AGRICULTURAL POLICY REFORM IN THE WTO

AGRICULTURAL POLICY REFORM IN THE WTOThe Road Ahead

PROJECT GOALSCalculate the costs of global agricultural policies and the potential gains from their elimination Evaluate broad options for reforming tariffs, TRQs, domestic support and export subsidies

Major FindingsEliminating global ag. policy distortions would: raise world welfare $56 billion annually raise world agricultural prices 12 percent Roles of policies in reducing world prices:Tariffs (52%)Domestic subsidies (31%)Export subsidies (13%) Developing countries can benefit from further WTO reforms

Ag. Policy Distortions Cause World Prices to be 12% Lower Than They Otherwise Would be

Chart1

20

0.4

7.8

13.1

3.2

2.3

15.2

38

Economies Around the World Contribute to Ag. Price Distortions

Rest of world20%

Australia & New Zealand0%

Sheet1

Rest of world20

Australia & New Zealand0.4

Other Asian7.8

Japan & Korea13.1

Latin America3.2

Canada2.3

U.S.15.2

EU38

Sheet1

0

0

0

0

0

0

0

0

Economies Around the World Contribute to Ag. Price Distortions

Australia & New Zealand0%

Rest of world20%

Sheet2

Rest of world11


Other Asian13.1

Japan & Korea11

Latin America13.7

Canada2.4

U.S.23.7

EU18.8

Sheet2

11

6.3

13.1

11

13.7

2.4

23.7

18.8

Sheet3

Estimated annual gain in purchasing power = $56 billion

Chart2

11

6.3

13.1

11

13.7

2.4

23.7

18.8

Many Countries Would Share Consumer Purchasing Power Gains From Elimination of Ag. Tariffs and Subsidies

Sheet1

Rest of world11


Other Asian13.1

Japan & Korea11

Latin America13.7

Canada2.4

U.S.23.7

EU18.8

Sheet1

Many Countries Would Share Consumer Purchasing Power Gains From Elimination of Ag. Tariffs and Subsidies

Sheet2

Rest of world11


Other Asian13.1

Japan & Korea11

Latin America13.7

Canada2.4

U.S.23.7

EU18.8

Sheet2

11

6.3

13.1

11

13.7

2.4

23.7

18.8

Sheet3

Price Effects of Eliminating Global Agricultural Policy Distortions

Commodity

Full policy elimination

(percent change from base)

Livestock and products

22.3

Wheat

18.1

Sugar

16.4

Coarse grains

15.2

Oil and oilseeds

11.2

Rice

10.1

Vegetables and fruits

8.2

OPTIONS FOR REFORMMarket Access: Approaches to reducing global tariffs and liberalizing TRQs Domestic Support: Reducing aggregate AMS versus leveling AMS across countries and commodities Export Subsidies: Effects of eliminating EU subsidies

OPTIONS FOR MARKET ACCESS REFORM Linear vs. harmonization formula formulas are needed to address the very high tariffs in global markets

Harmonization formulas benefit U.S. ag. US profile: large number of low tariffs (12 percent average) Top U.S. ag. exports face tariffs of 50-100 percent TRQs: no one-size-fits-all rule for reform

TWO OPTIONS FOR REFORMING DOMESTIC SUPPORT:

Continue the UR reforms: lower the AMS ceilings for OECD countries an additional 20% Level the playing field for OECD countries - support for each commodity must be at or below 30% of the value of production

OPTIONS FOR REFORM: DOMESTIC SUPPORT

Focus on OECD countries and AMS

Differentiate between trade policies and domestic subsidy component of the AMS Account for differences in policies effects on production and trade Account for support expenditures being below ceiling

1/ 1997.Source: ERS calculations

U.S. AMS Approaches WTO Ceiling

AMS Support (1997)

Chart1

6389.93769446.68076125.57883.249148242.736857

7056.42368.608414121.46378.343515196.609087

4946.15033295.252532112.227192102.312891160.903103

5976.544292.040281146.70793477.215676127.935961

EU

Switzerland

U.S.

