Yet certain aspects of both programs potentially are ambiguous or fall into "gray" zones concerning their compliance with WTO rules. This report is not a legal opinion, but describes both the CSP and CRP programs, the WTO Annex II (so-called Green Box) provisions that govern compliance, and the potential issues involved in evaluating the compliance status of the two programs. Conservation Security Program (CSP) Payments

The Conservation Security Program, authorized in the 2002 farm bill ( P.L. 107-171 ), is a voluntary program that provides financial and technical assistance to promote conservation and improvement of natural resources on tribal and private working lands within selected watersheds. In FY2006, USDA spent $259 million supporting 19,375 new and existing CSP contracts (4,400 new CSP contracts were added in FY2006) covering 15.8 million acres (an average outlay of about $16.40 per acre). Most CSP spending is for cost-share payments. If, however, CSP payments are made in the form of bonus or incentive payments that exceed the costs incurred or income forgone of implementing a particular conservation activity, then the "Green Box" compliance status of such payments could be called into question. Conservation Reserve Program (CRP) Land Use Issues

The Conservation Reserve Program, enacted in 1985, provides payments to farmers to take highly erodible or environmentally sensitive cropland out of production for ten years or more to conserve soil and water resources. It is the federal government's largest private land retirement program. In FY2006, CRP outlays totaled $1.8 billion and covered almost 37 million enrolled acres (this amounts to about $48.65 per acre on somewhat less than 10% of the nation's cropland). USDA has notified the WTO of CRP outlays for the years 1996 through 2001 as Green Box-compliant under paragraph 10 of Annex II, which refers to long-term resource retirement programs. Inclusion of CRP payments under paragraph 10 hinges on payments being used to retire land from marketable agricultural production for at least three years. Use of the land for agricultural production would potentially disqualify the land from Green Box eligibility for that particular year; and potentially for all years of a CRP contract if the productive activity is engaged in more frequently than once every four years. Section 2101 of the 2002 farm bill appears to have formalized the use of CRP land for harvesting hay and grazing during periods of drought and to offer a further possible exemption for harvesting of biomass or installation of wind turbines on CRP land by stating that a CRP participant shall agree to:
" (7) " not conduct any harvesting or grazing, nor otherwise make commercial use of the forage on land that is subject to the contract... except that the Secretary (of Agriculture) may permit, consistent with the conservation of soil, water quality, and wildlife habitat—
(A) managed harvesting and grazing (including harvesting of biomass), except that in permitting managed harvesting and grazing, the Secretary—
" (i) shall, in coordination with the State technical committee—
" (I) develop appropriate vegetation management requirements; and
" (II) identify periods during which harvesting and grazing under this paragraph may be conducted;
" (ii) may permit harvesting and grazing or other commercial use of the forage on the land that is subject to the contract in response to a drought or other emergency; and
" (iii) shall, in the case of routine managed harvesting or grazing or harvesting or grazing conducted in response to a drought or other emergency, reduce the rental payment otherwise payable under the contract by an amount commensurate with the economic value of the activity;
" (B) the installation of wind turbines, except that in permitting the installation of wind turbines, the Secretary shall determine the number and location of wind turbines that may be installed, taking into account—
" (i) the location, size, and other physical characteristics of the land;
" (ii) the extent to which the land contains wildlife and wildlife habitat; and
" (iii) the purposes of the conservation reserve program under this subchapter; ...
WTO rules (paragraph 10, Annex II, AA) allow for no exception to the eligibility requirement that the land be removed from marketable agricultural production. A potential alternative classification for use of CRP land for an agricultural production activity (e.g., harvesting hay, grazing, or biomass production) would be to reclassify the program activity from a long-term retirement program to an environmental program, where payments would be subject to the criteria of AA, Annex II, paragraph 12 as discussed under the CSP program.
Under the auspices of the Uruguay Round's Agreement on Agriculture (AA), members of the World Trade Organization (WTO) agreed to limit and reduce their most distortive domestic support subsidies. Several types of domestic subsidies were identified as causing minimal distortion to agricultural production and trade, as identified in Annex II (the so-called Green Box) of the AA, and were provided exemption from WTO disciplines. Potential "Green Box" policies include outlays for conservation activities such as the Conservation Security Program and long-term land retirement programs such as the Conservation Reserve Program. Yet, certain aspects of both programs potentially are ambiguous or fall into "gray" zones concerning their compliance with WTO rules. This report is not a legal opinion, but describes both the CSP and CRP programs, the WTO Annex II provisions that govern compliance, and the potential issues involved in evaluating the compliance status of the two programs.
The Conservation Security Program (CSP) makes payments to participating landowners who advance conservation and improvement of natural resources on tribal and private working lands. Payments are determined by the level (or tier) of participation, conservation activities completed, and acres enrolled. In FY2006, USDA spent $259 million supporting 19,375 CSP contracts covering 15.8 million acres. Federal outlays for CSP activities have yet to be notified to the WTO; however, it is likely that CSP payments will be notified as Green Box-compliant environmental program payments under paragraph 12 of Annex II. Inclusion under paragraph 12 hinges on the payments being limited to the cost of expenses incurred or income forgone in implementing conservation practices. CSP cost-share payments fit this requirement. However, other CSP payments either made in excess of costs incurred or income forgone, or made in the nature of bonus or incentive payments to induce participation, are more difficult to classify.
The Conservation Reserve Program (CRP) compensates producers for removing environmentally sensitive, privately owned land from production for 10 years or more to conserve soil and water resources. The CRP is the federal government's largest conservation and private land retirement program. In FY2006, CRP outlays totaled $1.8 billion and covered almost 37 million enrolled acres. CRP payments for the period 1996 through 2001 have been notified to the WTO as Green Box-compliant long-term resource retirement payments under paragraph 10 of Annex II. Inclusion under paragraph 10 hinges on the payments being used to retire land from marketable agricultural production for at least three years. Use of CRP land for agricultural production (e.g., cutting hay, grazing, or biomass production) potentially could disqualify the land from Green Box eligibility for that particular year; and potentially for all years of a long-term retirement contract if the productive activity is engaged in more frequently than once every four years. A potential alternative would be to reclassify the productive use of CRP land as a type of environmental program where payments would be subject to the criteria discussed under the CSP program. This report will be updated as events warrant.