The elements of a new agreement relating to domestic support for agriculture are set out in the WTO Framework document of July 2004. This introduces the concept of the Overall Trade Distorting Support (OTDS), which is to be disciplined and subject to reduction. In addition, some of the individual components of the OTDS will be subject to minimum required reductions and other elements will be capped. The caps and reduction percentages will define each country's future "entitlement" to Amber and Blue Box support. A base period OTDS will be calculated as the sum of the current bound Total Aggregate Measure of Support (TAMS), resulting from the Uruguay Round Agreement, plus an allowance for product specific and non-product specific de minimis, plus an additional allowance for Blue Box support. The latter three elements will be defined as a percentage of the total value of agricultural production in the base period. There will also be caps on the product specific AMS. Information from the Framework document and the Harbinson modalities are combined with data from notifications to the WTO to examine the implications of the overall reductions in the OTDS and its components for a selection of countries -- Canada, the European Union, Japan, Korea, Norway and the United States. Detailed analysis reveals that the new approach has the potential to increase significantly the constraints on support entitlements for WTO countries. The implications of the new rules are complex, and may create new opportunities for strategic behavior on the part of individual countries. The likelihood that the approach will actually constrain domestic support policies in WTO countries will vary considerably, depending on a country's future composition of support and how this will relate to support entitlement at the end of the implementation period. The analysis indicates that significant reduction percentages of 60 percent or more in the permitted OTDS and the Total AMS binding will be required to create the need for significant reform of existing agricultural policies in many countries. In addition, the rules for calculating the AMS may need to be strengthened in order to prevent countries from making strategic changes in domestic policies that would allow them to avoid effective reductions in that component of support. Many developed countries have increased the use of Green Box payments in recent years. The Framework proposes a tightening of the rules for inclusion. Changes in some income support measures will be required as a result of the Cotton Case ruling in the WTO, but important issues relate to the eligibility of other support measures and environmental payments. A formal WTO review process would seem to be desirable in order to determine whether any particular payment actually qualifies for inclusion in the Green Box. Developing countries will face less stringent restrictions and reduction requirements for domestic support in a new agreement, and will have a longer period in which to phase in reductions in their support entitlements. Whether all developing countries should be treated equally in this regard is an important question. Large middle income developing countries that wish to increase the support they provide to agriculture will have some flexibility to do so under the new rules, and this could create problems for the trading system in the future.
