The World Trade Organization (WTO) compares the “boxes” it uses for classifying trade subsidies to traffic lights. When it comes to agricultural trade and commodity subsidies, however, it's not that simple.
While the “green box” does roughly translate into a green “go” signal, and amber could be considered a cautionary light, there is no red box. Instead, the WTO has invented a “blue box,” which is used for what the organization considers production-limiting programs.
To further complicate matters, you could consider yourself ticketed for running a red light if the amber box subsidies exceed pre-set reduction commitment levels. In addition, there are exemptions for many of the boxes, including those designed to help make developing countries more trade competitive.
In an effort to simplify these “boxes,” the following are brief descriptions of each box along with examples of its contents.
Agriculture-related subsidies that fit in WTO's green box are policies that are not restricted by the trade agreement because they are not considered trade distorting.
To qualify for the green box, WTO says a subsidy must not distort trade, or at most cause minimal distortion.
These green box subsidies must be government-funded — not by charging consumers higher prices, and they must not involve price support. They tend to be programs that are not directed at particular products, and they may include direct income supports for farmers that are decoupled from current production levels and/or prices, reports the Information and Media Relations Division of the World Trade Organization.
If you were to dump out the contents of this imaginary green box, you likely would find environmental and conservation programs, research funding, inspection programs, domestic food aid including food stamps, and disaster relief.
Agriculture's amber box, according to the WTO, is used for all domestic support measures considered to distort production and trade.
As a result, the trade agreement calls for 30 WTO members, including the United States, to commit to reducing their trade-distorting domestic supports that fall into the amber box. WTO members without these commitments are required to maintain their amber box supports to within five to 10 percent of their value of production.
What all of this means, according to Mississippi agricultural economist Darren Hudson, is that any support payments that are considered to be trade distorting and are subject to limitations and disciplines fall into the amber box.
U.S. agricultural subsidies listed as changing production and/or changing the flow of trade include commodity-specific market price supports, direct payments and input subsidies.
Included in the blue box are any support payments that are not subject to the amber box reduction agreement because they are direct payments under a production limiting program.
To be blue box policies, Hudson says, direct payments must be made on fixed areas and yields, or payments must be made on 85 percent or less of the base level of production. Livestock payments must be on a fixed number of head.
The blue box, WTO says, “is an exemption from the general rule that all subsidies linked to production must be reduced or kept within defined minimal levels. It covers payments directly linked to acreage or animal numbers, but under schemes which also limit production by imposing production quotas or requiring farmers to set aside part of their land.”
The WTO's office of information says opponents of the blue box want it eliminated because the payments are only partly decoupled from production, or they want an agreement in place to reduce the use of these subsidies. “Others say the blue box is an important tool for supporting and reforming agriculture, and for achieving certain ‘non-trade' objectives, and argue that it should not be restricted as it distorts trade less than other types of support.”