Green But Not Clean: Why a comprehensive review of Green Box subsidies is necessary | Subsidy | Oxfam

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Green Box subsidies, by definition of the World Trade Organization (WTO), are not allowed to distort trade. This is why, under the terms of the Agreement on Agriculture (AoA), countries may provide as many Green Box subsidies as they like. ActionAid, CIDSE, and Oxfam believe, as this briefing note will show, that the EU and the USA are using this provision to continue to give support that is manifestly trade-distorting, thereby causing serious damage to farmers in developing countries. At least $40bn of Green Box payments annually are likely to be trade-distorting and therefore break WTO rules.
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    Joint NGO Briefing Paper November 2005 Green but not clean Why a comprehensive review of Green Box subsidies is necessary    Introduction Green Box subsidies, by definition of the World Trade Organisation (WTO), are not allowed to distort trade. This is why, under the terms of the Agreement on Agriculture (AoA), countries may provide as many Green Box subsidies as they like. ActionAid, CIDSE, and Oxfam believe, as this briefing note will show, that the EU and the USA are using this provision to continue to give support that is manifestly trade-distorting, thereby causing serious damage to farmers in developing countries. At least $40bn of Green Box payments annually are likely to be trade-distorting and therefore break WTO rules. 1   A full examination of the Green Box is urgently needed. If subsidies are found to be trade-distorting, this demonstrates that stricter criteria need to be imposed, and subsidies that do not meet them must be removed from the Box and, if necessary, cut. Only subsidies that have a genuine social, environmental, or rural development purpose should be classified as Green Box, and thereby escape reduction commitments. In the Doha Round, rich countries have spent very little time looking to pro-development outcomes, but a great deal of time finding creative ways to circumvent agreements. For instance, while Europe is now the biggest user of the Green Box, the USA wants to expand the criteria for the Blue Box, 2  allowing it to include support that is clearly trade-distorting. When it comes to subsidies, both trade superpowers are behaving in a totally unacceptable manner, particularly during a round of negotiations that is supposedly dedicated to development.   Green Box misuse The Doha mandate clearly states that domestic support that enables farmers to sell their produce at a price below the full cost of production should be ‘substantially reduced’. Because Green Box payments are ‘non or minimally trade-distorting’, they are excluded from this reduction commitment. But the EU and the USA, instead of complying with their WTO commitments, are simply shifting subsidies from the Amber and Blue Boxes and hiding them in the Green Box. This allows them to maintain, and even increase, the high levels of support they provide, which largely goes to agribusiness. In other words, it is the richest countries, not the poorest, who will be getting the ‘round for free’. 3  There are other, equally pernicious implications of this box-shifting. In the trade negotiations at the WTO, rich countries are using the false claim that they have already reduced damaging support as a means of leveraging more concessions from poor countries in market access negotiations. WTO members have already agreed to a review of the Green Box criteria, to ensure that the subsidies categorised there are indeed non or minimally trade-distorting: this was one of the 1  European payments for the most problematic Green Box measures, direct payments, and investment aids are expected to be €30bn from 2007 onwards: €25bn in direct payments (made up of €16bn arable crops area  payments, €4.8bn milk payments, and 50 per cent of the €9.7bn livestock payment because many countries have opted for partial decoupling in this sector – note that this is still a conservative estimate); plus €5bn investment aids. The USA is likely to continue with its $4bn direct payments, so at current exchange rates, these subsidies alone would add up to $40bn. 2  See G. Kripke (2005) ‘A Little Blue Lie: Harmful Subsidies Need to be Reduced not Redefined’, Oxford: Oxfam International, available at www.oxfam.org.uk/what_we_do/issues/trade/bn_bluebox.htm. 3  See ActionAid (2004) ‘Five Reasons Why a Comprehensive Review of Green Box Subsidies is Required Within the WTO’; Cafod (2001) ‘Proposal for a “Development Box” in the WTO Agreement on Agriculture’; L. Stuart and G. Fanjul (2005) ‘A Round for Free: How Rich Countries are Getting a Free Ride on Agricultural Subsidies at the WTO’, Oxford: Oxfam International, available at www.oxfam.org.uk/what_we_do/issues/trade/bp76_modalities_and_dumping.htm .   - 1 -      provisions of the July 2004 Framework Agreement. Moreover, the G20 put out a proposal back in June 2005 detailing why a review is urgently needed. 4  However, to date the EU and the USA have refused to act. The response of rich country trade officials has demonstrated a false logic of disturbing proportions: yes, there will be a review, but it will only be to check that the criteria are being correctly implemented, and will not look at whether the criteria are being met. Therefore, they say, a review would not result in any substantive changes to the Green Box.  