2. The Domestic Support Issues and Prospects
Lars Brink
Independent Policy Advisor
David Orden
Virginia Polytechnic Institute and State University
25 May 2023
3. Contents
• Introduction
• Agriculture and SCM Disciplines
• Economic Analysis
• Trends in Support
• Transparency
• Issues under Negotiation
• Disputes over Domestic Support
• Twenty-First Century Priorities
• Lessons from the Experience
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AMSs: Aggregate Measurements of Support
Blue box: payments meeting Art. 6.5 conditions
Note: Support notified to the WTO Committee on Agriculture by mid-2022
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AMSs: Aggregate Measurements of Support
Art. 6.2: mainly input subsidies
Blue box: payments meeting Art. 6.5 conditions
Note: Support notified to the WTO Committee on Agriculture by mid-2022
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Art. 6: sum of AMSs, Art. 6.2 and Blue box
AMSs: Aggregate Measurements of Support
Art. 6.2: mainly input subsidies
Blue box: payments meeting Art. 6.5 conditions
Note: Support notified to the WTO Committee on Agriculture by mid-2022
11. 11
‘No, or at most minimal, trade-distorting effects or effects on production’
•Research, advice, disease control,
inspection services, infrastructural
services …
Expenditures on ‘General services’ and more
•Decoupled income support, income
safety nets, environmental programs
…
Direct payments meeting given criteria
•Pay for emission reduction – a mitigation outcome – instead of
production practice
•Research to better measure and value the reduction
•Environmental programs – ‘extra costs or loss of income’ and
‘production methods or inputs’
•Negative production effect
•Need to tighten or relax any green box rules?
•Support for more sustainable food production
•Exempt from limit when green box compatible
Role for green box policies
• Mitigate climate change
• Tackle food insecurity
12. •Research, advice, disease
control, inspection services,
infrastructural services …
Problematic Measurement
of Market Price Support (MPS)
— Introduction
13. Economic and Agreement
Measurements of MPS
Economic MPSt = [ Domestic Pricet – Border Pricet ]
× [ Total Productiont ]
Agreement MPSt = [ AAPt – FERPfixed years ]
× [ Eligible Productiont ]
For example, related to the dispute India ‒ Sugar and Sugarcane
Year
MPS as percent of production value 2014 2015 2016 2017 2018
Economic %MPS (OECD) 13% 8% -1% 28% 24%
Agreement %MPS (Dispute Panel) 94% 92% 86% 91% 90%
14. •Research, advice, disease
control, inspection services,
infrastructural services …
MPS Enters the Negotiations
Particularly under the Heading Public Stockholding (PSH)
• Background
– 2013 interim mechanism shelters excessive MPS of developing countries from
dispute challenge when MPS results from acquisition at an administered price
of stocks of staple crops in pursuance of food security
• Current Arguments
– Many developing countries argue for permanently exempting producer
support from PSH programs from limit
– Other members consider that this support should remain subject to limit
under rules of the Agreement on Agriculture
15. -80
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-80%
-60%
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0%
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100%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Wheat in India
Agreement %MPS
Economic %MPS
-80
-60
-40
-20
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100
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-60%
-40%
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100%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Rice in India
Agreement %MPS
Economic %MPS
Note: In these figures the Agreement MPS is measured with annual AAPs and the 1986-88 FERP in nominal Indian Rupees and eligible production as total
production. India notified lower values.
16. •Research, advice, disease
control, inspection services,
infrastructural services …
Can Differences Be Narrowed?
• Finding fault with arguments on both sides we explore
a Lagged Reference Price MPS resolution
LRP MPSt = [ AAPt – LRPt ] × [ Total Productiont ]
LRPt = Moving Average of Lagged Border Prices
(e.g. average (t-1, t-2, t-3) or 5-year Olympic)
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Wheat in India
Agreement %MPS
Economic %MPS
LRP %MPS
-80
-60
-40
-20
0
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-80%
-60%
-40%
-20%
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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Rice in India
Agreement %MPS
Economic %MPS
LRP %MPS
Note: In these figures the Agreement MPS is measured with annual AAPs and the 1986-88 FERP in nominal Indian Rupees and eligible production as total
production. India notified lower values.