Norway

Rest of World

Figure 3 - Export subsidy expenditure by country, 1995-98($millions)

Fig. 1- Tariff means

4.2382388473

7.1378461538

11.9044029941

12.2089665653

12.6129230769

15.1924474628

21.5861739475

23.726903216

29.2990055249

33.3997259257

35.9108527132

102.2525725903

126.0497031267

152.4310801332

45.3636579514

Mean

Figure 1 - : Post-Uruguay Round average agricultural tariffs of selected industrial countriesSource: Wainio, Gibson, and Whitley (2001).

Fig. 2 -Tariff Frequency Distr.

0.50251462720.36233038720.08051786380.03546620190.01917092

0.13286712420.53816942340.18702865950.10497260730.0369621857

0.17616580310.57305699480.12953367880.03523316060.0860103627

0.27110747760.56185465270.02760956520.01380478260.1256235219

0.20925270350.4194850170.1319965440.07963791490.1596278206

>0 - 5%

>5 - 25%

>25 - 50%

>50 - 100%

>100%

Figure 2 - : Frequency distributions - selected countriesSource: Wainio, Gibson, and Whitley (2001).

Fig. 3 - export sub by country

1995199619971998

EU63899.376970564.249461.503359765.44243,69189.4378346793

Switzerland4466.807613686.084142952.525322920.4028114,0265.1476723782

U.S.255.781214.631122.271921467.079344,0601.489989254

Norway832.49148783.435151023.12891772.156763,4111.2519627004

Rest of World2427.368571966.090871609.031031279.359617,2822.67254098897.327459012

272,469

0000000000

0000000000

0000000000

0000000000

0000000000

0000000000

0000000000

0000000000

0000000000

0000000000

0000000000

Fig. 3 - export sub by country

6389.93769446.68076125.57883.249148242.736857

7056.42368.608414121.46378.343515196.609087

4946.15033295.252532112.227192102.312891160.903103

5976.544292.040281146.70793477.215676127.935961

EU

Switzerland

U.S.

Norway

Rest of World

Figure 3 - Export subsidy expenditure by country, 1995-98Source: Leetmaa (2001).

Fig. 4 - food aid needs

Table 4 - Summary of food gaps in 67 low income countries under

different modeling scenarios, million tons

RegionScenario 2Scenario 1Baseline% changeScenario 3

N. Africa1.031.120.720.4305555556

L. America0.430.530.47-0.085106383

NIS0.030.050.020.5

Asia4.143.163.220.2857142857

S.S. Africa7.247.798.30-0.1277108434

Status quo food gap12.8712.6512.730.0109976434

Fig. 4 - food aid needs

000

000

000

000

000

Price and export growth

Price effect only

Baseline

Million tons

Fig. 4 - Effects of full policy reform on food aid needsSource: Shapouri and Trueblood (2001).

PSE chart data

Fig 3

1999199819971986-88Consumer-readyIntermediateBulk

OECD 244037314014-country average50.940.332.6

Mexico2217168Norway178.8139.9101.7

EU49453844Switzerland144.2115.287.0

Norway69676466Iceland136.075.265.2

Korea74566571Canada30.68.33.6

Switzerland73706773Poland42.224.723.1

USA24221425Slovakia13.910.96.7

Japan65625767Czech Rep13.59.25.2

Iceland68675774New Zealand9.93.20.8

Canada20181434Slovenia22.47.97.5

New Zealand21211Hungary34.220.420.1

Australia6778USA15.85.07.3

Japan36.228.134.9

EU25.011.618.0

Australia4.43.23.2

Fig 2

1999199819971986-88

All commodities40363140

Sugar56464051

Pigmeat22151313

Beef and Veal32333130

Milk57574858

Rice81747381

Wheat48453449

Poultry1491119

Sheepmeat42423955

Maize32292040

Oilseeds29231831

Tariff Data

Fig11-Sliding Scale2-Linear/Sectoral3-Swiss Formula4-Harmonization/LowCeilingInitial MeansNew MeansQuadFD

