Does the “green box” of the European Union distort global markets?

Abstract

The vast majority of domestic support to farmers in the European Union (EU) is notified in the World Trade Organisation (WTO) green box as decoupled payments. The EU considers this support to minimally distort production and/or trade. As demonstrated in the literature, this claim is questionable. This paper aims at analyzing this claim using a global, spatially differentiated, partial equilibrium simulation model with endogenous land supply functions. Comparing a complete elimination of the EU green box measures with a baseline scenario, the model results indicate only small distortionary effects in production and trade. Hence, EU support notified to the green box seems to be compatible with the general requirements of the green box. The finding seems to result from the assumption of unchanged EU border policies.