WTO’s Agreement on Agriculture (AoA) classifies domestic support or subsidies given by the government to farmers into different categories. An important type of subsidies or supports is Aggregate Measurement of Support (AMS). The AMS represents trade distorting domestic support and is referred as the “amber box”.
The AMS means annual level of support (subsidies) expressed in monetary terms, provided for an agricultural product in favour of the producers (product specific) of the basic agricultural product and non-product specific support provided in favour of agricultural producers in general.
As per the WTO provision, AMS is a trade distorting subsidy. Since it distorts trade by directly influencing production and price in an economy, the AMS is categorized as a ‘reducible’, ‘non permissible’ or ‘non-exempted’ subsidy.
The Aggregate Measurement of Support consists of two parts—product-specific subsidies and non-product specific subsidies. Product-specific subsidy refers to the total level of support provided for each individual agricultural commodity. For example wheat AMS is the subsidy given specifically to wheat. Non-product specific subsidy, on the other hand, refers to the total level of support given to the agricultural sector as a whole, i.e., subsidies on inputs such as fertilizers, electricity, irrigation, seeds, credit etc. Usually, these non product subsidies are given to all crops.
Subsidy provided through price support in the case of a specific product like wheat is measured by taking the difference between the price given to the domestic producers during procurement (by the government)and a specified fixed external reference price (world market price set by the WTO) of that product. Multiplying this gap by the quantity of production eligible to receive the administered price gives the specific subsidy for that product. If domestic prices are lower than the world reference price, then AMS turns out to be negative for that particular product.
As per the WTO norms, the AMS can be given up to 10 % of a country’s agricultural GDP in the case of developing countries. On the other hand, the limit is 5% for a developed economy. This limit is called de minimis level of support.