CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

PAPER

JUNE 2006

The Effects of

Liberalizing World

Agricultural Trade:

A Review of

Modeling Studies

CBO
Pub. No. 2771
The Congress of the United States O Congressional Budget Office

CBO

The Effects of Liberalizing

World Agricultural Trade: 

A Review of Modeling Studies

June 2006

A

PAPER
Notes

Numbers in the text and tables of this paper may not sum to totals because of rounding.

The following country groups, organizations, and corresponding acronyms appear throughout the text and tables:

B The African, Caribbean, and Pacific Group of States (ACP Group of States, or ACP 

Group) is an organization of countries created by the Georgetown Agreement in 1975 

with objectives that include sustainable development of its member states and their gradual 

integration into the global economy. Its members include 76 developing countries in 

Africa, the Caribbean, and the Pacific.

B The Association of Southeast Asian Nations (ASEAN) was formed in 1967 with goals of 

(1) accelerating economic growth, social progress, and cultural development in the region 

and (2) promoting regional peace and stability through respect for justice and the rule of 

law in relations among countries and adherence to the principles of the United Nations. Its 

members are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the 

Philippines, Singapore, Thailand, and Vietnam.

B The Cairns Group is a coalition of agriculture-exporting countries formed in 1986. Its 

members are Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, 

Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, 

Thailand, and Uruguay.

B The European Free Trade Association (EFTA) was established in 1960. Its members are 

Iceland, Norway, and Switzerland-Liechtenstein.

B For purposes of international trade, the European Union (EU) is a customs union of 

European countries and is effectively one country. There is free trade among its members, 

its members have a common trade policy toward the rest of the world, and the union itself 

(rather than its individual member countries) is a member of the World Trade Organization. Its original members were Belgium, Germany, Luxembourg, France, Italy, and the 

Netherlands. Denmark, Ireland, and the United Kingdom joined in 1973; Greece in 1981; 

Spain and Portugal in 1986; and Austria, Finland, and Sweden in 1995. In 2004, the EU 

added Cyprus, Malta, and eight Eastern European countries, increasing its total membership from 15 to 25 countries. Because of the change over time in the number of member 

countries, some studies reviewed in this paper put in parentheses the number of member 

countries analyzed, for example, European Union (25), EU(25), or EU(15).

B The Organisation for Economic Co-operation and Development (OECD) is an international organization of democratic countries with market economies. Created in 1960, it 

currently has 30 member countries, most of them developed countries.

B The Southern African Customs Union (SACU) was created in 1969. Its members are 

Botswana, Lesotho, Namibia, South Africa, and Swaziland.

The photograph on the front cover is courtesy of Lynn Betts, U.S. Department of Agriculture.
Preface

A major issue on the agenda of the ongoing Doha Round of multilateral negotiations 

by members of the World Trade Organization concerns how and to what extent policies that 

affect agricultural trade should be liberalized. For most of the postwar period, the series of 

multilateral negotiating rounds under the auspices of the General Agreement on Tariffs and 

Trade allowed policies that distort agricultural trade to continue in large part while tariffs and 

other policies that distort trade in other sectors were progressively reduced or eliminated. The 

Uruguay Round, which took place from 1986 through 1994, began the liberalization of agricultural trade; yet tariffs remain much higher, and the use of subsidies remains much more 

prevalent, in agriculture than in other goods-producing industries.

In August 2005, in response to a request by the Chairman of the House Ways and Means 

Committee, the Congressional Budget Office (CBO) published a paper that presented statistics on policies around the world that distort agricultural trade. In December 2005, in 

response to the same request, CBO published a paper that surveyed the results of studies that 

estimate the economic effects of liberalizing those policies. The December paper was brief, 

focusing on the general conclusions that could be drawn from the studies and selected numerical results to illuminate them. This paper gives a more complete presentation of the numerical results as well as additional explanation concerning their interpretation. In keeping with 

CBO’s mandate to provide objective, nonpartisan analysis, the paper makes no recommendations.

Bruce Arnold of CBO’s Microeconomic Studies Division prepared this paper under the supervision of Roger Hitchner (who has since left CBO), Joseph Kile, and David Moore. Paul 

Burnham, Douglas Hamilton, Gregory Hitz, Arlene Holen, and Tom Woodward provided 

comments on a draft of the paper. Outside of CBO, Ron Babula, Roger Corey, and William 

Deese of the U.S. International Trade Commission, Robert Stern of the University of 

Michigan, and Mary Burfisher of the U.S. Naval Academy also provided comments. (The 

assistance of external reviewers implies no responsibility for the final product, which rests 

solely with CBO.)

Janey Cohen and Loretta Lettner edited the paper, and John Skeen proofread it. Angela 

McCollough and Allan Keaton formatted the tables. Maureen Costantino designed the cover 

and prepared the paper for publication. Lenny Skutnik printed the initial copies, and Simone 

Thomas produced the electronic version for CBO’s Web site (www.cbo.gov).

Donald B. Marron

Acting Director

June 2006

Contents

1 Introduction 1

A Qualitative Discussion of the Effects of Liberalization 2

Some Important Modeling Concepts and Qualifications 4

2 Economywide Effects of Full Liberalization 9

The Total Worldwide Cost of Policies That Distort

 Agricultural Trade 9

Comparison with the Cost of Trade-Distorting Policies in

Other Goods Sectors 17

Gains and Losses to Individual Countries from Liberalization 17

Breakdown of Costs by Type of Policy 20

3 Considerations Concerning Partial Liberalization 51

The Need for Large Reductions in Tariff and Subsidy Bindings 51

Allowance for Sensitive and Special Products 55

The Effects of Liberalizing Other Goods Sectors 57

The Effects of Special and Differential Treatment 58

Tariff-Rate Quotas: Quota Expansion Versus Tariff Reduction 58

4 Other Effects of Agricultural Liberalization 75

Effects on Countries’ Agricultural Sectors 75

Effects on Factor Returns 77

Countries Whose Liberalization Would Most Help Developing 

Countries 79

Product-Specific Effects on U.S. Agriculture 80

Bibliography 115
VI THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Tables

2-1. Estimated Welfare Effects on the World of Agricultural Liberalization—

All Surveyed Studies 24

2-2. Estimated Effects on the World of Agricultural Liberalization, as Adjusted

by CBO for Approximate Comparability—All Surveyed Studies 26

2-3. Estimated Welfare Effects of Full Liberalization of All Goods, by Industry

Sector and Benefiting Region—2006 World Bank Study, LINKAGE

Model Analysis 27

2-4. Estimated Static Welfare Effects of Full Liberalization of All Goods, by 

Industry Sector and Benefiting Region—2006 World Bank Study,

GTAP-AGR Model Analysis 28

2-5. Estimated Welfare Effects of Full Liberalization of All Goods,

by Industry Sector and Benefiting Region—2002 World Bank Study 29

2-6. Estimated Welfare Effects on the United States of Agricultural Liberalization—

All Surveyed Studies 30

2-7. Estimated Welfare Effects on the United States of Agricultural Liberalization, 

as Adjusted by CBO for Approximate Comparability—All Surveyed Studies 32

2-8. Estimated Welfare Effects of Full Liberalization of All Goods Trade, 

by Country or Region—2006 World Bank Study, LINKAGE Model Analysis 34

2-9. Estimated Static Welfare Effects of Global Agricultural Liberalization—

2006 World Bank Study, GTAP-AGR Model Analysis 36

2-10. Estimated Welfare Effects of Full Trade Liberalization—2002 World Bank Study 37

2-11. Estimated Welfare Effects of Global Elimination of Agricultural Tariffs and

Subsidies—Economic Research Service Study 38

2-12. Estimated Static Welfare Effects of a 33 Percent Reduction in Agricultural

Import Tariffs, Domestic Support, and Export Subsidies,

by Country or Region—Study by Brown, Deardorff, and Stern 39

2-13. Estimated Static Welfare Effects of a Global 36 Percent Reduction of

All Policies That Distort Agricultural Trade—Study by Roberts and Others 40

2-14. Estimated Effects on Gross National Product of a 50 Percent Reduction in Applied 

Merchandise Tariffs, by Country or Region—Study by Buetre and Others 41

2-15. Estimated Welfare Effects of a 35 Percent Reduction in All Merchandise 

Tariffs, by Country or Region—Study by Fontagne, Guerin, and Jean 42

2-16. Estimated Welfare Effects of Full Agricultural Liberalization in High-Income 

Regions, by Country or Region—Study by Beghin, Roland-Holst, and 

van der Mensbrugghe 43

2-17. Estimated Static Welfare Effects of Global Agricultural Liberalization, by Type of Policy 

Liberalized—2006 World Bank Study, GTAP-AGR Model Analysis 44
CONTENTS VII

2-18. Estimated Static Welfare Effects of Global Agricultural Liberalization, by Type of 

Policy Liberalized—Economic Research Service Study 46

2-19. Estimated Welfare Effects of Agricultural Liberalization in High-Income 

Countries, by Type of Policy Liberalized—Study by Beghin,

Roland-Holst, and van der Mensbrugghe 48

2-20. Estimated Static Effects of a 50 Percent Cut in Domestic Subsidies and of a

50 Percent Cut in Tariffs on Only Those Items That Also Have Domestic

Subsidies—Study by Hoekman, Ng, and Olarreaga 49

3-1. Trade-Weighted Average Bound, Most-Favored-Nation, and Applied Agricultural

Tariff Rates in 2001, by Country—2006 World Bank Study 60

3-2. Base-Level and Percentage-Point Cuts in Trade-Weighted Average Applied 

Duties for Various Agricultural Reform Scenarios, by Country or Region—

2006 World Bank Study 62

3-3. Effects of a Tiered Formula Cut in Domestic Agricultural Support, Assuming

Market Price Support Is Cut Before Other Support—2006 World Bank Study 64

3-4. Estimated Welfare Effects of Alternative Doha Liberalization Scenarios, by 

Country or Region—2006 World Bank Study, LINKAGE Model Analysis 66

3-5. Estimated Effects on Gross National Product of Various Liberalization

Scenarios, by Country or Region—Study by Buetre and Others 69

3-6. Estimated Effects on Aggregate Trade of Various Liberalization Scenarios—

Study by Buetre and Others 70

3-7. Comparison of Estimated Aggregate Effects of Various Tariff-Reduction

Scenarios—Study by Fontagne, Guerin, and Jean 71

3-8. Effects of Tariff-Rate Quota Liberalization on the Value of Trade—

2006 World Bank Study 72

3-9. Estimated Static Welfare Effects of Tariff-Rate Quota Liberalization— 

Tsigas and Ingco Study 73

4-1. Growth Rates of Agricultural Output and Effects on Agricultural Value Added 

Under Various Scenarios, by Country or Region—2006 World Bank Study 84

4-2. Estimated Static Effects on Output of a 33 Percent Reduction in All

Merchandise and Services Trade Barriers and All Agricultural Domestic

Support and Export Subsidies, by Economic Sector and Country—

Study by Brown, Deardorff, and Stern 86

4-3. Estimated Effects of Agricultural Reform in High-Income Regions on

Agriculture and Food Output and Nominal Rural Value Added—

Study by Beghin, Roland-Holst, and van der Mensbrugghe 87

Tables (Continued)
VIII THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

4-4. Estimated Effects on Real Factor Returns of Full Liberalization of All Goods 

Sectors—2006 World Bank Study, LINKAGE Model Analysis 88

4-5. Estimated Effects on Factor Returns of Full Liberalization of All Goods Sectors—2002 

World Bank Study 90

4-6. Estimated Effects on Factor Returns of Various Tariff-Reduction Scenarios—

Study by Fontagne, Guerin, and Jean 91

4-7. Estimated Static Effects on Factor Returns of a 33 Percent Reduction in 

Agricultural Import Tariffs, Domestic Support, and Export Subsidies, by 

Country or Region—Study by Brown, Deardorff, and Stern 93

4-8. Estimated Welfare Effects of Full Agricultural Liberalization, by Liberalizing and 

