Compatibility of result-based

agri-environmental schemes with the

WTO framework

Lars Brink

Workshop on result-based environmental schemesAgriFood Economics Centre and Royal Swedish Academy of Agriculture and Forestry12 November 2014 Lund, Sweden Lars.Brink@hotmail.com

– Substantial reductions in support and protection • Taking into account non-trade concerns: environment• Doha: substantial reductions in trade-distorting support

– Domestic support• Not border measures: tariffs, export subsidies, etc.• Two kinds of domestic support

– Not limited: green box, blue box, Article 6.2– Limited: everything else

– Measure support in particular ways• AMSs Aggregate Measurements of Support

– Administered prices– Payments, subsidies

WTO Agreement on Agriculture

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– Support for environment without any agr. production

• May fall outside of Agreement on Agriculture

– Support for environment with agricultural production

• Joint production of environment and agriculture

• Support in favour of agricultural producers

– Green box measures not subject to AMS calculation

• No ceiling limit on green box support if measure meets– Fundamental requirement: no or minimal production effects

– Two basic criteria: funded by government; not price support

– Policy-specific criteria

“… in favour of agricultural producers”

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Blue box measures

Development

programs

Non-exempt

measures

Non-green

measures

Green box

measures

… measures in favor of agricultural producers Art. 6.1

Art. 6.1 Annex 2

Art. 6.2

Art. 6.5

Blue box measures

Development

programs

Non-exempt

measures

Current

Total AMSmust

not exceed

Non-green

measures

Green box

measures

… measures in favor of agricultural producers

Blue box payments

Development support

Green box support

Bound

Total AMS

Art. 3.2; 6.3

Blue box measures

Development

programs

Non-exempt

measures

NPS AMS

Product 1 PS AMS

Product 2 PS AMS

Current

Total AMS

etc.

Bound

Total AMS

Calculate

AMSs

must

not exceed

Non-green

measures

Green box

measures

… measures in favor of agricultural producers

Blue box payments

Green box support

Development support

Annex 3

Annex 3.1

Annex 3.6

Non-green

measures

Blue box measures

Development

programs

Non-exempt

measures

NPS AMS

Product 1 PS AMS

Product 2 PS AMS

… measures in favor of agricultural producers

Blue box payments

Green box support

Development support

Current

Total AMS

etc.

de minimis AMSs

> 5% VOP?

Calculate

AMSs

must

not exceed

> 5% VOP?

> 5% VOP?

Green box

measures

no

no

no

yes

yes

yes

Bound

Total AMS

Art. 6.4

– Expenditures– General services

– Public stockholding for food security

– Domestic food aid

– Payments– Direct payments to producers

– Decoupled income support

– Income insurance

– Crop insurance

– Producer retirement

– Resource retirement

– Investment aids

– Environmental programs

– Regional assistance programs

Sets of policy-specific green box criteria

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• Para. 12: Payments under environmental programs

– (a) Eligibility for such payments shall be determined as part of a clearly-defined government environmental or conservation program and be dependent on the fulfilment of specific conditions under the government program, including conditions related to production methods or inputs.

– (b) The amount of payment shall be limited to the extra costs or loss of income involved in complying with the government program. (emphasis added)

Annex 2 of Agreement on Agriculture

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– Did EU regulation inspire URAA wording or vice versa?

• Predates 1994 Uruguay Round Agreement on Agriculture URAA

– Regulations go beyond “extra costs or loss of income”

– Reg’n allows selection by tender or calls for proposals

• Use as measurement of extra costs or loss of income?

“… extra costs or loss of income”

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746/96 “additional costs” and “incentive component”

1257/1999 “additional costs”, “income foregone”, and “incentive”

1698/2005 & 1974/2006 “additional costs and income foregone” and “transaction costs”

74/2009 silent on these words

1305/2013 “additional costs and income foregone” and “transaction costs”

2078/92 “loss of income”

(increasing number of member states)€ billion

0.0

2.8

4.2

3.7

5.0

5.55.7

5.5

5.05.2

5.45.6 5.5

6.3

5.7

6.6

7.2

8.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

AGST 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Payments under EU environmental programs in agriculture 1995-2011

Source: Notifications to WTO Committee on Agriculture

2011/12 notification of EUenvironmental programs in G/AG/N/EU/20

Monetary value: EUR 8,302.0 million

Name and description of measure:

Protection of environment and preservation of the countryside; aid

for environmentally sensitive areas; support and protection of

organic production by creating conditions of fair competition; aid

for forestry measures in agriculture; conservation and improvement

of rural heritage.

