THE CURRENT ROUND OF AGRICULTURAL TRADE NEGOTIATIONS: SHOULD WE BOTHER ABOUT DOMESTIC SUPPORT? *

Abstract

The current WTO agricultural trade negotiations began in March 2000. The previous Round reached agreements in the areas of market access, export competition and domestic support. One possibility is for the current Round to seek agreements under similar headings. Reaching agreement over reductions in domestic support to farmers is complicated by a number of factors, such as the extent to which such support impacts on production decisions, the wishes of governments to support farmers for pursuing multifunctional outcomes from agriculture, and the categorisation of a myriad of policy instruments into green, blue and amber boxes. It therefore poses the risk of considerably extending the negotiations and diverting attention away from other areas of reform. The sustainablility of many domestic support policies requires imposition of trade barriers. Therefore reform of trade barriers may force governments into reforming domestic support without requiring specific international agreements. The paper provides quantitative assessments, using the GTAP applied general equilibrium model. Trade reform scenarios are analaysed, with and without specific reductions in domestic support. The Version 5 database's enhanced domestic support categorisations are harnessed to design a number of reform experiments. These mimic cuts to only amber box support, amber box cuts but allowing transfers of spending to blue/green box categories, and endogenisation of domestic support allowing it to increase in various ways to compensate producers for cuts in tariffs and export subsidies. The latter experiment, for example, illustrates the extent to which government domestic support spending might have to increase to compensate farmers when trade barriers are lowered, if current output levels are to be maintained. A conclusion is that trade expansion and welfare gains can be achieved even when domestic support is excluded from the multilateral agreement. This would require some countries to significantly expand domestic support expenditures in 'compensation'– to the extent that this is unlikely, trade and welfare gains would be further enhanced.