Benefiting Regions—2006 World Bank Study, LINKAGE Model Analysis 94

4-9. Estimated Welfare Effects of Full Agricultural Liberalization, by Liberalizing and

Benefiting Regions—2002 World Bank Study 95

4-10. Estimated Effects of Full Liberalization of All Goods on Agriculture and

Food Trade, by Exporting and Importing Country Groups—

2006 World Bank Study, LINKAGE Model Analysis 96

4-11. Estimated Static Effects on Developing Countries’ Agricultural Trade of 

Full Agricultural Liberalization, by Liberalizing Country Group—Economic

Research Service Study 97

4-12. Estimated Output Effects of Full Removal of All Agricultural Distortions in 

High-Income Regions, by Product and Country—Study by Beghin, Roland-Holst, 

and van der Mensbrugghe 98

4-13. Estimated Product-Specific Static Effects on U.S. Agricultural Output of Global 

Full Agricultural Liberalization—Study by Cooper, Johansson, and Peters 100

4-14. Estimated Product-Specific Effects on U.S. Agriculture of Two Agricultural

Liberalization Scenarios—FAPRI Study 102

4-15. Estimated Product-Specific Effects on U.S. Agriculture of Full Agricultural

Liberalization by High-Income Countries—Study by Beghin, 

Roland-Holst, and van der Mensbrugghe 104

4-16. Estimated Product-Specific Effects on U.S. Agricultural Trade of a Global 

36 Percent Reduction in All Policies Distorting Agricultural Trade—

Study by Roberts and Others 105

4-17. Estimated Product-Specific Effects on U.S. Agriculture of Tariff-Rate Quota

Liberalization—Tsigas and Ingco Study 106

4-18. Estimated Product-Specific Effects on U.S. Agricultural Trade of Two Global 

Domestic-Subsidy Reduction Scenarios—Economic Research Service Study 107

Tables (Continued)
CONTENTS IX

4-19. Estimated Product-Specific Effects of Global Export Subsidy Elimination on the 

United States—OECD Study 108

4-20. Estimated Effects of Global Full Liberalization of Policies That Distort 

Trade in Sugar—Elobeid and Beghin Study 110

4-21. Estimated Effects on the United States of Sugar Trade Liberalization in the 

United States and the European Union—Koo Study 112

4-22. Estimated Effects of Removing Oilseed-Related Tariffs—Study by Meilke, 

Wensley, and Cluff 113

Tables (Continued)

CHAPTER

1

Introduction

The current round of multilateral trade negotiations 

under the auspices of the World Trade Organization 

(WTO), known as the Doha Round, was initiated by the 

Doha Ministerial Declaration on November 14, 2001; 

and a framework agreement to govern the talks was 

reached on July 31, 2004. A major focus of the Doha 

Round is the so-called Doha Development Agenda to 

promote development of Third World countries.

A contentious issue in that agenda is the liberalization of 

policies that distort agricultural trade. To illuminate the 

issue, the Congressional Budget Office (CBO) published 

a paper in August 2005 that presented statistics on such 

policies around the world, and in December 2005 it published a report surveying the results of a number of economic studies that examine the likely effects of liberalizing the policies.1

 The latter paper was selective in its 

presentation of numerical results from the studies it covered, presenting only an overview of the major results and 

conclusions. This paper gives a more comprehensive presentation of the numerical results that served as the basis 

for the December 2005 paper, as well as additional discussion of their interpretation. Because the December 

2005 paper is essentially a summary of this paper, no 

summary is included here.

Studies of agricultural liberalization address many questions that are relevant to the Doha Round negotiations. 

First are questions relating to the motivation for addressing agricultural policies in the Doha Round:

B What is the total economic cost to the world of policies that distort trade in agricultural products, and 

how does it compare with the cost of policies that distort trade in other goods?

B Which countries would gain from worldwide elimination of those agricultural trade distortions, which 

would lose, and by how much?

B Which of the policies are most costly to world welfare?

Second are questions relating to the likely features of any 

agreement that might be reached in the round. Full liberalization (that is, complete elimination) of policies that 

distort agricultural trade is not under consideration in the 

negotiations—only partial liberalization—and the partial liberalization that resulted from the Uruguay Round 

Agreement on Agriculture ended up being less than had 

been expected by many people at the time that agreement 

was reached. In addition, liberalization of other sectors is 

being negotiated along with the liberalization of agriculture. Hence, some questions that have been addressed by 

modeling studies include:

B What are the most likely effects of the types and degrees of agricultural liberalization that are under discussion?

B Are the effects of agricultural liberalization influenced 

by liberalization of other economic sectors?

Third are questions concerning who gains and who loses 

within individual countries from liberalization:

B Which countries’ agricultural sectors would gain and 

which countries’ would lose under likely liberalization 

scenarios?

B What would be the effects of agricultural liberalization 

on the income of unskilled labor, skilled labor, and 

owners of capital and land?

1. Congressional Budget Office, Policies That Distort World Agricultural Trade: Prevalence and Magnitude (August 2005), and The 

Effects of Liberalizing World Agricultural Trade: A Survey (December 2005).
2 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Fourth is a question relevant to a major theme of the negotiating round—the Doha Development Agenda:

B Which countries’ policies harm developing countries 

the most?

Liberalization will not affect producers of all agricultural 

products equally, so a final question of interest is:

B What would be the effects of liberalization on U.S. 

producers of particular agricultural products?

A Qualitative Discussion of the

Effects of Liberalization

The effects of trade liberalization fall into two broad categories: static effects and dynamic effects.

Static Effects

Liberalization can be expected to increase the efficiency 

of total world production—which would tend to benefit 

all participating countries—and to affect each country’s 

terms of trade beneficially or detrimentally depending on 

the country’s specific circumstances. For reasons that will 

be discussed shortly, such effects are called static effects.

Effects on Efficiency. When policies that affect trade are 

liberalized, all countries involved reallocate their factors 

of production—labor, capital, and land—so as to produce more of the goods and services that they are relatively more efficient at producing than are other countries 

and less of those that they are relatively less efficient at 

producing.2

 They then trade away some of the increased 

output of the former (exports) in exchange for other 

countries’ increased output of the latter (imports). Because each country increases the fraction of its resources 

devoted to products for which it is relatively most efficient, world output increases to the benefit of all countries involved. In some industries, economies of scale may 

lead to further efficiency gains as countries increase their 

scales of production to serve a world market rather than 

only their own, smaller internal markets.

Effects on Terms of Trade. Another effect of liberalization 

is changes in terms of trade. A country’s terms of trade is 

the relative price of its exports compared with its imports, 

which may be thought of as the quantity of goods it must 

export to earn proceeds sufficient to purchase a given 

quantity of imports. All else being the same, an improvement in a country’s terms of trade (that is, a reduction in 

the quantity of goods it must export to purchase a given 

quantity of imports) makes it better off economically, and 

a deterioration renders it worse off.

Liberalization of agriculture can be expected to change 

countries’ terms of trade for at least two reasons. First, the 

elimination of domestic and export subsidies will reduce 

the quantities of agricultural commodities supplied to 

world markets, and the reduction of tariffs will increase 

the quantities demanded from those markets. The combination of reduced supply and increased demand will 

cause prices in international trade to rise. The rise in 

prices will improve the terms of trade of countries in proportion to the magnitudes of their agricultural exports. 

Conversely, it will worsen the terms of trade of countries 

in proportion to the magnitudes of their agricultural

imports.

Second, members of the WTO are generally required to 

charge the same array of tariffs—called most-favorednation (MFN) tariffs—on imports from all other WTO 

members with two exceptions. One is that countries are 

allowed to enter into free-trade agreements in which they 

eliminate tariffs on all imports from the other parties to 

the agreements. The other is that developed countries are 

allowed to charge lower-than-MFN rates on imports 

from some developing countries. Such exceptions are 

called tariff preferences. If countries granting tariff preferences lower their MFN rates in accordance with a liberalization agreement, then prices of the affected products in 

those countries’ home markets will decline. Consequently, the recipients of the tariff preferences will see declines in the prices their exports command, resulting in 

deteriorations in their terms of trade. Currently, the 

United States and the European Union (EU) have preferential tariffs on many agricultural products of developing 

countries. Given the high MFN tariffs imposed by the 

EU especially, an agricultural liberalization agreement 

could reduce the terms of trade of some developing countries that export agricultural products.

2. In the sense used here, greater efficiency does not necessarily mean 

that the country has, for reasons of better technology and organization, a more efficient production process that uses lesser quantities of resources and factors of production to produce a given 

quantity of output. The country might instead have better access 

to needed natural resources or possess relatively greater supplies of 

a factor of production that is needed in great quantities to produce 

the goods or services—anything that allows the country to produce the goods or services at a lower cost than other countries can.
CHAPTER ONE INTRODUCTION 3

Total Static Effects. All of the effects of liberalization just 

discussed—efficiency gains from reallocation of resources 

and factors of production and from increasing returns to 

scale, and changes in terms of trade—are permanent, 

one-time effects. They may phase in over many years—

particularly the reallocation of capital. However, the 

changes eventually cease, with the economy remaining at 

the new equilibrium brought on by the changes. Ignoring 

for the moment any ongoing growth or economic fluctuations unrelated to the liberalization being modeled, the 

effects represent the differences between the static, unchanging equilibrium of the economy before the liberalization of policies and the static, unchanging equilibrium 

that the economy eventually reaches a number of years after the liberalization. As such, the (fully phased-in) effects 

themselves are static and unchanging—the reason they 

are called static effects.

Whether a country gains or loses from the static effects of 

agricultural liberalization depends on the sum of the efficiency effects for that country and the change in its terms 

of trade. The efficiency effects are generally positive for 

all countries, but changes in the terms of trade can be either positive or negative for a given country depending 

on the relative magnitudes of its agricultural exports and 

imports and on whether it is a recipient of tariff preferences on its agricultural exports. When countries charge 

the same tariffs against all other countries—that is, there 

are no tariff preferences—it can be rigorously proved under fairly general conditions that all countries gain in 

terms of total static effects (efficiency plus terms-of-trade) 

from the reduction or elimination of tariffs. In the presence of tariff preferences, however, the tariff reduction or 

elimination can sometimes result in trade diversion, in 

which one country’s exports to the tariff-reducing country are replaced by another country’s exports. Trade diversion increases the likelihood that one or more countries 

will experience negative total static effects from liberalization. A country can also be harmed when another country reduces or eliminates subsidies of a product that it 

(the first country) imports. Because tariff preferences exist 

and the reduction or elimination of subsidies occurs in 

agricultural liberalization, it is possible that some countries will be harmed in terms of static effects. The ones 

most likely to be harmed are developing countries that 

are net agricultural importers.

Of course, not all people and industries in a country will 

fare equally well from liberalization. Some will gain and 

some will lose. A country is considered by trade analysts 

to gain from liberalization if the gain to the winners is 

larger in dollar value than the loss to the losers. Thus, in 

principle (if not actual practice), it is possible for the winners to compensate the losers, with the result that everyone is better off. Of particular note regarding winners 

and losers, it is entirely possible—in fact, it is likely in 

some cases, as with the European Union—that a country 

could experience overall gain from agricultural liberalization while its agricultural sector loses. In general, a country’s agricultural tariffs and subsidies help its agricultural 

sector at the expense of the rest of the country and at the 

expense of other countries. Further, the benefit of the tariffs and subsidies to the country’s agricultural sector is 

generally smaller in magnitude than the cost to the rest of 

the country, let alone the cost to other countries.

