WORLD TRADE
ORGANIZATIONG/AG/NG/W/14
23 June 2000
(00-2615)
Committee on Agriculture
Special SessionOriginal:  English
AGREEMENT ON AGRICULTURE: GREEN BOX / ANNEX 2 SUBSIDIES
PROPOSAL TO THE JUNE 2000 SPECIAL SESSION OF THE COMMITTEE ON
AGRICULTURE BY CUBA, DOMINICAN REPUBLIC, HONDURAS,
PAKISTAN, HAITI, NICARAGUA, KENYA, UGANDA, ZIMBABWE,
SRI LANKA AND EL SALVADOR
Article 6.1 of the Agreement on Agriculture states that Annex 2 or Green Box subsidies can
be provided by governments and are not subject to reduction. In other words, Governments are free toprovide Annex 2 subsidies without limits.  This is the only category of supports under the Agreement
where no limits are set on supports.
The fundamental criteria for Annex 2 programmes is that 'they have no, or at most minimal,
trade-distorting effects or effects on production' (Annex 2.1).
The other criteria are that:
1. the support in question is provided through a publicly-funded government
programme;
2. the support does not have the effect of providing price support to producers.
Problems and Shortcomings of the Green Box
Green Box has Provided the Legitimacy for Higher rather than Lower Overall OECD Domestic
Support Levels
One of the key problems since the implementation of the Agreement on Agriculture in 1995 is
that domestic support, measured in terms of the Aggregate Measure of Support (AMS) was to be
reduced by 24 per cent by developed countries.  However, despite these reductions, overall level of
supports on the whole have increased, rather than decreased.  This is evident both from the Green Box
subsidies countries have declared, as well as from Producer Support Estimate (PSE) figures reportedby the OECD.  The table below illustrates the subsidies provided by the world's largest agricultural
exporters, the US and the EU.
Annex 2 subsidies have increased for the EU from 9 billion ECU in 1986-88, to 22 billion
ECU in 1996.  For the US,  Annex 2 subsidies have  likewise more than doubled, from US$24 billion
in 1986-88 to US$51 billion in 1997.
Annex 2 subsidies are a subset of total subsidies provided by these countries.  The PSE is a
more complete measure of support.  The PSE figu res for all OECD countries have increased from
US$247 billion in 1986-88, to US$274 billion in 1998.  For the EU, this has increased fromG/AG/NG/W/14
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US$100 billion in 1986-88, to US$130 billion by 1998.  For the US, the increase has been from
US$41 billion to US$47 billion.
Calculation of total domestic supports which include green box, blue box, AMS and de
minimis supports reveal similar increases in support levels since implementation of the AoA.
Table 1: Green Box, Blue Box, AMS and PSE Support Levels of EC and US
European Community
(Million ECU)
Green BoxBase Period
(1986-88)
9,233.41995
18,779.21996
22,130.31997 1998
Blue Box - 20,843.5 21,520.8
AMS product specific
supportsIncluding de minimis73,644.9 49,823.4 50,751.5
Non-product specific
supports -     776.7     728.4
Total (green box, blue
box, de minimis and
AMS)82,878.3 90.222.8 95,131
PSE (Million ECU)
PSE (million US$)90,392
99,61983,442
94,60574,970
85,00096,729
109,670116,075
129,808
United States(million $)
Green Box 24,098 46,041 51,825 51,249
Blue Box -- 7,030 -- --
AMS product specific
supportsIncluding de minimis24,659 6,310.877 5,867.84 6,474.668
Non-product specific
AMS supports   901 1,386 1,115    568
Total (green box, blue
box, de minimis andAMS)49,658 60,767.877 58,807.84 58,291.668
PSE (Million $) 41,428 15,205 23,500 30,616 46,960
Sources: OECD in Figures, 1999; WTO, 'Domestic Support ' , AIE/S2/Rev.2, 23 September 1999; OECD in Figures, 1996.
