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Draft Paper – Not to be cited without author’s permission

world to have made reductions in subsidies, when in fact they have been (not so) surreptitiously taken from a prohibited or limited box and ‘hidden’ in an unlimited box.

Amber box: “Trade Distorting” Subsidies, must be reduced, but not eliminated Subsidies under the Amber Box are calculated under the Aggregate Measure of Support (AMS) and are subject to reduction. These are programs and policies that are recognized as “distorting” to patterns of trade, and is comprised of payments to farmers and other domestic supports that are “coupled” to production (the more you produce, the more you get). These include “product-specific” subsidies such as guaranteed prices (i.e. the “loan deficiency payment” in the US or the “intervention price” in the EU), and “non product- specific subsidies” on inputs or investments. The original requirement was for developed countries to cut Amber Box supports by 20% over five years, and for the developing countries to cut them by 13.3% over nine years (from a 1986-88 baseline, when payments were unusually high in the U.S. and EU.) Developed countries are allowed to keep general support programs whose total cost does not exceed 5% of total agricultural production, as well as crop specific programs whose total cost does not exceed 5% of the

total value of exempted from raise their total

that crop. Developing countries are given 10% for each.

LDCs are

these level

reduction commitments; however they have also committed not to of support beyond the “de minimis level” (equal to 10% of the total

value of production of a “specific product,” or 10% “non-specific” supports, for developing countries, and

of total 5% for

agricultural production developed countries).

for

Blue box: Unlimited payments to limit production Countries with production-limiting programs can fund them with unlimited levels of support. The U.S. abandoned such programs in 1996, though they still exist to some extent in other developed countries. The problem comes when countries disguise other kinds of subsidies and supports as Blue box measures, as in July 2004 when the US tried to modify the Blue box, and thus include “direct payments unrelated to current production,” and of course unrelated to limiting production, a proposal that was soundly rejected at the time by the G10 countries, but eventually made its way into the official negotiating framework. However, a serious effort by the major agroexporting countries to truly limit their production, starting with the US and the EU, would be roundly welcomed by the rest of the world.

Green box: The best shell for hiding subsidies? This is where one finds some 70% of total US and 25% (and rising) of EU domestic supports. These “de-coupled” supports and payments in theory do not have major effects on patterns and flows of trade, and thus unlimited amounts are permitted. Under the

Green Box

governments

can provide

supports

for,

among

other purposes,

environmentally-sound practices, pest and crop disease management, infrastructure, food storage against famine, income insurance, emergency programs, and so-called ‘decoupled payments,’ which are direct payments that are not linked to production levels. These decoupled payments are still direct payments to farmers that support their incomes, as are Blue Box land set-aside payments. The effect of these payments is still to shield their recipients (mostly large producers in developed countries) from downswings in crop prices, and means that they need not receive crop prices above the cost of production in

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