IFPRI Discussion Paper 00812
Norway: Shadow WTO Agricultural Domestic
Markets, Trade and Institutions Division
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
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Ivar Gaasland, Institute for Research in Economics and Business Administration
Roberto Garcia, Norwegian University of Life Sciences
Associate Professor, Institutt for Økonomi og Ressursforvaltning
Erling Vårdal, University of Bergen
Professor, Institutt for Økonomi
1 Effective January 2007, the Discussion Paper series within each division and the Director General’s Office of IFPRI
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Conference Program vi
1. Introduction 1
2. Domestic Support: WTO Commitments, Compliancy and Composition of Support 3
3. Policy Reform Scenarios and Simulation Analysis 12
4. Conclusions 17
List of Tables
1. Overview of domestic support and current total AMS relative to AMS bindings 4
2. Principal programs notified under the amber box, or AMS, 1995-2007 5
3. Principal programs notified and calculated under the green box, 1995-2007 7
5. Support levels under different interpretations of WTO-consistency, 1995-2007 10
6. Reduction commitments according to the latest revised draft modalities for agriculture 12
7. Model results under the base solution and reduction commitment scenarios 15
List of Figures
1. Domestic agricultural support and AMS in Norway, 1995-2008 6
2. Our interpretation of the URAA compared to the Government’s interpretation 11
This Discussion Paper provides a revised version of a paper presented at the conference Improving WTO
Transparency: Shadow Domestic Support Notifications held at IFPRI, Washington, D.C., on March 14,
2008. Helpful comments were received at the meeting and incorporated into this version.
The authors would like to thank Rune Mjørlund, SNF, for providing indispensable assistance in
struggling with detailed data on the Norwegian support system for farmers. We are indebted to Klaus
Mittenzwei, NILF, for clarifying issues on Norwegian support arrangements. Ivar Gaasland gratefully
acknowledges financial support from the Research Council of Norway’s programme “Area and Nature-
based Industrial Development (AREAL).”
The authors acknowledge the support of IFPRI through the project Foundation Analysis for
Agricultural Trade Reform. Financial support to IFPRI for this project from The William and Flora
Hewlett Foundation (Grant 2007-9399) is gratefully acknowledged. The project and conference are
activities of IFPRI's Markets, Trade, and Institutions Division. Antoine Bouet and David Orden are the
IFPRI project leaders and Ann Tutwiler is project liaison for the Hewlett Foundation. Support of the
Division Director, Maximo Torero, is appreciated. Shirley Raymundo provided administrative and
technical support for the conference and preparation of the papers.
Improving WTO Transparency:
Shadow Domestic Support Notifications
Measurement Issues and Analysis for Eight Countries—
European Union, United States, Japan, Norway, Brazil, China, India and the Philippines
Friday, March 14
9:00-10:00 An Overview of WTO Domestic Support Notifications
Discussion Opener: Lars Brink
Tim Josling and Alan Swinbank
Discussion Opener: Erling Vårdal
David Blandford and David Orden
Discussion Opener: Munisamy Gopinath
André Nassar and Diego Ures
Discussion Opener (both papers): Caesar Cororaton
Discussion Opener (both papers): Yoshihisa Godo
Saturday, March 15
Discussion Opener (both papers): André Nassar
11:15-12:30 Wrap Up
As a result of the Uruguay round, Norway was committed to reducing its domestic support for agriculture,
in particular its aggregate measurement of support (AMS), which was to be reduced by 20 percent. We
show that Norway has complied with its WTO commitments. However, Norway’s AMS and total support
have remained stable during 1995-2007, implying that the reduction commitment amounted to no more
than reducing the “water under” an inflated AMS bound rate. Thus, the reductions in domestic support
have neither affected agricultural policy nor the programs implemented. In fact, Norway has even
managed to expand agricultural output relative to the 1986-1988 base upon which agricultural reforms are
measured under the Uruguay round agricultural agreement.
We analyze the implications of the proposed modalities for reduction commitments on agriculture
under the Doha round of WTO negotiations in the Norwegian context. Simulation modeling is conducted
to examine the consequences for the Norwegian agricultural sector based on the proposed reduction
commitment scenarios. We find that Norway will be able to sustain a high level of agricultural support,
thereby maintaining its current agricultural activity and production levels. To achieve this, however,
Norway will have to change the composition of domestic support from market price support, paid for by
consumers in the form of higher prices, to budgetary support. Market price support will be lower because
of lower levels of tariff protection, but this can be offset by exploiting the scope for green box support.
Keywords: Norwegian agricultural policy, WTO Doha Round, notification of domestic support,
AMS support, administered prices, WTO compliance
Norway is a well-developed country in northwestern Europe. As in other developed countries, Norway
supports and protects its agricultural sector. The agricultural sector’s contribution to GDP is less than one
percent and, together with forestry, agriculture accounts for less than three percent of employment, as
measured in standard man-years of labor. Production is concentrated along a narrow range of activities,
primarily dairy and livestock production (WTO 2004; NILF 2007).
Norwegian agricultural policy is aimed at maintaining high levels of agricultural activity in all
parts of the country, implying that self-sufficiency is a goal among other non-production-related
objectives. Agricultural policy has four principal objectives, ensuring that small-scale farming contributes
to (1) rural development, employment and settlement; (2) supply of environmental public goods, linked to
the preservation of the rural landscape; (3) long-term food security; and (4) consumer welfare linked to
production methods that improve the health of animals and plants (WTO 2001a; NILF 2007).
