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Wednesday, December 26, 2012

Agriculture in the WTO: Limits on Domestic Support

Randy Schnepf
Specialist in Agricultural Policy

Omnibus U.S. farm legislation—referred to as the farm bill—is renewed about every five years. Farm income and commodity price support programs have been a part of U.S. farm bills since the 1930s. Each successive farm bill usually involves some modification or replacement of existing farm programs. A key question likely to be asked of virtually every new farm proposal or program is how it will affect U.S. commitments under the World Trade Organization’s (WTO’s) Agreement on Agriculture (AA) and its Agreement on Subsidies and Countervailing Measures (ASCM).

The United States currently is committed, under the AA, to spend no more than $19.1 billion annually on those domestic farm support programs most likely to distort trade—referred to as amber box programs and measured by the aggregate measure of support (AMS). The AA spells out the rules for countries to determine whether their policies—for any given year—are potentially trade-distorting, and how to calculate the costs.

An additional consideration for WTO compliance—the ASCM rules governing adverse market effects resulting from a farm program—comes into play when a domestic farm policy effect spills over into international markets. The ASCM details rules for determining when a subsidy is “prohibited” (e.g., certain export- and import-substitution subsidies) and when it is “actionable” (e.g., certain domestic support policies that incentivize overproduction and result in significant market distortion—whether as lower market prices or altered trade patterns). Because the United States is a major producer, consumer, exporter, and/or importer of most major agricultural commodities, the ASCM is relevant for most major U.S. agricultural products. As a result, if a particular U.S. farm program is deemed to result in market distortion that adversely affects other WTO members—even if it is within agreed-upon AA spending limits—then that program may be subject to challenge under the WTO dispute settlement procedures.

Designing farm programs that comply with WTO rules can avoid potential trade disputes. Based on AA and ASCM rules, U.S. domestic agricultural support can be evaluated against five specific successive questions to determine how it is classified under the WTO rules, whether total support is within WTO limits, and whether a specific program fully complies with WTO rules.

  1. Can a program’s support outlays be excluded from the AMS total by being placed in the green box of minimally distorting programs? 
  2. Can a program’s support outlays be excluded from the AMS total by being placed in the blue box of production-limiting programs? 
  3. If amber, will support be less than 5% of production value (either productspecific or non-product-specific) thus qualifying for the de minimis exclusion? 
  4. Does the total, remaining annual AMS exceed the $19.1 billion amber box limit? 
  5. Even if a program is found to be fully compliant with the AA rules and limits, does its support result in price or trade distortion in international markets? If so, then it may be subject to challenge under ASCM rules.

Date of Report: December 4, 2012
Number of Pages: 16
Order Number: RS20840
Price: $29.95

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