U.S. Agricultural Policy and the WTO

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U.S. Agricultural Policy and the WTO

• Joseph W. Glauber, USDA
• J.W. Fanning Lecture
• Athens, Georgia
• January 14, 2005

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Outline

• US farm policy and the WTOa brief history
• The Boxes production and trade effects of
  domestic support
• Challenges Brazil cotton
• Doha and implications for the next farm bill

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Farm Policy and the WTO

• 1950s/1960s little interest in bringing
  agriculture into the GATT
• 1970s growth of export markets competition
  (CAP)
• 1980s loss of US markets launch of Uruguay
  Round (1986), 1985 and 1990 farm bills (reduced
  loan rates, marketing loans, flex acres, EEP)
• Completion of Uruguay Round (1994)
• 1996 farm bill Shift to decoupled direct
  payments (green box)

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Farm Policy and the WTO

• 1998-01 emergency legislation rise in amber
  box outlays
• 2002 farm bill budget surplus facilitates 80
  increase in ag outlays concern over WTO
  implications
• WTO cotton challenge
• Doha

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The Boxes

• Amber most trade distorting. Under URAA, total
  amber support reduced by 20 from 1986-88 levels
  to 19.1 billion. (example dairy price
  supports)
• Green decoupled support, minimally trade
  distorting. Green box support exempt from
  reduction. (example AMTA, direct payments)
• Blue Supply limiting program whose support is
  tied to historical (not actual) production.
  Exempt from reduction (example deficiency
  payments)

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Classifying Support
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Classifying Support Under the URAA
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Decoupled Payments

• Based on historical, not actual, production
• No requirement to plant crop to receive payment
• Potential wealth and risk effects, but
• Estimated production effects minimal (

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Decoupled Payments
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Base vs Planted Acres-2002
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Planted Acres as a Percent of Base Acres--2002
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Total U.S. Acreage Planted
Mil. ac.
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Changes in Planted Acres since 1990
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Amber Box Support

• Tied to actual, not historical, production
• Potentially most distortinginsulate producers
  from price movements
• US programs
• Price support (dairy, sugar)
• Marketing loans (grains, oilseeds, cotton,
  peanuts, pulses)
• Other (Step 2, storage subsidies)

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Marketing Loan OutlaysMajor Crops
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Commodity-Specific Amber Box Farm Support
Rising in 2004
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Commodity-specific Amber Box
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Noncommodity-Specific Amber Box Farm Support
Also Up in 2004
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Noncommodity-specific amber box
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Total Amber Box Farm Support Compared with AMS
limits
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US--subsidies on upland cotton

• Brazil
• Current US support levels exceed 1992 levels
  (Peace Clause)
• All US cotton subsidies contribute to price
  suppression (marketing loans, step 2, PFC, DP,
  MLA, CCP, crop insurance)
• GSM/Step 2 are prohibited export subsidies
• US
• Cotton subsidies tied to actual production are
  potentially distorting (marketing loans, Step 2)
  but distortion depends on price levels
• Subsidies that do not require production are
  minimally distorting (PFC, DP, MLA, CCP)
• Crop insurance subsidies are general and
  minimally distorting
• Under URAA, GSM exempt from export subsidy
  disciplines

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Panel decision

• For purposes of Peace Clause, direct payments are
  not green current levels exceed 1992 levels
• Price-based policies (marketing loans, Step 2,
  MLA, CCP) contribute to price suppression
• Non-price based policies (PFC, DP, crop
  insurance) do not
• GSM/Step 2 are prohibited export subsidies

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Direct Implications

• Panel ruling currently under Appeal appellate
  ruling likely in March
• If upheld, ruling on GSM and Step 2 would
  necessitate changes by July 1
• If upheld, ruling on serious prejudice may
  necessitate changes in US programs, but extent
  will likely be determined by compliance panel

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Long run implications ?

• Fruit and vegetable exclusion and green box
  status of direct payments implications for
  both EU and US
• Allocation of noncommodity specific payments to
  specific commodities (CCP, crop insurance)
• Future serious prejudice challenges?
• Effect on Doha negotiations

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Doha Proposed Domestic Support Disciplines

• Significant reduction in AMS
• Product-specific AMS capped
• Reduction in de minimis
• Modify and cap blue box
• Fixed area and yield
• Capped at 5 of total value of ag production w/
  further annual reductions (?)
• First year 20 cut in overall non-green support
  (AMS Blue de minimis)

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Reductions under Doha
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Implications

• Significant (50?) cuts in AMS reductions in
  loan rates/support prices
• Variability of marketing loan outlays
  probability of exceeding AMS limits is high at
  current loan rates
• Price support commodities (dairy and sugar)
• Large AMS (5-6 bil)
• Negligible CCC exposure

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Commodity Program Costs vs AMS1999-01
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Shift support to decoupled forms

• CCP TP DP Max (LR, P)
• Lowering LR increase CCP (new blue box)
• Blue box subject to 5 cap (10 billion)
• Maximum exposure for CCP under current farm bill
  7.5 billion
• Alternative offset LR decline with increase DP
  (green)

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Effect of lowering soybean loan rate
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Conclusions

• Farm policy will continue to be dominated by
  budget considerations, but policymakers will need
  to be mindful of how policies reflect WTO
  commitments.
• Under Doha Round, focus of domestic support
  negotiations should be less on the level of
  support and more on the type of support
• Goal should be to eliminate production-distorting
  support move to decoupled forms of support to
  achieve minimal impact on production