Clearly the categories of boxes and the way in which domestic support reductions are
calculated based only on the AMS allows for members to meet their 24 per cent AMS reductioncommitment, while still increasing overall support levels.G/AG/NG/W/14
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For many developed countries, especially the EU and the US, supports in the Green Box,
which have more than doubled, show that a large number of countries have channelled their domestic
support programmes away from the disciplined AMS and into the undisciplined Green Box, hence
avoiding the need to make real domestic support reductions.
Green Box Subsidies Provides Possibilities for Misuse
While the AoA assumes that the domestic support, decoupled from production, will have no
or minimal impact on production levels, studies have shown that it is virtually impossible to break the
links between income support and marginal costs and returns, particularly when the support runs into
billions of dollars.  Huge amounts of decoupled payments will inevitably increase farm input use andallow access to improved technology, hence increasing farm investment and production.
Furthermore, decoupled payments are often provided in such a way as to increase land values.  This
maintains land in farming which might otherwise have  been diverted for other purposes.  Production
is therefore indirectly increased (A BARE Current Issues, Aug 1998, No. 98.4).
The OECD, in 'OECD Agricultural Outlook 2000-05', points out that despite being decoupled
from production levels, US aid payments to farmers will affect production levels because
(i) it will impact on income and wealth of farmers, providing the means to invest more
into production
(ii) it will reduce producer perception of risks associated with future production
(iii) farmers will expect similar government responses in future periods of low prices
(iv) the 'top ups'  will create a 'long run incentive' to put resources into agricultural
production.
The Green Box is Non-Transparent
The Green Box therefore masks huge supports that continue to be provided by OECD
countries.  This point can also be ascertained by the shift in supports in 1995, for example, by the US.
Table 1 above shows that US AMS supports amounted to 24 billion in the base period.  On the first
year of implementation in 1995, its AMS supports drastically dropped to only over 6 billion.
However, its Green Box supports increased by 22 billion.
Subsidies previously classified as trade distorting were obviously shifted to the non-trade
distorting category.  The problem is that the Green Box criteria have not been vigorously defined.
What is considered 'no or at most minimal, trade-distorting effects' remains a value judgment on the
part of the government providing the subsidy.  Nowhere in Annex 2 or the Agreement on Agriculture
has it been defined.  Does this mean that the subsidy cannot increase production output or that it
cannot affect world prices?  But is it possible to make those judgments in all cases?  Direct payments
are often provided to boost farmers' incomes without reference to their production.  How can
governments guarantee that the extra income is not used to buy more inputs and hence increase
production levels?
The word 'minimal' also requires a value judgment on the part of the government providing
the subsidy.  What in their eyes may be 'minimally distorting', could in fact have devastating effects
for another economy.
Due Restraint Clause Provides Green Box Complete Protection from Countervailing Duties
As seen above, it is important that in cases where there is lack of clarity if a subsidy is more
than 'minimally trade distorting ', that importi ng countries have the leeway to bring the case toG/AG/NG/W/14
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Dispute Settlement.  However, the Due Restraint Clause in Article 13 provides Annex 2 subsides with
complete protection from countervailing duties. In fact, of all the types of supports where protection is
accorded - Blue Box; de minimis; special and differential treatment supports; and export subsidies - it
is only Annex 2 subsidies that are completely protected.  Blue Box and export subsidies can be
challenged if there is proof of injury or threat to another member.  The Due Restraint Clause remains
in effect until 2003.  A decision would have to be  made by members by that time about its renewal.
Green Box Meets Non-trade and Other Concerns of Developed, but Not Developing Countries
The Green Box is often seen as the provision which allows governments to provide for the
non-trade concerns mentioned in the preamble of the Agreement, such as food security and protection
of the environment.  However, a closer look at Tables 2 and 3 illustrate that it is used most frequentlyby a small group of developed countries.  Therefore, while its provisions on the one hand, are too
vague and provides leeway for abuse by those who can afford to provide outright financial supports, it
is too narrow for the purposes of protecting developing countries' non-trade concerns such as the
protection of small farmers' livelihoods, and food security.