0%0%0%0%0%Fig2MeanStandard DeviationFig41-Sliding Scale2-Linear/Sectoral3-Swiss Formula4-Harmonization/LowCeilingFig5>0 - 5%>5 - 25%>25 - 50%>50 - 100%>100%

1%0%1%1%1%Australia4.26.3Australia1.73.13.43.7United States50%36%8%4%2%

2%0%2%2%2%New Zealand7.18.1New Zealand3.54.45.36.0EU13%54%19%10%4%

3%0%3%3%3%U.S.11.954.3U.S.4.25.25.55.7Japan18%57%13%4%9%

4%0%4%4%4%Czech Rep12.218.6Czech Rep.5.86.77.37.9Canada27%56%3%1%13%

5%0%5%5%5%Slovakia12.622.4Slovakia5.96.66.97.3All Countries21%42%13%8%16%

10%5%7%8%9%Slovenia15.233.6Slovenia6.56.05.65.3

15%8%9%11%13%EU21.636.9EU9.510.010.511.0

20%10%11%14%16%Canada23.769.4Canada6.16.76.55.8

25%13%13%16%19%Hungary29.320.7Hungary14.514.415.616.9Fig61-Sliding Scale2-Linear/Sectoral3-Swiss Formula4-Harmonization/LowCeilingURBound

30%15%15%18%21%Japan33.4109.4Japan8.99.610.09.9Duty-free43%28%28%28%28%

35%18%17%20%23%Poland35.940.8Poland16.116.015.715.9>0-10%27%39%32%29%27%

40%20%19%21%24%Iceland102.3132.6Overall Ave.11.311.411.010.1>10-20%11%14%18%18%15%

45%23%21%23%25%Switzerland126.0230.7Iceland24.222.519.815.8>20-30%4%5%9%25%6%

50%25%23%24%25%Norway152.4264.2Switzerland24.322.520.116.3>30-40%2%2%9%0%5%

55%28%25%25%25%Overall Ave.45.4127.7Norway24.522.319.213.3>40%13%12%3%0%19%

60%30%27%26%25%

65%33%29%27%25%New Standard Deviations

70%35%31%27%25%Fig3Bulk CommoditiesProcessed IntermediatesConsumer-OrientedFig71-Sliding Scale2-Linear/Sectoral3-Swiss Formula4-Harmonization/LowCeiling

75%38%33%28%25%Australia3.43.15.1Australia3.33.64.24.7Fig81-Sliding Scale2-Linear/Sectoral3-Swiss Formula4-Harmonization/LowCeilingURBound

80%40%35%29%25%NewZealand0.83.39.8New Zealand4.14.65.66.4Bulk Commodities9.69.38.47.234.1

85%43%37%29%25%U.S.8.35.015.1Czech Rep.9.18.07.78.1Processed Intermediates10.110.19.17.937.9

90%45%39%30%25%Czech Rep5.39.314.1Hungary10.38.68.28.6Consumer-Oriented12.212.412.311.650.9

95%48%41%31%25%Slovakia6.811.613.9Slovakia10.59.38.38.2

100%50%43%31%25%Slovenia8.57.219.5Slovenia13.712.310.59.7

105%50%45%32%25%EU20.311.526.1EU12.110.59.38.9

110%50%45%32%25%Canada4.211.831.0Poland15.212.49.68.3

115%50%45%32%25%Hungary21.020.736.1U.S.8.97.97.47.3

120%50%45%33%25%Japan50.127.834.0Canada13.411.910.17.5

125%50%45%33%25%Poland23.126.246.5Japan13.311.510.28.5

130%50%45%33%25%Overall Ave.34.039.650.2Overall Ave.16.614.512.39.8

135%50%45%34%25%Iceland61.873.7130.6Iceland21.919.215.410.7

140%50%45%34%25%Switzerland84.9112.8141.5Switzerland21.218.314.910.3

145%50%45%34%25%Norway107.1129.5176.3Norway24.221.618.312.1

150%50%45%35%25%

Conclusions on export subsidiesEffects on aggregate world agricultural prices and trade relatively small Export subsidies remain important because: effects in specific markets can be large they are linked to domestic support they can slow progress on market access

