RESTRICTEDWORLD TRADE
ORGANIZATIONG/AG/NG/S/18
16 October 2000
(00-4272)
Committee on Agriculture
Special Session
OPERATION OF THE GREEN BOX
Issues Raised by Members in AIE Papers and Pre-Seattle Submissions
A Compilation by the Secretariat
Introduction1. At the third Special Session  of the Committee on Agriculture on 28-29 September 2000, the
Secretariat was requested to prepare a background paper containing a compilation of issues relating tothe operation of the Green Box based on relevant AIE papers and pre-Seattle submissions by
Members.  This paper has been prepared in response to that request.
2. Part II of this paper indicates the main issues raised by those Members which have made
written submissions in the AIE and pre-Seattle context.  For a full appreciation of the points made by
the respective Member concerned, the original documents should be consulted.  It should be notedthat the comments listed below reflect the position of the Member concerned.  The paper is without
prejudice to the views of other Members on any or all of the comments to which it refers.
3. The Annex to this paper includes a list of the relevant documents submitted by Members to
the Analysis and Information Exchange (AIE) proc ess and in the preparations for the Ministerial
Conference in Seattle.
4. The discussions of the issues raised in the AIE process were reported to the Committee on
Agriculture by the Chairman.  The reports of the Chairman are included in the Secretariat summaryreports of the Committee meetings (G/AG/R/11 - R/ 20 and G/L/322).  These reports should also be
examined for a better appreciation of the issues raised and the discussion between Members.G/AG/NG/S/18
Page 2
Table of Contents
Cairns Group  (WT/GC/W/156, 23.3.99)................................................................................................ 3
Canada  (public statement 18.8.99)..................................................................................................... ..... 3
Cuba, Dominican Republic, Egypt, El Salvador, Honduras, Sri Lanka, Uganda and
Zimbabwe  (WT/GC/W/374, 7.10.99) ..................................................................................................... 3
Brazil  (23-24.11 .98) .................................................................................................................. .............. 3
European Communities   (WT/GC/W/273, 27.7.99)............................................................................... 3
India  (23-24. 11.98) .................................................................................................................. ................ 3
Indonesia, Malaysia, Philippines, and Thailand  (WT/GC/W/331, 22.9.99)........................................ 4
Jamaica (WT/GC/W/370,  5.10. 99) ......................................................................................................... .4
Japan  (24.3.99 - for distribution)................................................................................................... .......... 4
Japan   (WT/GC/W/ 220, 28.6 .99) ....................................................................................................... ...... 4
Korea  (WT/GC/W/170, 12.4.99)......................................................................................................... .... 4
Norway  (2.2.99)....................................................................................................................... ................ 4
Turkey  (12.4.99)...................................................................................................................... ................ 4
United States  (WT/GC/W/290, 27.7.99)................................................................................................. 4
Australia  (AIE/4, 16.5. 97).............................................................................................................. ......... 5
Australia  (AIE/27,  5.6.98).............................................................................................................. ......... 5
Australia  (AIE/35, 4.9.98)............................................................................................................... ........ 5
Bulgaria, the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia
(AIE/45, 18.11.98) ............................................................................................................. ....................... 6
El Salvador, Cuba, Honduras, Dominican Republic, Pakistan, Sri Lanka and Zimbabwe
(AIE/70, 2.9.99) ............................................................................................................... ......................... 6
Canada  (AIE/23, 2.6.19 98) ............................................................................................................. ........ 7
Mauritius   (AIE/51,  10.3. 99) ............................................................................................................ ....... 7
Norway  (AIE/22, 2.6.98)............................................................................................................... .......... 8
Norway  (AIE/68, 19.9.99).............................................................................................................. ......... 8
United States   (AIE/19, 4.3.98)............................................................................................................. ... 8
United States  (AIE/38, 15.9.98).............................................................................................................. 9
United States   (AIE/64, 22.6.99)............................................................................................................ .. 9
Annex 1 ............................................................................................................................... .................... 11G/AG/NG/S/18
Page 3ISSUES RAISED BY MEMBERS IN THE PROCESS OF ANALYSIS AND INFORMATION EXCHANGE
AND THE PREPARATORY PROCESS FOR THE THIRD MINISTERIAL CONFERENCE
Country Comment
Cairns Group  (WT/GC/W/156,
23.3.99)The 1999 negotiations must result in major reductions in domestic support for all agricultural products.  All trade distorting
domestic subsidies must be eliminated with only non-distorting forms of support permitted.  Close attention will be paid to
compensation for the shift away from price support and the Cairns Group will work to ensure that income aids or other domestic
support measures are targeted, transparent and fully de-coupled so that they do not distort production and trade.