Table 2:  Usage of Green Box Subsidies
Measure Developing (46)
(per cent of countries
claiming measure)Developed (11)
(per cent of countries
claiming measure)
General Services· Research· Pest and disease control· Training Services· Extension and advisory services
· Inspection services
· Marketing and promotion services· Infrastructural services· General services (not specified)67
504359
30
415228100
  91  55  91
  73
  64  55  45
Direct payments to producers· Decoupled income support
· Income insurance and income safety-net
programmes
· Crop insurance for natural disasters· Structural adjustment assistance provided
through producer retirement programmes
· Structural adjustment assistance provided through
resource retirement programmes
· Structural adjustment assistance provided through
investment aids
· Environmental programmes· Regional assistance programmes· Others (not specified) 4
 9
24
 2
 2
15
30
2020 27
 27
 91
 27
 45
 64
 45
 36 27
Public stockholding for food security purposes 17  45
Domestic food aid 15  27
Source: WTO, Supporting tables relating to commitments on agricultural products in Part IV of the Schedules,
G/AG/AGST/Vols 1-3. WTO, Geneva cited in Greenfield and Konandreas 1996, Food Policy Vol. 21 'Uruguay Round
Commitments on Domestic Support: their implications for developing countries '.G/AG/NG/W/14
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Table 3 below is useful in providing a breakdown on the usage of the Green Box by members.
It shows that in 1996, developing countries provided only 12.5 per cent of all Green Box supports,
with developed countries providing the other 87.5 per cent.  The US is by far the largest provider of
Green Box supports (40.9 per cent of the total in 1996), followed by the EU (22.4 per cent) and Japan
(19.7 per cent).  The majority of developing countries do not even provide 0.5 per cent of total GreenBox supports.
Table 3: Total expenditure on Green Box (GB) measures, by member, 1995-6.
Country 1995 1996
Amount
(US$ million)Share in reported GB
expenditure of allmembersAmount
(US$ million)Share in reported GB
expenditure of allmembers
Grand total of reportedexpenditure
Total of reporting
developed countries
Total of reporting
developing countries129,440
110,173
  19,266100.0
85.1
14.9126,735
110,958
15,776100.0
87.5
12.5
Developing countries:
Argentina
BahrainBotswana
Brazil
ChileColombiaCuba
Cyprus
FijiGambiaGuyana
India
JamaicaKenyaKoreaMalaysia
Malta
MexicoMongoliaMorocco
Namibia
PakistanParaguayPhilippines
Romania
ThailandTrinidad and TobagoTunisia
Uruguay
VenezuelaZimbabwe     11
 4,883
   176   318   908
   130
    n.a.
 2,196
     53
 5,174
   244
       1
 1,626
   n.a.
   157
     50
   440     23   136
   730
 1,353
     61     30
     18
   539     140.00
0.000.01
3.77
0.140.250.70
0.10
0.00
0.00
1.70
0.000.044.000.19
0.00
1.26
0.12
0.04
0.340.020.11
0.56
1.050.050.02
0.01
0.420.01   137
       0
 2,600
   170   578
 1,090
   128
     16
       7
     66
 6,443
   300
   n.a.
    378
    392
        9    282
    756
  1,624
      98      39
      33
    618      120.11
0.000.00
2.05
0.130.460.86
0.10
0.010.000.00
0.00
0.010.055.080.24
0.00
0.00
0.30
0.00
0.310.010.22
0.60
1.280.080.03
0.03
0.490.01G/AG/NG/W/14
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Country 1995 1996
Amount
(US$ million)Share in reported GB
expenditure of all
membersAmount
(US$ million)Share in reported GB
expenditure of all
members
Developed countries:
Australia
CanadaCzech Re public
EC
Hungary
IcelandIsraelJapan
New Zealand
NorwayPolandSlovak Republic
Slovene
South AfricaSwitzerland-LiechtensteinUnited States   707
 1,539
   132
24,110
    105
      30    292
32,859
    128
    647    436        1
      85
    763
  2,299
 46,0410.55
1.190.10
18.63
0.08
0.020.23
25.39
0.10
0.500.340.00
0.07
0.591.78
35.57   740
   197
28,378
     50
   414
25,020
   136
    638    549        1
       91
    525
  2,404
 51,8150.58
0.000.16
22.39
0.00
0.040.33
19.74
0.11
0.500.430.00
0.07
0.411.90
40.88
Source: FAO 1999, FAO Symposium on Agriculture, Trade and Food Security: Issues and Options in
the Forthcoming WTO Negotiations From the Perspective of Developing Countries. 'Issues at stake
relating to agricultural development, trade and food security ', Paper No. 4.
