Massively Under-notified its Subsidies, Argues Paper
EU massively under-notified its subsidies, argues paper
Published in SUNS #7511 dated 25 January 2013
24 Jan (Kanaga Raja) -- The European Union has so massively under-notified
its agricultural subsidies to the World Trade Organisation (WTO) such
that it will not be able to comply with its proposal to reduce by
80% its allowed overall trade-distorting domestic support (OTDS),
a paper by the French non-governmental organisation (NGO) Solidarite
The paper dated 24 January and authored by Jacques Berthelot, comments
on the state of play in the Doha negotiations, focusing in particular
on the issue of domestic support in agriculture.
According to the Berthelot paper, the stalemate in the Doha negotiations
is largely due to agricultural issues, not only because it was the
main breaker of the negotiations in New Delhi in July 2008 but, "more
largely, because the DCs (developing countries) think that the developed
countries' demands on non-agricultural products market access (NAMA)
and services are disproportionate with the feasibility of their offers
The paper argues that the December 2008 draft modalities text on agriculture
(DMA) is full of inconsistencies with the Agreement on Agriculture
(AoA) and that the EU made massive under-notifications of its subsidies
so that it cannot comply with its proposals to cut by 80% its allowed
OTDS because it is lower than the level it has calculated whereas
its applied level is much higher than the level it has notified.
It notes that the allowed OTDS that the EU agreed to cut by 80% at
the end of the Doha Round implementation period is that of the base
period 1995-2000, which was the Uruguay Round (UR) implementation
On 22 May 2006, Canada circulated a report on "Agriculture domestic
support simulations" (JOB(06)/151) with this introduction: "Representatives
of Australia, Brazil, Canada, China, the European Communities, Egypt,
India, Japan, Kenya, Malaysia, Norway and the United States have undertaken
a data simulation exercise on various reduction options for the Total
AMS and the Base for the Overall Commitments, using information provided
by the European Communities, Japan and the United States. This effort
was based on assumptions and indicators agreed by these Members for
purposes of this statistical exercise alone. It was undertaken without
prejudice to the positions of the Members involved. These Members
would now like to share the results of this simulation exercise, including
the data, assumptions and results, with the WTO Membership as a whole".
The Berthelot paper said that from that date on most Members, the
media and NGOs have based their comments and negotiating positions
on these simulations, without taking care of their huge flaws.
According to Canada's simulations, endorsed by the EU and the WTO,
the EU's authorised OTDS (at that time it was the EU15) would be of
110.305 billion euros [67.159 for the Final Bound Total AMS (Aggregate
Measurement of Support on 30 June 2001) (FBTA) + 11.129 (product-specific
de minimis, PSdm) + 11.129 (non-product specific de minimis, NPSdm)
+ 20.888 (blue box, BB)] and its reduction by 80% would lower it to
22.061 billion euros at the end of the Doha Round (DR) implementation
However, says the Berthelot paper, this calculation contradicts the
AoA rules on two points: the allowed product specific de minimis (PSdm)
is not 5% of the value of the whole agricultural production (VOP)
and the EU feed subsidies conferred PS AMSs to all animal products.
Therefore, the authorised OTDS is only 90.496 billion euros and its
reduction by 80% would lower it to 18.099 billion euros at the end
of the DR implementation period.
The paper said that these OTDS data must be revised to take into account
the revised FBTA notified to the WTO at 72.244 billion euros for the
EU27 after the adhesion of the EU12 New Member States (NMS), but the
EU did not revise and notify the value of its total agricultural production
(VOP) of the EU27 for the years 1995 to 1997, by lack of data for
some NMS so that it could not revise the de minimis NPS AMS.