Effects of Liberalizing Other Sectors. The static effects of 

agricultural liberalization would most likely be increased 

in size by liberalization of other sectors. For example, a 

number of developing countries have agricultural sectors 

that are sufficiently competitive that the exports from 

those sectors would increase under agricultural liberalization; but because their manufacturing sectors are uncompetitive, their imports of manufactured goods would increase under manufacturing trade liberalization. 

Increased imports of manufactured goods would increase 

demand within the country for the foreign currency necessary to purchase those imports. That increase in demand would cause a depreciation of the country’s currency relative to the foreign currency. The depreciation 

would reduce the foreign-currency price of the country’s 

agricultural exports, which in turn would lead to increased demand for those exports from abroad and therefore greater benefit to the developing country and its agricultural sector than would occur with agricultural 

liberalization alone.

For the same reason, developed countries with uncompetitive agricultural sectors would most likely see their exports of manufactured goods increase as a result of agricultural liberalization. Such liberalization would cause 

their agricultural imports from developing countries to 

increase, which would increase the demand for developing countries’ currencies. The increased demand would 

drive up the values of those currencies relative to the values of the developed countries’ own currencies, which 

would make the developed countries’ manufactured 

goods less expensive to the developing countries. As a result, developed countries’ exports of manufactured goods 
4 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

would increase beyond what they would with manufacturing trade liberalization alone.

Dynamic Effects

Dynamic effects of trade liberalization are effects on and 

through rates of investment and productivity growth. 

Trade liberalization in general can be expected to increase 

the rate of capital investment. To give a simple example, 

assume for the purpose of argument that a country saves a 

specified amount in dollar value each year and that all of 

that saving ends up purchasing capital goods for one industry or another. Suppose further that the country, as 

part of a general liberalization program, reduces the tariffs 

it imposes on imports of capital goods. Such a reduction 

would cause the price of capital goods in the country to 

decline, and as a consequence, the given dollar value of 

saving would purchase a larger quantity of capital goods. 

Liberalization might affect rates of investment in other 

ways as well.

Any increase in investment would boost the rate of 

growth of the aggregate capital stock of the country for a 

period of time. Eventually, depreciation of the increasing 

capital stock would start to increase as well until net investment—investment minus depreciation—returned to 

what it was before liberalization.3

Increased imports of capital goods could bring improved 

technology incorporated in the goods, which in turn 

could cause the rate of productivity growth to increase 

over the period that the rate of net investment remained 

elevated. In addition, some analysts argue that liberalization can be expected to increase the rate of productivity 

growth indefinitely. Thus, one study contends that productivity growth is linked to the ratio of exports to 

output:

As firms’ exports grow and they increase their 

penetration of world markets, they learn new 

technologies (through comparison with their 

competitors’ products); they improve production processes to match international standards 

(such as safety, health, packaging, style, and 

others); and they can benefit from scale economies as they produce for a larger market.4

Any increases in rates of productivity growth that might 

stem from such causes would not eventually be choked 

off by anything analogous to increased depreciation. 

Hence, their effect on output would continue to increase 

indefinitely.

The dynamic effects of liberalization increase the size of 

the static effects over time. As previously noted, static effects derive from reallocation of each country’s resources, 

factors of production, and technology to reflect the new 

trading environment. Dynamic effects increase the capital 

stock—which is one of the factors of production whose 

reallocation is the source of the static effects—and improve the productivity of the factors of production. Consequently, the effects of reallocation also become progressively larger.

Dynamic effects tend to make all countries better off

over time. Therefore, even if the net static effect of liberalization on a given country is negative, one might expect 

the dynamic effects to partially offset that negative effect 

and perhaps, given enough time, more than offset it, resulting in a positive net total effect of liberalization on the 

country.

Some Important Modeling

Concepts and Qualifications

To properly understand and interpret the modeling results presented in subsequent chapters, it is necessary to 

know and understand a few basic facts and concepts concerning the relevant modeling and studies and some consequent qualifications of their results.

3. Because net investment eventually returns to its preliberalization 

level, some studies classify such effects as static rather than 

dynamic. This paper does not do that, preferring a definition of 

static effects that corresponds with the effects measured by static 

general-equilibrium models. Such models do not measure investment effects. Often such effects are imposed in ad hoc fashion in 

those models by assuming some specified increase in the aggregate 

capital stock of countries for the post-liberalization equilibrium. 

See the discussion of static models that follows.

4. See page 167 in World Bank in the bibliography. Some of the reasons presented in this quotation are more relevant to manufacturing than to agriculture. The study in question allows for effects of 

trade on productivity growth in both manufacturing and agriculture. Another study allows for such effects only in manufacturing. 

Even changes in the manufacturing sector, however, affect agricultural trade because some countries export manufactured goods in 

exchange for imports of agricultural products.
CHAPTER ONE INTRODUCTION 5

Measuring the Aggregate Benefits of Liberalization

Most modeling studies give at least one measure of the 

aggregate benefit or harm resulting from liberalization. 

One possible measure is the change in real (inflation 

adjusted) gross domestic product (GDP). A better measure, however—and one that is used frequently—is the 

change in economic welfare. The concept of economic 

welfare requires some explanation.

Liberalization of an economy leads to changes in relative 

prices as well as real GDP. Consequently, real GDP does 

not fully reflect the total benefit of liberalization. To understand why, imagine breaking down the combined 

change in real GDP and relative prices into two distinct 

changes: the change in real GDP with relative prices kept 

constant at their initial values, and then the change in relative prices with real GDP kept constant at its new higher 

level. Suppose that the change in real GDP is 5 percent. 

The increased GDP would mean that the country could 

increase the value of the market basket of goods that its 

people purchase and consume by 5 percent, and the fact 

that relative prices remain fixed would mean that the proportion of the market basket devoted to the various goods 

would remain the same.5

 Now impose the change in relative prices. Because real GDP remains fixed at the new 

higher level, the value of the market basket of goods will 

remain unchanged; however, its composition will not. 

People will purchase lesser quantities of goods that go up 

in price and greater quantities of goods that go down in 

price. The change in the mix of goods makes the people 

better off; otherwise they would not change the mix. 

Consequently, the change in economic well-being—what 

economists call economic welfare—from the combined 

change in real GDP and relative prices is greater than that 

indicated by the change in real GDP alone.

Economists have two similar measures of changes in economic welfare that can be applied in practice: equivalent 

variation and compensating variation. As applied to liberalization, the equivalent variation is the increase in income that would be required without liberalization to 

make people as well-off economically as they as they 

would be with the liberalization. The compensating variation is the reduction in income that would be necessary 

with liberalization to keep people at the same level of economic well-being that they have without the liberalization. It can be shown theoretically that the actual improvement in economic welfare is at least as large as the 

equivalent variation and no larger than the compensating 

variation. All of the studies surveyed in this paper that 

give estimates of welfare effects use equivalent variation as 

the measure.

Partial-Equilibrium Versus General-Equilibrium 

Models

Except for the studies in the last section of Chapter 4, 

which discusses product-specific effects of liberalization, 

almost all of the studies discussed in this paper use 

general-equilibrium models to produce their estimates. 

General-equilibrium models simulate the behavior of the 

entire economies of the countries at issue, not just the 

parts of the economies that are of interest (in this case, agriculture). Some parts of the economies may not be modeled in great detail. In some of the studies, all nonagricultural goods sectors are lumped into one big industry 

sector. Nevertheless, the entire economies are modeled. 

Some of the studies that present estimates of productspecific effects also use general-equilibrium models, but 

others use partial-equilibrium models. Partial-equilibrium models simulate the behavior of only the economic 

sectors that are of interest—in this case, agriculture or 

some narrow component of agriculture—and ignore 

other sectors of the economy, usually assuming that prices 

in those sectors (or perhaps some other key variables relating to how those sectors interact with the sector of interest) remain constant.

Partial-equilibrium models have both advantages and disadvantages relative to general-equilibrium models. They 

often can treat the industry of interest in greater detail 

and complexity than is feasible in a general-equilibrium 

model, and that fact can be beneficial in accurately modeling narrowly defined industries and sectors. Such models cannot, however, capture some effects that are inherently general equilibrium in nature—for example, the 

effect that liberalizing manufacturing trade is likely to 

have on the benefits from liberalizing agricultural trade, 

as discussed above. In general, the larger and more widespread in the economy the policy changes are, the more 

important general-equilibrium effects are likely to be. 

Economists generally agree that a trade agreement encompassing all goods trade requires a general-equilibrium 

model for accurate modeling. However, for many countries individually and for the world as a whole, agriculture 

5. This argument abstracts from the fact that some goods are luxury 

goods (that is, goods which constitute an increasingly large fraction of the market basket as people get richer) and some are 

inferior goods (that is, goods which constitute an increasingly 

small fraction of the market basket as people get richer).
6 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

contributes only a small percentage of GDP, so the general-equilibrium effects of liberalization limited to agriculture are likely to be small. Consequently, if the analyst 

is interested only in one or more of those countries or in 

the world as a whole (but not in other countries for 

which agriculture is more important), and if the liberalization at issue is limited to agriculture (or is much more 

substantial for agriculture than for other sectors), the 

benefits that partial-equilibrium models can bring in 

terms of more-detailed treatment of the agricultural sector might outweigh the general-equilibrium effects that 

they ignore.

Static and Dynamic Models

Some models incorporate and predict only static effects 

of a policy change such as liberalization and make no predictions about the economy’s path of adjustment to the 

change or even the length of time that the adjustment 

takes. The models are solved for the static equilibrium before the policy change and again after the change. The 

differences between the two equilibria are the static effects of the change in policy. Such models are called, appropriately, static models.

Other models, in addition to predicting the static effects 

of a policy change, also make predictions about the economy’s path of adjustment over time. Such models are 

called dynamic models. Unlike static models, dynamic 

models can be designed (although not all of them are) to 

incorporate the dynamic effects of liberalization on investment and productivity growth rates as discussed 

above, as well as growth in the economy for other reasons 

over time. Dynamic models are more complicated than 

static models, and their solution is more complicated and 

computation-intensive. Rather than being solved for two 

equilibria—one before the policy change and one after—

such models must be solved for a series of equilibria over 

time.

When CBO surveyed modeling studies of the North 

American Free Trade Agreement in 1993, most of the 

studies surveyed used static models.6

 The large computational power required to solve dynamic models made 

them problematic if they had more than a few countries/

regions and economic sectors. Over time, the increasing 

computational speed of computers has eased that problem, and dynamic models have become more common 

and have come to incorporate larger numbers of countries/regions and economic sectors.

The additional effects that can be incorporated in dynamic models can make them more realistic and accurate, 

but they complicate the comparison of results among 

modeling studies. For example, all else the same, the inclusion of the previously discussed dynamic effects on investment and productivity leads to the prediction of 

greater benefits and larger effects generally from liberalization than would otherwise be predicted. Therefore, if 

two models predict different dollar values of benefits 

from a liberalization agreement, the analyst must determine whether one of the models includes dynamic effects 

on investment or productivity and the other does not before deciding that there is a conflict. It might be the case 

that the models are in agreement concerning the static

effects.

A second complication stems from the fact that the benefits (and effects on trade and other variables) resulting 

from the inclusion of dynamic effects on investment and 

productivity grow over time. The results of two modeling 

studies that do not include such effects are comparable as 

long as the two studies model the same or similar liberalization scenarios and use the same base year for the preliberalization economic values (such as the GDP, imports, 

and exports of each country) and for the policies to be 

liberalized. In that case, different estimates by the two 

models reflect different assessments of the effects of liberalization on the economy. When dynamic effects on investment and productivity are included, however, the two 

studies must also estimate the effects of liberalization at 

the same or nearly the same interval of time after the date 

that the liberalization is assumed to occur for their results 

to be comparable. If the intervals are not the same, then 

different results from the two studies may reflect merely 

that one of the studies gave the effects more time to grow 

in size than the other did.

