Agricultural Markets

Evolution of Domestic Support in Agriculture

This study aims analyses trends in the various components of domestic support during 2001-2014, and examines the extent to which Members complied with their reduction commitments under the WTO Agreement on Agriculture. It also explores how Rev. 4 modalities on domestic support as stood in 2008 would have played in practice and assesses the extent to which Members’ domestic support outlays since 2008 comply with their commitments as envisaged under Rev 4.

Including disciplines on domestic support under the Agreement on Agriculture (AoA), negotiated as part of the Uruguay Round agreement, was a major step towards reforming world agricultural trade. A fairly complex classification of domestic support had to be put in place for countries to agree on disciplining such support. Monitoring compliance to the agreed rules and related commitments has been the role of the WTO Committee on Agriculture (CoA) on the basis of annual notifications by Members while, in parallel, the CoA under special sessions has been negotiating the continuation of the reform process in agriculture including on the domestic support pillar of the AoA.

The Draft Modalities of 2008 (commonly referred to as Rev 4) was an important landmark of this round of negotiations that commenced in Doha in 2001. Unfortunately, Members could not have consensus on these and the Round itself has been deadlocked though negotiations in agriculture and other sectors have continued. The present study aims at a dual objective: first, based on Members’ notifications to the CoA, it analyses trends in the various components of domestic support during 2001-2014 and examines the extent to which Members complied with their AoA reduction commitments; the second objective of the study explores how Rev 4 modalities on domestic support as stood in 2008 would have played in practice and assesses the extent to which Members’ domestic support outlays since 2008 comply with their commitments as envisaged under Rev 4.

The main findings of the study are as follows:

Total domestic support is an increasing trend for all Members up to 2010 and a levelling off for several of them since then.

While traditionally there has been a high concentration of support in a few developed Members (USA, EU and Japan) in the past, in recent years several developing Members registered substantial increases in domestic support, including China and India.

The composition of domestic support is changing. For developed Members there is a general tendency of reduction of non-Green (trade- distorting support) to Green. This tendency is stronger for those Members that had large sums of trade-distorting support in earlier years, such as the EU, Canada and USA.

Domestic support provided by developing Members also increased substantially, the largest part being in non-Green categories. India, Indonesia, Brazil and Mexico have made extensive use of Art. 6.2, which exempts non- product specific support, provided specifically to recourse poor farmers, from the calculation of the AMS. The shift of support to Green box is welcome and implies that for the majority of Members there is now plenty of room for reducing trade-distorting domestic support entitlements (Bound AMS and/or product and non-product specific de minimis limits).

The share of domestic support to the value of agricultural production (VoP) is a measure of the degree of market distortion. Similarly, the share of domestic support to Gross Domestic Product (GDP) is a measure of the national burden in supporting farmers. Analysis of these two shares revealed wide divergence between Members. The share of domestic support to VoP ranged from less than 2% (Argentina) to over 100% (Norway). Other developed Members, except Australia, ranged between 20% and 40%. The shares of developing Members were considerably lower.

Wide divergence but of a different nature has also emerged for the shares of domestic support in relation to GDP. The relative cost of supporting agriculture for the poorer WTO Members is much higher than that of the richer Members though that would make sense taking into account the contribution of agriculture to GDP in these countries. Top of the list are China and India for which support to agriculture represents between 2% and 4% of their GDP, while for the richer Members this share amounts to less than 1%. The lowest share is for Australia and Argentina (less than 0.2%) reflecting perhaps the comparative advantage of agriculture in these countries, performing well even without large support from national budgets.

Equally wide divergence between Members has been found in domestic support expressed in per capita terms. Per capita support for rural inhabitants in developed Members is much higher than those in developing Members. It ranges between $3400/capita/year (Norway) and less a mere $18/capita/year (Indonesia).

One of the recognized weaknesses of existing rules on domestic support is the flexibility allowed to shift support between commodities due to the nature of AMS being an aggregate ceiling without commodity specific ceilings. In this connection, there is evidence of concentration and intensity of product-specific support, i.e. a few (sensitive) products receiving most of trade-distorting support.

Turning to Rev 4 modalities on domestic support, the main departure from the existing AoA included provisions to discipline both the Overall Trade Distorting Support (OTDS) and its components, including product-specific limits. That way, possibilities for reallocating support from one category to another would be reduced. Another aim of the intended disciplines was to reduce somewhat the large gap in domestic support entitlements between Members by stipulating larger cuts for Members with high entitlements (tiered formula).

In assessing how the intended Rev 4 disciplines would have played in practice, the paper applies the specific provisions in Rev 4 to the period 2009 to 2014, assuming that the implementation would have commenced on 1 January 2009. Given the trends of domestic support during this period and changes in its composition discussed above, it turns out that, with very few exceptions, Rev 4 disciplines would not have presented any serious compliance problems for the Members considered in this study.

This overall conclusion was to be expected. As was the case for the Uruguay Round, in the Doha round negotiations the main effort by Members was to consolidate the status quo rather than undertaking commitments that would require them to make substantial new efforts.

The study does not make any assumptions of possible flexibilities that could have been put in place in the implementation of Rev 4 to ease the way of Members such as Norway that would have faced difficulties in implementing the intended disciplines. However, judging from past practices, in more likelihood such flexibilities would have been part of a final outcome.

Finally, the domestic support to agriculture remains an important area of WTO negotiations. A lot of useful work has been done in this area including through the Draft Modalities Rev 4 of 2008. WTO Members should aim to continue this work, particularly in the context of preparations for the next WTO Ministerial Conference scheduled in the summer of 2020. A balanced and fair outcome on domestic support will contribute to much needed reform of world agriculture production and trade as well as to enhancing the credibility of the multilateral trading system