Present Structure of Subsidy Boxes – Creates Loopholes and is A Heavy Administrative Burden
As noted above, the various subsidy boxes have not been helpful in lowering overall subsidy
levels.  The reality is that huge amounts of subsidies will mostly be production and trade-distorting.The present structure of subsidy boxes should therefore be changed.  Collapsing all subsidies into one
category would eliminate the existing loopholes an d bring rationale and structure to the Agreement.
Furthermore, the different subsidy boxes have imposed a heavy administrative burden for
developing country member delegations which are more often than not severely under-resourced.  Ifthe present system was constructive and if it really worked in terms of bringing down overall OECD
supports, the present structure should be maintained despite the administrative load.  However, given
that it does not, having only one 'General Subsidies' box would greatly ease this load for many under-
staffed developing country member delegations.
Recommendations
In the light of the above problems of the Green Box, particularly for developing countries, we
recommend the following:
1. Collapse all domestic support categories into one 'General Subsidies' box.  One category of
subsidies will bring rationality and structure to the Agreement.  It will also ease the unnecessary
administrative burden on under-resourced developing country delegations.
A set of criteria should be spelt out as to what should make up the programmes legal within
this one box.G/AG/NG/W/14
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A common level of supports should be allowed eg. 10 per cent of production for all countries.
This level of subsidies should be non-actionable.  Subsidies of 5 per cent above this 10 per cent level
will be 'actionable' for developed countries. (Developing countries should be protected under the Due
Restraint Clause).  Subsidies beyond this level should be treated as prohibited.  Developing countries,
however, will be allowed additional flexibility under a 'Development' box. (The development box isfurther explained in the second proposal being submitted separately.)
2. The AoA has not satisfactorily addressed the food security and development concerns of
developing countries.  The present Green Box largely meets the non-trade concerns of developed
countries.  Flexibility should be provided to developing countries in the form of a 'Development' box
to address developing countries'  rural employment and food security concerns.
The aims of the Development box are to encourage developing countries to maintain or
increase their present domestic production capability of foods consumed domestically, as well as to
protect the livelihoods of small farmers.
The Development box should provide developing countries with flexibility of import controls,
tariffs barriers and domestic supports for items which are already being produced in sufficient
quantities or which countries would like produced in sufficient quantities locally, until such time they
are exporters of these products.
3. The Due Restraint Clause protecting Green Box subsidies from challenge and which is in
place until the end of 2003 should be terminated as soon as possible.  Certainly, its protection of
Green Box subsidies should not be extended beyond 2003.  Protection under the Due Restraint Clause
for the Blue Box should likewise be terminated.
The Due Restraint Clause should be a special and differential treatment provision that will
protect only developing countries in the 'General Supports' box and the 'Development' box.  The
purpose of the Due Restraint Clause should be to protect developing countries in their efforts to
increase food security (food accessibility and availability to all), ensure rural employment and to
increase domestic production capacity.
Note on the non-availability of up-to-date data: The key problem is that the EC has provided
notification only up to 1996 (as according to the WTO Secretariat 's Green Box paper in April 2000).
Hence some of the missing numbers in Table 1.  And Table 3 cannot be updated since the EC
accounts for 20 per cent of total Green Box supports.
__________