A third complication arises with dynamic models that incorporate exogenously imposed rates of growth over 

time—growth that has nothing to do with liberalization—in some variables such as population and some 

components of productivity. That growth causes the projected sizes of the economies of the countries modeled to 

grow over time even in the absence of liberalization. One 

would expect the dollar value of the benefits of liberalization to increase with the sizes of the economies of the 

6. Congressional Budget Office, Estimating the Effects of NAFTA: An 

Assessment of the Economic Models and Other Empirical Studies

(June 1993).
CHAPTER ONE INTRODUCTION 7

countries in question. Therefore, one would expect studies using models with such exogenous growth components to predict larger effects in dollar-value terms than 

studies using models without such components. Further, 

for the results of two studies using models with such 

components to be comparable, the studies not only must 

estimate effects at similar intervals after liberalization but 

also must assume that liberalization occurs at roughly the 

same time. Otherwise, the fact that one study estimates a 

larger benefit in dollar-value terms may simply reflect 

that the study assumed liberalization to occur at a later 

time when the economy had grown larger.

Data Problems

Modeling multilateral liberalization of policies affecting 

agricultural trade requires data on trade protection (tariff 

and nontariff), domestic subsidies, export subsidies, 

trade, and output, and all of the data must be for the 

same (or close to the same) year. The task of compiling 

such an array of data is vast, and many of the numbers 

one would like to have for a modeling study are simply 

unavailable for some (or even many) countries.

Most studies of agricultural trade liberalization make use 

of the set collected by the Global Trade Analysis Project 

(GTAP) at Purdue University for some or all of their data 

needs. Periodically, new versions of the GTAP database 

are released with various improvements. The most recent, 

version 6.05, was released in December 2004. It improves 

on earlier versions by, among other things, updating the 

data to 2001 (previous versions had economic data for 

1997 or earlier and trade policy data for 1998 or earlier); 

including both bound and applied tariffs; including tariff 

preferences; and including the ad valorem equivalents of 

specific tariffs. Even so, version 6.05 itself is not perfect, 

and data sets for trade modeling will probably always be 

inferior to what modelers would like.

Of the studies surveyed in this paper, the 2006 World 

Bank study is the only one that is recent enough to use 

version 6.05 of the GTAP database.7 Most of the others 

use data from 1998 or earlier. As a result, their estimates 

of the effects of liberalization include the effects of eliminating or reducing policies that have already been eliminated or reduced since those early base years. One study 

notes that its liberalization scenario assumes no liberalization by China because it was not a member of the WTO 

at the time of the study.8

The Doha Round tariff negotiations concern reductions 

in bound tariffs, not applied tariffs, and many countries’ 

bound tariffs are significantly higher than their applied 

tariffs. Consequently, as will be discussed in more detail 

in Chapter 3, a given percentage reduction in bound tariffs will in most cases result in a much smaller reduction 

in applied tariffs and hence a smaller effect on trade than 

might otherwise be expected. For most of the studies not 

using version 6.05 of the GTAP database, lack of data on 

bound tariffs means that their modeling exercises cannot 

account for the effects of that slack. Moreover, some earlier versions did not even have a complete set of applied 

tariffs and included bound tariffs in place of the missing 

applied tariffs.

Of the studies included in this survey, the 2006 World 

Bank study is clearly the most up to date and detailed, 

and the new GTAP data set allows it to take into account 

more complicating factors than do the other studies. 

Therefore, it is treated prominently. However, problems 

with data are only one of many possible sources of error 

in a large general-equilibrium modeling study. Such models and the studies using them are complicated and require judgment calls about model design, values of parameters, and many other factors that can affect the 

models’ solutions. Consequently, the results of even the 

best studies should be treated with caution unless supported by similar results from other, independent studies. 

Further, no one study answers all the questions one might 

have about agricultural liberalization. Hence, surveying a 

number of modeling studies is necessary for a confident 

evaluation of the various effects of multilateral liberalization of the agricultural sector. Such a survey is the task of 

this paper.

Lack of Independence Among Studies

Not only is there overlap in the data sets used in the studies surveyed in this paper, but the studies also overlap in 

other ways as well. Three of the studies use versions of the 

7. This study is the same as the 2005 World Bank study referred to 

in CBO’s December 2005 paper. At the time that paper was 

issued, the 2006 World Bank study had not yet been published, 

but CBO was able to include it because prepublication drafts were 

available from the World Bank’s Web site. The forecast date of 

publication was 2005, so CBO referred to the study as the 2005 

World Bank study. The study has since been published with a 

copyright date of 2006. Therefore, it is referred to here as the 

2006 World Bank study.

8. China joined the World Trade Organization in 2001.
8 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

World Bank’s LINKAGE model. Two of those were published by the World Bank and at least one of the coauthors of the third is an employee of the World Bank. Several studies make use of some variant of the GTAP static 

general-equilibrium model. The more that two studies 

have in common in terms of data, model, and authors, 

the more one would expect their results to be similar. The 

result of such overlap is to reduce the level of independent confirmation of results to something less than it 

would appear on the surface from the number of studies 

surveyed. Each of the tables of results in this paper identifies the model and data used in the study, the liberalization scenario simulated, and the authors of the study to 

help the reader assess the extent to which the results presented are independent of those in other tables.
CHAPTER

2

Economywide Effects of Full Liberalization

Estimates from a number of modeling studies are 

generally consistent with an annual welfare benefit to the 

world of roughly $50 billion to $185 billion (measured in 

2001 dollars) by 2015, or 0.1 percent to 0.4 percent of 

world gross domestic product, from the static and investment effects of full agricultural liberalization by all countries beginning in 2005. That benefit can be considered 

the cost of keeping in place current policies that distort 

agricultural trade. Some estimates indicate that the cost 

of those policies is roughly two-thirds of the total cost of 

all policies distorting trade in goods. Estimates for the 

United States indicate an annual welfare gain from the 

same liberalization scenario that would most likely be in 

the range of $8 billion to $27 billion, or less than 0.1 percent to about 0.2 percent of GDP. All other developed 

countries would most likely benefit as well. Developing 

countries as a group would most likely benefit, although 

some individual developing countries might be harmed. 

Over time, the number of countries harmed should decline as the dynamic effects of liberalization on investment and productivity begin to overcome the negative 

static effects on some countries. Roughly 80 percent to 

90 percent of the benefit would stem from elimination of 

tariffs. The welfare cost to the world of domestic subsidies and export subsidies is considerably smaller. Part of 

the reason may be that such subsidies benefit countries 

that import the subsidized goods, offsetting the harm that 

the subsidies inflict on the countries that grant them.

The Total Worldwide Cost of Policies 

That Distort Agricultural Trade

At first glance, the estimated total world (or global) welfare cost of policies that distort agricultural trade—tariffs, 

domestic subsidies, and export subsidies—varies considerably from study to study (see Table 2-1 on page 24). 

However, closer inspection reveals that some of the variation results from differences in timing, liberalization 

modeled, and methodology used. When rough adjustments are made to the estimates to account for those differences, the resulting estimates are closer together. Specifically, the estimates adjusted to reflect the increase in 

annual economic welfare in 2015 resulting from the static 

and investment effects of liberalization beginning in 2005 

are generally in the range of $50 billion to $185 billion, 

or 0.1 percent to 0.4 percent (see Table 2-2 on page 26). 

Depending on the model and data set, the inclusion of 

productivity effects of liberalization can raise the estimate 

by 50 percent to 100 percent or more. Static-effect estimates are lower.

The reader is cautioned that the adjustments made to 

produce the estimates in Table 2-2 are crude, and therefore, the adjusted estimate for any one study should not 

be used alone as an estimate of what that study predicts 

for the common full-liberalization scenario that all of the 

studies are revised to reflect. Rather, conclusions should 

be drawn only from the group of adjusted results from all 

of the studies taken together, as was done in the previous 

paragraph. The following discussion presents important 

methodological details of the various studies and explains 

the adjustments the Congressional Budget Office made 

to produce Table 2-2.

Studies of Full Liberalization of All Agricultural 

Policies

The most-direct estimates of the total cost of all policies 

that distort agricultural trade come from studies that run 

simulations of the total elimination of such policies.

2006 Study by the World Bank, LINKAGE Model Analysis. 

The LINKAGE model analysis of the 2006 World Bank 

study estimates that the increase in world welfare in 2015 

from the static and investment effects of fully liberalizing 

agriculture (that is, completely phasing out all tariffs, domestic subsidies, and export subsidies) in equal increments from 2005 through 2010 would be $182 billion
10 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

(in 2001 dollars).1 The study does not give the percentage form of that estimate, but it gives both the dollarvalue and percentage forms for other estimates; from 

those, it is possible to determine that the baseline world 

GDP in 2015 in the analysis is roughly $43 trillion.2

Thus, the $182 billion estimate is 0.43 percent of baseline GDP. The analysis actually simulates the full liberalization of all goods sectors, not just agriculture, and the 

result presented here is the component of the resulting 

welfare effect that the study attributes to liberalization of 

agriculture. As noted in Chapter 1, liberalization of other 

goods sectors can be expected to increase the effects of agricultural liberalization.

The analysis uses a version of the World Bank’s LINKAGE

model with 27 countries/regions and 25 economic sectors. Agriculture and food comprise 13 of the 25 sectors. 

The model can produce estimates incorporating static effects, investment effects, and effects on productivity 

growth rates. The simulations producing the estimate 

presented here include the first two but not the third.

The analysis uses version 6.05 of the Global Trade Analysis Project database, which has a base year of 2001, but it 

effectively updates the base year in approximate fashion 

to 2005. With regard to the policies liberalized, it does so 

by including major changes in trade policy through 2005 

in its baseline simulation, most notably the final stages of 

implementation of the Uruguay Round Agreement, tariff 

reductions made by China and Taiwan as conditions of 

their accession to the World Trade Organization, and the 

enlargement of the European Union to 25 members. 

With regard to economic variables, the model includes 

growth unrelated to trade liberalization in certain variables, such as population and productivity, and economywide productivity growth for each country is calibrated to 

make the model achieve a specified GDP growth target 

for that country. Therefore, even though the simulations 

start from the 2001 base year of GTAP version 6.05, the 

simulated size of each country’s economy in 2005 when 

liberalization begins to phase in should approximate its 

true value in 2005.

Although the analysis does not give an estimate of the 

world welfare effect of full liberalization of agriculture 

that includes effects on productivity growth, it does give 

estimates of the world welfare effect of full liberalization 

of all goods sectors both with and without effects on productivity growth. The estimate without productivitygrowth effects is $287.3 billion, and the estimate with 

such effects is $461.2 billion—60.5 percent larger. If one 

assumes as an approximation that including productivity 

effects increases the $182 billion welfare-effect estimate 

for full agricultural liberalization by roughly the same 

percentage, then that estimate would rise to $292 billion, 

or 0.69 percent of world GDP.3

2006 Study by the World Bank, GTAP-AGR Model 

Analysis. The GTAP-AGR model analysis of the 2006 

World Bank study estimates the static welfare increase 

from full agricultural liberalization at $55.658 billion (in 

2001 dollars).4 Like the LINKAGE model analysis, the 

GTAP-AGR model analysis actually simulates the full liberalization of all goods sectors, and the result presented 

here is the component of the resulting welfare effect that 

the study attributes to liberalization of agriculture.

The GTAP-AGR model is a special-purpose variant of 

the standard GTAP static general-equilibrium model that 

is tailored to the analysis of agricultural policy issues. Like 

the LINKAGE model analysis, the GTAP-AGR model 

analysis uses version 6.05 of the GTAP database with a 

base year of 2001. The analysis first runs a preliminary 

simulation incorporating all liberalization that had been 

committed to in the WTO but not yet actually implemented by 2001, which includes the final stages of implementation of the Uruguay Round Agreement and the 

commitments made by China in its accession to the 

1. See Anderson, Martin, and van der Mensbrugghe (a) in the 

bibliography.