To meet these objectives, a number of agricultural policy instruments are employed, including
border protection to support the market price (such as tariff-based import regulations) and budgetary
domestic support (including outlays supporting prices, income support, investment and indirect support
through research, education and extension services). Agricultural products not produced domestically are
generally subject to low or zero tariffs; however, products produced in Norway are protected by relatively
high tariffs as a means of supporting income (WTO 2001a). According to the WTO (2004), the applied
average tariff on all agricultural products under Chapter 2 of the harmonized system in 2004 was 38
percent. However, 44 percent of the bound tariff rates (i.e., the most-favored nation [MFN] rates) under
agricultural line items have prohibitive tariffs that exceed 100 percent, mostly in the range of 100-400
percent, while 23 percent of the lines were duty-free (WTO 2001b). In addition, Norway has the highest
number of tariff-rate quotas (TRQs) of any WTO member country: 232 lines relative to 1,425 total TRQs
by all members. The TRQs cover products for which Norway has an import-competing sector. The in-
quota tariff rates used to administer the TRQs also exceed 100 percent. This regulatory regime over
imports has helped to ensure price stability and control over agricultural markets.
Another element of Norway’s agricultural trade policy regime is preferential trade arrangements,
primarily with European states (through the European Economic Area [EEA] and the European Free
Trade Association [EFTA]) and with developing countries through the Generalized System of Preferences
(GSP). Preferences are granted to other EEA and EFTA states, to countries with which EFTA has free-
trade agreements, and under Norway’s GSP scheme. However, average tariffs on agricultural products
under Norway’s trade agreements are generally slightly below the average MFN tariff rate (WTO 2004).
In addition to the import protection provided through high tariffs and market access quotas,
farmers are the recipients of domestic support subsidized through the national budget. Norway’s high
domestic support levels are reflected in a high producer support estimate (PSE) value. According to
OECD (2007) data, Norway’s PSE in 2006 was 65 percent, ranking the country second, surpassed only by
Iceland and followed closely by Switzerland with a PSE of 64 percent. Farm subsidies constitute a
complex system that includes deficiency payments, structural income support, acreage and headage
support, and indirect support measures (NILF 2007; WTO 2004). While there has been a slight
improvement toward market orientation in Norway, an OECD report (2007, p. 203) notes that
“Production and trade distorting measures still account for slightly over half of the support and the level
of support remains very high”.
For Norway, this policy mix of a high level of farm subsidization complemented by tight
restrictions on market access has resulted in a few commodity cases (e.g., beef, pork and cheese) where,
in some years, export subsidies have been required to release the surplus and ease downward pressure on
domestic prices. Hence, the analysis of the implications of new rules and agricultural commitments from
the Doha Round of trade negotiations for Norway is complicated because, in any given marketing year,
multiple policy instruments are simultaneously applied under the three policy pillars, that is, market
access, domestic support and export subsidization. While the general signals of the proposed new
modalities are clear (e.g., elimination of export subsidization, increased market access through reduction
of tariffs, and reduction of domestic support), anticipating the government’s domestic support policy
response in terms of the composition (i.e., the respective values of green, blue and amber box support)
and sorting out the likely scheduling changes to meet future reduction commitments will be more
challenging for policy analysts.
The purpose of this chapter is three-fold: (1) to conduct a WTO-consistent assessment of
Norwegian agricultural programs and policy since 1995; (2) to analyze the effects of applying agricultural
support reduction commitments consistent with the modalities drafted during the Doha Round; and (3) to
project the likely policy responses by the Government of Norway under post-Doha Round commitments.
This chapter is organized in 4 sections. Section 2 provides a brief review of Norwegian
agricultural policies and programs that are in place to meet the stated objectives. Norway’s WTO official
agricultural support notifications, as required under the terms of the Uruguay Round Agreement on
Agriculture (URAA), are reported and policy compliance is assessed in terms of its aggregate
measurement of support (AMS) commitments during 1995-2004. In addition, unofficial domestic support
notifications for 2005-2007 (i.e., shadow notifications) based on calculations from existing statistical data
and budgetary information are presented. To examine differences between the Norwegian government’s
official notifications, which are based on its interpretation of its programs and policy, and our assessment
of Norwegian agricultural policy and programs, we present unofficial domestic support notifications for
1995-2007 under alternative support definitions based on our interpretation of the Government’s policy
objectives, the effects of the policies, and the methods by which payments are made. In Section 3, the
proposed reduction commitments, as specified under the February 2008 draft modalities, are summarized
and analyzed in the Norwegian context. Policy reform scenarios for Norwegian agricultural markets are
analyzed through simulations, assuming the implementation of policy changes prescribed by the proposed
modalities. Section 4 provides some concluding comments and insight into the effects of policy reform
and scheduling changes to be introduced by Norway.
2. DOMESTIC SUPPORT: WTO COMMITMENTS, COMPLIANCY AND
COMPOSITION OF SUPPORT
Despite ushering in trade rules and agreements that were intended to introduce discipline into
international agricultural markets, the WTO gave net agricultural importing countries such as Norway
considerable flexibility in managing their agricultural policy, leaving them enough leeway to continue
supporting and protecting targeted sectors. The WTO rules defined agricultural programs and production
policies by categorizing domestic support in terms of member countries’ specific policy objective (i.e., by
separating national social objectives from trade objectives) and in terms of the degree to which a
particular policy or program directly affects production and trade (e.g., price support, income support, or
some equivalent measure of support).
