Green Box Subsidies in Agriculture: Worldwide Experiences for Policymakers

Introduction:
Government policies are a major driver of food production and consumption patterns, both locally and globally. In developed countries, government subsidies have stimulated overproduction, while imports of politically sensitive products remain heavily protected using tariffs and other measures. Such policies have, in turn, undermined developing countries’ ability to promote rural development and develop their export sectors. The reform of the global agriculture trading system initiated during the Uruguay Round attempts to correct these inefficiencies by requiring heavily subsidizing countries to decrease their level of support over time. However, the round also established a special category of subsidies that are exempt from reduction commitments. International rules on domestic support include a reduction in all payments in the Amber Box, whereas those in the Green Box are exempt from the reduction commitment. According to the Agreement on Agriculture of WTO members, green box subsidies should not distort production or trade, or at most cause minimal distortions. Agra-environment measures are currently the main instrument for the integration of environmental goals into the Common Agricultural Policy (CAP) and for meeting society's demand for environmental outcomes provided by agriculture. Agra-Environment Payments are part of the green box programs and the main tool to enhance the positive side effects of agriculture on the environment. The main purpose of this study is to examine the dimensions of green box subsidies, practical measures, and related policies, and compare the trend of change between developed and developing countries. Efforts have also been made to examine the extent of Agra-environmental measures in different countries, the effectiveness of these payments, and the overall effects on agricultural production and trade. By reviewing the actions taken by other countries in this regard, it is possible to draw suggestions for improving policy measures in this area.
 
Materials and methods:
This research is descriptive-explanatory based on cross-sectional and time-series data. The research method used in this article is critical realism. Critical realism claims that it can lead us to a deeper understanding of phenomena and their generative mechanisms through stratified ontology, which considers reality in three empirical, actual, and real layers. In this paradigm, by delving into reality step by step, the veil is lifted from the hidden and dormant aspects of the phenomena, allowing for a more profound and enhanced comprehension of them. To conduct the research, through a systematic literature review in several specialized scientific-information databases, related articles and reports were identified. The obtained information content was then categorized and ranked on three axes as follows: a) box shifting in the European Union, the United States, and many developed countries. b) the available evidence of the effects of the production and trade distortions of green box subsidies. c) Agra-environmental measures carried out in different countries. Since in developing countries, agra-environmental payments are very rare, most of them are mandatory, and the amounts of compensation payments proposed by governments are insignificant, the current research is focused on developed countries.
Findings:
Following the AOA, there has been a significant reduction in subsidies under the Amber Box and Blue Box in the developed countries. However, this decline has been more than compensated for by substantial increases in GB domestic subsidies following extensive ‘box shifting’ of subsidies. In the EU, domestic support in the green box increased from €21.92 billion in 1999 to €68.52 billion in 2020. Similarly, in the US, green box subsidies increased from €55 billion in 2000 to €160 billion in 2020. The research findings indicate that developed countries have dramatically increased their green box support, while in developing countries, paid subsidies as a percentage of agricultural GDP are very low. Evidence also shows that, despite the allegations made, subsidies paid by developed countries have led to significant production and trade-distortion. These subsidies have been associated with influencing producers' decisions by reducing production costs, increasing wealth, reducing investment risk, and creating domestic demand for their products. It is well established in the theoretical literature that the channels through which the decoupled payments under the green box can affect production are (a) risk effects; (b) land price effects; (c) credit effects; (d) labor participation effects; and (e) expectations effects. Literature provides sufficient evidence of the favorable impact of GB subsidies on the production and competitiveness of developed countries. Furthermore, impacts from agra-environmental payment programs in regions such as the US and the EU could be negative for farmers in developing countries, with cumulative effects in the long term, creating a competitive imbalance between the two worlds once more.
 
Discussion and Conclusion:
The above results indicate that GB subsidies have increased agricultural production in and exports in developed countries, and thereby put developing countries and other efficient producers at a disadvantage. Although developed countries have over the years attempted to decouple their domestic support in GB from production, they have increasingly coupled it with producers’ behavior. Box shifting in developed countries has substantially increased the amount of GB subsidies. The sheer volume and nature of subsidies provided by some developed countries, in particular the EU countries and the USA, have led to significant production and trade distortions. Since the green box subsidies were allowed to be retained and no maximum limit was imposed on them, they can easily be abused and would be a tempting option to canalize subsidies. The conclusion is that any WTO activity must be consistent with its principles, such as predictability, transparency, and non-discrimination. There is an urgent need to bring GB subsidies under international disciplines. The criteria and operation of the green box, including environmental measures, definitely need a major overhaul and clarification. The goal is to determine a specific set of rules so that all countries have the same understanding of these rules and can survive within them. Some of the broad principles that can be followed include: identifying an upper bound for the extent of subsidies that can be provided by developed countries under the GB; allowing direct payments only in cases of natural disasters and/or where production loss has otherwise been above a threshold level. Also strengthening the review mechanism.