Canada  (public statement 18.8.99) Canada will seek:
an overall limit on the amount of domestic support of all types (green, blue and amber);a view of the criteria of the green category to ensure that green support does not distort production and trade, and permanentinternational recognition that such support should not be countervailable.
Cuba, Dominican Republic,Egypt, El Salvador, Honduras,Sri Lanka, Uganda and
Zimbabwe  (WT/GC/W/374,
7.10.99)Green Box policies must be re-examined.  The definition of "minimally trade distorting" must be clarified. Various supports, fo r
example, direct decoupled payments and export credits and guarant ees which have an effect of increasing production output must
be removed from the Green Box category and be placed in the AMS and export subsidy categories respectively.Green Box subsidies should be limited to a certain percentage of production costs and this percentage should be higher for
developing countries.
Brazil  (23-24.11.98) Brazil deems necessary to revise the so-called Green Box and thus properly address many of the legitimate concerns  linked to
agriculture.  It must be stressed that Green Box provisions can provide the necessary tools to deal with non-trade concerns.
European Communities
(WT/GC/W/273, 27.7.99)It is essential to ensure that progress on trade issues does not damage the ability of those employed in agriculture to supply public
goods, in particular as regards the environment (including combating desertification) and the sustained vitality of rural areas .
Direct aid measures with no or minimal trade impact  have an important role to play in this context.
India  (23-24.11.98) The only way that developing countries' non-trade concerns can be met, is by providing a certain degree of flexibi lity to these
countries by appropriately modifying the provisions of the Agreement on Agriculture, particularly as far as domestic support an d
Green Box measures are concerned.  For instance it would be important to recognize that the 10 per cent de minimis  level
presently provided under the AMS, may not be sufficient for developing countries to give the kind of support needed to alleviat e
poverty and sustain rural employment.  Moreover, specific guidelin es would need to be formulated on how to compensate for
excessive rates of inflation and depreciation of currency.  Simila rly, some aspects of the Green Box measures may also need to be
reviewed in order to provide a certain degree of flexibility to developing countries.  For instance, the restrictions on publicholdings for food security purposes and domestic aid do not appear to be entirely realistic since at times it would be impracti cal to
insist on hard and fast criterion for eligibility for distributing  subsidized food grains, particularly in view of the geograph ical
spread of the vulnerable sections of society.G/AG/NG/S/18
Page 4
Country Comment
Indonesia, Malaysia, Philippines,
and Thailand  (WT/GC/W/331,
22.9.99)The criteria for the "Green Box" category of support measures, or Annex 2 of the Agreement must be reviewed to ensure that
they meet the basic requirement that they have no or at leas t minimal trade distorting effects on production and trade, and tha t
they adequately address the trade, financial and development needs of developing countries.
Jamaica (WT/GC/W/370, 5.10.99) Weak disciplines in the area of domestic supports and in particular, with the operation of the "Green Box ", suggests the need for
strict monitoring to determine whether or not programmes satisfy the eligibility criterion of being production- and trade-neutr al.
Developing countries have had serious concerns that increases in certain categories of domestic support programmes by some
WTO Members may be leading to increased production and increase competition on import/export markets.Jamaica proposes that Members agree on stricter disciplines being placed on the use of  "Green Box" supports to ensure that the y
retain their intended "non-production distorting" and "non-trade distorting" feature.  WTO Members should afford developingcountries adequate flexibility in the use of domestic support pr ogrammes pursuant to particular national development objectives
such as:  poverty alleviation, marketing and transportation and compliance with quality as well as sanitary and phytosanitary
regulations.
Japan  (24.3.99 - for distribution) The establishment of a "Green Box" category in the framework of a reduction commitment in domestic support has the effect that
domestic support policies in each country will lead to policies with out trade distortion.  Narrowing down the scope of the "Gre en
Box" will give a bad signal to the agricultural reform process in each country.
Japan   (WT/GC/W/220, 28.6.99) Since it is impossible to drastically revi ew this classification [of "Green", "Blue" and "Amber"] and t o fully eliminate the trade
distortion effect of the "Green Box", it is appropriate to mainta in the present framework and to review the requirements and sc ope
for "green" policies based on the experiences achieved in implementing the past agreements, with a view to facilitating a smoot h
conversion towards a market-oriented policy.