In this section, Norway’s WTO commitments from 1995 are presented and Norway’s policy
choices are discussed in the context of compliancy. Notification documents submitted to the WTO are
reviewed and the composition of Norway’s domestic support programs is analyzed in terms of their trade
and economic effects and their evolution in response to changing priorities, policy objectives, or
Norway’s domestic support notifications report all values of support in Norwegian krone (NOK),
which is also the currency in which our computations are based. For readers who are unfamiliar with the
value of the Norwegian currency, the approximate exchange rate against the USD in June 2008 was NOK
5.00, the lowest rate in the last 25 years. A more representative value of the USD in terms of NOK would
be to take the average value over the last 25 years, which is approximately NOK 7.50.
2.1. WTO Commitments and Compliancy in Domestic Support
During the Uruguay Round negotiations of the GATT, Norway established a base rate of its total value of
AMS during 1986-1988 at NOK 14.3 billion. Norway’s commitment required a 20 percent reduction in
AMS from the base rate over the implementation period, 1995-2000. From 2000, the final bound total
value of AMS has been NOK 11.4 billion. The actual annual outlays counting toward AMS, as reported
in official notifications, have ranged between NOK 9.78 billion and NOK 10.89 billion, comfortably
under the ceilings established by the bound rates. Essentially the requirement of reduction commitments,
from an inflated base rate of AMS, merely involved a reduction in the “water under” the AMS bound rate.
Table 1 lists the value of Norwegian current total AMS and the value of different types of domestic
support for the years 1995-2007. For 1995-2004, the official notifications are reported, while the values
entered for 2005-2007 are shadow notifications (unofficial calculations), which are based on official data
taken from reports sent from the Ministry of Agriculture to the Parliament and from Statistics Norway
1 Notification documents submitted by Norway to the WTO on domestic support can be accessed through the WTO's
Documents On-line database, http://docsonline.wto.org. These documents have the document symbol G/AG/N/NOR/.
2 Details of our shadow notification calculations are found at http://www.jordbruk.uib.no.
Table 1. Overview of domestic support and current total AMS relative to AMS bindings
Official notifications Shadow
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Green box support
Blue box support
De minimis support 0.0 0.0 0.0 0.0 0.00.0 0.00.1 0.0 0.1 0.1 0.10.1
Share of support
21.0 21.8 21.6 22.7 22.823.0 22.3
22.3 22.122.2 22.3 21.7
Value of ag.
production, farm gate,
19.8 20.2 19.8 20.219.619.719.319.519.920.2 19.9 20.321.0
Share of trade-
URAA AMS binding
Share of AMS
13.8 13.6 12.9 12.4 11.911.4 11.411.4 11.4 11.411.4
71.0 77.2 81.4 87.990.8 91.294.7 93.9 96.5 93.9 90.4
Source: WTO notification documents (G/AG/N/NOR/ various years); NILF; SN
The total support that is reported in the table is the sum of the green and blue box support, the
total AMS and the de minimis support (which is not to exceed five percent of the value of agricultural
production). The sum of the blue box support and the total AMS is the total trade-distorting support.
While the notifications confirm that Norway has met its commitments because the share of AMS binding
is below 100 percent usage, it is clearly seen from the table that the WTO reduction requirements have
not affected Norwegian agricultural policy or programs. Total support has remained stable during 1995-
2007, as has total AMS. Nevertheless, the increase in the share of AMS binding from 71 percent to
greater than 90 percent after 1998 suggests that any Doha Round reduction commitments on domestic
support will reduce the current total AMS and will become a binding constraint, which should reduce
current production levels if reducing AMS lowers actual production incentives.
2.2. WTO-Consistency of Norway’s Domestic Support Notifications
Amber Box Support
Domestic support measures under the amber box are any agricultural programs that encourage production
through subsidization of the cost of inputs into production or support of market prices for agricultural
outputs. Notifications of amber box support measures are presented in Table 2.
Table 2. Principal programs notified under the amber box, or AMS, 1995-2007
Selected amber box
programs listed under
Market price support
Total amber support or
Source: WTO notification documents (G/AG/N/NOR/ various years); NILF; SN
*Total AMS might not add up exactly due to rounding.
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
9.8 10.5 10.510.910.810.3 10.710.4 10.810.7 11.0 10.7 10.3
The largest line item of product-specific support is market price support, which is the difference
between an administered price (i.e., a target price that is agreed to by the Ministry of Agriculture and
Food and producer groups, or fixed farm-gate prices in the case of grains) and an external reference price
(i.e., the border price), multiplied by the eligible production. Price support is essentially support that
consumers pay in the form of higher food prices rather than support based on a budgetary outlay. The
target prices (primarily on livestock meat products, eggs, milk, and potatoes) are supported through trade-
regulating market access restrictions and export management. This ensures that the internal domestic
market prices are close to the target prices.
In addition to price support, there is product-specific support in the form of non-exempt direct
payments. These are relatively small deficiency payments provided to milk, bovine, and sheep
production. Other product-specific support includes transport subsidies for meats and eggs, and a farm
feed adjustment (which is considered an associated fee). The feed adjustment value is subtracted to reduce
the domestic support that is provided to livestock and milk producers for having to buy concentrated feed
at a price above the world market price.
