls within the amber box, one must confirm that it is a domestic support measure (i.e. not an export subsidy) and that it does not fall within the Green or Blue boxes.

4 AMBER BOX What are the obligations with respect to the amber box? "Amber Box" support measures are not prohibited but are subject to reduction commitments. This is based on calculation of the current total aggregate measurement of support ("AMS"). AMS - a monetary expression of the size of annual transfers provided for a specific agricultural product in favour of the producers of that product, or non-product-specific support provided in favour of agricultural producers in general (Annex 3 lays down how the AMS is to be calculated.)

5 AMBER BOX AMS cannot exceed the commitment levels bound in a Member's schedule. Part IV of Members' Schedules of Commitments lists its Annual Bound Commitment Levels for each of the years of the implementation period (which ended in 2000), and the Final Bound Commitment Level for all subsequent years. Thus, a WTO Member is in compliance with its domestic support reduction commitments in any year if its Current Total AMS does not exceed the corresponding Commitment Level.

6 AMBER BOX SUBSIDIES CHALLENGEABILITY If you stay within your Amber Box commitments, are you "safe" from challenges by other WTO Members? You do not violate the rules of the Agreement on Agriculture concerning the Amber Box However, you can be challenged under the "adverse effects" disciplines under the SCM Agreement (Articles 5 and 6) Your agricultural exports could be countervailed by an importing Member Your domestic support could "spill over" into your exports and result in (illegal) export subsidies

7 SPILL OVER BETWEEN DOMESTIC SUPPORT AND EXPORT SUBSIDIES Spill-over: Canada Dairy and Canada Dairy (21.5) & EC Sugar High guaranteed income for domestic sales of milk/sugar (Amber Box subsidies) Quantitative limits on production that benefits from these subsidies (production/eligibility quotas) Legal requirement to export any excess production Producers use funds from high domestic prices to "cross-subsidize" export sales, charge prices below cost of production This was found to be "payments on the export of an agricultural product that are financed by virtue of governmental action", under Article 9.1(c)

8 GREEN AND BLUE BOX (EXCEPTIONS) Exceptions to Domestic Support reduction commitments The three types of Amber Box measures referred to in Article 6 are not subject to reduction commitments: De minimis levels of product and non-product specific domestic support. (Support not exceeding 5% or 10% of the value of the product or production for developed and developing countries respectively (Article 6.4)). Certain support to encourage agricultural and rural development in developing countries (S&D) (measures listed in Article 6.2). Certain direct payments under production limiting programmes (Blue Box measures listed in Article 6.5).

9 DOMESTIC SUPPORT Support that distorts trade To be limited, because It distorts prices and production volumes Could undermine commitments on market access and export competition Blue box trade distorting, but permitted because it limits production Support that does not distort trade - Fully permitted Amber box must stay within the reduction commitment limits, but: De minimis levels Article 6.2 for developing countries Green Box

10 EXAMPLE OF DE MINIMIS CALCULATION

11 "DEVELOPMENT BOX"

12 GREEN BOX EXCEPTIONS Exceptions to Domestic Support reduction commitments Annex 2: "Green box" subsidies not subject to reduction commitments. Annex 2: "fundamental requirement" that "green box" subsidies have "no, or at most minimal, trade-distorting effects or effects on production." In summary (the details are, however, important): This support shall be provided through a publicly-funded government programme (not from consumers) and shall not have the effect or providing price support to producers. This support must meet policy-specific criteria and conditions set out in Annex 2

13 GREEN BOX EXCEPTIONS Depending on the nature of the particular policy under consideration, the support measure must further fulfil policyspecific criteria set out in detail in the Annex. E.g. governmental services: Research programmes Pest and disease control Training services Agricultural extension services Marketing and promotion services Infrastructural services including electricity reticulation, roads and rail, port facilities, dams and drainage schemes, etc.

