Reforming Agricultural Domestic Support of the EU in the Doha Round: Measurement, Feasibility, and Consequences

Hans G. Jensen and Wusheng Yu

No 331491, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Inspired by the recent July Package of WTO agricultural trade negotiations, this paper argues that it is feasible for the EU to undertake the largest cuts to its final bound AMS and total trade distortion domestic support (by respectively 60 and 70 percent). These cuts can be accommodated by the current reform programs of the Common Agricultural Policy of the EU. Based on this, a tiered reduction formula for other WTO members is proposed and preliminary analysis show that other member countries, including the US, have the possibility to meet this proposal. Analyzing implications of reforming agricultural domestic support is not an easy task, due to several measurement and modeling issues and the complexities associated with domestic support programs in different countries. In this paper, we show how the reform of the CAP in the context of fulfilling the WTO reduction proposal is modeled, especially the decoupling of its Amber and Blue box programs. Built on the modeling exercise, numerically simulated results from implementing the proposal are presented. First, a structural adjustment in EU agriculture and food production would be expected, with the outputs of wheat, oilseeds, plant fibers, bovine animal and bovine meats dropping significantly. Second, the EU’s net export position in these products would deteriorate in responding to the reform. However, the overall size of the EU agricultural production and trade remains nearly unchanged. Third, despite substantial allocative efficiency gains accruing to the EU from the CAP reform, its terms of trade effect is nevertheless quite small. Lastly, although other countries having distinct comparative advantages in those commodities under the EU domestic reform programs may gain from this reform, on aggregate the welfare and trade expansion effects on the rest of world are expected to be quite limited, as compared to what can be realized from market access reform.

Keywords: International Relations/Trade; Agricultural and Food Policy (search for similar items in EconPapers)
Pages: 35
Date: 2006
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