Berthelot, in his Solidarite paper, has however actualised these data
relying on FAOSTAT values of all agricultural products (VOP) which,
for the base period 1995-00, was 271.947 billion euros in the EU27,
so that, according to Canada's simulations endorsed by the EU, the
PSdm and NPSdm were each of 5% of that VOP value, i. e. 13.597 billion
As very few notifications of BB (Blue Box) payments were made by the
EU12 NMS in 1995-00 - only Estonia, Slovakia and Slovenia notified
BB payments, and only in 2000 for Estonia and Slovenia -, contrary
to the EU12, their applied BB was much lower than 5% of their VOP
so that their allowed BB is only of 5% of their average VOP of 35.316
billion euros in the base period, i. e. of 1.766 billion euros - so
that the EU27 allowed BB amounted to 22.654 billion euros and the
allowed EU27 OTDS was, on the lines of Canada's simulations, of 122.292
billion euros [72.244 (FBTA) + 13.597 (PSdm) + 13.597 (NPSdm) + 22.654
(BB)] and the 80% reduction gives an allowed OTDS of 24.418 billion
euros at the end of the DR implementation period.
The paper also argues that the PSdm support is not 5% of the value
of the whole agricultural production.
It cites paragraph 1 of the December 2008 draft modalities text on
agriculture (DMA) as stating: "The base level for reductions
in Overall Trade-Distorting Domestic Support (hereafter "Base
OTDS") shall be the sum of: (a) the Final Bound Total AMS specified
in Part IV of a Member's Schedule; plus; (b) for developed country
Members, 10 per cent of the average total value of agricultural production
in the 1995-2000 base period (this being composed of 5 per cent of
the average total value of production for product-specific and non-product-specific
According to the Berthelot paper, this statement contradicts paragraph
30 of the DMA on de minimis support confirming the AoA definition
of the PSdm: "The de minimis levels referred to in Article 6.4(a)
of the Uruguay Round Agreement on Agriculture for developed country
Members (i. e. 5 per cent of a Member's total value of production
of a basic agricultural product in the case of product-specific de
minimis and 5 per cent of the value of a Member's total agricultural
production in the case of non-product-specific de minimis) shall be
reduced by no less than 50 per cent effective on the first day of
the implementation period".
In other words, as soon as a product-specific (PS) coupled support
reaches 5% of the production value of a product, it loses its PSdm
for that product and gets a PS AMS which is added to the total applied
AMS, and the production value of that product is added to the production
value of all the products with PS AMSs.
The hidden reason for which Canada's simulations and the DMA violated
the AoA rule on the PSdm is that Japan up to 2009 (last notified year)
and the EU up to 1999-00 did not notify the production value of products
for which they calculated a PS AMS.
Therefore, they were unable to check if those PS AMSs were lower than
5% of the production value of those products during the base period
1995-00. It is only from 2000-01 that the EU notified the production
value of each product.
That is why paragraph 12 of the DMA proposed the new requirement that
"The data on value of production shall, for all Members undertaking
OTDS reduction commitments, be annexed to these modalities".
"The WTO Secretariat should have asked the EU and Japan to rectify
their notifications by adding the production values of all products,
which would not have been impossible since Solidarite was able to
assess them," said Berthelot.
According to Berthelot, the consequences of the false interpretation
of the AoA rule on the PSdm support are felt mainly when it is combined
with the refusal of the EU and the other developed Members to consider
feedstuffs as inputs.
The developed countries have refused to consider their subsidies to
feedstuffs (COPs: cereals, oilseeds, pulses) as inputs subsidies to
be notified in the PS AMS of the animal products (meats, eggs, dairy
products) fed by these COPs.
The EU notified in the PS AMS some feed subsidies such as to dry fodder
(374 million euros on average from 1995 to 2000 and 121.9 million
euros for 2009-10, the last notified year; the OECD database showing
that they were 141 million euros in 2010 and 97 million euros in 2011),
and to skimmed milk fed to calves (513 million euros on average from
1995 to 2000, and subsidies only eliminated since 2008), showing that
the EU is quite aware that feed subsidies are coupled subsidies.
These feed subsidies confer PS AMSs to all animal products which consumed
the feed, increasing the production value of products with PS AMS
and reducing consequently the production value of products without
Thus, the EU15 average production value of products with PS AMSs was
not 122.922 billion euros in the 1995-2000 base period but 201.323
billion euros, so that, given the 222.577 billion euros of the average
whole agricultural production value (VOP), the average value of products
without PS AMS collapsed to 21.253 billion euros and the allowed PSdm,
which is 5% of that value, fell at 1.063 billion euros.
