An Economic Evaluation of the New Agricultural Trade Negotiations: A Nonlinear Imperfectly Competitive Spatial Equilibrium Approach

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The objective of the research reported here is to develop a more flexible and comprehensive policy simulation model for imperfectly competitive international agricultural trade with various trade and domestic support policies. The model is a nonlinear imperfectly competitive spatial equilibrium model formulated as a MCP. The model is flexible in that it can simulate the economic effects of the following trade policies: specific duties, ad valorem tariffs, tariff-rate quotas, export subsidies, production subsidies, production quotas, consumption taxes and price floor, combined with various imperfectly competitive market structures. The usefulness of the model is demonstrated with an application to international wheat trade simulated under several alternative scenarios based on proposals of major countries as well as the agreement between China and the United States on China's participation in the 11'70. The main empirical findings are as follows. Keeping the committed 1000 support levels under the current WTO agricultural agreements would be favorable for wheat producers in tile European Community and Canada, but harmful to the United States w-heat sector. There would be little structural change in the world wheat trade in a case where China joins the WTO, keeping the other countries' policies at the committed 2000 support levels. Likewise, little structural change would occur in the case where the new WTO agricultural negotiations result in agreements favorable for importing countries. However, world wheat trade would drastically change under full trade liberalization. In this case, the European Community switches from the world's leading net exporter to the world's leading net importer of wheat. Also, China and India would become major net exporting countries, and net exports by the United States, Canada, and the Cairns group such as Australia and Argentina would expand tinder full trade liberalization.

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WP 2001-14 August 2001


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Charles H. Dyson School of Applied Economics and Management, Cornell University



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