As this paper outlines, there are increasing grounds to believe that a meaningful Green Box review would show that many current Green Box subsidies do not meet the criteria of not distorting trade and that, in some instances, rich countries are violating even these weak criteria. Agricultural negotiations should urgently address this missing gap in the subsidy debate. Green Box criteria should be made stricter, and subsidies that still distort trade should be ejected immediately from the Box’s safe harbours. What’s in the box? Currently, large amounts of subsidy and support are being sheltered in the Green Box. We estimate that the EU will report just under €50bn a year in Green Box payments, once reform of the Common Agricultural Policy (CAP) has been fully implemented in 2006-7. 5  The USA currently reports $50.7bn of Green Box payments annually. Box 1: What is allowed in the Green Box? To qualify as Green Box support, payments must not result in price support for producers, must not involve financial transfers from consumers, and must be provided through a publicly-funded programme. The following programmes are explicitly permitted: - Provision of ‘general services’, including research, training, extension, marketing and promotion, and infrastructure such as water supply and drainage. - Public stockholding for food security purposes and the provision of domestic food aid. - Income insurance and safety net programmes and natural disaster relief. - Structural adjustment through producer and resource retirement programmes and investment aids. - Environmental and regional assistance programmes. - And, most contentiously, decoupled income support. In the case of the EU, much of the €50bn that will ultimately be spent on support to farmers is money that is simply being shifted from the Amber and Blue Boxes under the 2003 review of the CAP. If you are a poor farmer in Burkina Faso, the technical categorisation of the payments makes little difference if you are still facing unfair imports. It is the same money, going to the same place — it just has a different name. Of course, some of this money is genuinely used to support broader social objectives related to agriculture, such as rural development and environmental protection. A large proportion of US Green Box spending — $33bn — goes to domestic food stamp programmes, which are genuinely targeted at the needy and are unlikely to have a major impact on production. These kinds of subsidies should not be reduced — indeed, they are very necessary to protect livelihoods and to provide social safety nets. However, of the remaining Green Box support, the vast majority serves the interests of commercial farmers and agribusiness, and promotes dumping. In the case of the EU and the USA, ActionAid, CIDSE, and Oxfam are concerned about the effects of so-called ‘decoupled’ income support, and in the EU of investment aid within the 4  G20/DS/Greenbox FINAL 02/06/05 5  See Annex D of L. Stuart and G. Fanjul (2005) ‘A Round for Free’ ( op cit  ) for calculations for this figure. - 2 -      Green Box. In the EU, decoupled support is set to account for a projected €25bn of the  €50bn notified in the Green Box, once the 2003 CAP reforms have been fully implemented. Investment aid, which is support given to farmers to modernise their farms, either in the form of a direct payment, or by subsidising interest payments, will remain at the current level of around €5bn (see Figure 1). In the USA, meanwhile, allegedly ‘decoupled’ income support currently accounts for $4bn of the Green Box spend. Because it is concentrated in just a few products, its effect is greatly heightened, and expenditure is likely to continue at the current level. At current exchange rates, these two kinds of directly distorting payments given by the EU and the USA alone will add up to $40bn a year. Figure 1 EU Green Box Support 010000200003000040000500002001/2002*2006/2007** Year     €  m  n Other Regional Assistance Agrienvironmental ProgrammesInvestment aidsGeneral ServicesDecoupled income Support * 2001/2 figures are latest EU notifications to the WTO. ** 2007 figures are an estimation of Green Box payments after full implementation of the Mid Term Review, assuming that payments other than decoupled income support remain constant (in line with EU budget forecasts for this period). It takes account of partial decoupling of area payments in France, and a conservative (50 per cent) estimate for livestock payments for many countries. The Green Box and dumping While the Green Box is supposed to provide a home only for non-damaging subsidies, in fact, by supporting farmers to keep growing more than they would otherwise be able to sell, much Green Box money encourages farmers to overproduce. This leads to dumping, or the selling of produce on world markets at prices lower than the cost of production. Dumping causes massive harm to farmers in developing countries, who cannot compete with the cheap products flooding their markets. Hundreds of thousands of African farmers have been put out of business because of it. A study by the Australian government has shown that if the volume of subsidised EU and US dairy exports were to be halved, world dairy prices would be up to 34 per cent higher, for example, while US cotton subsidies caused Burkina Faso to lose the equivalent of 1 per cent of its GDP. 6   6  See L. Stuart and G. Fanjul (2005) ‘A Round for Free’, op cit  . - 3 -  
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