G20 and G33 Present Papers on Blue Box and de minimis Support at WTO Agriculture Negotiations

21 March, 2005

TWN Info Service on WTO and Trade Issues (Mar05/8)

A session of agriculture negotiations took place at the WTO on 14-18 March.

Among the significant developments at the meetings were the resentation of two papers by the Group of 20 and the Group of 33, both of which are groupings of developing countries.

The Group of 20 presented a paper on the 'blue box' domestic support, while the Group of 33 developing countries (also known as the SP-SSM Alliance or Special Products and Special Safeguard Mechanism Alliance) presented a paper on de minimis domestic support.

The G20 paper gave a detailed list of criteria that would make payments to farmers eligible under blue box support measures, while the G33 paper made the case why developing countries should not be subjected to any reduction commitments under the de minimis domestic support.

Below is a detailed report of these two papers and the response they obtained at the WTO.

Martin KhorTWN

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G20 and G33 present papers on Blue Box and de minimis supportBy Martin KhorGeneva15 March 2005

Two groupings of developing countries presented statements on aspects of domestic support when week-long negotiations on agriculture resumed at the WTO on 14 March.

The papers were presented during informal technical consultations for further detailed work on subjects that have already had a first discussion.

The consultations (known in WTO agriculture jargon as the 'Room D' process) were on the issues of Blue Box criteria (paragraph 14 of Annex A of the July 2003 package); the formulae for reductions in trade-distorting domestic support; and total value of agriculture production (the last two items covering various paragraphs of the domestic support pillar of Annex A of the July package).

The agriculture negotiations, in the Special Session of the Committee on Agriculture, are scheduled to take up the whole week, with consultations on ad valorem equivalents on Tuesday, and informal meetings on Wednesday and Thursday on a range of issues, including implementation of export competition elements; tariff escalation, tariff simplification and the special agricultural safeguard; the LDCs; recently acceded Members; monitoring and surveillance; and issues of interest but not agreed.

On Friday morning, there will be a formal meeting of the Special Session of the Committee on Agriculture.

The G20's statement on the blue box was presented on its behalf during the Room D consultations by the Philippines. The G20 stated that the Blue Box, in particular the criteria under which this instrument is going to be implemented, is undoubtedly one of the most important outstanding issues for the discussion on modalities. The path for an agreement on modalities will necessarily pass through the Blue Box.

The G20 recalled that the Blue Box was the outcome of the Blair House agreement (made between the EC and US during the Uruguay Round), which resulted in the creation of a new category of trade distorting support exempt from reduction commitments predicated on the condition that it is subject to 'production-limiting programmes'.

Although Article 6.5 of the Agreement on Agriculture does not make any explicit reference to the fact that Blue Box payments are 'less trade-distorting' than the AMS (aggregate measure of support), nevertheless the assumption behind the exemption of such payments from reduction commitments was that the area under its control would curtail the trade and production distorting character of the policy, said the statement.

Article 6.5 has also two additional features that made it so appealing for users - it shifted the goalposts by changing the base for commitments; and there was no upper limit.

'The way the Blue Box was conceived, therefore, allowed members to shift

programmes already counted in their 1986-88 AMS base figures to the Blue Box without deducting them from the baseline. In other words, an additional cushion was created,' said the G20.

'To make matters worse, due to the way the notification process was developed, no effective monitoring provision was created to ensure that the central element of Article 6.5 - production-limiting programmes - was made effective.

'In brief, the creation of the Blue Box has allowed for higher levels of trade-distorting domestic support; made the 1986-1988 base levels less relevant; made reduction commitments easier to be complied with and, finally, weakened multilateral disciplines in terms of monitoring trade and production distorting effects.'

The G20 statement added that in fact, AMS and Blue Box payments, seen in conjunction, confirm that their total amount has in some cases approached the commitment levels agreed to in the Uruguay Round. If the Blue Box had not been created, it would have been very difficult for these Members to comply with their AMS commitments.

The G20 also criticized the fact that although Blue Box payments are granted under production-limiting programmes, there are no requirements for details as to how these payments in fact limit production. The need and importance of improved monitoring and surveillance provisions is clear and the G-20 said that it will revert to this issue later.