Korea  (23-24.11.98) Some of the requirements for Green Box measures contained in Annex 2 of the Agreement on Agriculture should be imp roved so
as to reflect the multi-functionality of agricultur e and non-trade concerns (NTCs) more adequately.
Korea  (WT/GC/W/170, 12.4.99) Criteria for Green Box measures call for a more flexible and gradual approach.
Norway  (2.2.99) Green Box policies to a large extent may be the solution in high-potential areas of production.  However, in low potent ial areas,
such as Norway, it may be necessary to apply a combination of measures.
Turkey  (12.4.99) With respect to Green Box policies, improvements in the text of Annex 2 of the Agreement of Agriculture may be conside red
from the perspective of developing countries.
United States  (WT/GC/W/290,
27.7.99)The United States proposes that the agriculture negotiations result in substantial reductions in trade-distorting support and
stronger rules that ensure all production-related support is subject to discipline, while preserving criteria-based "Green-Box"policies that can provide support to agriculture in a manner that minimizes distortions to trade.Criteria contained in Annex 2 ("Green Box") have allowed Members to provide appropriate and legitimate support to farmers in a
manner that minimizes distortions to trade while recognizing the important role of agriculture in Member economies.  The result s
of these negotiations should ensure that the "Green Box" exemption continues to support the primary objectives of minimizingG/AG/NG/S/18
Page 5Country Comment
the link between support and production through the use of appropriately specified policies.
Australia  (AIE/4, 16.5.97) Experience to date on implementation of new or modified domestic support policies suggests that, at the govern ment
administration level, there is a difficulty in developing or determining agricultural support programmes which meet the WTOAgricultural Agreement's disciplines on the basis of criteria contained in the Agreement.  Preliminary experience to date on th e
basis of notifications would suggest that there may be some confusion over domestic support policies captured by Article 6.5 of
the Agriculture Agreement and those under Annex 2, paragraph 10.
Australia  (AIE/27, 5.6.98) In reviewing the framework of disciplines on domestic support and setting the basis for future reform, a thres hold question to
consider is whether the measures identified under the Green Box are in fact non- or minimally distorting.  There has been littl e
analysis of how current Green Box measures actually affect the le vel of production and trade, either in principle or in practic e.  If
Green Box measures are to remain a component of the framework, then it will be important to ensure that allowable measures aretargeted, transparent and do not distort production and trade,  otherwise the use by Members of Green Box measures will
undermine the benefits from reform of other domestic subsidies.  Developing clearer and tighter definitions of acceptable
measures will be essential in ensuring that Green Box su bsidies achieve their goals without trade distorting impacts.
Since the Agreement on Agriculture came into force, Members have adopted a variety of measures which they have claimed meetthe definition included in Annex 2 but, as set out in Australia's previous AIE paper on Green Box support measures (AIE/4), the re
is uncertainty about the validity of some of these claims.The difficulties in developing programmes that are consistent wi th Annex 2 arise partly because different domestic support
measures defined in the Annex have different effects on the level of production and trade.   In developing any improved
definitions for acceptable measures, it would be important to ta ke into account their practical application and the need for
Members to be able to readily verify that m easures are consistent with Green Box criteria.
Given the importance of decoupled support measures as a component of any future Green Box, further work on the identificationof fully decoupled mechanisms that are truly minimally trade distorting will also be essential.  In addition to further analyti cal
work, a discussion of Members' experiences in this area would be very useful.  The US paper on the 1996 FAIR Act (AIE/19)
provides an analysis of that Member's experience in the process of de-coupling government support payments from the level of
agricultural production and trade.  Payments such as the seven-year production flexibility contracts are one example of a suppo rt
measure designed to allow farmers to produce for the mark et and not according to non-market related signals.  While
acknowledging that the US payments are relatively decoupled from production and prices, it remains an open question whetherthey are or are not market distorting because of their investment  and risk reducing effects.  AIE/19 also illustrates the effec t that
de-coupling support can have on building domestic farmers' support for trade liberalization.
