Omnibus U.S. farm legislation—referred to as the farm bill—is renewed every five or six years. Farm income and commodity price support programs have been a part of U.S. farm legislation since the 1930s. Each successive farm bill usually involves some modification or replacement of existing farm programs. With respect to disciplines governing domestic agricultural support, two WTO agreements are paramount—the Agreement on Agriculture (AoA) and the Agreement on Subsidies and Countervailing Measures (SCM). As a result, designing farm programs that comply with WTO rules can avoid potential trade disputes. A key question that policymakers ask of virtually every new farm proposal is, how will it affect U.S. commitments under the WTO? The SCM details rules for determining when a subsidy is "prohibited" (as in the case of certain export and import-substitution subsidies) and when it is "actionable" (as in the case of certain domestic support policies that incentivize overproduction and result in significant market distortion—whether as lower market prices or altered trade patterns). The SCM evaluates the "market distortion" of a program or policy in terms of its measurable market effects on the international trade and/or market price for the affected commodity:
did the subsidy displace or impede the import of a like product into the subsidizing member's domestic market; did the subsidy displace or impede the exports of a like product by another WTO member country other than the subsidizing member; did the subsidy (via overproduction and resultant export of the surplus) result in significant price suppression, price undercutting, or lost sales in the relevant commodity's international market; and did the subsidy result in an increase in the world market share of the subsidizing member? Questions for Evaluating WTO Compliance of Domestic Farm Spending

The United States currently is committed, under the AoA, to spend no more than $19.1 billion per year on amber box trade-distorting support. The WTO's AoA procedures for classifying and counting trade-distorting support are somewhat complex; however, four questions might be asked to determine whether a particular farm measure will cause total U.S. domestic support to be above or below the $19.1 billion annual AMS limit. If it is a potentially trade-distorting "amber box" policy , can support still be excluded from the AMS calculation under the so-called 5% de minimis exemption (explained later in more detail) because total support is no more than 5% of either: a. the value of total annual production if the support is non-product specific, or b. the value of annual production of a particular commodity if the support is specific to that commodity? 4. If a program is fully compliant with the AoA rules and limits, does its support result in price or trade distortion in international markets that, in turn, cause adverse effects upon another WTO member? If so, then it may be subject to challenge under SCM rules. Question 1: Can This Measure Be Placed in the Green Box? Question 2: Can This Measure Be Placed in the Blue Box? Question 3: If Amber, Will Support Exceed 5% of Production Value? An additional consideration for WTO compliance—the SCM rules governing adverse market effects resulting from a domestic farm support program—comes into play when a domestic farm policy effect spills over into international markets. If a particular U.S. farm program is deemed to result in market distortion that adversely affects other WTO members—even if it is compliant with all AoA commitments and agreed-upon spending limits—then that program may be subject to challenge under the WTO dispute settlement procedures (Brazil's WTO case against U.S. cotton programs is a prime example of this).
Omnibus U.S. farm legislation—referred to as the farm bill—is renewed every five or six years. Farm income and commodity price support programs have been a part of U.S. farm bills since the 1930s. Each successive farm bill usually involves some modification or replacement of existing farm programs. A key question likely to be asked of every new farm proposal or program is how it will affect U.S. commitments under the World Trade Organization's (WTO's) Agreement on Agriculture (AoA) and its Agreement on Subsidies and Countervailing Measures (SCM).
The United States currently is committed, under the AoA, to spend no more than $19.1 billion annually on those domestic farm support programs most likely to distort trade—referred to as amber box programs and measured by the aggregate measure of support (AMS). The AoA spells out the rules for countries to determine whether their policies—for any given year—are potentially trade-distorting, and how to calculate the costs.
An additional consideration for WTO compliance—the SCM rules governing adverse market effects resulting from a farm program—comes into play when a domestic farm policy effect spills over into international markets. The SCM details rules for determining when a subsidy is "prohibited" (e.g., certain export- and import-substitution subsidies) and when it is "actionable" (e.g., certain domestic support policies that incentivize overproduction and result in significant market distortion—whether as lower market prices or altered trade patterns). Because the United States is a major producer, consumer, exporter, and/or importer of most major agricultural commodities, the SCM is relevant for most major U.S. agricultural products. As a result, if a particular U.S. farm program is deemed to result in market distortion that adversely affects other WTO members—even if it is within agreed-upon AoA spending limits—then that program may be subject to challenge under the WTO dispute settlement procedures.
Designing farm programs that comply with WTO rules can avoid potential trade disputes. Based on AoA and SCM rules, U.S. domestic agricultural support can be evaluated against five specific successive questions to determine how it is classified under the WTO rules, whether total support is within WTO limits, and whether a specific program fully complies with WTO rules.
1. Can a program's support outlays be excluded from the AMS total by being placed in the green box of minimally distorting programs? 2. Can a program's support outlays be excluded from the AMS total by being placed in the blue box of production-limiting programs? 3. If amber, will support be less than 5% of production value (either product-specific or non-product-specific) thus qualifying for the de minimis exclusion? 4. Does the total, remaining annual AMS exceed the $19.1 billion amber box limit? 5. Even if a program is found to be fully compliant with the AoA rules and limits, does its support result in price or trade distortion in international markets? If so, then it may be subject to challenge under SCM rules.