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GTAP Resource #1015

"How Significant are export subsidies to agricultural trade? Trade and welfare implications of global reformsy"
by Elbehri, Aziz

The Doha WTO Ministerial Meeting has launched a new round to be concluded by January 2005. In reference to agriculture, the Doha Declaration is fairly general in its goals, aiming for "substantial improvements in markets access; and substantial reductions in trade-distorting domestic support". However, the Declaration language for export subsidies is more specific and stipulates "reductions, in view to phase out, all forms of export subsidies". Nevertheless, negotiations are likely to be difficult given the extent of the EU reliance on export subsidies and the difficulty on agreeing on how best to quantify the export subsidy equivalent of other export competition policies. However, in the absence of new agreement on further cuts in export subsidies, member countries must face up to the 2003/04 deadlines when the "Peace Clause" and Special Safeguard provisions will expire, opening the doors for countries to challenge existing export subsidy policies.
How significant are export subsidies to agricultural trade? To address this question we must bear in mind that the impact of export subsidy removal on agricultural trade will critically depend on other support policies. Also the effects are likely to differ for the subsidizing country, rival exporters, and net food importers. The latter category is important for many developing countries who argue that export subsidies depress prices and handicap their domestic producers.
Given these considerations, the Global Trade Analysis Project (GTAP) model was used to examine the impact of export subsidy removal. In this analysis, export subsidies are framed in relation to other trade distorting policies, and the country effects are identified based on the net agricultural position. The latest GTAP database Version 5 is used, with per-unit export subsidy rates derived from 1998 WTO data submission, representing the most comprehensive compilation of agricultural export subsidies. In addition to export subsidies, GTAP Version 5 also has much improved agricultural support data derived from the Agricultural Market Access Database (AMAD) database.
Two alternative scenarios are considered: (a) removal of export subsidies for agricultural commodities by all WTO members; and (b) removal of export subsidies plus domestic support and import barriers. Results show that the removal of export subsidies alone is welfare improving only for the subsidizing country and net exporters, but welfare reducing for net food importers who experience both worsening terms of trade and loss of allocative efficiency. As higher food prices reduce imports it also increases the welfare cost of existing import barriers, hence lowering welfare. Under scenario (b), all countries show welfare gain, including net food importers whose allocative efficiency gains, owing to removing own import barriers, outweigh the terms of trade losses. This analysis shows that reducing export subsidies by themselves may not be beneficial for food importing countries as long as import barriers are also not addressed. That is, the potential welfare gains expected from trade liberalization are for a large part contingent on removing the fairly dominant domestic support and import trade barriers. What is critical for food importers, particularly developing countries, is that their own trade liberalization may be at least as important to their economic welfare as reforms in foreign markets.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2002 Conference Paper
Status: Published
By/In: Presented at the 5th Annual Conference on Global Economic Analysis, Taipei, Taiwan
Date: 2002
Created: Elbehri, A. (4/29/2002)
Updated: Bacou, M. (7/16/2002)
Visits: 3,175
- Domestic policy analysis
- Agricultural policies

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