The Office of the U.S. Trade Representative says in a fact sheet released September 9 that important differences remain between the United States, the European Union (EU) and Japan on agricultural trade.

September 9, 2003

In recent years United States, European Union (EU), and Japanese farm policies have reduced trade-distorting support to their agricultural sectors, but important differences remain between them.

In 2002, U.S. farm support was 17.6 percent of the total value of agricultural production, compared to 36.5 percent in the EU and 59 percent in Japan.

OECD [Organization for Economic Cooperation and Development] Producer Support Estimates

Reliance on non-distorting green box payments [deemed to be minimally distorting] is much higher in the United States than in the EU. According to WTO [World Trade Organization] domestic support notifications from 1999 (the latest year available), 75 percent of agricultural support in the United States was in the "green box" category of non-trade-distorting support. A large share of U.S. green box is food stamps/food assistance. Green box support was only 23 percent for the EU, and trade-distorting "amber box" support was more than 50 percent.

In Japan, amber box support reported to the WTO declined from 1997 to 1998, from 54 to only 21 percent of total support, moving their trade-distorting support usage closer to that of the United States. This reduction occurred because of the elimination of certain elements of price support for rice in Japan. However, because of high tariffs and other barriers to trade, Japan's rice producers are very insulated from the open market.

Despite the move towards less trade-distorting support, levels of support in Japan per hectare are extreme -- Japan's $9,709 per hectare of agricultural support dwarfs that of the EU at $676, and the United States at $117.

Trade-Distorting Measures

Domestic Support

Amber box support for crops in the United States includes marketing loan benefits and loan deficiency payments. Because they do not serve as strict price floors, these programs do not distort markets as much as the EU's intervention price programs.

The EU also uses production and marketing quotas that strongly distort agricultural markets.

Japan continues to rely on price support programs for certain commodities, which are maintained by high and restrictive border measures.

Market Access

Both the EU and Japan rely on market-distorting border measures to control prices.

The EU's average agricultural tariff is 30 percent. Japan's average agricultural tariff is a little less than 50 percent, although the use of compound tariffs and temporary rates makes measurement difficult. The United States' average agricultural tariff is only 12 percent.

In agriculture, the EU relies on 142 megatariffs (tariffs greater than 100 percent), Japan has 73 megatariffs while the United States has 24.

Export Competition

The EU relies heavily on export subsidies to dispose of surplus production that drives down world prices. The EU spends more than $2 billion a year on export subsidies, accounting for 90 percent of all WTO-notified export subsidies. The United States spent less than $60 million in 2001, one thirty-fifth of the EU total.

Non- and Minimally Trade-Distorting Support

During the 1990s, all three countries have increased green box farm subsidies that are either non- or minimally trade-distorting, or blue box payments [production-limiting] that are partially decoupled from current production.

The 2002 Farm Bill uses direct payments based on historical production to ensure present production is not affected. The counter-cyclical payments in the 2002 Farm Bill are partially decoupled from current production. The U.S. also focuses substantial resources on conservation and environment programs, which do not distort trade but provide important environmental benefits.

Japan uses income stabilization programs that pay producers the difference between current market prices and a fixed reference price, based on historical production.

The EU uses compensatory payments, designed to replace price-supporting subsidies, with payments not tied to current production or prices.

Up until the recent CAP [Common Agricultural Policy] reform, most of the EU income support measures were linked in some way to current production or prices and were not included in the green box.

Of the three countries, the EU relies the most on blue box subsidies, although Japan has shifted a large share of previous amber support to the blue box.

The WTO "Boxes"

WTO rules divide domestic subsidy policies into three categories:

-- The "amber" box includes support creating an incentive for farmers to increase production or produce one crop over another. It includes price supports and input subsidies. These policies directly affect trade by encouraging overproduction. WTO members must stay beneath specific limits for the amount of support provided each year.

-- The "blue" box is composed of subsidies that have a production-distorting effect, but are exempt from WTO limits on trade-distorting support if they meet certain criteria. These policies, particularly if partially decoupled from production decisions, can be less trade distorting.

-- The "green" box encompasses subsidy policies with little or no effect on trade, such as conservation, environment, research, extension, decoupled direct payments, and food stamps. There are no quantitative limits on programs meeting the green box criteria.

NOTE: PSEs [producer subsidy equivalents] are a broad measure of agricultural support, capturing more than just trade-distorting support.