2. Specifically, in Tables 12.14a and 12.14b on pages 370-373 of the 

study, the improvement in world welfare in 2015 for a scenario 

labeled “scenario 8” is reported to be $119.3 billion and 0.28 percent of the baseline. It follows that the baseline in 2015 is equal to 

$119.3 billion/0.28 percent = $42,607 billion, which must be 

rounded to $43 trillion because 0.28 percent has only two significant digits. Notwithstanding the rounding of the number in the 

text, all calculations based on it throughout the paper use the 

exact number.

3. The reasonableness of that assumption is supported by the fact 

that the $182 billion attributable to agricultural liberalization is 

63.3 percent of the $287.3 billion attributable to liberalization of 

all goods sectors. Moreover, in the 2002 World Bank study, which 

also uses the LINKAGE model, the inclusion of productivity effects 

increases the welfare effect from full liberalization of all goods 

trade by 134.4 percent and increases the effect from full agricultural liberalization by a nearly identical 136.7 percent.

4. See Hertel and Keeney in the bibliography.
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 11

WTO. The analysis then uses the end point of that simulation as the starting point for the simulation of the full 

liberalization of agriculture. That procedure avoids attributing the benefits from liberalization that had already 

been committed to but not yet implemented in the base 

year to full liberalization of agriculture.

An appendix in the World Bank study examines the reasons that the estimate from the LINKAGE model is so 

much larger than the estimate from the GTAP-AGR 

model.5,6 It finds that the difference is largely attributable 

to three factors. First, because the GTAP-AGR model is a 

static model, it has no provision for growth of countries’ 

economies. Therefore, the GTAP-AGR model effectively 

measures the effects of liberalization on countries’ economies at the sizes they had in 2001, whereas the LINKAGE

model measures the effects on them at the sizes the model 

projects them to have in 2015. Economic growth over the 

intervening 14-year interval—growth not caused by the 

liberalization—makes for a factor of 1.8397 difference in 

the estimates. Second, the investment effects in the 

LINKAGE model cause a factor of 1.2283 difference. Finally, the LINKAGE model has longer-term elasticities of 

substitution between imports and competing domestically produced products, which cause a factor of 1.4270

difference.7,8

One could argue about which set of elasticities is appropriate. However, it is clearly appropriate to include investment effects, and proper comparison of modeling results clearly requires that the effects of liberalization be 

estimated for similarly sized economies. Hence, applying 

the first two factors to the GTAP-AGR estimate gives 

$55.658 billion x 1.8397 x 1.2283 = $125.78 billion—a 

little over two-thirds of the LINKAGE model estimate. Applying the elasticity factor to that brings the estimate up 

to $179.48 billion, which is very close to the LINKAGE

model estimate.

The adjusted estimate in Table 2-2 on page 26 is obtained by applying the economic-growth factor to the 

2001 estimate: $55.658 billion x 1.8397 = $102.40 billion. That amount is 0.24 percent of the $43 trillion 

baseline from the LINKAGE model analysis.

2002 Study by the World Bank. The World Bank published an earlier study of liberalization in 2002.9

 That 

study estimates that the same scenario evaluated in the 

LINKAGE model analysis of the 2006 study—fully liberalizing agricultural policy in equal increments from 2005 

through 2010—would increase world economic welfare 

in 2015 by $248 billion (in 1997 dollars), or 0.64 percent of GDP, when static and investment effects but no 

productivity effects are included, and by $587 billion, or 

1.47 percent of GDP, when all three kinds of effects are 

included.10 Like the analyses in the 2006 World Bank 

study, the 2002 study actually simulates the full liberal5. “Comparison of Versions 5 and 6.05 of the GTAP Protection 

Database and of LINKAGE Model Results With Those from the 

GTAP-AGR Model,” Appendix 12A to Anderson, Martin, and 

van der Mensbrugghe (a) in the bibliography.

6. Actually, the appendix examines the reasons for a similarly large 

difference between the two models in their estimates of the world 

welfare effect of full liberalization of all goods sectors—not just 

agriculture. However, the same reasons hold for full liberalization 

of agriculture, and the magnitudes of the effects stemming from 

those reasons are undoubtedly similar.

7. Elasticities of substitution are parameters in a model that reflect 

the sensitivity of consumers’ and businesses’ choices between 

imports and competing domestic products to changes in price. A 

high elasticity for a product means that a small reduction in the 

price of an import relative to the price of the competing domestic 

product will lead consumers and businesses to substantially 

increase the quantities of the import they purchase at the expense 

of the domestic product. A low elasticity means that the reduction 

in price must be much larger to induce them to do that. Elasticities of substitution for long time frames tend to be higher than 

those for shorter time frames.

8. More precisely, the appendix found that scaling the LINKAGE

model result for full liberalization of all goods sectors to account 

for the smaller economy in 2001 reduced the result from $287 billion down to $156 billion, a factor of 1.8397 reduction. Removing the dynamic investment effects reduced the result further from 

$156 billion down to $127 billion, a factor of 1.2283 reduction. 

Finally, imposing the shorter-term elasticities reduced the result 

further from $127 billion down to $89 billion, a factor of 1.4270 

reduction.

9. See World Bank in the bibliography.

10. The percentage forms presented here are not given directly in the 

study. Rather, Figure 6.2 on page 168 of the study indicates that 

the benefits from static-plus-investment effects of full liberalization of all goods sectors would be 0.91 percent, and the benefits 

from static-plus-investment-plus-productivity effects would be 

2.09 percent. Table 6.1 on page 171 of the study indicates that the 

benefits from static-plus-investment effects of full liberalization of 

agriculture would be $248 billion and that those from full liberalization of all goods trade would be $355 billion. The corresponding numbers for static-plus-investment-plus-productivity effects 

would be $587 billion and $832 billion. It follows that the percentage benefit from the static-plus-investment effects of full liberalization of agriculture would be 0.91 percent x ($248/$355) = 

0.64 percent. The benefits from static-plus-investment-plusproductivity effects would be 2.09 x ($587/$832) = 1.47 percent.
12 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

ization of all goods sectors, and the results presented here 

are the components of the resulting welfare effects that 

the study attributes to liberalization of agriculture—a fact 

that may increase the size of the estimated effect.

The study uses a version of the World Bank’s LINKAGE

model with 15 regions and 20 economic sectors. However, it uses version 5 of the GTAP data set, which has a 

base year of 1997 and does not include most tariff preferences. The earlier base year and lack of tariff preferences 

explain why the estimates from the 2002 study are higher 

than those in the LINKAGE analysis of the 2006 study: the 

2002 study includes the benefits from liberalizing policies 

that were eliminated or reduced between 1997 and 2005, 

which are not included in the 2006 study’s estimates, and 

it includes benefits from liberalizing most-favored-nation 

tariffs on imports from countries that face lower, preferential tariffs.11

One can conclude that the more-updated policy data and 

the inclusion of tariff preferences lower the estimated 

benefit from liberalization by a factor of roughly 

$182 billion/$248 billion = 0.7339.12 That factor can be 

used to adjust the estimates from the 2002 study and 

other studies discussed below (which also use older policy 

data and do not account for tariff preferences) to make 

them more nearly comparable with the estimates from 

the 2006 study. Applying the factor to the static-plus-investment-effects estimate from the 2002 study gives $182 

billion (by definition), or 0.47 percent. Similarly, applying it to the static-plus-investment-plus-productivity-effects estimates gives $430.8 billion, or 1.08 percent.

Study by the Economic Research Service. A study published in 2001 by the Economic Research Service (ERS) 

of the U.S. Department of Agriculture gives three estimates of the effect on world welfare of full agricultural 

liberalization by all WTO members.13,14 It estimates the 

static welfare effect at $31.06 billion (in 1997 dollars), or 

0.13 percent. When it includes investment effects along 

with the static effects, its estimate rises to $36.26 billion, 

or 0.16 percent, 15 years after liberalization. When it includes productivity effects as well, the estimate rises still 

further to $56.39 billion, or 0.24 percent of GDP (also 

15 years after liberalization).

The study uses trade data from version 5.2 of the GTAP 

database, which has a base year of 1997. It uses 1998 levels for agricultural tariffs, domestic support, and export 

subsidies, with tariffs obtained from the Agricultural 

Market Access Database, domestic support numbers obtained from the producer support estimates published by 

the Organisation for Economic Co-operation and Development, and export subsidy data obtained from membercountry reports to the WTO.

The study uses ERS’s own general-equilibrium model 

with 12 countries/regions, nine production sectors relating to agriculture and food, and one combined sector for 

the rest of the economy. Unlike the World Bank’s 

LINKAGE model, ERS’s model has no provision for economic growth independent of that attributable to the agricultural liberalization being modeled, which is part of 

the reason the welfare-effect estimates from the ERS 

study are so much smaller in dollar-value terms than the 

estimates from the LINKAGE model analysis of the 2006 

World Bank study. (It is not the entire reason, as is evident from the fact that the ERS estimates expressed in 

terms of percentages are smaller than the World Bank estimates similarly expressed.) The depressing effect of the 

model’s lack of provision for growth on the ERS’s dollarvalue estimates is particularly significant because of the 

1997 base year for the economic data in the analysis. 

(Even the GTAP-AGR model analysis, which also has no 

exogenous growth, has a 2001 base year for such data.) 

The percentage forms of the ERS estimates can be used to 

make approximate dollar-value estimates for the world 

economy at its projected size in 2015. Applying the per11. Some of the difference between the dollar values of the estimates 

from the 2002 and 2006 studies may also be attributable to 

updated projections of the sizes of countries’ economies in 2015.

12. Contributing to the roughness of this factor is the fact that 

updated data undoubtedly led the World Bank to modify slightly 

its projections of the sizes of countries’ economies in 2015. Any 

such modification would affect the estimated welfare effect and 

thereby affect the factor as calculated here.

13. See the Burfisher “Overview” and Diao, Somwaru, and Roe in the 

bibliography.

14. Although the “full liberalization” modeled by the ERS study 

includes elimination of all tariffs, tariff equivalents of nontariff 

barriers, and export subsidies by all WTO members, it includes 

elimination of domestic support only for Australia, New Zealand, 

Japan, Korea, the United States, Canada, the European Union, 

and three countries in the European Free Trade Area (EFTA). 

However, those countries account for between 90 percent and 92 

percent (depending on which three of the four EFTA countries 

had subsidies eliminated by the study) of the total domestic support reported to the WTO by member countries.
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 13

centage form of the ERS static-effects estimate to the 

baseline GDP for 2015 from the LINKAGE model analysis 

gives 0.13 percent x $43 trillion = $55.4 billion. Applying the percentage form of the ERS static-plusinvestment-effects estimate to the LINKAGE model baseline gives 0.16 percent x $43 trillion = $68.2 billion. Applying the ERS static-plus-investment-plus-productivityeffects estimate to the LINKAGE model baseline gives 0.24 

percent x $43 trillion = $102.3 billion.

For final comparability with the LINKAGE model estimates, it is necessary to step those adjusted ERS estimates 

down to reflect the fact that the ERS study uses 1998 policy data with no recognition of tariff preferences, whereas 

the 2006 World Bank study uses approximate 2005 policy data that includes tariff preferences. The step-down 

can be accomplished in approximate fashion by multiplying the ERS estimates as adjusted so far by the ratio of the 

2006 World Bank estimate to the 2002 World Bank estimate.15 Thus, the final adjusted ERS static-effects estimate is $55.4 billion x $182 billion/ $248 billion = $40.7 

billion. The final adjusted static-plus-investment-effects 

estimate is $68.2 billion x $182 billion/$248 billion = 

$50.0 billion. The final adjusted static-plus-investmentplus-productivity-effects estimate is $102.3 billion x 

$182 billion/$248 billion = $75.0 billion.

