The first time that the multilateral trade liberalizing process was applied to agriculture was during the Uruguay Round of negotiations. There were major concerns about the costs and distortions caused by protections including border restrictions (tariffs or quotas), domestic subsidies and export subsidies.  To combat these problems a framework was put in place to address the three areas of support to agriculture. These areas of support are known as pillars. They deal with market access; domestic support and export subsidies.

The goal for the Uruguay Round was to reduce support under each pillar. This was done with limited success. Reductions were made in each area but many loopholes in the agreement allowed countries to remain highly subsidized, market access gains were very limited and export subsidies were still causing major distortions so overall, little was accomplished.

In the Doha Round of negotiations a new framework agreement was reached in July 2004. It covered all three pillars of support. The framework called for substantial market access improvement for all products and stated that tariffs would be reduced by a tiered formula, deep cuts to domestic support would be implemented and there would be complete elimination of export subsidies. Negotiations to establish modalities, (specific numeric targets and associated rules) has been going on since October 2004.

A particular stumbling block to this process has been the Market Access pillar. Work in this area is going painfully slow. The issues are multifaceted and extremely complicated. One area in particular should be of great concern to everyone. It is the provision that allows Members to designate an “appropriate” number of tariff lines as “sensitive”. (Canada’s sensitive products consist of dairy, eggs, and poultry meat.) This would allow different reduction commitments to be placed on these products as compared with “non-sensitive” products. The sensitivity loophole is a serious flaw. Members would most likely designate as “sensitive” those products with higher tariffs, special safeguard provisions or with tariff rate quotas. These of course are the products for which the most gains would be realized from market access improvement!

Recommendations:

  • Eliminate or severely limit the number of “sensitive” tariff lines allowed by each country.
  • Push for Canada to lead by example and demand tariff reduction for all products and implementation of tariff caps.
  • Push for Canada to allow greater market access to our “sensitive products.”
  • Remind Canada that 90% of agriculture in Canada depends on trade or is directly associated with the export side and the market access issue relates directly to each and everyone’s bottom line. The idea of protecting 10% to the detriment of 90% is not only unacceptable it is also economically unsound reasoning.
  • Push for Canada not to align itself with protectionist countries or interfere with progress in the talks towards an ambitious outcome in market access.

Under the Domestic Support pillar the WTO requires all its member countries to notify producer support given each year to its farmers. (Page 5, Understanding WTO Notifications).  The support given to farmers is broken down into three boxes: Green Box, Blue Box, and Amber Box.

There are provisions for meaningful reductions in Total AMS (Aggregate Measurement of Support). AMS is the monetary measurement of the amount of trade distorting support that each country is allowed. The tiered formula and the harmonization approach in domestic support reduction will require the highest support providers to make the largest reductions. This will go a long ways to leveling the playing field for producers in Canada. (The major concern for farmers domestically is to make sure what is left to them in subsidies is fairly applied to each industry. One industry or one provincial program should not be allowed to monopolize the domestic support available to all areas of agriculture.)

Green Box:

In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion. They have to be government-funded (not by charging consumers higher prices) and must not involve price support. They tend to be programs that are not targeted at particular products, and include direct income supports for farmers that are not related to (are “decoupled” from) current production levels or prices. They also include environmental protection and regional development programs. (Most of Canada’s CAIS program could be housed here) Green Box AMS is calculated but not included in Total AMS.

Blue Box:

This is the “amber box with conditions” designed to reduce distortion. Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production. At present there are no limits on spending on blue box subsidies. The framework agreement limits the blue box to 5% of the value of production of all products for each country. (Canada has never used the Blue Box and has no programs to date that fit Blue Box criteria.) Blue Box AMS is calculated but not included in Total AMS.

Amber Box:

All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box. These include for example measures to support prices, or subsidies directly related to production quantities. The Amber Box is broken down into two parts: Product-Specific AMS and Non-Product-Specific AMS.

Product-Specific AMS: (This is the area where market price support to dairy and direct government support to individual products in Quebec’s ASRA program are notified. The framework proposal calls for an overall reduction in AMS plus product-specific caps. A low percentage/value of production cap on product-specific AMS would ensure that one sector of agriculture or one program does not receive the majority of the AMS. All support in the Amber Box is calculated and included in Total AMS unless it is excluded under the de minimis exemption.

De Minimis - policy support below a certain percentage of the value of production that is exempt from discipline. Currently, government support given a product-specific commodity is exempt from being included in current total AMS if it is below 5% of the total production value of that commodity. Here is an example: In 1999 the total value of production of wheat across Canada was notified at $3.2 billion dollars. Canada notified direct support to wheat of $61.3 million dollars but because the $61.3 million was only 2% of the dollar value of production, wheat was exempt from being included in total AMS under the de minimis exemption.

Non-Product-Specific AMS: The de minimis exemption is also extended to Non-Product-Specific AMS. In this category the total value of production is taken on all commodities combined. Here is an example: In 1999 the total value of production on all commodities across Canada was notified to the WTO at $28.6 billion dollars. Canada notified all non-product-specific AMS at $932.5 million dollars but because this amount was only 3% of the dollar value of production on all commodities combined across Canada, it was excluded from total AMS under the de minimis exemption.

If a WTO agreement is ratified the de minimis percentage is expected to be cut from 5% to 2.5% in both product–specific and non-product specific areas.

Recommendations:

  • Push Canada to support high overall cuts and a low percentage/value of production cap on product-specific AMS. Attempts by Canada to preserve the level of Market Price Support within AMS should not be at the cost of an ambitious outcome.
  • Push Canada to support the reduction of the de minimis exemption.
  • Encourage Canada to continue to push for strict criteria on blue box support, and stringent revision of the green box.
  • Demand that the CFA (Canadian Federation of Agriculture) stop insisting that they speak on behalf of Western Canada when they push their policy to the International Communities. Grains, oilseeds, cattle, pork, and vegetable producers need to be much more vocal on the international and national levels of the WTO trade talks. We need people from all industries in Geneva, Beijing and Hong Kong.

The third and final pillar is Export Subsidies. This is the most ambitious provision of the Doha Framework because it calls for the elimination of all export subsidies and subsidy elements of other forms of export competition including export credits, food aid and export state trading enterprises (STEs). The agreement would require Canada to abolish the statuary financial privileges of the Canadian Wheat Board in areas such as loan guarantees and underwriting of losses. The fate of the monopoly power of the CWB would be decided in the next phase. Canada has indicated that it will continue to defend the CWB but a large portion of industry has been urging Canada not to block the opportunity of getting export subsidies eliminated in this round and not to forfeit negotiating leverage in other areas because of its intransigence on the issue of the monopoly powers of the CWB.

Recommendations:

  • Push Canada to reaffirm its original negotiating position on the elimination of all forms of export subsidies in the fastest possible time.
  • Encourage Canada to neither waste negotiating energy nor jeopardize the elimination of all forms of export subsidies by intransigence on the monopoly power of the CWB.
  • Push Canada to be prepared to negotiate the export monopoly powers of the CWB in return for substantial commitments in reduction of domestic support and market access from our trading partners.