Payments made under product-specific equivalent measurements of support are subsidies related
to marketing, storage, and transport of fruit, berries, and vegetables. (The subsidy equivalent for
transporting fruit, berries, and vegetables was abolished in 1998.) Non-product-specific AMS and
associated fees and levies include insemination subsidies and taxes on fertilizers and pesticides,
respectively. (The taxes on fertilizers were abolished on 1 January 2000.) Summing the product-specific
and the non-product-specific support and subtracting the associated fees and levies generates the
aggregate total AMS.
Figure 1 highlights the overall value of AMS and breaks down domestic support into sub-
components. In panel (a), the bound rate of total AMS is the kinked line that decreases between 1995-
2000 in accordance with the annual reduction commitments and then levels off at the new current total
AMS ceiling after 2000.3 The annual value of AMS, represented by the lower line, is below the bound
rate for the overall period but the gap between the bound rate and the actual annual value narrows over
time, particularly after 2000, suggesting the bound rate is becoming a more binding commitment. In panel
(b), the composition of the different types of domestic support is shown. The total overall domestic
support is the summation of the green, blue and amber box support measures for agriculture. The AMS
support, the lowest section of the bars, is stable throughout 1995-2007 at about NOK 10 billion per year.
After 2005, however, the blue box value of domestic support is reduced and the programs are converted
into green box support.
Figure 1. Domestic agricultural support and AMS in Norway, 1995-2008
(a) AMS bound rate and current total AMS (b) Composition of domestic support by type
Norway and WTO commitment 1995-2008
Current Total AMS
Trends in Total Domestic Support
Source: WTO notification documents, G/AG/N/NOR/ various years; SN
Green Box Support
Support schemes with no or minimal trade-distorting effect can, according to Annex 2 of the URAA, be
placed in the green box. This type of support must be provided through a publicly-funded government
program not involving transfers from consumers, and cannot have the effect of providing price support to
producers. There are no ceilings or reduction commitments in the value of support under the green box
type of agricultural programs. Table 3 lists the most important policy measures in the green box category.
3 AMS is calculated in nominal terms. Consequently, there will be a decrease in the AMS commitment level in real terms if
a general price increase is considered.
Table 3. Principal programs notified and calculated under the green box, 1995-2007
Programs listed as
green box measures
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Research, advisory and training
Grain price support
Vacation and replacement
Acreage and cultural landscape
All other green box measures
Total green box support
4101 4116 3675 3889 4275 5012 4316 43373881 3986 6872 6927 7469
Source: WTO notification documents (G/AG/N/NOR/ various years); NILF; SN
During the notification period, the largest single-entry line item listed under green box support
has consistently been the “Vacation and replacement scheme”. This program gives refunds for farm-
related expenses incurred when a farmer takes a vacation’ and is part of the welfare scheme for farmers.
This kind of support is not mentioned in Annex 2 of the URAA. The support is quite substantial,
constituting about one third of the total green box support notified. Since, in reality, this scheme can have
an effect equivalent to a farm labor subsidy, it can be argued that the scheme has, in fact, stimulated
production. In addition, payments made under this scheme are based either on the number of animals or
the acreage in production, which appears inconsistent with the production-neutral requirement that must
be met under green box support. Member countries could challenge Norway’s placement of this program
under the green box, requiring the notification of such support under AMS instead.
Another potentially controversial measure notified under the green box is the grain price-support
program, which according to the government includes two items. The main item is a payment to
stockholdings for food security purposes,4 which is notified to the WTO under the “Public stockholding
for food security purposes” rubric. The payment is given to processing industries who use Norwegian
grain, which constitutes a price-reducing grant because the payment is given on a per kilogram basis for
Norwegian grain that is purchased, and, in effect, reduces the price of Norwegian grain to industries who
depend on grain as an input into their production. According to the WTO, an important criterion for
payments under the “Public stockholding for food security purposes” is as follows:
“Expenditures (or revenue foregone) in relation to the accumulation and holding of stocks of
products which form an integral part of a food security programme identified in national
legislation. This may include government aid to private storage of products as part of such a
programme. . . Food purchases by the government shall be made at current market prices
and sales from food security stocks shall be made at no less than the current domestic market
price for the product and quality in question” (GATT 1994, p. 58).
The price-reducing grant clearly does not satisfy this condition. The second item under “Public
stockholding for food security purposes” is the compensation for expenses the government incurs in
regulating the grain price. This outlay is quite small.
The “Research, advisory and training support programs” are services provided by the
government, which are categorized as “General services” by the WTO. In accordance with Annex 2 of the
URAA, “General services” are targeted to agriculture or the rural community, but should not involve
4 We could not found exact official figures on grain price support. The payment that we report here will therefore deviate
from the notifications that Norway eventually will make to the WTO.
direct payments to producers or processors. Other important programming activities under general
services provided by the government are pest and disease control and infrastructure services, which
amounted to about 11 percent of total green box support in 2004.
“Investment aid” includes expenditures from the Agricultural Development Fund. Such aid is
given under the WTO rubric “Structural adjustment assistance provided through investment aids”, which
in Norway’s stated case is given as aid for structural adjustment and rural development services.
Increasingly these funds have been redirected towards stimulating new business activities, in addition to
“traditional farming”, in rural areas. However, increasingly less of this support is being given as
investment support for traditional agricultural production activities (NILF 2007). This line item accounts
for 15-20 percent of the total notified green box support. The two most important WTO conditions for
this type of support are (1) that the payment must not give a producer the incentive to produce a certain
product, and (2) that the payment must only compensate and assist the financial or physical restructuring
of a producer’s operations to overcome the structural disadvantages, and must be given only for the
period necessary for the realization of the investment (GATT 1994).