The adjusted ERS estimates are smaller than the estimates from the two World Bank studies. Part of the reason (although clearly not all of the reason) may be that 

the liberalization modeled in the ERS study is restricted 

to WTO members. In accordance with that restriction, 

China and Taiwan were assumed not to liberalize because 

they were not WTO members at the time the study was 

published.

Studies of Equal Partial Liberalization of All

Agricultural Policies

More-indirect estimates of the total cost of tradedistorting policies can be obtained from studies that reduce all such policies in a balanced fashion, such as a 50 

percent reduction in all tariffs (including tariff equivalents of nontariff barriers), domestic support, and export 

subsidies. The results of such studies must be scaled up to 

make them comparable with the results of the studies of 

full liberalization. The question is by how much. The 

cost of trade-distorting policies is an increasing function 

of the magnitude of those policies, although the precise 

form of that function is unknown. Because it is unknown, the precise amount by which the results should 

be scaled up is unknown.

CBO chose to scale the results up by a range of values. 

The upper end of the range was calculated on the basis of 

the assumption that the cost of trade-distorting policies is 

strictly proportional to the magnitude of those policies. It 

follows from that assumption that the benefit of reducing 

the magnitude of the policies is strictly proportional to 

the percentage reduction in the policies. Thus, if a study 

provides an estimate of the benefit from a 25 percent reduction in trade-distorting policies, the benefit from full 

liberalization—a 100 percent reduction—would be four 

times the estimate for the 25 percent reduction given in 

the study.

The lower end of the range was calculated on the basis of 

the assumption that the cost of trade-distorting policies is 

proportional to the square of the magnitude of the policies. That assumption is based on the fact that (as will be 

shown later in this chapter) most of the cost of tradedistorting policies stems from tariffs (which are taxes) and 

on a result from economic theory according to which the 

cost of a tax is proportional to the square of the tax rate. 

It can be shown that if the assumption is true, then 

BFULL = BP / [P x (2 - P)], where BFULL is the benefit 

from full liberalization and Bp is the benefit estimated by 

a study for a scenario in which trade-distorting policies 

are reduced by a percentage equal to P.

Study by Brown, Deardorff, and Stern. A study by 

Drusilla K. Brown, Allan V. Deardorff, and Robert M. 

Stern that was published in December 2002 examines the 

effects of a 33 percent reduction in agricultural import 

tariffs, domestic support, and export subsidies. The study 

is the only one CBO surveyed that does not find a world 

welfare benefit from such liberalization. Instead, the 

study estimates a welfare loss of $3.1 billion.

The loss results from the reduction in export subsidies. 

The study finds that the reduction in tariffs increases 

world welfare by $9.5 billion, and the reduction in domestic subsidies increases it by $10.6 billion. However, 

the reduction in export subsidies reduces it by $23.2 billion, bringing the total to the net loss of $3.1 billion. The 

15. Strictly speaking, the ratio of the 2006 World Bank estimate to 

the 2002 World Bank estimate corrects for policy liberalization 

between 1997 and 2006 plus tariff preferences rather than for policy liberalization between 1998 and 2006 plus tariff preferences as 

is needed here, but the error introduced should be small. 
14 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

reduction in export subsidies benefits the countries that 

grant the subsidies, but the resulting increase in the international prices of agricultural products harms countries 

that import those products even more, resulting in the 

net loss for the world.

The study uses the Michigan Model of World Production 

and Trade, which has 21 countries/regions and 18 production sectors, of which agriculture is one. The model 

incorporates aspects of the “New Trade Theory,” such as 

increasing returns to scale, monopolistic competition, 

and product heterogeneity. The study uses version 4 of 

the GTAP database, which has a base year of 1995, but it 

updates the base year in a very rough fashion to 2005. To 

estimate what the values of major economic variables 

would have been in 2005 in the absence of the Uruguay 

Round Agreement, the study makes projections on the 

basis of growth rates contained in the 1999 edition of 

World Development Indicators and the 1998-1999 edition 

of World Development Report, both published by the 

World Bank. The study then simulates the liberalization 

agreed to in the Uruguay Round Agreement. The end 

point of that simulation is used as the starting point for 

the simulation that produced the estimate presented here. 

As such, the policies that are liberalized to produce that 

estimate presumably do not reflect the admission of 

China and Taiwan into the WTO and the expansion of 

the European Union to 25 countries.

Assuming that the loss from liberalization is strictly proportional to the percentage reduction in import tariffs, 

domestic support, and export subsidies, the welfare loss 

from full liberalization—that is, a 100 percent reduction—would be $9.4 billion. In the results of this study, 

tariffs impose an economic cost, whereas the net effect of 

all agricultural trade-distorting policies is positive. Moreover, the magnitude of the effect of tariffs on economic 

welfare is smaller than the magnitude of the effect of subsidies. Therefore, justification for the assumption that the 

cost of trade-distorting policies is proportional to the 

square of the magnitude of those policies does not hold, 

and the adjustment based on that assumption is not calculated here.

The Brown, Deardorff, and Stern study does not give the 

world welfare effect in percentage form. Therefore, it is 

not possible to step it up to account for economic growth 

through 2015. For that reason, and because the study’s estimate is fundamentally different from the other studies’ 

estimates in that it is negative, no adjusted estimate is 

presented in Table 2-2 on page 26.

Study by Roberts and Others. A study by Ivan Roberts 

and others that was published in 1999 examines the effects of a 36 percent reduction in restrictions on agricultural market access (in tariff equivalents for nontariff barriers), domestic support, and export subsidies. It 

estimates the static world welfare effect at $34.3 billion 

(in 1995 dollars).

The study uses the GTAP static general-equilibrium 

model with 24 countries/regions and 22 commodities. It 

uses version 4 of the GTAP database (modified slightly to 

improve the data representation of policies where necessary), which has a base year of 1995. That was the first 

year of the Uruguay Round Agreement, and the liberalization scenario modeled is similar to the liberalization 

contained in that agreement, although a little more aggressive in its subsidy liberalization.16

Under the assumption that the cost of trade-distorting 

policies is strictly proportional to the magnitude of the 

policies, the welfare benefit from full liberalization would 

be $95.3 billion. Under the assumption that the cost is 

proportional to the square of the magnitude of the policies, the benefit from full liberalization would be $58.1 

billion.

The $95.3 billion and $58.1 billion figures are for the 

world economy of 1995. To make the results comparable 

with those from the LINKAGE model analysis in the 2006 

World Bank study, they must be scaled up to reflect the 

growth in the world economy through 2015. Recall from 

the discussion of the GTAP-AGR model analysis that historical and projected growth of the world economy from 

2001 through 2015 increases the size of the effect of liberalization in the LINKAGE model analysis by a factor of 

1.8397. If one assumes as an approximation that the rate 

of growth from 1995 through 2001 was the same as the 

16. The Uruguay Round Agreement required an average 36 percent 

reduction in tariffs. It further required that developed countries 

reduce their “amber box” subsidies (a category of subsidies considered distorting to trade and therefore limited and reduced by the 

agreement) by 20 percent and that developing countries reduce 

theirs by 13 percent. Finally, it required that developed countries 

reduce their export subsidies by 36 percent and the volume of subsidized exports by 21 percent and that developing countries 

reduce their export subsidies by 24 percent and the volume of subsidized exports by 14 percent.
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 15

rate from 2001 through 2015, then growth from 1995 

through 2001 would increase the effect of liberalization 

by a factor of 1.2986.17 Applying that number to the 

$95.3 billion estimate gives $123.7 billion for 2001. Applying it to the $58.1 billion estimate gives $75.4 billion 

for 2001. Further applying the factor of 1.8397 to those 

two estimates gives $227.6 billion and $138.8 billion for 

2015.

Finally, the estimates must be stepped down to reflect the 

fact that the study by Roberts and others uses 1995 policy 

data with no recognition of tariff preferences, whereas the 

2006 World Bank study uses approximate 2005 policy 

data with recognition of tariff preferences. Multiplying 

the estimates by the factor of $182 billion/$248 billion, 

as was done for the ERS study and the 2002 World Bank 

study, partially adjusts for this fact.18 Thus, the final adjusted upper estimate for 2015 is $227.6 billion x $182 

billion /$248 billion = $167.0 billion, and the final adjusted lower estimate for 2015 is $138.8 billion x $182 

billion/$248 billion = $101.9 billion. Those estimates are 

0.39 percent and 0.24 percent, respectively, of the $43 

trillion baseline GDP in the LINKAGE model analysis of 

the 2006 World Bank study.

Studies of Unequal Liberalization of 

Agricultural Policies

Some studies model liberalization scenarios that do not 

liberalize all agricultural policies equally. For example, 

they may model liberalization by only a subset of all 

countries, or they may model liberalization of only certain types of policies (such as tariffs). Determining from 

such studies the cost of all policies that distort agricultural trade is a bit more problematic than it is with the 

studies discussed to this point, generally requiring the use 

of information from other sources relating to the cost of 

the policies not liberalized in the study and resulting in 

what must be considered rougher estimates of the benefit 

from liberalization.

Study by Buetre and Others. A study by Benjamin Buetre 

and others that was presented at a conference in June 

2004 examines the effects of a 50 percent reduction in all 

merchandise tariffs (not just agricultural tariffs) but no 

reductions in domestic support or export subsidies. Assuming the reduction takes place over the years 2005 to 

2014 (the study does not state the time pattern of the reduction any more precisely than that), it estimates the resulting increase in world gross national product (GNP)—

not welfare—in 2014 to be $61.0 billion.

The study uses the Global Trade and Environment 

Model (GTEM), developed by the Australian Bureau of 

Agricultural and Resource Economics, which has 18 

countries/regions and 26 economic sectors, of which 16 

are agriculture and food (excluding forestry, fisheries, and 

wool). The model includes investment effects of liberalization. Economies grow even in the absence of liberalization, so the effects of liberalization are determined as deviations from a baseline simulation.

For trade and other economic data, the study uses version 

5 of the GTAP database, which has a base year of 1997. 

The applied tariffs from which liberalization is assumed 

to begin are from the 2003 Integrated Tariff Database of 

the World Trade Organization; the largest numbers of 

them apply to the years 2002, 2001, and 2000, in that 

order, with the oldest tariffs being for 1998.

As will be discussed in more detail later in this chapter, 

three other studies place the welfare cost of tariffs in the 

range of 80 percent to 100 percent of the total cost of all 

policies that distort agricultural trade. By itself, that fact 

would suggest that the estimate from the study by Buetre 

and others might be as much as 20 percent lower than the 

benefit from reducing all policies that distort agricultural 

trade by 50 percent. However, that study looks at the 

benefit from reducing all tariffs—not just agricultural tariffs—by 50 percent, a fact that would offset that error to 

a greater or lesser degree. Therefore, taking the study’s 

$61.0 billion estimate as an approximation of the effect 

on world GNP of a 50 percent reduction in all policies 

distorting agricultural trade would not be likely to introduce substantial error: that estimate would probably be a 

little low but probably less than 20 percent too low. Under the assumption that the cost of trade restrictions is 

strictly proportional to their magnitude, the effect of full 

liberalization on world GNP would then be $122.0 billion. Under the assumption that the cost of trade restrictions is proportional to the square of their magnitude, the 

effect of full liberalization on world GNP would be $81.3 

billion.

17. The factor of 1.2986 is calculated by raising 1.8397 to the (6 

years/14 years) power.