Correlatively, the average blue box (BB) was reduced to 11.145 billion
euros instead of 20.888 billion euros because 9.743 billion euros
of direct payments to the EU COPs used as feed were transferred to
the PS AMSs of animal products having consumed these feedstuffs.
Therefore, the EU15 allowed OTDS for 1995-00 fell at 90.496 billion
euros [67.159 (FBTA) + 1.063 (PSdm) + 11.129 (NPSdm) + 11.145 (BB)]
instead of 110.305 billion euros according to Canada's simulations.
And the 80% reduction gives an allowed OTDS of 18.099 billion euros
at the end of the Doha Round (DR) implementation period instead of
22.061 billion euros.
The Berthelot Solidarite paper assessed the allowed EU27 OTDS in 1995-00.
Having availed already of the revised FBTA of 72.244 billion euros,
of the revised VOP of 271.947 billion euros, of the NPSdm of 13.597
billion euros and of the revised BB of 12.911 billion euros (11.145
for the EU15 + 1.766 for the EU12), the PSdm remains to be assessed.
For this, Solidarite said that there is need to find the PS AMS of
the EU12 animal products having consumed the share of COPs used as
feed. Here, a problem is faced in the lack of data in Eurostat for
the years 1995 to 1997 for which the value of meats, milk and eggs
is not available for all NMS, and FAOSTAT here cannot help.
So that, given that we avail of the EU12 VOP from 1995 to 2000, we
assume that the average distribution of the 34.204 billion euros in
the total production value of animals+milk+eggs for the years 1998
to 2000 between the three products holds also for the years 1995 to
Therefore, we get 16.008 billion euros of additional PS AMS of animal
products issued from the EU12 feed subsidies, to be added to the 201.323
billion euros of the EU15 PS AMS, making a total of 217.331 billion
So that, given the 271.947 billion euros of the EU27 VOP, the average
value of products without PS AMS fell at 54.616 billion euros and
the allowed PSdm, which is 5% of that value, fell at 2.731 billion
Finally, the allowed EU27 OTDS for the 1995-00 base period fell at
101.483 billion euros [72.244 (FBTA) + 2.731 (PSdm) + 13.597 (NPSdm)
+ 12.911 (BB)] instead of 110.305 billion euros according to Canada's
simulations for the EU15 only. And the 80% reduction gives an allowed
OTDS of 20.297 billion euros for the EU27 at the end of DR implementation
The paper also underscores that the EU's applied OTDS in the 1995-2000
period and up to now is considerably larger than the notifications
already made to the WTO. Indeed, on the one hand, the applied PS AMS
was much larger and, on the other hand, the Single Payment Scheme
(SPS) and the Single Area Payment Scheme (SAPS) since 2005 are not
fully decoupled and are therefore in the AMS.
As for the BB, the WTO framework agreement of 31 July 2004 decided
that it should be considered as a coupled payment. Besides, the EU
has hugely under-notified to the WTO its NPS AMS comparatively to
that notified to the OECD. Therefore, the fact that the remaining
BB payments and the PS AMSs continue to be transferred to the SPS
does not change the applied OTDS.
The EU15 applied PS AMS was on average of 60.973 billion euros in
the base period 1995-00, not 48.425 billion euros as notified. The
transfer of the BB going to COPs used as feedstuffs had the double
effect to reduce the BB and to increase the PS AMSs of the animal
products having consumed those feeds, and we got an average actual
PS AMS of 60.973 billion euros in the 1995-2000 period, instead of
the notified 48.425 billion euros.
The additional 12.548 billion euros came from: (1) on the one hand,
the PS AMSs of the animal products linked to the subsidies to the
feed integrated into these products: milk (4.078 billion euros), bovine
meat (2.630 billion euros), pig meat (2.522 billion euros), poultry
meat and eggs (1.358 billion euros); and (2) on the other hand, the
PS AMS conferred to oilseeds meals processed from the EU oilseeds
(800 million euros) and pulses (525 million euros), and the subsidies
to the fat content of milk (428 million euros) and to the skimmed
milk for casein (207 million euros), that the EU did not notify.
