WASHINGTON, Sept. 16, 2015 - Farm program payments shouldn’t come anywhere close to exceeding the annual limit that the United States can spend on trade-distorting subsidies under World Trade Organization rules, according to a new analysis published in the economic research journal Choices.
However, the story could be very different if negotiators ever reach agreement in the ongoing Doha Round of talks. U.S. subsidies would bump up against or exceed the much tighter caps proposed in 2008 in the Doha Round. “There are any number of ways you could get in trouble,” said the report’s lead author, Pat Westhoff, director of the University of Missouri’s Food and Agricultural Policy Research Institute. USDA’s former chief economist, Joe Glauber, was a co-author. The next round of Doha Round discussions is set for Nairobi, Kenya, in December.
Under the earlier Uruguay Round agreement, the U.S. is supposed to spend no more than $19.1 billion a year in trade-distorting “amber box” farm payments, or AMS, for “aggregate measure of support.” The analysis estimates that amber box payments will top out at under $7.1 billion for 2014, fall to $5.3 billion and be no higher than $5.5 billion through 2018.
A big reason the numbers are that low is that the new Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments likely won’t count toward the limit because of the WTO’s so-called “de minimis’ rule. Under that provision, payments are excluded from the limit if they amount to less than 5 percent of the value of production, and ARC and PLC will fall into that category.
Another reason the amber box limit is no problem: The Obama administration last year changed the way it reports the amount of crop insurance premium subsidies. The annual totals will be smaller. The amber box includes crop insurance premium subsidies and marketing loan gains as well as the value of the sugar program to producers.
Under the Doha Round proposal, the amber box limit would be slashed to $7.6 billion, and the limit for the de minimis exemption would be cut from 5 percent to 2.5 percent. The change in the de minimis rule would mean that U.S. amber box payments would amount to about $7.4 billion a year, barely under the cap, the economists say.
Also problematic are proposed new rules for the so-called blue box. Under current rules, blue box payments are unlimited but programs don’t qualify unless they restrict production. Under the Doha proposal, that restriction would be gone, and U.S. blue box support would be capped at $4.8 billion a year. ARC and PLC payments could qualify for the blue box, and they could easily exceed the cap during years when commodity prices are relatively low, the economists say.
“Because of the shift to a much more extensive reliance on amber box subsidies and other less direct forms of income transfers to farmers, the 2014 farm bill has complicated trade negotiations by making compliance issues more problematic,” the economists wrote.
The Obama administration has a “strong interest” in wrapping up the Doha talks, but “we’re not interested in unilaterally making concessions, particularly on the side of domestic support,” USDA’s deputy under secretary for farm and foreign agricultural services, Alexis Taylor, told the House Agriculture Committee on Tuesday. Later, she told Agri-Pulse that the administration considers the cuts proposed in 2008 outdated, noting that some developing countries have since “emerged as large subsidizers as well. … We think the conversation is very different.”
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