Subsidies or Market Access?

Anderson, Kym, Will Martin, and Ernesto Valenzuela. "The Relative Importance of Global Agricultural Subsidies and Market Access." The World Bank.

              The Doha Development Agenda has the power and ability to remove domestic and export subsidies.  The global contribution by removing these subsidies can be estimated two ways, one through the Global Trade Analysis Project protection database, and also by computable general equilibrium modelers.  When both of these were used, it was found that the contribution to global welfare by removing the subsidies would be less than one-tenth of that from removing agricultural tariffs.  (Anderson)  Using the BOTE analysis, assuming unitary supply and demand elasticities, suggests that 86% of the welfare cost is due to tariffs and only 6% to domestic farm subsidies.  This share takes into account the fact that trade measures distort consumer as well as producer behavior, unlike direct domestic support measures.  (Anderson)

Other tests were done to see how domestic support, export subsidies, and market access are sources of global economic costs.  The results are relatively simple to understand.  The results showed that agricultural market access barriers are much more important than domestic subsidies. (Anderson)  This can be proven in three ways.  First, the amounts of support provided through market access barriers in developed (and also in developing countries) are much greater than the supports provided through subsidies. (Anderson)  Second, trade barriers distort both production and consumption where as domestic support only distorts production. (Anderson) and Finally, the market access barriers vary much more across countries and commodities, and hence generate larger cost than do most domestic support measures. (Anderson)

These results reiterate how important it is to make sure the writers of the Doha Development Agenda’s know how important market access is.  It is also important to prove the requirements for gaining access requires tariff cuts but also strong regulations on non-tariff import restrictions. According to Anderson, if the DDA can at least result in a lowering of bound agricultural tariffs down to or below applied rates, that will provide a much stronger base from which to seek a lowering of non-tariff barriers in the future.