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Question

Q. With reference to the classification of subsidies at the World Trade Organisation (WTO), consider the following statements:

Which of the above given statements is /are incorrect?

A


3 only
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B

1 and 2 only
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C

1 and 3 only
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D

2 only
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Solution

The correct option is A

3 only
Explanation:

In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights: green (permitted), amber (slow down — i.e. need to be reduced), red (forbidden).

Statement 1 is correct: Nearly all domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, which is defined in Article 6 of the Agriculture Agreement as all domestic supports except those in the blue and green boxes. These include measures to support prices, or subsidies directly related to production quantities.

These supports are subject to limits: “de minimis” minimal supports are allowed (generally 5 % of agricultural production for developed countries, 10% for developing countries); 32 WTO members that had larger subsidies than the de minimis levels at the beginning of the post-Uruguay Round reform period are committed to reduce these subsidies

Statement 2 is correct: In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion. They have to be government-funded (not by charging consumers higher prices) and must not involve price support. They tend to be programmes that are not targeted at particular products, and include direct income support for farmers that are not related to (are “decoupled” from) current production levels or prices. They also include environmental protection and regional development programmes. “Green box” subsidies are therefore allowed without limits.

Statement 3 is incorrect: Blue Box subsidies are the “amber box with conditions” — conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production (details set out in Paragraph 5 of Article 6 of the Agriculture Agreement). There are no limits on spending on blue box subsidies as they tend to be non trade distorting.

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