Under the shadow-notification period, 2005-2007, in Table 3 we report the “Acreage and cultural
landscape scheme” as the largest green box measure. In 2005 this scheme was included as an important
element in the National Environmental Programme (MLSI 2004, MLSI 2005 and MAF 2005). For a
farmer to be eligible to receive such support, an environmental plan must be followed and the acreage
must be managed in an environment-friendly manner. As a payment for compliance, the farmer receives a
certain amount per hectare. In addition to this, support to help cover the cost of implementing certain
types of production techniques is provided on an activity-specific basis. It is an open question whether
this support complies with the URAA, which states that the payment can only compensate for the loss of
income involved with complying with an environmental program. In 2007, another move was made by
the Norwegian Ministry of Agriculture and Food whereby the support to grazing livestock, which earlier
was considered part of headage support under the blue box, was included in the National Environmental
Programme, making it a green box item.5 In Figure 1(b), the top segment of each bar represents the value
of the green box payments. As a result of the program changes described above (i.e., the broadening of
the National Environmental Programme), green box support increases in magnitude after 2004.
Blue Box Support
Support schemes classified under the blue box fall under three types: (1) payments based on fixed area
and yields; (2) payments made on 85 percent or less of the base level of production; and (3) livestock
payments made on a fixed number of head. As with the value of green box support programs in the
URAA there was no WTO commitment requiring a ceiling on the value of blue box support. Table 4 lists
all the programs under the blue box as notified from 1995-2004 and the shadow notifications for 2005-
5 This is included in the item “All other green support measures”.
Table 4. Principal programs notified under the blue box, 1995-2007
Direct payments under
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Acreage and cultural
Structural income support,
Deficiency payment, milk
Deficiency payment, meat
Total blue box support 7117 7246 7375 7880 7674 7669 7330 7531 7360 7434 4295 4021 3887
Source: WTO notification documents (G/AG/N/NOR/ various years); NILF; SN
“Structural income support” (to dairy farmers) and “Regional deficiency payments” for milk and
meat production are categorized as payments on 85 percent or less of base level production.6 The aim of
the regional deficiency payments is to even out profitability or income between farmers located in more
remote areas and those located closer to urban markets.
“Headage support”, a per unit livestock payment, is Norway’s largest blue box income-support
payment. This support is intended to even out differences in profitability among different lines of
production and among farms of different size. In 2007, the government made a change in the application
of the support to grazing livestock, which disaggregated the payments that are relevant to the National
Environmental Programme, claiming those payments to be green box support (MAF 2006). This has had
the effect of reducing the overall value of blue box support after 2004. In Figure 1 (b), the middle
segment of each bar is the part of total overall domestic support that falls under the blue box. The blue
box together with the amber box (AMS) is the overall trade-distorting support, which constitutes about
two-thirds of the overall domestic support in Norway.
2.3. Notifications under Alternative Support Definitions
In the previous section we argued that grain support and the vacation and replacement scheme do not
belong in the green box. Furthermore, since those two items do not satisfy the criteria for blue box
support (payments under production-limiting programs), they must be counted as AMS and hence
included in the amber box. In Table 5, the official notifications of support under the interpretation of the
Norwegian government are reported and compared with the values obtained using our interpretation of
the programs in terms of their consistency with WTO rules and agreements.
6 The way we have calculated blue box support for 2005-2007 differs slightly from the calculations used by the Norwegian
government in its notifications to the WTO during 1995-2004. One reason for this difference is that until 2002, payments given to
the acreage and cultural landscape scheme were only reported as aggregated payments. However, some elements of this payment
fall under green box support.
Table 5. Support levels under different interpretations of WTO-consistency, 1995-2007
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: WTO notification documents (G/AG/N/NOR/ various years); NILF; SN
To illustrate the relevance of the differing interpretations of the policies implemented by Norway,
the AMS support levels reported in Table 5 are plotted in Figure 2. According to our AMS interpretation,
Norway has broken the AMS ceiling every year since 1998, and will exceed the AMS-ceiling by 30
percent in 2008. However, this calculation assumes that the Government will not react if the ceiling is
broken. Surely, such passive behavior is unlikely. Norway has on several occasions been on the edge of
breaking the ceiling, and on each occasion has played the “avoidance card”.
2.4. Playing the “Avoidance Card”
We use the phrase “to play the avoidance card” to describe the situation where a country lowers its AMS
support by abolishing or redefining the purpose of the administered price on a specific product to remove
the market price support from the AMS. By doing this, the product in question can be excluded from the
market price support computation, see Orden (2008), and consequently, the AMS support will be reduced
automatically. Japan was the first country to use this strategy.7
7 See Gordo (2008). Japan redefined its rice procurement program as being for the purpose of adjusting rice stocks for food
security in 1998.
Figure 2. Our interpretation of the URAA compared to the Government’s interpretation
The Norwegian Ministry of Agriculture and Food has on several occasions announced that it will
abolish certain domestic administered prices, as a means of reducing the total AMS-support level. From 1
January 2007, the administered price of poultry meat was replaced with a reference price equal to the
administered price in 2006. In a proposition to the parliament (MAF 2005), it was argued that this would
remove poultry meat from the AMS calculation and reduce the total AMS support by NOK 800 million.