18. The adjustment is only partial because the factor in question 

accounts for policy liberalization between 1997 and 2005 plus tariff preferences, whereas the adjustment that is needed is for policy 

liberalization between 1995 and 2005 plus tariff preferences.
16 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

For final comparability with the 2006 World Bank study, 

the estimates must be stepped down to reflect the fact 

that the tariffs that are liberalized in the study by Buetre 

and others are mostly those prevailing in 2000 through 

2002 as described above, whereas the policies liberalized 

in the 2006 World Bank study are for 2005. (It is not 

clear whether the study by Buetre and others includes tariff preferences in its data set.) The only factor available 

for accomplishing the necessary reduction is the $182 billion/$248 billion factor used with the other studies 

above, which adjusts for tariff preferences and the differences in policies between 1997 and 2005 rather than for 

tariff preferences and differences between the 2000-2002 

time frame and 2005 and is therefore too large. Applying 

that factor gives $122.0 billion x ($182 billion/$248 billion) = $89.5 billion and $81.3 billion x ($182 billion/

$248 billion) = $59.7 billion.

The final adjusted range of estimates is obtained by taking the lower of the two estimates after the final stepping 

down—$59.7 billion—and the higher of the two estimates before the stepping down—$122.0 billion. The 

study by Buetre and others does not give estimates in percentage form and gives no information about its baseline 

world GDP in 2014. The best that can be done is to express the final adjusted estimates as a percentage of the 

baseline GDP from the 2006 World Bank study, which 

gives 0.14 percent and 0.29 percent, respectively.

Study by Beghin, Roland-Holst, and van der 

Mensbrugghe. A study by John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe that 

was published in 2002 examines full liberalization of agricultural policies by high-income countries only, with liberalization occurring in equal increments from 2005 

through 2010. That is the same scenario as the one used 

in the 2002 World Bank study and the LINKAGE analysis 

of the 2006 World Bank study except for the restriction 

of liberalization to high-income countries and the fact 

that the World Bank study eliminates policies distorting 

all trade and reports the component of the benefit arising 

from the liberalization of agricultural trade.19 The study 

estimates the resulting improvement in world welfare in 

2015 at $82.1 billion (in 1997 dollars), or 0.21 percent.

The study uses a version of the World Bank’s LINKAGE

model with 14 countries/regions and 25 sectors. Agriculture and food comprise 17 of the 25 sectors. In addition 

to static effects and investment effects, the study includes 

productivity effects in the manufacturing and services 

sectors. The study uses version 5.3 of the GTAP database, 

which has a base year of 1997 for economic variables and 

1998 for policy variables. Thus, the main technical differences between this study and the 2002 World Bank study 

would appear to be the different liberalization scenario 

and the use of a GTAP version with a policy base year 

that is one year more recent.

Full liberalization by all countries would have a larger 

welfare effect. The LINKAGE model analysis of the 2006 

World Bank study estimates that full liberalization of agriculture by all countries would have 1.35 times the world 

welfare effect of full liberalization of agriculture by highincome countries alone, and the 2002 World Bank study 

estimates that same factor at 2.38 when productivity effects are not included and 2.42 when they are.20 Applying those factors to the estimate by Beghin, RolandHolst, and van der Mensbrugghe gives a welfare effect of 

$110.7 billion to $198.3 billion, or 0.283 percent to 

0.507 percent, for full liberalization of agriculture by all 

countries.

Those estimates must be stepped down to reflect the different policy base years used by the 2006 World Bank 

study and the study by Beghin, Roland-Holst, and van 

der Mensbrugghe. Multiplying each of the estimates by 

the same ratio as for the other studies—$182 billion/

$248 billion—gives a final adjusted welfare effect of 

$81.2 billion to $145.5 billion, or 0.21 percent to 0.37 

percent.21

19. “High-income countries” are defined in the study as Australia and 

New Zealand, Canada, the European Union, the European Free 

Trade Area, high-income Asia, and the United States.

20. Specifically, the 2006 World Bank study estimates that the world 

welfare effect from full liberalization of all goods trade by all countries would be $182 billion, whereas the same liberalization by 

high-income countries only would be $135 billion. The corresponding numbers for the 2002 World Bank study are $248 billion and $104 billion when effects on productivity growth are not 

included and $587 billion and $243 billion when such effects are 

included.

21. As was the case with the ERS study, the $182 billion/$284 billion 

factor slightly overcorrects since it is appropriate for the correction 

for tariff preferences plus the difference in policies between 1997 

and 2005, whereas what is needed is correction for tariff preferences plus the difference in policies between 1998 and 2005; 

however, the error introduced should be small.
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 17

Comparison with the Cost of 

Trade-Distorting Policies in Other 

Goods Sectors

The World Bank studies look not only at policies that 

distort agricultural trade but also at policies that distort 

trade in all other goods sectors. The studies find that the 

vast bulk of the cost of policies that distort trade in goods 

results from policies that distort agricultural trade.

According to the LINKAGE model analysis in the 2006 

study, 63.4 percent of the benefit derived from phasing 

out all policies that distort trade in goods—$182 billion 

out of a total of $287 billion—would stem from the 

elimination of policies in the agricultural sector (see Table 

2-3 on page 27). That estimate includes static effects and 

investment effects. According to the GTAP-AGR model 

analysis in the same study, 66.1 percent of the static benefits—$55.7 billion out of $84.3 billion—would derive 

from agricultural liberalization (see Table 2-4 on 

page 28).

The earlier 2002 World Bank study using the LINKAGE

model presents two estimates for the same liberalization 

scenario as that used in the 2006 study: one including 

static and investment effects but no productivity effects 

and one including all three types of effects (see Table 2-5 

on page 29). The former attributes 69.9 percent of the 

total benefits—$248 billion out of $355 billion—to agricultural liberalization. The latter attributes 70.6 percent 

to agricultural liberalization—$587 billion out of $832 

billion.

The estimates presented here are particularly noteworthy 

because agriculture constitutes only a little more than 4 

percent of world GDP and only 9 percent of goods 

trade.22 It is not surprising, however, in light of CBO’s 

finding in August 2005 that average tariffs are much 

larger in the agricultural sector than in other goods sectors in the vast majority of countries and that domestic 

subsidies are equal to roughly one-sixth of the total value 

added in agriculture.23

Gains and Losses to Individual

Countries from Liberalization

The modeling studies are almost unanimous in predicting that the United States and all other industrialized 

countries would benefit in terms of economic welfare 

from global elimination of all policies that distort agricultural trade. They similarly almost all agree that developing countries as a group would gain, but by a smaller 

amount, and that some developing countries would lose. 

However, some or all of those that initially lost would 

eventually see gains as the investment and productivity 

effects of liberalization overtook the negative static effects 

on those countries.

The United States

Seven of the studies that CBO surveyed present estimates 

of the welfare effects of agricultural liberalization on the 

United States. All except one indicate that the United 

States would gain from global elimination of policies that 

distort agricultural trade (see Table 2-6 on page 30). After 

very rough adjustments to make the estimates comparable, most of the estimates are consistent with a welfare 

benefit to the United States of roughly $8 billion to 

$27 billion in 2015 from the static and investment effects 

of full liberalization phased in from 2005 through 2010 

(see Table 2-7 on page 32). One estimate indicates a 

much larger benefit. The benefits from static effects alone 

are lower. Adjusted to the year 2015, all estimates except 

one are in the range of $9 billion to $18 billion annually. 

The exception is the estimate from the study by Brown, 

Deardorff, and Stern, which, once again, predicts a welfare loss.

Studies by the World Bank. The LINKAGE model analysis 

of the 2006 World Bank study estimates that full liberalization of all goods sectors (not just agriculture) worldwide in equal increments from 2005 through 2010 would 

increase U.S. economic welfare in 2015 by $16.2 billion 

(in 2001 dollars), or 0.1 percent. Agricultural liberalization accounts for 63.7 percent of the benefit to high-income countries from liberalization of all goods industries 

(see Table 2-3 on page 27). Assuming as a rough approximation that the same number holds for the United States, 

the $16.2 billion estimate should be scaled down to 22. See page 348 of Anderson, Martin, and van der Mensbrugghe (a) 

in the bibliography.

23. Congressional Budget Office, Policies That Distort World Agricultural Trade.
18 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

$10.3 billion.24 It can be determined from other results 

presented in the LINKAGE model analysis that the baseline GDP projected for the United States for 2015 is between $12.0 trillion to $14.7 trillion.25 It follows that the 

$10.3 billion benefit to the United States from full liberalization is between 0.07 percent to 0.09 percent.

Neither the GTAP-AGR model analysis of the 2006 

World Bank study nor the 2002 World Bank study provides estimates of the welfare effect of liberalization on 

the United States.

Study by the Economic Research Service. The ERS study 

places the static welfare benefit to the United States from 

full agricultural liberalization at $6.57 billion, or 0.10 

percent. Its static-plus-investment-effects estimate is 

$11.76 billion, or 0.18 percent, 15 years after liberalization; its static-plus-investment-plus-productivity-effects 

estimate is $13.30 billion, or 0.20 percent, 15 years after 

liberalization. Interestingly, those estimates are not as far 

below the estimates from the LINKAGE model analysis of 

the 2006 World Bank study as was the case for the world 

welfare effects discussed previously.

For comparability with the estimates from 2006 World 

Bank study, the estimates from the ERS study must be 

scaled up to reflect the fact that the World Bank’s estimates are for 2015 rather than 1997, the year that characterizes the ERS estimates. The scaling can be done by 

multiplying the percentage forms of the ERS estimates by 

the $12.0 trillion-$14.7 trillion range of baseline numbers for 2015 from the World Bank study. Applying the 

ERS static-effects estimate of 0.10 percent to that range 

gives a dollar value of $12.0 billion to $14.7 billion. Applying the static-plus-investment-effects estimate of 0.18 

percent to the baseline range gives a dollar value of $21.6 

billion to $26.4 billion. Applying the static-plusinvestment-plus-productivity-effects estimate of 0.20 percent to the baseline range gives a dollar value of $24.0 billion to $29.3 billion.

The adjusted static-plus-investment-effects estimate from 

the ERS study is considerably higher than the corresponding estimate from the World Bank study. If the 

ERS study’s world-welfare-effect estimates were not considerably lower than those of the World Bank study, the 

ERS study’s use of a policy data set with an earlier base 

year than that of the 2006 World Bank study would lead 

one to expect a higher welfare-effect estimate for the 

United States, but not that much higher. Unfortunately, 

unlike the case for world welfare effects, it is not possible 

to correct for the use of the earlier base year for the policy 

data set because the 2002 World Bank study does not 

provide estimates of the welfare effect on the United 

States.

Study by Brown, Deardorff, and Stern. The study by 

Brown, Deardorff, and Stern estimates that the static welfare effect on the United States of a global 33 percent reduction in all tariffs and subsidies in the agricultural sector would be a loss of $11.1 billion, or 0.122 percent. 

The study is the only one surveyed by CBO that predicts 

a welfare loss for the United States. Interestingly, the loss 

does not stem from harm to U.S. agriculture. On the 

contrary, U.S. agriculture gains. The reason for the U.S. 

welfare loss is that the expansion of agriculture draws capital, labor, and resources generally away from the manufacturing sector, causing it to shrink. The model incorporates increasing returns to scale for manufacturing, so 

shrinkage of the sector causes its productivity to decline.

For comparability with the World Bank’s estimate, the estimate from the Brown, Deardorff, and Stern study must 

be scaled up to reflect full liberalization rather than only a 

33 percent reduction in trade-distorting policies. Assuming that the welfare effect is strictly proportional to the 

percentage reduction in tariffs and subsidies, the estimated loss to the United States would rise to $33.6 billion, or 0.37 percent. As was the case for the worldwelfare-effect estimate from this study, the justification 

for the assumption that the cost of trade-distorting policies is proportional to the square of the magnitude of 

those policies does not hold, and the adjustment based on 

that assumption is therefore not calculated here.

