Understanding WTO Notifications on Domestic Support

By Lynda Swanson

The time has come for farmers to educate themselves on how their government is handling and reporting domestic support payments at home and at the WTO. The issues are complicated but farmers have to understand the basics of how domestic support calculations are made. The following article will explain as simply as possible where federal and provincial transfers to agriculture actually end up. The federal government is required to give yearly notification to the WTO on all domestic support given to Canadian farmers.

The Uruguay Round of international trade negotiations of the General Agreement on Tariffs and Trade (GATT) was completed in 1994 and implemented in 1995. The Monetary Measurement of the amount of trade distorting support that each country is allowed is called the Aggregate Measurement of Support (AMS). Canada’s commitment level was taken on the basis of a Base Total AMS using the base period of 1986-1988 when Canada’s monetary commitment to agriculture was the highest. The negotiations stated that a developed country member was committed to reducing its total AMS 20% over a six-year period and then the commitment would remain at 80% of the base total AMS after that. This worked out for Canada to be $5.1 billion dollars in 1995 and then after allowing for 6 years of gradual decline, to hold steady at $4.3 billion. The $4.3 billion dollars is our ceiling as of 2004. No country can exceed its commitment level.

Canada’s calculations of Current Total AMS for 1999 is as follows:

Here is the breakdown of the Notifications:

1. Exempt “green box” support is calculated but not included in current total AMS. Research, pest and disease control, training services, extension, inspection, marketing, and promotional services, infrastructure and general services, domestic food aid, income insurance and income safety-net programs such as AIDA, CFIP, FIDP etc. are some of the “green box” programs exempt from the reduction commitment. In the future some areas of CAIS may qualify for this category. (The numbers in my attached spreadsheets are taken directly out of Canada’s Notification to the WTO on Domestic Support to Agriculture for 1999.)

If you study the attached Spreadsheet #1 called “Green Box” Support you will see that out of the total $1.7 billion dollars spent by both the federal and provincial governments, only $430 million actually provides revenue-enhancing support to farmers. Revenue enhancing support to farmers makes up only 25% of “Green Box” dollars.

2. Product-Specific AMS is calculated on each individual commodity. (Support to Quebec’s ASRA program falls under these calculations.) The attached spreadsheet #2 called Product-Specific AMS shows domestic support given individual commodities.  In 1999, total product-specific AMS added up to $1,108,200,000. Of this amount Quebec’s ASRA program accounted for $377,700,000 which works out to 34% of the total product-specific AMS notified. The dairy subsidy and market support for butter and skim milk powder amounted to $531,600,000 which works out to 48% of the total product-specific AMS notified. When you add the two together they make up $909,300,000 which works out to 82% of the total product-specific AMS notified. This should start to give readers an indication of where the majority of support to agriculture is going.

Supply-management makes up about 10% of the total number of farms across Canada and it accounts for (on average over the five years that Canada has notified to the WTO) 62% of the total Product-Specific AMS.

% of Farms in Canada involved in Supply-Management

The province of Quebec has only 13% of the total number of farms & 5% of the acres across Canada but Quebec’s ASRA program accounts for (on average over the five years that Canada has notified to the WTO) 25% of the total Product-Specific AMS.

Number of Farms & # of Acres for Quebec

Source: Statistics Canada

The last three columns in spreadsheet #2 contain:

• Total Value of Production of each commodity
• Current Total AMS as a percentage of the Value of Production
• The de minimis exemption when it applies

These last three columns pertain to the following paragraph (C).

3. This calculation subtracts Product-Specific AMS on any commodity excluded as de minimis. The de minimis exemption is the “farmers friend”. This is an extremely important term that describes policy support below a certain percentage of the value of production that is exempt from discipline. Simply put, this means that 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. See attached spreadsheet #2. This exemption could be a way of beefing up provincial programs without penalty and our provincial governments (with the exception of Quebec) are not taking advantage of it.
    
4. Non-Product-Specific AMS is calculated on programs such as Crop Insurance, NISA, cost shared programs and most provincial programs. 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 total value of production on all commodities combined across Canada it was excluded from total AMS under the de minimis exemption. What this means is that Canada had the option of beefing up its crop insurance program or other cost shared programs another $516 million dollars without it being included in total AMS. Spreadsheet #3 shows the programs that are considered non-product-specific.

Canada notifies very little of the market price support dollars given to supply-managed areas of agriculture.

OECD Producer Support Estimate (PSE) for Canada’s Supply-Management
versus Canada’s Notifications
On Producer Support for Supply-Management
($ Millions)

The Organization for Economic Co-operation and Development (OECD) is a forum where the governments of 30 market democracies work together to address the economic, social, environmental and governance challenges of the globalized world economy. Canada is a member of the OECD. The Organization provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. For more than 40 years, the OECD has been one of the world’s largest and most reliable sources of comparable statistical, economic and social data. Much of the research and analysis is published. The OECD producer support estimate (PSE) measures market price support in all cases where domestic price is maintained higher than the border price with the help of tariffs (eg. poultry meat, eggs & all milk), not just when an administered price is applied (as in the case of butter & skim milk powder).

Canada notifies market price support given to butter & skim milk powder and the direct dairy subsidy given to farmers but market price support for fluid milk, chicken, turkey & eggs is suspiciously absent. In 1999 only $440 million was notified.

In market price support the calculation of AMS relies on the estimation of a price gap, which is the difference between the “administered price” and an “external reference price”. As the “administered price” is set by the domestic government, it can be abolished and the AMS calculation disappears. This is what has happened to fluid milk. It is also what has happened to eggs and poultry meat. Canada has used this loophole to exempt AMS calculations for most of the supply-managed sectors. Canada is unfortunately not the only country to use this loophole. How can any meaningful outcome be achieved worldwide in reduction of domestic support if this issue is not addressed? Support that is not notified can not be disciplined!  To compound the problem, some of the products benefiting from this loophole in the domestic support pillar are listed as “sensitive” by their governments and are subject to less stringent rules than “non-sensitive” products under the market access pillar. An ambitious outcome to the WTO talks is unlikely if these issues are not addressed.

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