There is almost no risk that the United States will exceed WTO limits on agricultural subsidies with the 2014 farm law, but the picture could be far different if Doha Round proposals are adopted, according to three senior economists. The Doha proposals, on the table since 2008, would tighten the limits worldwide on trade-distorting farm subsidies, write Pat Westhoff and Scott Gerlt, of the think tank FAPRI, and Joe Glauber of IFPRI, in Choice magazine. For the United States, the limit on so-called amber box supports would drop to $7.6 billion annually, from the current $19.1 billion. Allowances would be reduced for “de minimus” payments and a cap of $4.8 billion would be created for blue-box payments. In addition, a new “overall trade distorting support” (OTDS) limit would be capped for the United States at $14.5 billion.
Supports are treated as amber box if they are minimally trade-distorting. Subsidies can be classified as blue-box and exempt from reduction if they require farmers to limit production. Nations can exclude trade-distorting subsides from their amber box totals if they amount to less than 5 percent of the value of production.
With the lower de minimus threshold, some U.S. outlays would get reported in other categories, say the economists. One result would be that amber-box spending could average $7.4 billion a year, but with a 70-percent chance of exceeding the proposed limit in 2018. If the outlays are listed as blue-box expenditures, there’s a 53-percent chance of exceeding the proposed cap for 2016. There is also a greater than 50-percent chance of exceeding the proposed OTDS limit in 2016 because U.S. crop subsidies are expected to peak at about $7 billion in 2016 and decline through 2018.
U.S. grain and oilseed subsidies are estimated to average slightly more than $5 billion a year under the 2014 farm law, similar to the average cost of the 2008 law.
Under the 2014 farm law, U.S. crop supports are linked more closely to production than they were under its predecessor. Westhoff, Gerlt and Glauber say it “has complicated trade negotiations by making compliance issues more problematic, especially in the context of the (Doha) proposals for substantially lower limits on farm subsidies. Moreover, the domestic support programs embedded in the current farm bill are likely to receive considerably more scrutiny by trading partners if farm program outlays increase significantly,” such as during a prolonged period of low commodity prices. In that case, U.S. crop subsidies could be criticized as unfairly encouraging farm production “and arguably make the United States more vulnerable to potential WTO subsidy challenges.”