Furthermore, in the May 2008 negotiation between the farmers’ unions and the Ministry of Agriculture
and Food, it was agreed to increase prices on most agricultural products, an action that would lead to
breaking of the AMS ceiling. This problem was solved by removing pigs and sheep from the AMS
support. We expect that the government will continue to play the avoidance card as a means of meeting
future AMS and overall trade-distorting support commitments.
1995 1996199719981999 2000 20012002 200320042005 200620072008
AMS, our interpretation
3. POLICY REFORM SCENARIOS AND SIMULATION ANALYSIS
3.1. Proposed Reduction Commitments
The reduction commitments under the most current proposed modalities (as of March 12, 2008) under the
agricultural negotiations of the Doha Round are applied in the case of Norway to analyze the potential
effect on agricultural production and trade as a result of policy reform. The revised draft modalities for
domestic support from February 2008 (WTO 2008) are used and the resulting reduction commitments for
Norway are reported in Table 6. In general, the commitments require a computation of the overall trade-
distorting domestic support (OTDS) based on a specified formula and a reduction in the value by at least
50 percent; the determination of the final bound total AMS through a reduction in the AMS by 52.5
percent; and the construction of a ceiling for blue box support, which amounts to a 52.5 percent reduction
over the average annual value of blue box support during 1995-2000. In Norway’s case, the final value of
its OTDS would be NOK 10,371 million under a 50 percent reduction commitment. However, because
the combined maximum of its new final bound rate of AMS (NOK 5,438 million) and blue box ceiling
(NOK 3,560 million) is NOK 8,998 million, which is less than the final OTDS value, these parameters
become the binding constraint upon Norway’s total trade-distorting support.
Table 6. Reduction commitments according to the latest revised draft modalities for agriculture
Computation of overall trade-distorting support (OTDS)
Components of OTDS
Value in million NOK for a
Final current bound rate of AMS
10% avg total value of ag production
Higher of either:
Avg blue box support, 1995-2000 or
5% avg total value of ag production
Total base rate of OTDS
Developed country members reduce
base OTDS by 50% or 60%
Computation of AMS reduction commitment
Description of the component or reduction commitments
Bound rate of AMS Current final bound rate from 2000
Norway’s value of AMS is less than US$15 billion, placing it in the 3rd
tier, requiring a base reduction commitment of 45%.
If final bound total AMS is at least 40% of the average value of ag
production during 1995-2000, an additional reduction is required, that is,
½ the difference of the reduction rate in the lower two tiers, for example,
[60 - 45] % resulting in a further 7.5% reduction.
A reduction commitment of 52.5%.
Base reduction commitment 5,152
Additional reduction commitment 859
Final bound rate of AMS 5,438
Computation of Blue Box Support
Description of the component or reduction commitment
Avg blue box support value 7,494 Average annual support, 1995-2000
If the value of blue box support exceeds 40% of trade-distorting support
for 1995-2000, then the ceiling is a reduction commitment equal to the
percent reduction in final bound total AMS, that is, 52.5%
A reduction commitment of 52.5%
Blue box support ceiling 3,560
Binding commitment of OTDS base rate relative to combined amber and blue support
OTDS under a 50% reduction
The combined value of the final AMS bound rate plus the blue box
support ceiling becomes the binding constraint on the value of domestic
Combined value of the final AMS bound
rate and box support ceiling
Source: WTO 2008 (TN/AG/W/4/Rev.1)
Comparing the proposed domestic support ceilings with what was notified in 2004, the last
officially notified year, suggests that the reduction commitments would be a binding constraint on
Norway’s agricultural policy regime. The current total AMS was reported to be NOK 10,665 million and
blue box support amounted to NOK 7,434 million. This implies that Norway’s trade-distorting programs
and policies would have to be reduced in value by NOK 9,101 million from the 2004 value. Of that
reduction, the share of blue box support would have to amount to NOK 3,560 million or less to be in
compliance with the ceiling.
It is no surprise, then, that the government has already signaled changes to blue box support,
specifically disaggregating payments that are part of the National Environmental Programme. In addition,
the re-categorizing of the acreage and cultural landscape scheme, without a significant change in the
implementation of the program, as a green box measure is consistent with this strategy. The shift in
strategy, as shown under the shadow notifications, suggests that the government shall have reduced blue
box support by NOK 3,747 million. This would essentially meet the blue box ceiling. Playing the
avoidance card will give the government enough flexibility to reduce amber box support without having
to require producers to reduce production or their revenue.
3.2. Simulation Analysis
Unlike for the US and the EU, no official predictions have been made for future development of
agricultural production in Norway. A reasonable guess is to assume that future production of the various
agricultural products will be the same as current production. This line of reasoning is supported by the
fact that the Norwegian agricultural authorities have designated maintaining current production levels as a
primary policy goal. In this respect they have been successful because agricultural production has hardly
changed over the last decade.
Based on the proposed reduction commitments of the Doha Round, outlined above, we use a
partial equilibrium model for the agricultural sector in Norway to analyze the potential for maintaining
agricultural production and activity. We take into consideration that the composition of domestic support
will also have to change, from market price support to budgetary support, in line with the proposal by
Ambassador Crawford Falconer that import tariffs should be reduced by 70 percent, and export subsidies
should be eliminated.
