By David Blandford

The impact of domestic support on trade is likely to become an increasingly important issue in the WTO negotiations on agriculture. Domestic support expenditures are increasing and existing disciplines on forms and levels of support are weak. While a shift from market price support to output subsidies should be less trade distorting, such support may not be minimally distorting as required under the so-called “green-box” criteria. Proposals submitted by WTO members could further expand permissible support measures and weaken disciplines on their use. Clearer policy criteria and stronger disciplines are needed in order to avoid future trade disputes on agricultural support.

The first part of this paper describes how domestic support was treated in the Uruguay Round Agreement on Agriculture (URAA). A simple analytical approach is used to explore how some of the major forms of domestic support can cause trade distortions. The relationship between domestic support policies and trade policies is also discussed. This is followed by an assessment of the impact of the URAA on levels of domestic support, and a review of the proposals made thus far by World Trade Organization (WTO) members on how support should be handled in the current round of agricultural trade negotiations. Issues associated with the payments currently permitted under the URAA are explored, in particular the links between payments and production decisions. Finally, some suggestions are made on how progress can be made in dealing with domestic support in the negotiations.

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