Developing Country IssuesFor middle income DCs - improved market access for ag. exports trade linked productivity gains For lower income DCs - erosion of preferences lower food aid needs Developing countries increasingly critical of directions in domestic support in developed countries

Food Aid Needs Decline

Chart1

Sheet1



RegionScenario 2Scenario 1BaselineScenario 3

N. Africa0.000.100.00

L. America0.410.430.47

NIS0.080.100.10

Asia3.103.073.19

S.S. Africa6.316.838.60

Status quo food gap9.9010.5312.36

Sheet1

000

000

000

000

000

Price and FX

Price effect only

Baseline

Million tons

Trade Liberalization Effects on Food Gaps

Chart1

1.031.120.72

0.440.510.47

00.050.02

3.143.163.22

7.387.798.3


Price effect only

Baseline

Million tons


Sheet1



RegionBaselineScenario 1Scenario 2Scenario 3

N. Africa0.721.121.03

L. America0.470.510.44

NIS0.020.050.00

Asia3.223.163.14

S.S. Africa8.307.797.38

Status quo food gap12.7312.6311.99

Sheet1


Price effect only

Baseline

Million tons


Tariffs faced by US ag. exports

Figure12

630074.0352380952

487057.4624626866

347067.9511842105

232063.6778632479

754.3050.2862051282

438.02081.3116176471

209072.2495555556

1203.49068.9021794872

200056.2950434783

876.61097.9070629371

200051.034488189

200049.9834710744

242.74049.2642763158

210.87054.4026612903

779.4065.6291911765

318066.7588023952

200053.0498275862

231.45047.4582625483

200064.9197368421

3000083.6197607656

279.31056.1765972222

285049.7607723577

457075.3850769231

543.56064.440141844

553067.706

230061.0164393939

3000084.3985430464

232063.1495762712

349059.8703623188

288060.3230645161

Line represents range for tariff: top is maximum and bottom is the minimum.

630

754

1203

877

779779

3000

544

553

3000

Percent

Reduction commitments if UR base is lowered an additional 20 percent

% of WTO ceiling met in 1998

Required cut in

AMS

Australia

23.4

0.0

Canada

8.6

0.0

EU

74.5

-7.1

Japan

77.2

-10.4

Korea

80.1

-13.5

Mexico

6.6

0.0

Norway

87.8

-21.1

New Zealand

0.0

0.0

Poland

8.3

0.0

Switzerland

71.0

-2.5

United States

44.7

0.0

Source: ERS calculations based on data from OECD and WTO.

Percent Reduction Needed to Keep Commodity-Specific Support Less than 30% of Value of Production

Wheat

Rice

Oilseed

Sugar

Milk

Beef & Sheep

Australia

0

0

0

0

0

0

Canada

0

0

0

0

-48

0

EU

0

0

0

-28

-44

-15

Japan

-65

-64

-17

-51

-62

-6

Korea

0

-57

-61

0

0

-27

Mexico

0

0

0

-9

-30

0

Norway

-37

0

0

0

-10

0

New Zealand

0

0

0

0

0

0

Poland

0

0

0

-38

0

0

Switzerland

-43

0

-58

-55

-51

-45

U.S.

0

0

0

-19

-49

0

Source: ERS calculations based on data from OECD and WTO.