The price-endogenous model of Norwegian agriculture8 consists of the most important commodities
produced by the Norwegian agricultural sector, including 13 final and 8 intermediate product aggregates.
Of the final products, 11 are related to animal products while 3 are related to crops. Inputs needed to
produce agricultural products are land, labor (both family and hired), capital (machinery and buildings),
concentrated feed, and an aggregate of other intermediate goods. The model distinguishes between tilled
land and grazing on arable land and pastures.
Domestic supply is represented by about 400 “model farm” types. Each model farm is
characterized by Leontief technology, having fixed input and output coefficients. Although inputs cannot
substitute for each other at the farm level, there are substitution possibilities at the sector level. For
example, beef can be produced with different technologies (under different model farm types), under
either extensive or intensive production systems, and in combination with milk. Thus, in line with the
general Leontief model in which each good may have more than one activity that can produce it, the
isoquant for each product is piecewise linear. Also, production can take place on either small farms or
larger more productive farms. Consequently, there is an element of economies of scale in the model.
The country is divided into nine regions, each with limited supply of different grades of land.
This introduces an element of diseconomies of scale because, ceteris paribus, production will first take
place in the best regions. Domestic demand for final products is represented by linear demand functions.
8 Model details and further references can be found in Brunstad et al. (2005).
The economic surplus (i.e., consumer plus producer surplus) of the agricultural sector is maximized,
subject to demand and supply relationships, policy instruments and imposed restrictions. The solution to
the model is the set of prices and quantities that result in an equilibrium in each market.
The base year of the model is 2004. Since the production of various agricultural products, as well as
agricultural support, has been relatively stable over the last decade, this can be thought of as the reference
period. Impacts on agricultural activity of an agreement in the Doha round à la Falconer are analyzed by
introducing ceilings on the AMS and blue box support. For AMS, the ceiling is set at NOK 6.7 billion
(5.438 billion in Table 6), and for blue support the ceiling is NOK 3.9 billion (3.560 billion in Table 6).
The ceilings in Table 6 are scaled to be consistent with the AMS and blue support levels in the model,
which differ somewhat from the actual situation. The model simulation also assumes a 70 percent
reduction in ad valorem import tariffs and a total elimination of export subsidies.
Some additional assumptions are made with respect to the computation of domestic support. As
for blue and green support, we have followed the principles behind our shadow notification described in
Section 2.2. The acreage and cultural landscape scheme and part of the headage support are counted as
green, as well as the vacation and replacement scheme and the grain support program. Furthermore, the
reported AMS levels in the simulations assume market price support according to administered prices,
that is, the avoidance card is not adopted. The potential for using this strategy to release amber support
enters into the discussion.
The results of the model are presented in Table 7. As a reference, the base solution in column 1 shows the
model’s representation of current policy and production levels, as of 2004. To decompose the effects of
the different reduction commitments, column 2 shows the isolated effects of the elimination of export
subsidies only, and column 3 shows the effects of the elimination of export subsidies and a reduction in
tariffs taken together. Column 4 presents the integrated solution, where all reduction commitments and
ceilings are considered simultaneously à la Falconer.
The base solution in column 1 is close to the actual situation in the base year 2004. In spite of the
climatic disadvantage, production is high and import low. Norway is self-sufficient in most of the
specified products, with the exception of grain. About 10 percent of the milk production is exported in the
form of cheese, by means of export subsidies.
As thoroughly demonstrated earlier in this chapter, the high activity level in Norwegian
agriculture is sustained by substantial support. The total support generated by the model is NOK 20.4
billion, of which NOK 11.1 billion is budgetary support and NOK 9.4 billion is market price support. The
model-generated OTDS is NOK 17.9 billion, disaggregated into NOK 13.1 billion on amber box support
(AMS) and NOK 4.8 billion on blue box support. Observe that all relevant support measures are far above
the ceilings that follow from the Falconer proposal. Thus, it will be hard to sustain current production
levels if changes in policies to meet WTO commitments actually affect production incentives.
If export subsidies are abolished, then the export of cheese is no longer feasible and milk
production declines by 10 percent. Market price support falls by NOK 1.5 billion because the present
export subsidies are financed by domestic consumers of dairy products and not by budgetary support.
AMS falls by NOK 1.6 billion, while blue box support levels are unaffected. The economic losses caused
by export subsidies amount to about NOK 1.0 billion.
The elimination of export subsidies is insufficient to meet the specified reduction commitments
on AMS and blue box support as proposed under the modalities specified in the Falconer text. As a next
step, the ad valorem import tariffs are cut by 70 percent, which is within the range of proposed reductions
on market access tariffs under the modalities (WTO 2008). As can be seen from column 3, production
levels and input factor use are substantially reduced. That is, the proposed cut in import tariffs triggers
imports and lowers domestic prices. Consequently, the domestic support level declines for two reasons:
(1) a reduction in domestic price implies lower market price support; and (2) lower domestic prices
reduce agricultural activity, which reduces the budgetary support. AMS and blue box support are 40
percent and 25 percent below their ceilings, respectively. As a result of both lower prices and budgetary
support, the economic surplus is increased by NOK 17 billion.
As an approach to maximize agricultural activity within the proposed reduction commitments,
column 4 (the full set of commitments specified under the Falconer text) shows a simulation where the
ceilings on AMS and blue box support are binding. The ceilings are made binding by a scaling of the
exogenous subsidy rates underlying the base solution.