Australia  (AIE/35, 4.9.98) The policy specific criteria and conditions listed in Annex 2 do not provide sufficient guidance to ensure that  allowable measures
meet the fundamental requirement that they involve no or minimal distortions to production and trade.  Australia believes that it is
essential that a comprehensive and rigorous analysis of all permitted Green Box measures is undertaken to ensure theirconsistency with this fundamental requirement.  With respect to decoupled support, the use of a "defined and fixed" base period ,
as well as additional requirements that allowable payments cannot be related to production, domestic or international prices, o r
factors of production in any year after the base period and that payments cannot be contingent on production, are importantG/AG/NG/S/18
Page 6
Country Comment
mechanisms for weakening the linkages between the income support and production.  However, the opportunity to base or relate
payments to production or productive resources in the base period remains and may still result in a degree of coupling toproduction levels.  At a minimum, adding a requirement that the base period be "historical" would be useful to help further red uce
this linkage.  It may also be useful to develop criteria that completely remove the linkages between payments and production
levels, and which encourage greater use of generally available income support instruments such as those provided through the
social security and tax systems.  Developing eligibility criteria which are based on or related to household income from allsources, both on and off the farm, would also help to weaken the linkages between income payments and production.
Bulgaria, the Czech Republic,Hungary, Poland, the Slovak
Republic and Slovenia   (AIE/45,
18.11.98)The agreement does not contain any provision which would adequa tely address the specific needs of Members which are in the
process of transformation to a fully-fledged market system or consolidating the results of su ch a deep-going economic process.
The only – narrowly worded – provision in the present agreemen t which tries to accommodate such concerns is paragraph 11 of
Annex 2 by virtue of which structural adjustment assistance thro ugh investment aids also as part of the reprivatization  of
agricultural land qualifies as a Green Box measure.
Although at first glance a relatively wide range of Blue and Gr een Box measures seem to be available also for transition and po st-
transition economies, in reality the specific circumstances accompanying the process of economic transformation render themoften useless: -on the one hand due to the serious decline or in certain cases the collapse of agricultural production introducing production -
limiting programmes (Blue Box) or encouraging producer or reso urce retirement (Green Box) is clearly not an option since it
would just lead to the further aggravation of the difficult situation experienced in many agricultural production areas;
 -on the other hand the use of some of the Green Box measures such as decoupled income support, income insurance and incomesafety net programmes presuppose reasonable and comparable base periods and adequate administration or private mechanisms inplace which is not the case in most of these countries.
El Salvador, Cuba, Honduras,Dominican Republic, Pakistan,
Sri Lanka and Zimbabwe
(AIE/70, 2.9.99)Annex 2 (Green Box) provisions are most popularly seen as prov iding member countries with fl exibilities to deal with their
special needs in the area of agricultural trade.  However, ev idence of the recent years shows that these provisions are probabl y
better suited to the problems and situations of developed countries.
FAO's studies have shown that Green Box measures do not come cheap and as such, are not appropriate for developing countrygovernments.  Furthermore, such policies are beyond the reach of developing countries which are constrained by structuraladjustment programmes and obligations.  Such reforms call for less government interventions, especially in terms of budgetaryoutlays (Food Policy Vol 21 No. 4/5 1996; 442).Most of the agricultural support policies pursued by developing countries presently fall under the "general services category".
Policies falling under the category of "direct payment to producers" are much rarer in developing countries compared to
developed countries.  This suggests that the decoupled income support policies, due to  their high administrative cost required to
ensure appropriate targeting, makes such policies relatively expensive and difficult for developing countries to implement."It is clear that by and large the list of Green Box policies was drawn up with the developed countries in mind, as every singl e
Green Box policy is much more common in developed countries than in developing countries (Konandreas and Greenfield, FoodPolicy Vol. 21 No. 4/5, 1996)".
For most developing countries that use the Green Box, outlays are less than 5 per cent of agricultural GDP. All in all, it is c learG/AG/NG/S/18
Page 7Country Comment
that these 'market plus' flexibilities are not particularly helpfu l to developing countries especially because many of the
programmes require large capital outlays. Measures more suitable  for developing countries would not exclude policies requiring
capital outlays, but would also include other measures such as greater flexibility on import controls.  Given this situation, t here is
therefore an urgent need to provide developing countries with market plus flexibilities that are suitable to their use.
