Aggregate measure of support ams

What Is Aggregate Measure of Support (AMS)?

The Aggregate Measure of Support (AMS) is a calculation used within the framework of International Trade policy, specifically under the World Trade Organization (WTO) Agreement on Agriculture (AoA). It quantifies the total value of market-distorting Domestic Support provided by a government to its agricultural producers. The AMS serves as a key indicator to identify and limit agricultural subsidies that can distort trade by influencing production and prices in an economy.⁸⁷ Policies contributing to the AMS are often referred to as "amber box" measures due to their trade-distorting nature.⁸⁵, ⁸⁶

History and Origin

Prior to the 1990s, agricultural trade was largely excluded from the multilateral trade rules of the General Agreement on Tariffs and Trade (GATT).⁸⁴ This led to increasing use of subsidies, accumulation of agricultural surpluses, declining world prices, and escalating support costs. The impetus to bring agriculture into the GATT framework and reform international agricultural trade gained significant momentum during the Uruguay Round of multilateral trade negotiations, which spanned from 1986 to 1993 and led to the creation of the World Trade Organization (WTO).

A primary goal of the Uruguay Round was to discipline agricultural protection and reduce support programs that distort agricultural production and trade.⁸³ As part of this effort, the AoA was developed and came into force with the establishment of the WTO in 1995.⁸¹, ⁸² The AoA introduced commitments for member countries to limit and reduce their most trade-distorting domestic support subsidies, which became known as "amber box" subsidies, measured by the Aggregate Measure of Support (AMS).⁷⁹, ⁸⁰ The agreement required developed countries to reduce their total AMS by 20% from 1986-88 levels, while developing countries committed to a 13.3% reduction over an implementation period.⁷⁷, ⁷⁸ This marked a pivotal shift towards greater transparency and discipline in global agricultural trade.⁷⁶

Key Takeaways

• The Aggregate Measure of Support (AMS) is a monetary value representing government Domestic Support to agriculture that can distort trade.⁷⁵
• It is a central concept under the WTO's Agreement on Agriculture (AoA) for regulating agricultural subsidies.⁷³, ⁷⁴
• The AMS includes both product-specific and non-product-specific support measures, such as Market Price Support and certain input subsidies.⁷¹, ⁷²
• WTO members have commitments to reduce their total AMS, distinguishing it from "green box" and "blue box" subsidies which are exempt from reduction.⁶⁹, ⁷⁰
• The AMS helps monitor compliance with international trade agreements aimed at promoting fairer competition in agricultural markets.

Formula and Calculation

The Aggregate Measure of Support (AMS) is calculated by summing various forms of domestic support provided to agricultural producers. It generally comprises two main components: product-specific AMS and non-product-specific AMS.⁶⁷, ⁶⁸

The basic approach for calculating the product-specific AMS involves:

1. Market Price Support (MPS): This is the difference between an administered domestic price (e.g., a government procurement price) and a fixed external reference price (world market price from the 1986-88 base period), multiplied by the quantity of production eligible to receive the administered price.⁶⁴, ⁶⁵, ⁶⁶ If the domestic price is lower than the reference price, the MPS can be negative.⁶³
2. Non-exempt Direct Payments: These are direct payments to producers that are linked to production and are not exempt under "green box" or "blue box" criteria.⁶²
3. Other Non-exempt Subsidies: Any other subsidies not qualifying for exemption under Annex 2 of the Agreement on Agriculture (AoA).⁶¹

Non-product-specific AMS refers to the total level of support given to the agricultural sector as a whole, such as general subsidies on inputs like fertilizers, electricity, irrigation, and credit.⁵⁹, ⁶⁰

The overall formula can be conceptualized as:

$\text{Total AMS} = \sum (\text{Product-Specific AMS}) + \text{Non-Product-Specific AMS}$

where Product-Specific AMS for a given commodity might be:
$\text{Product-Specific AMS} = (\text{Administered Domestic Price} - \text{Fixed External Reference Price}) \times \text{Quantity of Production}$
plus non-exempt direct payments and other non-exempt product-specific support.⁵⁷, ⁵⁸