Table 7. Model results under the base solution and reduction commitment scenarios
and 70% tariff
Production (million kg)
Beef and veal
Land (million hectares)
Labor (1000 man-years)
Capital (NOK billion)
Support - PSE (NOK billion)
Market price support
Support - WTO categories (NOK billion)
Amber box (AMS)
Market price support (fixed ref. prices)
Overall total domestic support (OTDS)
Economic surplus (NOK billion)
More support, compared to the previous solution, means higher agricultural activity. This applies
especially to roughage-intensive production activities such as milk, beef, and sheep, which, under current
policies, are major recipients of both blue and amber box support. With respect to AMS, there is an
obvious shift from market price support to subsidies as lower tariffs are compensated, within the ceilings,
by higher budgetary support.
Compared to the current situation, represented by the base solution, an agreement in line with the
Falconer proposal seems to affect Norwegian agricultural activity. Production declines, especially for
grain and activities that intensively use concentrated feed (pigs and poultry). These activities must be
compensated sufficiently by budgetary support when tariffs are reduced. Aggregated land use and
agricultural employment are about 60 percent and 80 percent of present levels. Observe that budgetary
support is slightly higher than in the base solution, while market price support is lower.
Before drawing conclusions about the effects on agricultural activity of the reduction
commitments specified in the Falconer text, several aspects should be considered. Compared to the model
simulation, Norway has the possibility to raise its budgetary support. First, green box support in the
model simulation is nearly NOK 2 billion below the notified level for this type of support. Also, if the
policy instruments notified by Norway as green support are to withstand a WTO challenge, then no real
limit on certain kinds of production support would appear to exist. Second, if Norway were to play the
avoidance card, and thereby increase the level of amber subsidies by NOK 2.6 billion (which is released
by abolishing administered prices), then very little reform to agricultural production would be expected.
There are, however, shortcomings in the model that tend to overstate the negative impact on
agriculture. First, the available technologies in the model are based on current small-scale farming. If
economies of scale are exploited, then the production level will be higher, especially for activities that do
not depend on low-yield Norwegian crops that are adversely affected by the northern climate. For
example, in concentrated-feed intensive production activities such as pigs, poultry, and eggs, producers
can buy their feed on the world market. Second, the model assumes that domestic and imported
agricultural products are perfect substitutes. The effect of lower import tariffs would be less severe if the
Norwegian farmers were able to differentiate some of their produce and obtain a price premium compared
with imported products.
As a concluding summary, the proposed reduction commitments of the Doha round seem to allow
Norway to sustain a high level of agricultural support, and thus to maintain its current levels of
agricultural activity and production. Lower market price support can probably be compensated by more
budgetary support, by playing the avoidance card in combination with exploiting the scope for green box
support. However, the composition of domestic support will have to change, from market price support to
budgetary support. If Norway intends to pursue the course of maintaining high production levels, such a
shift in the use of policy instruments involves serious challenges for Norwegian policymakers. Budgetary
support, which is more transparent and exposed to public opinion than market price support, has to
increase compared with the present level. Also, a substantial part of the budgetary support has to be green
box support. Since most of the policy instruments that Norway notifies or plans to notify as green box
support constitute masked production support, this strategy may leave Norway exposed to a WTO
challenge. Finally, cuts in import tariffs and the elimination of administered prices removes important
tools currently used to regulate the market and restrict competition.
According to official agricultural support notifications for 1995-2004 and our shadow notifications for
2005-2007, Norway complies with its URAA commitments. Nevertheless, the URAA reduction
requirements have not affected Norwegian agricultural policy or programs. Norway has in fact managed
to expand agricultural output relative to the 1986-1988 base period, and AMS and total support have
remained stable during 1995-2007. Thus, the URAA reduction commitment has merely involved a
reduction in the “water under” an inflated AMS bound rate. This applies especially to the implementation
period of 1995-2000. After 2000, the gap between the AMS ceiling and Norway’s notifications has
narrowed, and seems to be completely closed in 2008.
Although Norway’s notifications comply with its URAA commitments, we argue that several of
its green box entries are questionable. For example, the “Vacation and replacement scheme” and the
“Grain price support programme” seem to be amber support masked as green support. Also, it is an open
question whether the “Acreage and cultural landscape scheme” complies with the URAA, which states
that a payment can only compensate for the loss of income associated with complying with an
On some occasions, Norway has been close to surpassing the AMS ceiling. In these cases,
Norway’s response has been to abolish administered prices on certain products, thereby excluding the
corresponding market price support from the AMS calculation. In this way, Norway has been able to keep
up production and forestall agricultural restructuring.
The modalities currently being negotiated under the Doha Round should result in more binding
reduction commitments on Norwegian agriculture. The elimination of export subsidies will mainly affect
milk and cheese, but will also impact beef and pork. The combination of increased market access and
reduced domestic support should have more serious consequences in regard to domestic price and
production levels. Nevertheless, clever repackaging of current domestic support (masking amber box
subsidies as green box ones) or eliminating “redundant” policy (i.e., by removing administrative prices)
could forestall much agricultural restructuring.
To maintain current activity and production levels, budgetary support, which is more transparent
and subject to greater public opinion than market price support, has to increase beyond the present level.
Also, a substantial part of budgetary support has to be green box support. Since most of the policy
instruments that Norway notifies or plans to notify as green box support seem to be masked production
support, this strategy may be prone to a WTO challenge. Only if Norway were to lose such a challenge
can policy reform be expected.
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