Canada  (AIE/23, 2.6.1998) Do the basic and policy-specific criteria and conditions set out in Annex 2 of the Agreement on Agriculture  adequately capture
domestic support measures that meet the fundamental requirement that they have "no, or at most minimal, trade-distorting effect s
or effects on production"? (The issue arises as to whether the present Annex 2 successfully ensures that the a priori  expectations
for the group of domestic support measures it is meant to encompass are being met.)   Essentially there are two issues:  whethe r
there are measures that meet the fundamental requirements of paragraph 1 but do not fully conform to policy-specific criteria a nd
conditions established in paragraphs 2 to 13;  and on the other hand, whether there are measures that would meet the policy-specific criteria of one of paragraphs 2 to 13 but that may nonetheless have production or trade-distorting effects.
Will the fact of "de-coupling" support from current production decisions always guarantee that a payment will have no or
minimal effects on production?Canada's experience with risk management and income safety nets suggests that it may be possible to design a farm income riskmanagement tool that shares market risk between producers and government, is jointly funded by producers and government, isnot tied to price or production fluctuations for specific commodities, and does not in fact distort production or trade.  Howev er, it
can be difficult for such a programme to meet the detailed criteria of paragraph 7 in Annex 2, on government participation in
income safety net programmes, which were conceived essentially for government-financed income guarantee programmes.
To the extent that domestic support measures that fully conform to the provisions of Annex 2 are considered to be consistent wi th
the achievement of the long-term objective as set out in Article 20 of the Agreement , the AIE process may consider whether a
continuation of the provisions of Article 13(a) beyond 2003 would contribute to the continuation of the reform process.It is virtually impossible for domestic support measures to be completely decoupled from production and trade.  Agricultural
production, consumption, trade, market prices and/or other non- agricultural elements cannot be absolutely dissociated from one
another, and will virtually always be affected in some way by the presence of domestic support measures.Another element for consideration is the desirability of continuing, beyond the present implementation period, the exemptionfrom the reduction commitments under paragraph 1 of Article 6 of the Agreement on Agriculture  for support measures that fully
conform to Annex 2 provisions.Is the exemption from reduction commitments for Annex 2 meas ures consistent with the long-term objective of substantial
progressive reductions in agricultural support and protection?
To the extent that Annex 2 measures are considered consistent with the long-term objective set out in Article 20, does Article 13
(a) of the Agreement on Agriculture  have an ongoing role in the continuation of the reform process?
Mauritius   (AIE/51, 10.3.99) Developing countries have limited recourse to the provisions of Annex 2.  The measures spelt out in paragrap hs 2(a), 7 and 11 of
Annex 2 are fulfilled to a certain extent in Mauritius.  Howe ver, Mauritian producers assume the costs involved themselves.
Therefore, the expenditure incurred is de facto  outside the purview of Annex 2.G/AG/NG/S/18
Page 8
Country Comment
Norway  (AIE/22, 2.6.98) The multi-functionality of Norwegian agricult ure is ensured through a combination of  economic, legislative and administrative
measures, as well as through training and extension.  In 1997, total transfers associated with agricultural policies amounted t o
US$3 billion.  Net budgetary outlays amounted to US$1.7 billion and, thus, accounted for 57 per cent of the transfers, whiletransfers from consumers through border protection accounted for 43 per cent.  Blue Box measures (primarily acreage andlivestock support) represent approximately 60 per cent of budgetary outlays, while Green Box measures amount to around onethird.  AMS policies, basically, account for the remaining budgetary support.
Norway  (AIE/68, 19.9.99) The paper presents four farm cases in Norway co mparing the present situation with  a scenario consisting of a " world-market-
only" scenario in which all production-related policy measures (i.e. Blue Box and AMS, including border protection) have beenreplaced by Green Box support.  There are two major reasons why such a scenario does not seem to be possible in Norway, from
the point of view of safeguarding NTCs.First, the data presented clearly indicate that the "world-market- only" scenario is not likely to provide sufficient financial
incentives to farmers to continue production in the long run. With world market prices only, production revenues would only
cover 30-41 per cent of total production costs, which is clearly not sufficient.  Second, extensive detailed targeting of measu res
directly to a number of NTC-related criteria that would be n ecessary to safeguard NTCs under a "world-market-only" scenario,
would most likely not be practically feasible and would in any case probably involve unacceptably high administration andcontrol costs.Second, whereas, as an alternative to production-related support, it has been suggested to target Green Box measures directly t o a
number of NTC-related criteria in order to safeguard NTCs, extensive detailed targeting is probably not practically feasible. M ore
importantly, such targeting will most likely involve very high administration and control costs, especially in areas where the
agricultural sector consists of a large number of small-sized farmers.