The G20 said that in accordance with paragraphs 13 and 14 of the 'Framework'( i.e. Annex A of the July package) it will negotiate a change in existing criteria as well as additional criteria. The G-20 noted that from the outset Members have indicated that they are ready to discuss criteria in order to make the Blue Box less trade-distorting than the Amber Box, as agreed in the Framework.

On the criteria of blue box support, the G-20 presented three main ideas: proposals for Blue Box payments which are not aimed at limiting production; proposals for payments for production-limiting programmes; and improvement in notification requirements.

As regards Blue Box payments which are not aimed at limiting production, the G20 proposed the following:

* No updating of base areas and yields: This would reduce the incentive to farmers to increase planted areas on the expectation that a possible future updating would increase their revenue received from the Government. As a consequence, farmers would focus more on market signals;

* Payments should be independent from what is being produced: This proposed change is intended to allow for a larger degree of flexibility for the farmers to moveaway from their original crops and even to withdraw land from production;

* Accumulation of payments: If the Blue Box is a half-way to reform, commoditiesbenefiting from it should not be allowed to receive Amber support;

* Setting criteria to determine target prices: Target prices are currently fixedarbitrarily, which creates an effectively permanent incentive for farmers to continueto produce a specific crop, insulating the farmer from market signals. A goodalternative could be loan rates fixed in relation to a 5-year Olympic average,following market price fluctuations;

* Limits to price-gaps differentials: Current WTO agreement on agriculture (AoA)rules in terms of direct payments limit the compensation for farmers' income loss dueto natural disasters to 70%. It is proposed that a factor or reduction be introduced tobring down the level of income-loss compensation due to normal market risks;

* Product specific caps: This would be a means of preventing the shift of supportamong products or the concentration of large amounts of support in a few products.

As regards production-limiting programmes, the G20 proposed that such Blue Boxsupport (as any category of trade-distorting support) will need product-specific caps,in order to prevent shifts in support among products or the concentration of largeamounts of support in a few products to ensure that it is less-trade distorting thanAMS measures.

Regarding improvement in notification requirements, the G20 proposed that all BlueBox users shall be obliged to notify their planted area and the production resultingthereof, as well as the number of head.

The G20 said it also welcomed suggestions by Members on criteria which can makethe Blue Box support more user-friendly for developing country Members as well. 'The current Article 6.5 Blue Box seems only to reflect the programmes of certainMembers, and in addition, none of the ideas currently on the table reflect criteriawhich could be of practical use to developing country Members,' it said.

According to trade diplomats, the G20 statement was challenged by the US, whichwas not in favour of the G20 criteria for the blue box. The US view was that theproposed additional criteria should not be considered, as the criteria for the new BlueBox had already been agreed to in the July package, and it wondered why the issuewas brought back again.

The EU stressed that the blue box is an important instrument for reform towards lessdistorting support, and that was why article 6.5 of the AoA (on the blue box) isappropriate.

Brazil responded that the issue of criteria for the blue box is part of the unfinishedbusiness of the process of the July package, and thus it should be discussed.

Canada and Australia appeared to support the G20 initiative, saying that there aresome good elements in the statement that they could look at.

The statement of the Group of 33 (which has 43 members) on de minimis domesticsupport was presented by Barbados. According to the G33 paper, it is inappropriatefor developing countries to be subjected to any reduction commitment in de minimissupport. As there is no justification for reduction in de-minimis support fordeveloping countries, 'we therefore believe that reduction commitments onde-minimis applicable to developing countries should be zero per cent.'

The G33 stated that para 11 of Annex A on agriculture provided for reduction in deminimis to be negotiated, taking into account the special and differential treatmentprinciple. In undertaking work on para 11, the G33 is of the view that reduction ofde minimis for developing countries may not be appropriate for five reasons.

Firstly, like special products (SPs) and special safeguard mechanism (SSM) in themarket access pillar, the G33 viewed de minimis support and Article 6.2 support asfundamental policy instruments for developing countries to address concerns relatedto food security, livelihood security and rural development.

Developing countries' farmers face high costs in accessing markets due to lack ofinfrastructure and other constraints. De minimis programmes are one of the verylimited options available to developing countries to offset some of these costs andother disadvantages faced by farmers, said the G33.