Effects of AMS Reform on U.S. Trade

Reduce aggregate

AMS 20%

Limit commodity AMS to 30%

Exports

Imports

Exports

Imports

Rice

23.9

-0.2

263.0

1.6

Wheat

140.5

-1.1

134.0

3.7

Coarse grains

136.0

-13.9

63.4

-25.4

Oilseeds

222.4

-0.2

41.6

0.0

Sugar

1.3

-0.4

4.9

111.3

Cotton and fiber

1.8

0.0

15.9

-0.1

Fruit & vegetables

65.1

7.8

75.4

-2.1

Other crops

-12.1

11.3

-20.8

3.7

Beef

126.0

-13.4

286.2

-39.0

Other livestock

145.0

-0.5

23.5

-1.6

Dairy Products

50.5

-0.6

197.0

173.8

Processed foods

3.3

-7.6

-39.5

18.1

Total

903.5

-18.7

1044.5

244.0

For more information.www.ers.usda.gov

ERS has an ongoing research program on WTO issues. The research published in the Road Ahead report was one component of that program. The objective of the Road Ahead project was to provide the big picture - - a global and strategic view of the agricultural negotiations that is most useful in the early stages of the negotiation. Two objectives:

1. Calculate the economic costs of global agricultural policy distortions related the three pillars of farm policies addressed in the UR: market access, domestic support and export subsides. The costs of these policies is identical to the potential gains from their elimination. Policies are from 1998, the latest year for which comprehensive policy data were available. The full elimination of distorting agricultural policies is probably not a realistic scenario of what might be accomplished in the current negotiations, but such a scenario is useful because it helps define the scope of these issues, and quantifies what is at stake in the negotiations.

2. Second objective was to develop more realistic and strategic views on options for continued, partial reforms of each pillar. We evaluate broad, generic options for reform, not specific proposals of any country. 1. Eliminating distorting ag. Policies would raise world welfare (which is the same as consumer purchasing power) by $56 billion. World ag. Prices would be 12 percent above the level they would otherwise be. (Note, this is not a projections model.) The negotiations should no longer be Eurocentric or even quadcentric - many countries will gain from further reform.2. Tariffs are the largest source of distortions in global trade. Hence, reforms in market access disciplines are likely to bring the most dividends.3. Developing countries stand to gain $21 billion of the $56 billion global gains. To achieve this, they will need to fully participate in reforms. Most of their gains are based on the effects that free trade and more open economies have on accelerating economic growth. 1. EU policies account for nearly 40 percent of world agricultural price disotortions - in other words, they lower farm prices by about 5 percent. To some extent, US farm policies that attempt to offset low prices can be viewed as efforts to offset EU programs.

2. Some LDC proposals specifically ask for reparations for low prices and farm incomes caused by OECD farm support policies.

3. Type of policies used in countries differ. Only the EU uses policies in all three pillars. US generally uses only domestic support and trade barriers. Most countries use only trade barriers- these raise tariff revenue while domestic support and export subsidies entail expenditure. 1. Costs and benefits are two sides of the same coin. $56 billion is both costs of the policies and benefits from eliminating them. (Note: these are economic costs related to distortions, which is diff. Than budgetary outlays on farm programs, or the OECD or AMS measures. Most of the PSE and AMS support is market price support, calculate as price gaps multiplied by domestic production - which leads to the large numbers frequently in the press.)

2. $56 billion includes $31 billion in static gains (distortions in production and consumption), $5 billion from increased savings and investment, and $20 billion in dynamic gains - increased total factor productivity linked to more open trade. Dynamic gains accrue mostly to LDCs.

3. Many countries share in the gains. US garners one-quarter of long-term gains. This mostly reflects that we are a net exporter, and tariffs (which we face in our trade partners) are the most distorting of the three types of policies.

1. Aggregate price increase of 12 percent varies quite a bit by commodity.

1. Part two of our research analyzed broad, generic options for reform. Partial reform is more complex than a full elimination of farm policies for two reasons. First, while the three types of policies may be negotiated separately, they operate independently. Partially reforming one type of policy will have effects on the effectiveness and cost of remaining policies. To the extent possible in our models, we tried to take this interdependence into acccount. Second, there are an infinite number of options (we chose only the most general to analyze) and each option has different distributive impacts - even though the end point is the same. Options for reform are therefore more important the longer the reform path takes.

