G20 proposes disciplines on trade distorting domestic support

By Goh Chien Yen (TWN),
Geneva, 5 July 2005

Negotiations on agriculture resumed this week at the WTO where the Group of 20 (G20) in a paper has proposed tightening the usage of blue box domestic support and suggested ways forward for making reductions in AMS, de minimis and overall levels of trade-distorting support.

The G20 proposal was made during the so-called 'Room F' process Monday afternoon (Room F meetings are technical discussions which are attended by only a small number of key delegations).

The agriculture week of negotiations, which resumed at the WTO on 4-8 July, will see the Chair of the negotiations, Tim Groser, put together an assessment on the state of the negotiations and possibly a preliminary draft of the 'first approximation' on agriculture. According to Groser, he will 'put out one or both of these papers no later than the end of the July agriculture week for the entire membership to study.'

In its proposal, the G20 pointed out that 'if article 6.5 [of the AoA, on the blue box subsidy] is to be a genuine instrument of reform, facilitating the movement towards non-distorting form of support, it must be subject to disciplines that guarantee its less trade-distorting nature and safeguard against mere box-shifting and concentration of support in a few products.'

Hence, the G20 proposed that in relation to blue box direct payments which do not require production, there should be the following additional discipline building on the criteria currently set out in paragraph 13 of Annex A of the July Package. The envisaged discipline is that 'the current price difference shall be limited relative to a percentage of the base price difference and to a maximum absolute amount and be bound in Members' Schedules of commitments in domestic support; this would include the establishment of a maximum limit to administratively determined prices.'

To do so, the G20 pointed out that the 'base price difference for each product shall be established' and the need to define the 'current price difference for each product, for every year after the beginning of the implementation period.'

In order to ensure that the blue box support does not end up being concentrated in a few products, the G20 proposed that there should be limits for each product receiving 'blue box direct payments which do not limit production.' Furthermore, 'product specific caps shall be established for each product at the maximum level of [x]% of the value of production of each product,' the G20 added. 'A higher percentage of value of production shall be established for developing country Members.'

The G20 also stated in their proposal that no support under the blue box payments, which do not limit production, shall be provided for products already receiving other forms of trade distorting support, except de minimis support.

In relation to blue box direct payments which limit production, the G20 proposed the following criteria to those currently contained in paragraph 13 of Annex B of the July Package.

First, 'members using these payments shall demonstrate that the production volume of the product benefiting from them has not increased ' Second, 'product specific caps shall be established for each product benefiting from production-limiting direct payments.'

According to the G20, members could determine the product specific caps by either having it as a 'percent of the production value of each product' or 'the average payments in benefit for that product made during the Uruguay Round implementation period.'

To improve the transparency and administration of these direct payments under Article 6.5 of the AoA, the G20 proposed that Members must notify the WTO on 'all parameters referred to in any existing or additional criteria, at the time when the programs were established.' And 'as from the first implementation year of the Doha Development Agenda', the G20 further stipulated ' all those parameters such as base period, production levels, area planted, number of heads and others, shall be notified at product-specific levels.'

The G20 made it clear in their proposal that 'no blue box payments shall be used until all notifications obligations are complied with timely and accurately.'

In their proposed tiered formula for reducing the final bound total AMS, the G20 envisaged four bands with the following thresholds: more than USD25bn in the fourth band; between USD12bn to 25bn for the third band; between USD2bn to 12bn for the second band and amount less than USD 2bn for the first band.

According to the G20, each successive band will be cut by a higher percentage than the one before starting from the first band. However, it remains to be determined in the negotiations the actual rate of reduction for each band. For developing countries, the G20 proposed that they 'will cut less than two thirds of the cut to be undertaken by developed Members in the same band.'

The G20 also pointed out that 'members with levels of support higher than 40% relative to total annual value of agriculture production will be subject to extra cuts,' unless they already fall in the highest band. Furthermore, 'some frontloading to address the water will be required,' the G20 added.

On reductions in de minimis support, the G20 said that such reduction shall be made to both product and non-product specific de minimis. The G20 also proposed that 'developing country members with no AMS entitlement shall be exempt from reductions.' For other developing countries with AMS, their level of de minimis reduction 'will be determined in relation to overall reduction of trade distorting domestic support,' the G20 added.

On the tiered formula for reducing the overall levels of trade distorting domestic support, the G20 proposed three bands for the developed country members with the following thresholds: more than USD60bn; between USD10bn to 60bn and amounts less than USD10bn. Each successive band will be cut by a higher percentage, according to the G20. However, the exact rate of reduction remains to be determined. The G20 also proposed that 'members in the second and third bands with levels of support higher than 40% relative to total value of agricultural production will be subject to a higher cut.'

'Reductions beyond the initial 20% cut should be frontloaded so as to eliminate water,' the G20 added.

For developing country members without AMS entitlements, the G20 said that 'they shall be exempted from making an overall reduction to trade-distorting domestic support.' For those with AMS entitlements, these developing countries will undertake a cut at a rate which is two-thirds that of the rate (to be determined) in the USD10bn band for the developed countries.

The G20 also laid out several parameters for the calculation of the overall base amount of trade distorting domestic support.