Secondly, the developing countries provide insignificant levels of domestic supportto their agriculture. Over 95% of total domestic support in agriculture goes to farmersin developed countries. The structure of the domestic support pillar in the AoA isessentially based on the programmes of support available to farmers in thosecountries.

The instruments of support to these farmers are: the Amber Box, comprisingde-minimis support and AMS; the Blue Box; and direct payments under the GreenBox.

'Developing countries have neither the resources to provide support which can matchthe developed countries' levels of support, nor is it possible to provide support underthe Blue Box and direct payments under the Green Box, as those disciplines havebeen primarily designed to conform to the programmes of industrialized countries,'said the paper.

'Most developing countries can only or actually use the de-minimis support andArticle 6.2 support for their agriculture sector. Therefore any reduction in de-minimisin developing countries will deprive them of the already limited instruments availableto them.'

Thirdly, the de minimis and AMS are parts of the same continuum, said the G33. AMS comprises that support which is above the de-minimis. The method ofcalculation of AMS is such that if the support on a particular product is below deminimis, it is taken as zero and if it is above de minimis, the entire support becomesproduct-specific AMS. In other words, the de minimis support is subsumed in theAMS.

Added the G33 paper: 'Unless the AMS is reduced by 100% there is always apossibility that the prescribed reductions for AMS and de-minimis are so adjusted asto minimize the extent of reductions in domestic support.

'On the other hand, if a country has no AMS commitment and it is entitled to providesupport under the de-minimis alone, it will have no flexibility to adjust its supportbetween the two elements of Amber Box and, as a result, it will be required toundertake disproportionately large burden of reduction in domestic support.

'Therefore, before any work is undertaken on the de-minimis, there should beabsolute clarity as to the reduction commitments under the AMS.'

Fourthly, any reduction in de-minimis by developing country Members (most ofwhich have no AMS commitments) would amount to reduction on a product-specificbasis.

'Can there be more blatant evidence of inequity in the commitments of developed anddeveloping Members?' asked the G33. 'Developed members with high domesticsupport will reduce their support levels on an average basis only, whereas developingmembers which hardly give support would reduce it on a product-specific basis. Inother words, a discipline which has not been accepted by developed countries sincethe beginning is being imposed on developing countries.'

Fifthly, negotiations on reduction in de-minimis cannot be seen in isolation from theoverall reduction in domestic support, as the support measures comprised in variousboxes are intrinsically interlinked. Paragraph 13 of Annex A stipulates a review ofArticle 6.5 on the Blue Box.

One of the arguments advanced by the demandeurs for such a review is that thecurrent criteria of the Blue Box are not sufficient to accommodate the programmesimplemented by such Members. The policy space available to these Members tosupport their farmers is being proposed to be expanded. There is no agreement as yeton the modification and/or any additional criteria in this respect.

'We note that the programmes in developing countries for supporting their farmersalso do not conform to the criteria of the existing Blue Box,' said the G33 paper. 'During this review process, it may become necessary to develop new criteria, whichmay take into consideration the special conditions prevailing in developing countries,so that the programmes implemented by them for supporting their farmers may alsobe accommodated.

'The existing Blue Box or the hitherto proposed changes in the Blue Box can neverbe used by most, if not almost all developing countries. These developing countrieshave therefore no interest in retaining these superfluous instruments of support fromtheir perspective.

'If the de-minimis support, which is one of the two instruments available todeveloping countries for supporting their farmers, is proposed to be reduced fordeveloping countries as well, it would further complicate the already complexnegotiations on the domestic support pillar.

'Given the reasons we have just stated, the G-33 views that there is no justificationfor reduction in de-minimis support for developing countries. We therefore believethat reduction commitments on de-minimis applicable to developing countries shouldbe zero per cent.'

The G33 paper was supported by several developing countries, including Argentina,Brazil and India. The US and EU, referring to para 11 of Annex A, said that allcountries had to reduce their de minimis support, including the developing countries,and that para 11 should not be re-opened.

India recalled the history of para 11, saying that certain countries had asked that theprovision on de minimis reduction include commitment by developing countries, sothat it would be easier to sell their own commitment (to reduce export subsidy) totheir constituency, and that the reduction by developing countries could be zero. Itwas thus not appropriate for these countries to tell the developing countries that para11 should not be further discussed.