Agricultural Subsidies

in the Multilateral

Trading System

Karl Hyatt International Trade Specialist Ministry of Agriculture and Fisheries March 2015

What are Agricultural Subsidies?

• Financial or in-kind assistance by governments to agricultural producers

• Among of the most controversial issues in world trade;

• Some claim they are necessary to sustain agricultural production and livelihood;

• Others say they are unfair and distort world trade.

Question

Are agricultural subsidies good or bad?

Haiti and Rice

• Haiti had a thriving rice sector

▫ employed 20% of the population

• Sector destroyed due to liberalization and subsidized U.S rice

→Livelihood of 50,000 farmers destroyed

→Domestic rice prices increased

• In 1996-1998, 62% of population malnourished (FAO)

The EU Sugar Regime

• Quota limited the supply of sugar to the EU

• Intervention price support → EU sugar prices

2-3 times higher than world prices

▫ Intervention price supported by export subsidy

• ACP countries benefitted:

▫ Guaranteed quantities

▫ Guaranteed prices

• The Protocol was denounced by the EU in 2007

Japan Rice Subsidies

Domestic production imports

$2,200 per metric ton subsidy (1986)

Enables producers to produce rice and charge a much higher price to the domestic consumer than world market

price

$2.8 bill in support to producers (1999)

Jamaica and Dairy

• “Life and Debt” (excerpt)

Pros and Cons of Agricultural

Subsidies

Pros 1. Stable and

predictable farming system

2. Farming seen as profitable

3. Guarantees producer income – regardless of prices, weather, diseases, etc.

4. Expanded domestic

production

5. Increased research and development

6. National security/food security

Pros and Cons of Agricultural

Subsidies

Cons 1. Artificial lowering of

commodity prices

2. Overproduction

3. Depression of world market prices

4. Nutritional imbalance

5. Unfair competition

6. Displaces developing countries‟ producers

7. Environmental degradation

Agricultural Subsidies

within the WTO

Agriculture Pre-Uruguay

• The GATT (1947-1995), to establish and enforce

international trade rules

• replacing the International Trade Organization (ITO)

• Agriculture did not fall under the disciplines of the

GATT

• subsidies on industrial goods were prohibited

• subsidies on agricultural primary goods were allowed

Agricultural Subsidies under the

WTO

• The Agreement on Agriculture (AoA) provides the

framework for agricultural trade including subsidies.

• The AOA has focus areas („pillars‟):

1. Market Access

2. Domestic Support

3. Export Competition

Domestic Support

• Subsidies and other programmes, including those that raise or guarantee domestic prices and farmers‟ incomes.

Categories of Domestic Support

No/minimal effects on trade or

production

Development programmes

Production limiting

programmes

All other support

De minimis

Subject to reduction

commitments unless de minimis

Green Box

Art. 6.2 Blue Box

Amber Box

Article 6.4

Amber Box (scheduled for reduction)

Developed countries: AMS

reduced by 20% over 6 years

Developing countries: AMS

reduced by 13.3% over 10 years

LDCs: no reduction requirement

Brazil Canada EU Japan MexicoUnited States

2008 912 4031 98,763 39,616 8,332 19,103

2014 912 4031 67,160 3,973 25,161 19,103

0

20000

40000

60000

80000

100000

120000

US

D m

illi

on

Bound Total AMS (USD mill), 2008 and 2014

Green Box (measures are exempt from

reduction commitments)

must have no, or at most minimal, trade-distorting effects or

effects on production

must be provided through a publicly-funded government

programme

not involving transfers from

consumers

must not have the effect of providing

price support to producers

*Can be increased without any financial limitations

Green Box General services:

• research

• pest and disease control

• training services

• extension/advisory services

• inspection services

• marketing and promotion services

• infrastructural services

Public stockholding for food security purposes

Domestic food aid

Direct payments:

• decoupled income support

• income insurance and income

safety-net programmes

• relief from natural disasters

• structural adjustment assistance

▫ producer retirement programmes

▫ resource retirement programmes

▫ investment aids

• environmental programmes

• regional assistance programmes

Jamaica - Green Box Measures

Measure(s) Value (USD mill)

Research and Development

18.2

Extension and advisory services 10.7

Plant Quarantine 1.8

Veterinary Services 2.5

Blue Box (production-limiting programmes that are

exempt from reduction)

payment based on fixed areas and yields

payment based on per head of livestock

payments made on ≤85% of production

*Actual payments do not relate directly to the current quantity of that production

Developmental Box

Trade-distorting programmes for developing and least-

developed countries that would otherwise be included in

the Amber Box (Aggregate Measurement of Support)

Developmental measures include:

▫ Investment subsidies

▫ Agricultural input subsidies

▫ Domestic support to producers

De minimis

• Domestic support measures that do not fit into the Green-,

Blue- or Developmental Box are subject to reduction

commitments.

• No requirement to reduce such trade-distorting domestic

support if:

Developed countries Developing countries

• ≤ 5% of the total value of production for non-product specific support • ≤ 5% of the value of production for a commodity specific support

• ≤ 10% in each de minimis category

Jamaica – Domestic Support Commitments

• In Jamaica‟s Schedule of Commitment, domestic support

measures fall within the Green Box.

• As a developing country, Jamaica is able to access de minimis

support.

▫ For eg. market price support measures, direct production

subsidies or input subsidies

• Development support

WTO Notification Requirements

• Notification done on an annual basis to the WTO.

• Listing of all measures and the allocated amounts.

• Amber Box notifications – only Members with such scheduled

reduction commitments.

*Additionally, all Members must notify any modifications of

existing or any induction of new measures in the exempt

categories.

Thank you!