18. •Research, advice, disease
control, inspection services,
infrastructural services …
Better MPS Measurement as a Path Forward
• Revising measurement to bring Agreement MPS closer to its economic
value might largely resolve the PSH impasse
– For developing countries complying with AMS limits would not require reducing
artificially high measurements of MPS
– Proponents of constraints on producer support would be assured that the
disciplines have a sound economic basis
• A technical matter
– Application under law of an erroneous measurement undermines the rule of law
– Assessing the reference price included in Draft Decision for 2022 Ministerial
Conference
19. The Domestic Support Issues and Prospects
Lars Brink and David Orden
25 May 2023
22. Towards a definition of “non-environmentally friendly
payment”: all input subsidies are not the same
Illustration of existing spendings
Input type Value (US$ bn) Share
Chemicals and pesticides 0.2 0.2%
Environment 8 7.7%
Extension services 9.6 9.3%
Feed 0.5 0.5%
Fertilizer 19.9 19.3%
Financial services 17.6 17.0%
Fuel 15.6 15.1%
Insurance 7.7 7.5%
Irrigation 6.7 6.5%
Mechanization 7.3 7.1%
Quality control 0.1 0.1%
Risk management 1.2 1.2%
Seed 0.3 0.3%
Transport 0.1 0.1%
Unknown, (new: land management) 8.5 8.2%
23. Conclusion and Guidance for trade rules
Current WTO rules are not
an obstacle for repurposing,
but they provide weak
incentives or guidelines.
Blue box policies, especially
for livestock, are a significant
potential to curb GHG
emissions.
Repurposing could involve
significant box shifting
towards Green Box , and
abuse of existing flexibilities
Assessing price support
through historic reference
price is not consistent with a
transformation agenda
In the future, soul searching
for the WTO members:
should the rules focus on
“do no harm” or “do good”
Disciplining Overall Trade
Distorting Support is not
synonymous to improve
Social and Environmental
impacts of farm policies
Increase Transparency and
Monitoring (Notifications) will
be essential to promote trust
and coordination in the global
repurposing process
Tariffs remain an awkward
instrument to guide
repurposing
Border Tax Adjustments are a
second-best option
Discriminatory use will be a
source of dispute and also
inefficiencies
24. Lessons Learned:
Limited Opportunities and careful planning is needed
Removing existing
policies will
Hurt farmers overall (with some
benefits for some countries)
Will slightly help the poor and
the hungry IF border protection
is removed
Ambiguous effects on global
emissions, mainly through a
contraction of production and
land abandonment
So, Repurposing is
required
Investment in Sustainable
Intensification is required.
Investing in “traditional”
productivity gains will not deliver
Border Polices and Domestic
Support have, in most of the
cases, opposite effects on diets
Input subsidies are a tricky issue
Focusing on
healthy/environmental
friendly products
Could contribute to reduce the
cost of healthy diets but has
limited impact when using
producer subsidies
Risk for governments to pick the
wrong "good" products
Phasing out resources from
staples could have a small
impact on undernourishment
Given the triple challenge for food systems of ensuring food security and nutrition, supporting the livelihoods of producers and doing so in an env sustainable way plus becoming more resilient.
Green subsidies can be helpful when there are market failures.
subsidies should be carefully targeted to correct market failures and they should not discriminate between firms or countries. They must be consistent with World Trade Organization rules
We should avoid a harmful subsidy race between the world’s largest economies to lure green investment. This could undermine the level playing field in global trade, and impose large fiscal costs. It would ultimately reduce efficiency.
Are the rules of the agriculture agreement sufficiently conducive to addressing evolving policy priorities related to sustainability and climate change?
How might the rules and commitments be updated to better achieve the long term objective of the AoA considering that the global landscaper of applied domestic support has changed since the agreement was negotiated?
Subsidies aka domestic support affect:
How much to produce (scale)
What to produce (products)
How to produce (practices)
Where to produce (location)
AoA exempts 3 categories of measures from limits on support: green box, Art6.2 and 6.5
From the book: domestic support disciplines conducive to the provision of public goods and to addressing externalities and market failures without creating more room for trade distorting measures or support is thus a crucial twenty first century need.