Disciplining farm subsidies has been one of the main objectives of the multilateral trading system ever since agriculture was included in the negotiating mandate for the Uruguay Round negotiations in 1986. The decision to extend multilateral trade rules to the agricultural sector reflected the desire of the GATT contracting parties to rein in the market-distorting subsidies. The negotiating mandate for the Uruguay Round was thus adopted to improve “the competitive environment by increasing discipline on the use of all direct and indirect subsidies” (emphasis added). However, while agreeing to the Agreement on Agriculture (AoA), the eventual outcome of the Uruguay Round negotiations on agriculture, the GATT contracting parties adopted a more nuanced approach to the disciplining of farm subsidies.

While introducing the discipline on farm subsidies, the AoA adopted a three-tiered structure in respect of the production-related subsidies, the so-called domestic support. The discipline was ostensibly based on the perceived distortions caused by each of the three sets of subsidies. Thus, subsidies that directly influenced prices and production, including price support measures and input subsidies, were reined in. These subsidies had to be reduced if they exceeded the threshold, identified as the de minimis level, and could not exceed the de minimis level if the actual spending was below this threshold. However, subsidies that “have no, or at most minimal, trade-distorting effects or effects on production” were not subjected to any discipline.