FACTBOX: Subsidy issues in WTO's Doha round farm talks

Wed Jul 23, 2008 8:39am EDT

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(Reuters) - World Trade Organisation (WTO) members are trying to reach broad agreement on reforms to farm trade.

Ministers are meeting this week to agree the outlines of a deal in agriculture and industrial goods. The farm talks are taking place on the basis of a draft text revised on July 10 by the chairman of the agriculture talks, New Zealand's WTO ambassador Crawford Falconer.

The talks have three groups of topics -- domestic support (subsidies), market access (tariffs) and export competition.

Here are key issues on domestic support:

Subsidies and other support for farmers are classified in different boxes depending on how much they distort trade. Some, such as those promoting rural development or environmental protection, do not distort trade and are classified as green box. Others encourage farmers to grow more of a product and are grouped under amber, with strict limits.

Subsidies distort competition by squeezing producers from other countries out of the market.

The $289 billion farm bill passed by the U.S. Congress over the veto of President George W. Bush would not be in line with the proposals under discussion.

The proposals focus on the maximum ceilings, or "bound" rates, negotiated at the WTO. Actual, or "applied", levels may be lower than that.

1. Overall trade-distorting support -- This comprises amber box support and some other measures.

The proposal in Falconer's July draft is for those with the biggest subsidies above $60 billion, in practice the EU, to cut them by 75-85 percent. This would take these EU subsidies to 27.6 billion euros from 110.3 billion.

For countries in a middle tier of $10-60 billion, such as the United States, the cut would be 66-73 percent. This would cut overall U.S. support to $13-16.4 billion. On July 22 the United States offered to cut support to $15 billion, provided other countries make corresponding cuts in farm and industrial tariffs. Developing countries say this is not enough, as current actual spending is only about $7 billion.

Countries with overall support below $10 billion would cut by 50-60 percent. Developing countries liable to subsidy cuts would make a cut of two thirds of this amount.

The newest WTO members Saudi Arabia, Macedonia, Vietnam and Ukraine and some other low-income recent members would not make further cuts in overall support, nor would developing country net food importers, who would otherwise be liable. Other recent members would make only two thirds of the cuts.

2. Individual categories of support -- There would also be cuts within this overall total for the individual categories, such as amber box supports, with similar special treatment for recent members. Developing countries will get special treatment to deal with the impact of inflation on subsidy calculations.

Limits on individual products would be fixed to average support for them in 1995-2000. For the United States, limits on amber box support for individual products would be based on that period but shared among them in line with their average share in 1995-2004.

3. Green box -- Developing countries will be allowed more development programs and criteria for developed countries will be tightened. Programs such as income support have "fixed and unchanging" base periods, but some changes would be allowed provided they do not change farmers' behavior. Developing countries are allowed to purchase food for stockpiles from low-income farmers at above-market prices.

4. Implementation -- Developed countries would phase in the cuts over 5 years, with the three biggest subsidizers -- the United States, European Union and Japan -- cutting one third immediately as a "downpayment", and other developed countries cutting one quarter immediately. Developing countries would phase in the reduction over 8 years.

5. Cotton -- This is a particularly sensitive crop as the livelihoods of millions of people in Africa depend on it. As a result developing countries are pushing for big cuts in U.S. cotton subsidies, which in turn are backed by politically influential southern states.

The current proposal is for a cut in cotton subsidies that would be a multiple of a country's "amber box" subsidies according to a formula. So if the U.S. cuts its amber box subsidies by 60 percent, as proposed, it would cut its cotton subsidies by 82.2 percent.

(Reporting by Jonathan Lynn; Editing by Catherine Evans)

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