Comments:

Council Regulation 1698/2005, Council Regulation 1234/2007,

Council Regulation 1257/1999, Commission Regulation 1857/2006,

Agricultural State Aid Guidelines 2006/C 319/01, Council

Regulations 1535/2007 and Commission regulation 1998/2006

Data sources: EAGF, EAFRD and national sourcesLars Brink

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– Environmental objective does not make payment non-distorting of agricultural production

• Result-based scheme may allow or depend on agr. production

– EU notification not transparent

• One single “Environmental programs” amount; several reg’s

• No mention of result-based payments

– EU environment programs 1995-2010 in WTO Cttee on Agr

• 7 questions: confirm payment is no larger than costs or income loss

• EU asserts payments meet para. 12 costs or income loss criteria

Worry about hidden production subsidy

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– Are result-based payments properly reported only as “extra costs or loss of income”?

– Researchers say it is difficult to measure such costs and losses

– If properly reported, EU must know how to measure them, even if EU result-based payments are still very small

– Basis for exempting all environment payments?

• Either: all environment programs meet para. 12 criteria

• Or: EU claims all environment programs meet para. 12 criteria

– Do EU reg’s stretch interpretation of WTO green box?

• Significance of more generous and instead of or of para. 12?

EU environment payments and para. 12

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– If some environment payments not eligible for para. 12

• Would be in an AMS: product-specific or non-product-specific

– Environment payments fit below de minimis thresholds

• Threshold for beef AMS in 2011: € 1.6 billion

• Threshold for non-product-specific AMS in 2011: € 18.5 billion

EU has much room for AMS support

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Total AMS & Overall Trade-Distorting SupportURAA € bill.

If Doha € bill.

Bound Total AMS (limit) 72 22

Current Total AMS 2011 (applied) 7 7

Bound OTDS (limit) Not applicable 24

Current OTDS 2011 (applied) Not applicable 11

– Review in CoAg need not lead to change in notification

• Draws attention to unclear or missing information

• May question legitimacy of a country’s claims

• No power to order a change in a country’s notification

– Country exceeds its Bound Total AMS: may face dispute

• Not an issue here: EU is far below Bound Total AMS– Environmental payments relatively small

– Agreement on Subsidies and Countervailing Measures

• Another country may claim “adverse effects”; seems unlikely

WTO procedures

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– Green box criteria do not determine what is allowed

• Criteria determine only what can be exempted from AMSs

• EU regulations say what EU allows; they differ from para. 12

– Not observing para. 12 criteria is of little consequence

• But let us presume EU wants to notify as per para. 12 criteria

– Do EU notifications actually observe para. 12 criteria?

• Yes? Measuring “extra costs or loss of income” under result-based schemes is then revealed not to be a problem in the EU

• No? Should report non-compliant payments as AMS support

Issue is not what the WTO “allows”

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Thank you!Lars.Brink@hotmail.com

Selected references

Blandford, D. and T. Josling. 2007. Should the green box be modified? IPC Discussion Paper, International Food and Agricultural Trade Policy Council. Washington, DC.

Brink, L. 2009. WTO constraints on domestic support in agriculture: past and future. Canadian Journal of Agricultural Economics 57(1): 1-21. DOI: 10.1111/j.1744-7976.2008.01135.x

Brink, L. 2011. The WTO Disciplines on domestic support. In WTO Disciplines on Agricultural Support: Seeking a Fair Basis for Trade, ed. D. Orden, D. Blandford and T. Josling. Cambridge: Cambridge University Press.

Josling, T. and A. Swinbank. 2011. European Union. In WTO Disciplines on Agricultural Support: Seeking a Fair Basis for Trade, ed. D. Orden, D. Blandford and T. Josling. Cambridge: Cambridge University Press.

Meléndez-Ortiz, R., C. Bellman, and J. Hepburn (ed.). 2009. Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals. Cambridge: Cambridge University Press.