The base period for calculation of the initial AMS commitments under the Uruguay Round was 1986-88.⁵⁵, ⁵⁶

Interpreting the AMS

Interpreting the Aggregate Measure of Support (AMS) involves understanding its context within the WTO's framework for agricultural Domestic Support and its implications for global trade. A higher AMS figure for a country generally indicates a greater level of trade distortion caused by its agricultural policies. The WTO sets limits on the total AMS that member countries can provide.⁵³, ⁵⁴

For Developing Countries, the permitted level of AMS is capped at 10% of the value of their agricultural gross domestic product (GDP), while for Developed Countries, the limit is 5%.⁵² This allowed threshold is known as the "De Minimis" level of support.⁵¹ Support within these de minimis levels, or support categorized under the "Green Box" (non-trade-distorting policies like research, disaster relief) or "Blue Box" (production-limiting direct payments), is exempt from reduction commitments.⁴⁹, ⁵⁰

Therefore, when examining a country's AMS, analysts look not just at the monetary value, but also at its proportion relative to agricultural production and how it compares to the country's WTO commitments. A country exceeding its AMS commitments may face challenges or disputes within the World Trade Organization (WTO).

Hypothetical Example

Consider a hypothetical country, "Agriland," that produces a staple agricultural product, "Agri-Grain." To support its farmers, Agriland's government implements a policy where it guarantees a procurement price for Agri-Grain, buying any surplus at this price. This is a form of Market Price Support that falls under the AMS.

Let's assume the following:

• Agriland's administered domestic price for Agri-Grain: $200 per ton
• The fixed external reference price for Agri-Grain (from the 1986-88 base period): $150 per ton
• Quantity of Agri-Grain production eligible for support: 1,000,000 tons
• Agriland also provides a general input subsidy for agricultural electricity, amounting to $10 million annually, which is considered non-product-specific support.

To calculate the product-specific AMS for Agri-Grain:
$(\text{\$200/ton} - \text{\$150/ton}) \times \text{1,000,000 tons} = \text{\$50/ton} \times \text{1,000,000 tons} = \text{\$50,000,000}$

The total AMS for Agriland would be the sum of the product-specific AMS for Agri-Grain and the non-product-specific AMS (electricity subsidy):
$\text{Total AMS} = \text{\$50,000,000} + \text{\$10,000,000} = \text{\$60,000,000}$

If Agriland is a Developing Country and its agricultural GDP is, for example, $500 million, then its permitted de minimis level is 10% of $500 million, or $50 million. In this hypothetical scenario, Agriland's calculated AMS of $60 million exceeds its de minimis limit, meaning this level of support would be subject to reduction commitments under WTO rules.

Practical Applications

The Aggregate Measure of Support (AMS) is primarily applied in the context of International Trade negotiations and monitoring, particularly within the agricultural sector. Its practical applications include:

• WTO Compliance Monitoring: Member countries of the World Trade Organization (WTO) are required to notify their domestic support measures, including their total AMS, to the WTO's Committee on Agriculture.⁴⁷, ⁴⁸ This allows for the monitoring of compliance with agreed-upon reduction commitments on trade-distorting Domestic Support.
• Trade Dispute Resolution: If a country's AMS exceeds its commitments, it can become a point of contention and potentially lead to trade disputes between member states. For instance, some WTO nations have recently questioned India's farm input subsidies, flagging the issue during committee meetings.⁴⁶
• Policy Formulation: Governments use the AMS framework to design their agricultural policies in a way that aligns with their international obligations while still providing support to their farmers. This involves categorizing subsidies into "amber," "Green Box," and "Blue Box" to identify which measures count towards their AMS limits.⁴⁴, ⁴⁵
• Analytical Tool: Organizations like the Organisation for Economic Co-operation and Development (OECD) analyze agricultural support measures across countries, often distinguishing between different types of support, including those that would contribute to AMS, to provide insights into global agricultural policies.⁴², ⁴³ Such analyses inform policy dialogue at national and international levels.⁴¹
• Negotiating Future Agreements: The AMS figures and commitments serve as a baseline for future rounds of agricultural trade negotiations, as countries seek further reductions in trade distortion and fairer market access.⁴⁰
• Understanding Market Price Support and Export Subsidies: While AMS focuses on domestic support, its calculation and the broader AoA framework provide insights into how measures like market price support can indirectly function as subsidies and affect trade.

