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Corn+Soybean Digest

Understanding WTO Trade Agreements

In the past couple of decades, agriculture interests have frequently heard a new line of terminology: WTO, amber box and green box. There has been considerable discussion about these terms in the past, and we are likely to hear even more discussion about these terms in the next couple of years, as renewal of various trade agreements and the next farm bill are discussed by Congress and agriculture organizations. One of the main issues will likely be which government farm program paymentsare considered to be in the amber box,which payments are to be considered in the green box and what will be the new U.S. limit for allowable payments in the amber box.

World Trade Organization
The World Trade Organization (WTO) was set up to expand international trade by resolving trade disputes between countries and by lowering existing trade barriers and preventing new barriers. Prior to the WTO, these issues were handled by the General Agreement on Tariffs and Trades (GATT). The WTO is a powerful institution with a staff set up to enforce international trade policy. The agricultural segments of current WTO trade policy are established by a series of world trade discussions, such as the Uruguay Round Agreement on Agriculture (URAA) in the late 1990s.

During the URAA efforts, the U.S. made a commitment to expand the export opportunities of agricultural commodities and products through negotiated trade agreements. In order to get this accomplished, the U.S. was forced to put restrictions on how subsidies are paid to U.S. farmers. In return, other countries agreed to place limits on their farm subsidies. In the long run, most observers expect U.S. producers to gain from these agreements, because we are a "net exporter" of agricultural products. In the short run, the URAA policies placed limits on how congress and USDA can design farm programs to assist U.S. agricultural producers.

Understanding the colored boxes
The URAA classified agricultural subsidy programs according to their impact on the flow of International trade. These classifications are often referred to in terms of four colored boxes:

  • Green – Programs that have a minimal impacts on trade.
  • Amber – Programs that have important impacts on trade.
  • Blue – Programs that are explicitly allowed in this agreement.
  • Red – Programs and policies that are outlawed by this agreement.

The URAA placed no limits on green and blue box programs and payments, while programs and payments that are classified under the amber box have limitations placed on them. Many people like to use the analogy of a traffic stoplight to understand the URAA boxes.Countries can proceed (go) with all green and blue boxprograms at any level of funding. Countries may continue with amber boxfarm policies, as long as the expenditures do not exceed levels established by the URAA (proceed with caution). Programs in the red boxmust be discontinued (stop).

More color details

  • Blue– Many times these are "production-limiting" policies that basepayments on fixed yields and acreage. Payments must be limited to 85% of the base level of production. The target price and deficiency payment programs that existed in U.S. farm bills prior to 1996 were generally considered to be in the blue box.
  • Green– Generally, payments in the green boxcan not be linked to current agricultural production and/ or commodity prices and these policies must have a minimal effect on international trade. Most U.S. farm organizations try to target as many of the proposed government farm payments as possible into the green box.This will allow congress to fund these programs at any level they desire, without worrying about WTO restrictions.
  • Amber Limits in the amber boxpayments are established by a country's level of support over a base period. For example, countries that signed the 1996 URAA agreed to limit amber box spending to a level below their spending during the base period. Developed countries, such as the U.S., agreed to reduce amber boxmaximum limits by 20% from 1996 to 1999.There have been proposals in recent years that would reduce the U.S. limit for amber boxpayments to $12-13 billion/year.

Where do U.S. farm programs fit?
The actual colored box that various types of farm program payments fit into is usually not verified until there is a challenge from another country, followed by a ruling from the WTO. Ag experts feel that direct payments, and most conservation payments (CRP, CSP, etc.) would qualify as green box payments, while counter-cyclical payments (CCPs), ACRE payments, LDPs and crop insurance payments would be categorized as amber box payments.

The WTO policies could significantly impact the debate regarding the next farm bill, and for renewing some of the trade agreements with foreign countries. U.S. senators and house members must determine both the best policies to provide a safety net for U.S. agriculture producers in times of low commodity prices and reduced farm income, as well as designing farm policy that keeps the U.S. in compliance with WTO trade policies. Failure to comply with WTO trade policies could reduce the ability of the U.S. to continue to be a world leader in agricultural exports.

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected].

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