AoA Issues Series: Green Box Policies and the Environment
Utpal Vasavada, Steven Warmerdam, and Wesley Nimon
USDA, Economic Research Service and University of California, Berkeley
Policies aimed at reducing environmental degradation and conserving
natural resources can also, in some instances, alter production and
price levels, thereby distorting trade patterns. A sound evaluation
of the tradeoffs is needed to determine eligibility criteria for inclusion
in the World Trade Organization's (WTO's) green
box, a category of domestic support policies, such as environmental
and research programs, that are exempt from reduction commitments.
National governments can use the green box exemption to further protectionist
goals or to influence the terms of trade.
Background
A free market framework may not always be effective for achieving
environmental protection and natural resource conservation. For
instance, when the private benefits of conservation are small, farmers
and ranchers may not protect natural resources at socially desirable
levels, which can contribute to environmental degradation and unsustainable
natural resource use patterns. Market
failures such as this are unlikely to be self-correcting in
a private enterprise, free market economy. For this reason, the
responsibility to protect the environment and to conserve natural
resources falls within the domain of public intervention.
Natural resource conservation policies are those that preserve
natural assets such as timber and fish for future use by preventing
their overexploitation. Environmental policies, however, are typically
directed at curbing polluting activities. In practice, however,
the distinction is often blurred and a policy may have elements
of both. For example, the conservation reserve program (CRP) both
preserves productive farmland for future use and limits polluting
agricultural runoff into surface waters by taking environmentally
sensitive land out of production.
In the agricultural sector, environmental and natural resource
policies are directed at problems such as:
- Runoff of agricultural chemicals and of manure from livestock
facilities, which can pollute surface water;
- A loss of wetlands, which means a loss of the benefits they
provide: improving water quality, reducing soil erosion, conserving
surface water, improving subsurface moisture, contributing to
flood control, enhancing an area's natural beauty, and providing
habitat for migratory waterfowl and other wildlife;
- Soil erosion, which diminishes recreation activities, increases
water treatment costs and dredging of navigation channels, silts
up drainage and irrigation channels, and causes the sedimentation
of reservoirs;
- Improper management of land, which ultimately harms the environment
through sedimentation, pollution of surface waters, and loss of
highly productive and unique soil.
Selected Green Box Programs Affecting Agriculture
USDA-Administered Programs
- Environmental Quality Incentives Program—Through
use of technical assistance, education, cost-sharing, and
incentive payments, EQIP assists farmers and ranchers in
adopting management techniques that reduce nonpoint-source
surface and groundwater pollution. Fiscal 2000 appropriated
funding: US$174 million.
- Conservation Reserve Program—CRP
provides rental payments to agricultural producers who retire
environmentally sensitive cropland. Since 1987, annual erosion
has been reduced by one-fifth. Fiscal 2000 expenditures:
US$1.6 billion.
- Conservation Technical Assistance—CTA
provides technical assistance to farmers and ranchers who
implement soil and water conservation and water quality
improvement. Fiscal 2000 appropriated funding: US$568 million.
- Farmland Protection Program—FPP
allocates funds for purchase of conservation easements and
other types of interest in land with prime, unique, or other
highly productive soils. Fiscal 2000 expenditures were zero,
but the 2001 budget requested US$65 million.
- Wetland Reserve Program—WRP
assists landowners in returning farmed wetlands to their
original condition through easement payments and restoration
cost sharing. Fiscal 2000 appropriated funding: US$157 million.
- Emergency Conservation Program—ECP
provides financial assistance to farmers who conserve water
while recovering from natural disasters such as severe drought.
Fiscal 2000 appropriated funding: US$60 million.
EPA-Administered Programs
- Nonpoint Source Program—Established
by Section 319 of the Clean Water Act, NSP provides States
with program guidance, technical support, and limited funding
to establish nonpoint-source pollution management plans.
Fiscal 2000 operating plan budget: US$200 million
- Coastal Zone Management Act Reauthorization Amendments—Under
CZMARA, states must submit to EPA a coastal zone management
plan that implements management measures for nonpoint-source
pollution to restore and protect coastal waters.
- Wellhead Protection Program—Authorized
by the Safe Drinking Water Act, WPP protects ground water
supplies used as public drinking water from contamination
by agricultural chemicals, including pesticides and nutrients
(e.g., nitrogen). Fiscal 2000 operating plan budget: US$1.2
million.
State-Administered Programs
- Water Quality Improvement Programs—Some
44 States have passed laws or instituted programs to protect
water quality. States use a variety of approaches to address
water quality problems, including controls on inputs and
practices, controls on land use, economic incentives, and
education programs.