2. In our work on market access, we applied tariff reduction formulas (modalities) from previous rounds to a data base of WTO bound tariffs.In our work on domestic support, we looked at two options for reducing the AMS that frame possible approaches. (Note, may need to define AMS, and note that it covers amber only, not blue or green programs)On export subsidies, we focus on the EU because it accounts for over 90 percent of global export subsidy expenditure. 3. Ill begin each section with a description of ag policies in place in 1998.Average Agricultural Tariffs Vary Widely Across Countries and RegionsAverage tariffs for WTO members by region range from 25 to 113 percent. At 25, North America is lowest. Except for non-EU Western Europe (104 percent), regions with the highest average tariffs are non-OECD. The LDCS of Africa, the Caribbean and South Asia, with bound averages ranging from 71 to 113 percent, are all above the global average rate of 62 percent. On a country basis, the avg tariff of the U.S. of 12 percent is low in comparison with the average agricultural rates of the EU-15 (30 percent), Canada (24 percent), Japan (33 percent) and Norway (152 percent). OECD Members Have High Agricultural Tariffs on a Small Set of CommoditiesThere are regional patterns in tariff protection by commodity. OECD tariff protection is concentrated in a few traditional sectors. Dairy- highest mean tariff among OECD countries. High tariffs also on grains, livestock, sugar, and sweeteners. These are the sectors in which OECD countries use megatariffs, and in which the number of notified TRQs is concentrated. OECD tariffs are relatively low in all other sectors. Because OECD tariff profiles have spikes, have a great variation across commodities. U.S., EU, Japan: similarities &differences in their tariffs: Diary and sugar are protected in all 3 countries. But only Japan protects silk, only the EU protects sugar beets, and only the U.S. provides high protection for tobacco. Non-OECD Countries Have Uniformly High Agricultural Tariffs Non-OECD countries have higher over-all levels than OECD, but less variation across commodities. They have high protection on the same commodities as OECD countries, except that tobacco, rather than dairy, has their highest average tariff. Non-OECD countries use megatariffs more than OECD countries. Many of these were not subject to reduction under the URAA because they were established as ceiling bindings. Esp for non-OECD LDC,applied tariffs considerably lower than bound rates notified in their WTO market access schedules. For ex, applied for Latin American of 13 % is less than one-third avg bound rate of 45%

1. The URAA agreement used a liner approach to tariff cutting. Moreover, it did not require an across the board 36 percent cut but rather permitted countries to ensure a minimum 15 percent reduction. What this has meant is that many of the highly protected sectors remain protected, and in many cases the tariff dispersion within sectors in countries have actually increased. This has meant that many countries feel that replication of the URAA approach may not be very conducive to increases in market access.

2. The ERS study looks at how the global tariffs regime would look if two types tariff cutting approaches were applied: linear - an across the board cut of XX percent in all tariffs, versus Harmonization formulas - these attempt to even out the tariff profile and reduce dispersion across commodities by imposing larger cuts on higher tariffs. 3. Conclusions: harmonization formulae more effective than linear approach in lowering average tariffs because of the very high tariffs that abound in global tariffs. 4. The US can benefit from harmonization formulas because - First , compared to other countries, the US has a very large number of low tariffs and a small number of very high tariffs ( so relatively less affected by harmonization approaches). Second, many of the worlds very high tariffs affect our exports. Our top exports face tariffs that range between 50 and 100 percent in our major markets.

LOWER THE CEILINGS - takes into account that some countries are already below their UR commitments, either through lower expenditures, or transformation of programs into green box, decoupled programs. We define it to allow countries to lower their current pattern of support proportionately to meet lower ceilings - 60% of UR binding.

