A quantification of policy reform: an application to the Uruguay Round Negotiations on Agriculture

Abstract

We employ an empirical general equilibrium model to quantify the welfare effects of trade policy reformation in the Uruguay Round Negotiations on Agriculture. Our approach is two-fold: first we focus on the primary players in the agricultural negotiations: the Cairns Group, the European Union, Japan, and the United States, where the players are defined as benevolent governments whose primary objective is to maximize total welfare, measured in terms of the equivalent variation (EV). Second, we take into account the divergent objectives of different interest groups within the targeted regions, namely from the agricultural and non-agricultural sectors, where different weights given to these sectors depending on their political influence. Here the decision making authorities, or governments, are no longer assumed to focus solely on the maximization of the region’s EV welfare; instead they are assumed to maximize a payoff that is defined by the utilities of the agricultural and non-agricultural interest groups. This is modeled with a Political Preference Function that has a CES functional form. The results lead to several conclusions. The greater the reduction in protection, the greater the increase in welfare for most of the regions of the world. We contend that comparatively moderate reductions were enacted however, because of the relative political power that the domestic agricultural interests possessed in each region. Though the goal of the WTO/GATT is obviously to liberalize trade, only modest gains may be expected in the area of agriculture due to the internal conditions that have been advanced in this paper.