Limitations and Criticisms

Despite its role in disciplining agricultural Domestic Support, the Aggregate Measure of Support (AMS) has faced several limitations and criticisms:

• Fixed External Reference Price: A key criticism is the use of fixed external reference prices from the 1986-88 base period for calculating Market Price Support.³⁹ This can lead to an AMS calculation that does not accurately reflect current market conditions or the actual level of support, especially during periods of significant price fluctuations.³⁷, ³⁸
• Exemptions (Green and Blue Boxes): The existence of "Green Box" and "Blue Box" subsidies, which are exempt from AMS reduction commitments, means that a significant portion of agricultural support is not included in the AMS calculation.³⁵, ³⁶ Critics argue that some of these exempt measures may still have indirect trade-distorting effects, undermining the overall goal of reducing trade distortion.³⁴
• "De Minimis" Rule: The "De Minimis" exemption, which allows Developing Countries up to 10% and Developed Countries up to 5% of their total agricultural production value to be excluded from reduction commitments, can permit substantial levels of distorting support, particularly for large agricultural economies.³², ³³
• Self-Reporting and Data Consistency: WTO members self-report their AMS data, which can lead to difficulties in cross-country comparisons and questions regarding the consistency and transparency of the reported figures.³¹ Some countries have been accused of underreporting their subsidies.³⁰
• Impact on Developing Countries: While developing countries have higher de minimis levels, some argue that the overall framework of the Agreement on Agriculture (AoA) and the emphasis on AMS reductions disproportionately affect their ability to support domestic food production and rural livelihoods, especially when compared to the substantial historical support provided by developed nations.²⁸, ²⁹ Research has suggested that domestic support cuts following the Uruguay Round Agreement on Agriculture have been "rather disappointing" due to various exemptions.²⁷

Aggregate Measure of Support vs. Producer Support Estimate

While both the Aggregate Measure of Support (AMS) and the Producer Support Estimate (PSE) are indicators of government support to the agricultural sector, they differ in their scope and purpose. Both fall under the broader category of agricultural policy analysis in International Trade.

The main confusion often arises because both measure agricultural support, but the AMS has a more specific, regulatory function within WTO rules concerning trade distortion, whereas the Producer Support Estimate (PSE) offers a broader economic accounting of support.

FAQs

What types of support are included in the Aggregate Measure of Support?

The Aggregate Measure of Support (AMS) includes two main types of Domestic Support: product-specific support, which is given for individual agricultural commodities (e.g., rice, wheat), and non-product-specific support, which is provided to the agricultural sector as a whole (e.g., general subsidies on inputs like electricity or irrigation).⁶, ⁷, ⁸

Why are some agricultural subsidies exempt from AMS reduction commitments?

Certain agricultural subsidies are exempt from AMS reduction commitments because they are considered to have minimal or no trade distortion effects, or they are coupled with supply control programs. These are categorized into the "Green Box" (e.g., research, environmental programs, food aid) and the "Blue Box" (e.g., direct payments based on fixed areas or yields, provided certain conditions are met).⁴, ⁵

How does the AMS impact Developing Countries?

Under the World Trade Organization (WTO) Agreement on Agriculture (AoA), developing countries have different AMS commitments than developed countries. They are allowed a higher "De Minimis" level of support (10% of agricultural production value compared to 5% for developed countries) before their subsidies become subject to reduction.², ³ This provides them with more flexibility to support their agricultural sectors, particularly for food security and rural development.¹