14 GREEN BOX EXCEPTIONS Public stock-holding for food security purposes Domestic food aid Decoupled income support Government financial participation in income insurance and income safety-net schemes

15 GREEN BOX EXCEPTIONS Public stockholding for food security purposes Expenditures (or revenue foregone) in relation to the accumulation and holding of stocks of products which form an integral part of a food security programme identified in national legislation. This may include government aid to private storage of products as part of such a programme. The volume and accumulation of such stocks shall correspond to predetermined targets related solely to food security. The process of stock accumulation and disposal shall be financially transparent. Food purchases by the government shall be made at current market prices and sales from food security stocks shall be made at no less than the current domestic market price for the product and quality in question.

16 GREEN BOX EXCEPTIONS Payments for relief from natural disasters Structural adjustment through producer or resource retirement programmes or through investment aids Payments under environmental programmes Payments under regional assistance programmes

17 GREEN BOX EXCEPTIONS Payments under environmental programmes (a) Eligibility for such payments shall be determined as part of a clearly-defined government environmental or conservation programme and be dependent on the fulfilment of specific conditions under the government programme, including conditions related to production methods or inputs. (b) The amount of payment shall be limited to the extra costs or loss of income involved in complying with the government programme.

18 ADDITIONAL GREEN BOX PROGRAMMES AGREED ON AT THE 2013 MINISTERIAL CONFERENCE IN BALI Land rehabilitation Soil conservation and resource management Drought management and flood control Rural employment programmes Issuance of property titles Farmer settlement programmes In order to promote rural development and poverty alleviation

19 PUBLIC STOCKHOLDING PROGRAMMES Developing country Members identified a problem with the permitted levels of Amber Box support: When governments buy food from farmers at supported prices to build up stocks, that counts as "Amber Box" domestic support, this is considered to distort trade. This applies even if the stocks are purchased for food security purposes. This support can exceed the de minimis levels, meaning developing countries find it difficult to stay within those limits. An amendment to the Agreement was proposed, but proved to be controversial. Compromise was to agree on due restraint. Under the Bali Decision on Public Stockholding Programmes, Members agreed to a due restraint clause under which they refrain from challenging in a legal complaint a developing country that exceeds its Amber Box limits as a result of financing a public stockholding programme for food security purposes. Similar questions about this Decision s enforceability arise as under the Nairobi Decision.

20 PUBLIC STOCKHOLDING PROGRAMMES

21 BLUE BOX EXCEPTIONS "Blue Box": Article 6.5 of the Agreement on Agriculture covers any support measure that would normally be in the "Amber Box", but which is placed in the "Blue Box" if the support also requires farmers to limit their production. Article 6.5 of the Agreement on Agriculture exempts from reduction commitments certain direct payments to farmers which are tied to production- limiting programmes.

22 BLUE BOX EXCEPTIONS The following criteria must be fulfilled: payments are directly paid out from the government budget to the producers; payments are conditional upon some form of production-limiting requirement imposed on the recipient of the support, which include: o payments based on fixed area and yields, or o payments made on 85 per cent or less of the base level of production; o livestock payments on a fixed number of head. Historically, only a few Members have used the blue box (most prominently the EU).

23 BLUE BOX EXCEPTIONS "Blue Box" subsidies are considered to be possibly trade-distorting but permitted under the Agreement on Agriculture. This means that they are not immune from challenge through WTO dispute settlement proceedings or under unilateral and multilateral remedies.

24 NOTIFICATION The Committee on Agriculture oversees the implementation of WTO Members' reduction commitments on the basis of the notifications submitted. WTO Members are required to notify on an annual basis, except for least- developed country Members which are only required to notify every two years. Developing countries can also request the Committee on Agriculture to set aside the annual notification requirement for measures other than those falling into the "Green Box", developmental and "Blue Box" categories. In addition to the annual notification obligations, all WTO Members must notify any modifications of existing measures or any introduction of new measures in the exempt categories.