LEVEL THE PLAYING FIELD ACROSS COUNTRIES AND COMMODITIES - addresses the legacy of the UR in allowing countries to reach an average level of support, while allowing them to focus their support unevenly on a few select commodities. We define it to mean that countries must change their pattern of support, so that each commodity and each country must meet the same average level of support. As before, countries that are below 30%. This number is not arbitrary -- it set equal to the overall rduction level of the EU in the first scenario, so that the two scenarios have comparable dimensions. 1. Define AMS: a number that is used to quantify and compare different countries levels of domestic support, calculation is defined in URAA.2. Need to account for the trade policy component. AMS includes Market Access (tariffs and TRQs) attached to administered price programs. Cant add up separate tariff analysis and AMS analysis - would double count the market price support component. (83% of AMS support effecs on global trade is due to trade policy component - suggests market access negotiations alone could do the heavy lifting on reducing domestic support.)3. Differentiating the production impacts of different types of domestic support policies improves our analysis of the effects of changes in support on production and trade. For example, removing coupled input or production subsidies can be expected to have greater effects on (reducing) output, whereas removal of decoupled payments will have minimal effects. Transfer payments to households are assumed to have minimal effects on production, through changes in aggregate demand for all goods, including ag products. 4. Accounting for expenditures relative to ceilings is important in scenario analyses that assume further reductions in UR commitments. 5. Our data work was based on the latest WTO notifications, used to determine how programs were declared (color), PSE data for 1998. AMAD tariff data and export subsidy data from WTO notifications were used to represent MPS for commodities with administered prices. NOT FOR DISTRIBUTION - - INTERNAL USE ONLYCountries can stay within over-all limits, but load their support into high support of a few commodities. Leveling support across countries and commodities is the least flexible approach, and would hit the sensitive commodities harder than the first scenario.

Milk, beef/sheep and livestock would be most affected.For US, would require reduction in sugar and milk.FOR EU, milk, wheat, other grains, and beef and livestock would all be affected.

In this scenario, only Australia and New Zealand would not face reduction commitments.

Our analysis focused on the EU because it is the largest user of export subsidies.

We found that even with full elimination, the EU would remain a competitive exporter of all subsidiezed commodities (b9t at lower levels), except for beef.

Our framework was ESIM, it takes into account that export subsidies are used to clear markets with high domestic intervention price. When we reduce export subsidies, we force the domestic price to fall to clear the markets.Export subsidies not so important in themselves, but very important in terms of their linkages to negotiation of the other two pillars. Discpline of ES can create pressures to lower domesic support. Some countries are reluctant to give on market access in the face of what they perceive to be unfair subsidized competition. 1. Analyze effects of policy reform on the food aid needs of 67 low-income developing countries. These countries account for 40 percent of the global population. World price of food, domestic supply response to higher world prices, and availability of foreign exchange to pay for food imports jointly determine food aid requirements.

2. Full elimination of agricultural policy distortion is expected to reduce global food aids need by 6 percent from 12.6 mmt to 12.0 mmt. If nutritional intake were to be at the FAO recommended levels, food aid needs would decline from 21.9 mmt to 20. 5 mmt (6.4 percent). All these numbers could be within the margin of modeling errors.should not make too much out of it.

Whats at stake for US? This picture tells a thousand words: We are a net exporting country with relatively low tariffs and domestic support (?). Our exports face high tariffs in major markets (Graph shows range of tariffs faced by our top 30 exports, with upper tariffs cut off at 500%!!!) We have a lot to gain from accepting constraints on market access and domestic support.Continuing UR reforms would clearly result in an uneven pattern of reduction commitments. These reduction commitments are based on 1998 levels of support. Restraining aggregate support allows countries maximum flexibility - countries could choose to rearrange their amber support among commodities to meet ceilings, or to shift more support into allowable green box program. We assumeaAll policies are reduced proportionately, leaving existing commodity allocations of support in place.

There scenario allows the least flexibility and leads to variation among countries/commodities in reduction commitments.

Milk, beef/sheep and livestock would be most affected.

For US, would require reduction in sugar and milk.

FOR EU, milk, wheat, other grains, and beef and livestock would all be affected.

In this scenario, only Australia and New Zealand would not face reduction commitments.

In both scenarios, effects on US aggregate trade not very different: aggregate US exports increase about $1 billion.

Coimmodity composition of trade effects are very different, however.

AGRICULTURAL POLICY REFORM IN THE WTO

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