Taking into account the EU12 data, the EU27 total AMS of the 1995-00
base period was 61.766 billion euros, of which 61.282 billion euros
was for the PS AMS.
For 2009-10 (the last notified year for the EU27), to the notified
PS AMS of 8.764 billion euros we must add first the PS AMSs of the
animal products linked to the subsidies to the feed of EU27 origin
integrated into these products, for 13.733 billion euros in 2009 -
of which 11.690 billion euros is to energy feed (8.926 billion euros
in the EU15 and 2.764 billion euros in the EU12) and 2.043 billion
euros to protein feed (1.955 billion euros in the EU15 and 88 million
euros in the EU12) -, according to a report not yet published, which
makes a total of 22.497 billion euros of PS AMS.
On the 13.733 billion euros of feed subsidies, 12.084 billion euros
were decoupled (of which 9.479 billion euros of SPS and 2.605 billion
euros of SAPS) and 1.649 billion euros were coupled (of which 1.402
billion euros in the EU15 and 247 million euros of CNDP (complementary
national direct payments) in the EU12.
Any challenge at the WTO against the SPS (single payment scheme) and
the future BPS (basic payment scheme) is sure to put them in the amber
box (AMS) of coupled subsidies, said Solidarite, citing a number of
reasons for this.
The paper also found that the subsidies of non-product-specific AMS
were hugely under-notified. The main under-notifications are on subsidies
to farm investments, marketing and promotion, agricultural fuels and
irrigation. According to the AoA, all these subsidies are in the amber
box for the developed countries.
Based mostly on the EU notifications to OECD, the EU15 NPS AMS was
at least 7.924 billion euros on average in the base period 1995-00,
against a notified average of 528 million euros, and 11.976 billion
euros in the last notified year 2009-10.
The EU27 notified NPS AMS in 1995-00 was 1.031 billion euros and the
actual applied NPS AMS was 8.434 billion euros.
The paper found that the EU15 average applied OTDS in the base period
1995-00 was 80.077 billion euros instead of the notified 69.269 billion
euros. The EU27 applied OTDS was 81.442 billion euros against a notified
71.234 billion euros. The EU27 BB was not significantly different
from the EU15 BB as the EU12 average BB was of only 24.6 million euros.
The EU27 applied OTDS in 2009-10, the last notified year, was 70.665
billion euros. The EU27 production value of products with PS AMSs
rises from the notified 33.272 billion euros to 165.076 billion euros,
after addition of 82.36 billion euros for the production value of
animals plus 49.768 billion euros for the production value of milk
As the notified production value of all agricultural products (VOP)
was 302.611 billion euros, the value of products without PS AMS was
137.535 billion euros and the actual PSdm, which is 5% of that value,
was 6.877 billion euros.
The other OTDS components were: 46.377 billion euros for total AMS,
after addition to the notified 8.764 billion euros of 13.733 billion
euros of feed subsidies, 22.003 billion euros of SPS (after deduction
of 10.881 billion euros of feed subsidies from the notified 31.482
billion of SPS) and 1.877 billion euros of SAPS (after deduction of
2.605 billion euros of feed subsidies from the notified 4.482 billion
of SAPS); 12.087 billion euros for the NPS de minimis; and 5.324 billion
euros for the blue box.
If we compare the applied OTDS in 2009-10 with the EU commitments
reflected in the DMA (draft modalities on agriculture), we see that
the EU is not prepared to face such commitments, as the 2009-10 applied
OTDS is 3.5 times higher than the objective at the end of the DR implementation
period; it is 2.1 times higher for the total AMS; 78% higher for the
NPSdm; and 5 times higher for the PSdm, even if there is a small leeway
of 1.475 billion euros for the BB, the paper concluded.
(The full paper, with data tables, can be accessed at http://www.solidarite.asso.fr/IMG/pdf/Solidarite_s_comments_on_the_State_of_p