1  Maximum targeting of policies is of course desired.
However, there is certainly a trade-off between precision, on th e one hand, and administration and control costs, on the other
hand.2 Therefore, while a certain degree of targeting should be pursued in national policy design, too extensive and detailed
targeting does not seem to be feasible. Further research on this issue should be undertaken.
United States   (AIE/19, 4.3.98) Reforms culminated in the 1990 Farm Bill that made the US direct payments for major bulk commodities continge nt upon certain
production-limiting criteria.  The revised payment programme served as one of the models for Article 6.5 payments in the
Agreement on Agriculture.  While reform of price support programmes went forward, the United States Department ofAgriculture increased its focus on policies not directly related to  production as a means to meet the needs of the farm sector.
These included a range of "Green Box" policies to protect the environment, promote conservation and rural development,
encourage efficient agricultural production and processing indus tries, foment research, and protect human, animal, and plant li fe
                                                     
1 Through such targeting it is suggested that policy measures that have been decoupled from agricultural production are coupled d irectly to specific public goods or   NTCs such as for instance bio-
diversity, cultural heritage or agricultural landscape.  However, while extensive targeting has been suggested by several WTO M embers as an alternative to production-related support and protection, no country
requiring substantial support has ever implemented extensively such targeting.  Furthermore, practical ways of undertaking such  direct coupling to NTCs have yet to be developed.
2 The trade-offs between precision and targeting, on the one hand, and administration costs, on the other hand, and the rational e of a certain level of regionally differentiated price support is further
discussed in Arild Vatn, 1999: Agricultural policy measures addressing non-trade concerns .  Agricultural University of Norway. Department of Economics and Social Sciences. 17 pp.G/AG/NG/S/18
Page 9Country Comment
and health.
THE 1996 F AIR ACT.  The FAIR Act of 1996 made significant changes in long-standing US agricultural policies.  The terms of the
FAIR Act will guide US agricultural programmes in crop years 1996-2002.  Its most dramatic provisions were de-coupling directpayments from actual production and prices and elimination of set aside requirements.  Additionally, the FAIR Act includes
important reforms affecting all commodities and many other programmes, ranging from environmental programmes to food
stamps.  The most radical reform of the FAIR Act was the elimination of the deficiency payment programme for wheat, feedgrains, cotton and rice.  Instead of basing payments on the diffe rence between market prices and a target price on a portion of
their production, farmers who had official programme crop acr eage bases receive fixed direct payments, called production
flexibility contract payments, which decline after 1998 thro ugh the year 2002.  Direct payments levels are determined by farmers'
historical programme acreage and yields and are not based on curre nt plantings.  Instead, producers are not even required to pl ant
a crop to receive payments, making the payments fully decoup led.  Farmers receiving payments will make cropping decisions
based on their estimation of profit potential on the basis of market conditions.  Certain compliance conditions continue in ord er to
be eligible for direct payments.  Producers must, for example, comply with certain conservation or environmental requirements
and limitations on producing fruits and vegetables or using land for non-agricultural commercial purposes.By increasing producers' reliance on the market, making government payments largely independent of farm prices and productiondecisions, and freeing producers to follow their particular comp etitive advantage, the FAIR Act has reduced reliance on export
subsidies and moved domestic support to the "Green Box".  It also makes US producers more dependent upon world markets,
thereby increasing the stake of US producers in full implementation of WTO commitments and further multilateral reform.
United States  (AIE/38, 15.9.98) The Annex 2 definitions have stood up remarkably well to the test of three years of implementation.  The conce rn we had in the
negotiations was that they would be either defined too narrowly, and not allow countries to engage in legitimate basic ruralsupport activities; or that they would be defined too broadly, an d would allow countries to disguise production subsidies under
Annex 2 programme title.  Annex 2 has not been defined too broadly - most measures notified under Annex 2 appear to have
limited trade-distorting effects.  More importantly, the Green Box has provided Members with the ability to provide support to
farmers while meeting the WTO's long-term goal of reducing trade distortion.While Annex 2 policy criteria may require some "fine-tuning,"we do not see the need for major surgery.Decoupled payments are an important policy option, and, based on research in the OECD and other organizations, paymentsdelinked from production and prices have no effect on trade.  Furthermore, analysis by USDA's Economic Research Service has
shown that providing decoupled income support, rather than direct payments tied to supply control mechanisms, enhances
farmers' ability to respond to market signals, resulting in more economically efficient production.  The US production flexibil ity
contract programme does not involve transfers from consumers as  it is publicly-funded, and since payments are not linked to
prices, the type of output, or factors of production, and fa rmers are not required to produce to receive the payment, this
programme does not have the effect of providing price support.
