Canada has formally asked the World Trade Organization (WTO) to establish a panel to judge whether the United States has broken its commitments to limit agricultural subsides.

Canada alleges that the US has violated its commitments to keep so-called amber box subsidies to agriculture under its US$ 19.1 billion a year ceiling. According to Canada, the US has exceeded its commitments every year between 1999 and 2005, except 2003, by an average of US$ 5 billion a year.

The US disagrees and argues that is has designed its agriculture support policies to make sure they comply with its WTO commitments.

Under the WTO Agriculture Agreement (AoA), subsidies are divided into three categories, or boxes. Green box subsidies are those that are at most minimally trade distorting, are government funded and do not involve price support. These subsidies are allowed without limit as long as they meet specific criteria set out in Annex 2 of the AoA.

Blue box subsides are those that would normally be in the trade-distorting amber box, but have conditions attached to limit distortions, such as requiring farmers to reduce production.

Amber box subsidies include all support to agriculture that is considered to distort production or trade. Amber box subsidies include those that support prices, or are directly related to production quantities. The 30 countries which had amber box subsidies above the "de minimis" level (5% of agricultural production for developed countries, 10 percent for developing countries) prior to the Uruguay round are committed to reducing these subsidies. The US has commited to limit these subsidies to US$ 19.1 billion a year.

At the heart of Canada's panel request are America's direct and counter-cyclical payments. Direct payments are yearly subsidies that are not related to production levels (they are "de-coupled" from production) and are instead based on historical acreage and yields. Counter-cyclical payments are also de-coupled from production, but are only given when prices for applicable farm produce fall bellow certain levels.

The Washington trade publication Inside U.S. Trade has cited a source close to Canada as saying that these direct and counter-cyclical payments are not green box subsidies because they provide assurances to farmers which affect their decisions on planting, marketing and investment. Counter-cyclical payments are also tied to prices, which is contrary to the criteria set for green box subsidies under Annex 2 of the AoA.

Canada's panel request, made on 8 June, comes after a consultation period that began back in January. At a 20 June 2007 meeting of the WTO's dispute settlement body (DSB) in Geneva the US blocked the formation of the panel.

Under WTO rules a country can block the formation of a panel only once, and it is not uncommon for countries to do so when a panel is being formed against them. Canada will now be able to re-file its panel request and, if it does so, a panel will likely be formed.