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The WTO recognizes the need for countries to protect their environment
and to conserve natural resources. Under the WTO regulations
set forth in the Agreement on Agriculture, member nations are required
to reduce domestic support levels. When trade and trade-related
aspects of domestic policy are determined to be small, the WTO allows
environmental and natural resource policies to be placed under the
green box exemption. The WTO stipulates the following conditions
for a policy to qualify for the green box exemption:
- must affect trade and production only minimally,
- must not support prices or increase consumer costs, and
- must be financed by the government
Green box environmental programs must limit subsidies to
the extra cost of complying, while green box resource retirement
programs must retire land for a minimum of 3 years and must not
link payments to prices or production that apply to land not retired.
U.S. environmental and natural resource programs are frequently
implemented through a Federal-State partnership.
Environmental and natural resource green box policies rely
on a mix of instruments such as cost sharing, technical assistance,
rental and easement payments, income safety nets, and conservation
research and development. In the United States, green box
expenditures on rental and easement payments have increased in relative
importance, while expenditures of cost sharing programs have declined.
Most rental payments are administered through the Conservation Reserve
Program (CRP) and are for land taken from production and turned
into protective cover. Through the EQIP, producers implementing
structural practices (e.g., animal waste management facilities,
terraces, and filterstrips) receive up to 75 percent of the projected
cost through cost sharing agreements with the Government or receive
incentive payments for adopting management practices for conservation
purposes.
Environmental and natural resource conservation policies can
affect production levels, prices, and patterns of trade.
If large enough, land retirement programs can drastically reduce
production for specific commodities. Excluding land not planted
for other reasons, 8.8 percent of cropland in the United States
was idled under the CRP in 2000. Although the CRP's specific aim
is to retire environmentally marginal cropland, it may generate
output effects. USDA's Economic Research Service has shown that
environmentally sensitive land might not be economically marginal
in terms of production potential. Green box programs such as the
EQIP can also affect costs through the introduction of more environmentally
benign technologies that might not have been adopted in the absence
of government cost-sharing programs. If new technologies are adopted
on a large scale, they can potentially affect production, prices,
and trade. Programs such as the CRP and EQIP are deemed to be nondistorting
in terms of their effects on trade, prices, and production, thereby
fulfilling the criteria for placement in the green box.
Unresolved Issues
How will the tradeoffs between environmental protection and
trade distortion be assessed? Decisions must be guided by
the economic costs and benefits of environmental and natural resource
policies. In practice, however, well-developed markets may not exist
for attributes of environmental quality, making it difficult to
assign monetary values to environmental quality changes within a
country. Also, environmental quality improvements and natural resource
conservation in one country may be valued by consumers in other
countries, further complicating the assignment of monetary values.
How will the increasing demand for environmental services
and protection be addressed? In the United States, public
opinion surveys over the past 25 years confirm that the public supports
increases in funding for environmental protection and natural resource
conservation. To meet these growing demands, emphasis on environmental
and natural resource policies is expected to increase. The transition
has already begun—from 1996 to
2000, U.S. funding committed to resource conservation programs increased
by US$51 million under the six USDA-administered programs, and the
2001 budget calls for an additional US$503 million for these programs.
It is unclear whether future U.S. policies chosen to reduce environmental
degradation and to conserve natural resources will be considered
green box by the WTO.
Should developing countries be treated in the same way as
developed countries? Developed countries typically spend
proportionally more funds on environmental and natural resource
policies than their less developed counterparts, reflecting both
funding opportunities and attitudes. Many of the environmental and
resource problems faced by developing countries are more severe.
Still at issue is whether less developed countries should be allowed
greater flexibility in domestic expenditures on environmental and
resource policy.
Once countries submit domestic policies supposedly falling
into the green box, how will the WTO decide which policies are legitimate?
Because certain environmental and natural resource conservation
green box policies allow for small changes in production, a country
may have an incentive to use these policies to increase its competitiveness
on the world market. Failure to adhere to most requirements of the
green box is fairly easy to detect, but the criteria that a policy
have only "minimal trade-distorting effects" is open to
interpretation. In some cases environmental and natural resource
policies are used to correct for pre-existing market failures (e.g.,
idling highly erodible land that would otherwise be used for production)
and their success requires substantially altering production patterns.
Typically, environmental and natural resource policies will affect
prices, production, and trade. An open question is whether placement
of such policies in the green box will be permitted.
Future discussion of the green box must tackle some of these issues.
Otherwise, some countries could use the green box exemption to further
a protectionist trade agenda or to manipulate the terms of trade.
For Additional Information, See:
Agriculture,
Trade, and the Environment: What are the Concerns? (Agricultural
Outlook, December 1996), 88KB
Other Papers in This AoA Issues Series:
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