United States   (AIE/64, 22.6.99) The challenge for all WTO Members is to find a way to strengthen the farm "safety-net" and sustain viable ru ral communities in a
way that allows markets to work and trade channels to stay open,  so that all Members can meet the non-trade objectives of their
citizens.  The Annex 2 "Green Box" provisions are the best way to achieve this balance, and entirely consistent with the long-
term objective to establish a fair and market-oriented agricultura l trading system.  For example, the provisions of paragraph 5  ofG/AG/NG/S/18
Page 10
Country Comment
Annex 2, which describe the appropriate conditions for making direct payments, give ample latitude to design specialized,
targeted measures to meet many non-trade policy objectives.The current "Green Box" provisions (Annex 2) of the Agreement on Agriculture contain sufficient and appropriate scope toaccommodate a Member's decision to adopt domestic policies to  address non-trade concerns.  We realize that budgetary
constraints may hinder some Members from using the "Green Box" to the fullest extent possible.  We would note, however, that
there are significant, hidden costs in utilizing measures that may not require budgetary outlays but that distort production an d
trade.  For example, using price support mechanisms to increase output also raises the prices consumers pay for food, thusreducing their food security, and can have negative effects on the environment, through greater input use and soil degradation.These outcomes run counter to the intended effect.  Furthermor e, if such policies are trade-distorting, the loss incurred by ot her
Members is not compensated by the realization of domestic objectives, whatever their nature.G/AG/NG/S/18
Page 11
Annex 1
Documents Submitted by Members
AIE Process
Preparatory Process for the Third Ministerial Conference of the WTO
WT/GC/W/156 Cairns Group Objectives for the Mandated Agriculture Negotiations –
Communication from Australia
WT/GC/W/170 Agriculture – Communication from Korea
WT/GC/W/220 Negotiations on Agricu lture – Communication from Japan
WT/GC/W/273 EC Approach on Agricultur e – Communication from the European
Communities
WT/GC/W/290 Negotiations on Agriculture – Objectives for the Agriculture Negotiations:
Domestic Support – Communication from the United States
WT/GC/W/331 Special and Differential Treatment for Developing Countries in World
Agricultural Trade and the Mandated  Negotiations – Communication from
Indonesia, Malaysia, Philippines, and Thailand
WT/GC/W/370 Agreement on Agriculture – Communication from Jamaica
WT/GC/W/374 Agriculture – Proposal under paragraphs 9(a)(i) and 9(a)(ii) of the Geneva
Ministerial Declaration – Communicat ion from Cuba, Dominican Republic,
Egypt, El Salvador, Honduras, Sri Lanka, Uganda and Zimbabwe
AIE/4 "Green Box" Domestic Support – by AustraliaAIE/19 Domestic Support Policy Reform (the Federal Agriculture Improvement and
Reform Act of 1996) – by the United States
AIE/22 Non-Trade Concerns in a Multifunctional Agriculture – Implications for
Agricultural Policy and the Multilateral Trading System – by Norway
AIE/23 Domestic Support Measures Exempt from Reduction Commitments – by
Canada
AIE/27 Reforming Domestic Support for Agriculture – by Australia
AIE/35 Decoupling Domestic Support – by Australia
AIE/38 Domestic Support – Response to AIE/23 and AIE/27 – by the United States
AIE/51 Multifunctional Role of Agriculture in Small Island Developing States – by
Mauritius
AIE/64 The "Multifunctional" Character of Agriculture, Food Security and Other
Non-Trade Concerns – by the United States
AIE/68 Appropriate Policy Measure Combinations to Safeguard Non-Trade
Concerns of a Multifunctional Agriculture – by Norway
AIE/70 Agreement on Agriculture:  Special and Differential Treatment – Non-
Paper 2 by El Salvador, Cuba, Hondur as, Dominican Republic, Pakistan,
Sri Lanka and Zimbabwe
Brazil Statement made in the General Council on 23-24 November 1998G/AG/NG/S/18
Page 12
India Statement made in the General Council on 23-24 November 1998
Japan Statement made in the General Council on 24 March 1999
Norway Statement made in the General Council on 2 February 1999
Turkey Statement made in the General Council on 12 April 1999
Canada Statement made in the General Council on 18 August 1999
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