24. One might be concerned about the possibility that the category of 

high-income countries is dominated by countries such as the 

European Union, the European Free Trade Association, and 

Japan, which are much more protective of agriculture than is the 

United States, and that therefore the percentage of benefits to the 

world as a whole might be a better indicator of the percentage of 

benefits to the United States than is the percentage of benefits to 

high-income countries. However, the two percentages are very 

nearly the same. The percentage for high-income countries is 

63.7, whereas the percentage for the world is 63.4.

25. The study reports one liberalization scenario for which the welfare 

benefit is $6.6 billion, or 0.05 percent of the baseline. Taking 

rounding into account, that means the benefit is between 0.045 

percent and 0.055 percent of the baseline. Dividing $6.6 billion 

by those two percentages gives $14.7 trillion and $12.0 trillion, 

respectively.
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 19

For final comparability, the estimate must be stepped up 

to reflect the economy’s size in 2015 rather than in 2005. 

That can be achieved by applying the percentage form of 

the estimate to the $12.0 trillion-$14.7 trillion baseline 

GDP for 2015 from the World Bank study to give a loss 

of $44.4 billion to $54.2 billion.

Study by Roberts and Others. The study by Roberts and 

others estimates the static welfare gain to the United 

States from a global 36 percent reduction in restrictions 

on market access (in tariff equivalents), domestic support, 

and export subsidies at $3.247 billion. Under the assumption that the cost of trade-distorting policies is 

strictly proportional to the magnitude of those policies, 

the welfare benefit from full agricultural liberalization 

would be $9.0 billion, or 0.12 percent of the 1995 U.S. 

GDP of $7.4005 trillion. Under the assumption that the 

cost of trade-distorting policies is proportional to the 

square of the magnitude of the policies, the welfare benefit from full agricultural liberalization would be $5.5

billion, or 0.07 percent of GDP.

Those estimates must be scaled up to reflect economic 

growth from 1995 through 2015. Applying the 0.12 percent estimate to the 2015 baseline GDP range of $12.0 

trillion to $14.7 trillion gives $14.6 billion to $17.9 billion. Applying the 0.07 percent estimate to the baseline 

range gives $8.9 billion to $10.9 billion. Hence, the final 

adjusted estimate for the study by Roberts and others is 

$8.9 billion to $17.9 billion, or 0.07 percent to 0.12

percent.

Study by Buetre and Others. The study by Buetre and 

others examines the effects of a global 50 percent reduction in all merchandise tariffs (not just agricultural tariffs) 

but no reductions in domestic support or export subsidies. Assuming the reduction to take place over the years 

2005 to 2014, it estimates the resulting increase in U.S. 

GNP—not welfare—in 2014 to be $6.2 billion.

As will be discussed in more detail in the next section of 

this chapter, other studies place the welfare cost of tariffs 

in the range of 80 percent to 85 percent of the total cost 

to the United States of all policies that distort agricultural 

trade. That fact by itself would lead to the conclusion 

that the result from the study by Buetre and others is a 

little lower than the benefit from a 50 percent reduction 

in all policies distorting agricultural trade. However, that 

estimate is for a 50 percent reduction in all tariffs, not 

just agricultural tariffs, which by itself would lead to the 

estimate being higher than the benefit from a 50 percent 

reduction in agricultural tariffs. Those two facts tend to 

cancel each other out, leading to the conclusion that the 

study’s estimate of $6.2 billion may be a reasonable estimate of the benefit from a 50 percent reduction in all 

policies distorting agricultural trade.

Finally, the estimate must be scaled up to provide an estimate of the benefit from full liberalization. Under the assumption that the cost of trade-distorting policies is 

strictly proportional to the magnitude of the policies, the 

estimated effect of full liberalization of agriculture on 

U.S. GNP is $12.4 billion. Under the assumption that 

the cost is proportional to the square of the magnitude of 

the policies, the estimated effect of full liberalization of 

agriculture on U.S. GNP is $8.3 billion. 

The study by Buetre and others does not give estimates in 

percentage form and gives no information about its baseline U.S. GDP in 2014. The best that can be done is to 

express those final adjusted estimates as a percentage of 

the baseline GDP of $12.0 trillion to $14.7 trillion from 

the 2006 World Bank study. Doing so gives a range of 

0.06 percent to 0.07 percent for the $8.3 billion estimate 

and 0.08 percent to 0.10 percent for the $12.4 billion 

estimate.

Study by Fontagne, Guerin, and Jean. A study by Lionel 

Fontagne, Jean-Louis Guerin, and Sebastien Jean that was 

published in September 2003 models a 35 percent reduction in all tariffs—not just agricultural tariffs—at the 

six-digit level under the Harmonized System (HS) classification scheme. The study estimates a welfare benefit of 

0.2 percent to the United States 14 years after the liberalization agreement. As noted in the discussion of the study 

by Buetre and others, other studies place the welfare cost 

of tariffs in the range of 80 percent to 85 percent of the 

total cost to the United States of all policies that distort 

agricultural trade. That fact by itself would lead to the 

conclusion that the result from the study by Fontagne, 

Guerin, and Jean is a little lower than the benefit from a 

35 percent reduction in all policies distorting agricultural 

trade. However, that estimate is for a 50 percent reduction in all tariffs, not just agricultural tariffs, which by itself would lead to the estimate’s being higher than the 

benefit from a 35 percent reduction in agricultural tariffs. 

Those two facts tend to cancel each other out, leading to 

the conclusion that the study’s estimate of 0.2 percent 

may be a reasonable estimate of the benefit from a 35 percent reduction in all policies distorting agricultural trade.
20 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Under the assumption that the cost of trade-distorting 

policies is strictly proportional to the magnitude of the 

policies, the benefit from full liberalization would be 0.57 

percent. Under the assumption that the cost of tradedistorting policies is proportional to the square of the 

magnitude of the policies, the benefit from full liberalization would be 0.35 percent.

Applying the first of those percentages to the $12.0 trillion-$14.7 trillion baseline GDP for 2015 from the 

LINKAGE model of the 2006 World Bank study gives 

$68.6 billion to $83.8 billion. The higher of those two 

values is the upper end of the range indicated in 

Table 2-7 on page 32. Applying the second percentage to 

the baseline GDP gives $41.6 billion to $50.8 billion. 

The lower of those two values is the lower end of the 

range given in Table 2-7.

Study by Beghin, Roland-Holst, and van der 

Mensbrugghe. The study by Beghin, Roland-Holst, and 

van der Mensbrugghe places the static-plus-dynamic real 

income gain to the United States from complete liberalization by high-income countries at $5.0 billion, or 0.05 

percent. The benefit from complete liberalization by all 

countries would undoubtedly be higher. However, by 

how much is not clear. Multiplying the result presented 

here by the factor used earlier for the world-welfare result 

from this study is probably not valid because the relative 

benefit to the United States of liberalization by highincome countries and liberalization by other countries is 

likely to be different from the relative benefit to the world 

of those two liberalizations. In fact, the relative benefit to 

high-income countries generally is likely to be different 

from the relative benefit to other countries generally, and 

the relative benefit to the world (in percentage terms) is 

likely to be an average of those two relative benefits. That 

is particularly true because many high-income countries 

grant substantial subsidies, and many of the other countries are the recipients of subsidized agricultural products 

in the form of imports. Getting rid of those subsidies 

would help the high-income countries and hurt the other 

countries that import agricultural products.

Other Countries

In addition to the United States, all other major industrialized countries and groups of countries are also predicted 

to gain from liberalization by almost all of the studies (see 

Tables 2-8 through 2-16). Once again, the study by 

Brown, Deardorff, and Stern is the sole exception, predicting welfare losses for all developed countries and regions modeled except the European Union plus EFTA 

(see Table 2-12 on page 39).

Developing countries gain as a group, as do most individual developing countries and groups of countries modeled, although some lose for the reasons given in 

Chapter 1: increases in world agricultural prices resulting 

from liberalization increase the welfare of countries in 

proportion to their agricultural exports and harm them in 

proportion to their agricultural imports; and reductions 

of MFN tariffs by industrialized countries hurt developing countries that are the recipients of tariff preferences 

from the industrialized countries.

The static-modeling studies tend to show more welfare 

losses for developing countries than do the studies that 

include investment or productivity effects of liberalization. The reason is as explained in Chapter 1. The negative effects to be expected are terms-of-trade effects, 

which are static. Investment and productivity effects are 

generally positive for most if not all countries, and over 

time they tend to offset and even overcome any negative 

static effects.

Breakdown of Costs by Type of Policy

Breaking down the cost of trade-distorting policies by 

type of policy reveals two significant facts: the vast bulk 

of the cost arises from trade restrictions, and many developing countries would be harmed by the elimination of 

domestic support and especially export subsidies.

Tariffs Are the Most Costly Trade-Distorting Policy

Five of the studies CBO surveyed present welfare results 

by type of policy. Of those five, four agree that tariffs 

(and tariff-rate quotas) are by far the most costly of the 

policies distorting agricultural trade.

The GTAP-AGR model analysis of the 2006 World Bank 

study estimates the total static welfare cost of all policies 

that distort agricultural trade at $55.7 billion (see Table 

2-17 on page 44). It estimates the cost of tariffs at $51.8 

billion, or 93.1 percent of the total. Domestic support is 

second at $2.8 billion, or 5.0 percent of the total. Last are 

export subsidies at $1.0 billion, or 1.9 percent of the

total.

The ERS study places the costs in the same order (see Table 2-18 on page 46). It estimates the total static welfare 

cost of all trade-distorting policies in agriculture at 
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 21

$31.1 billion. It attributes $25.2 billion of that cost, or 

81.2 percent, to tariffs. Domestic support comes in second at $2.8 billion, or 9.0 percent. Last are export subsidies at $0.3 billion, or 0.8 percent.

Looking only at the trade-distorting policies of highincome countries, the study by Beghin, Roland-Holst, 

and van der Mensbrugghe actually attributes slightly 

more than 100 percent of the $82.1 billion total cost of 

such policies to “border protection,” in which it includes 

tariffs and export subsidies (see Table 2-18 on page 46). 

That result implies that domestic support by highincome countries actually benefits the world very 

slightly—which conflicts with the World Bank and ERS 

studies just discussed.

A study by Bernard Hoekman, Francis Ng, and Marcelo 

Olarreaga addresses the question of whether tariffs or domestic subsidies are more detrimental to trade between 

developed and developing countries and consequently to 

the economic welfare of the two groups of countries. 

Looking only at tariff lines of agricultural products that 

receive domestic subsidies by at least one country (158 

tariff lines out of 900 at the six-digit HS level), the study 

estimates that a 50 percent cut in tariffs would increase 

developed countries’ exports 10 times as much, their imports 63 times as much, and their economic welfare almost 27 times as much as would a 50 percent cut in domestic subsidies (see Table 2-20 on page 49). For 

developing countries, the cut in tariffs is estimated to increase exports over eight times as much as the cut in subsidies. The cut in subsidies reduces developing-country 

imports and economic welfare, making ratio calculations 

problematic, but the magnitude of the effects of the tariff 

cut on imports and economic welfare is much larger than 

is the magnitude of the effects of the subsidy cuts.

The only study CBO examined that does not find tariffs 

to be the most costly of the policies distorting agricultural 

trade is that of Brown, Deardorff, and Stern. As noted 

earlier, that study (which examines static effects only) 

finds that a 33 percent reduction in tariffs increases world 

welfare by $9.5 billion annually; a 33 percent reduction 

in domestic subsidies increases it by a slightly larger $10.6 

billion; and a 33 percent reduction in export subsidies reduces it by a still larger $23.2 billion.

Eliminating Subsidies Harms Many Developing 

Countries

As a matter of economic theory, subsidies harm the countries that grant them and benefit the countries that purchase the subsidized products. They do so because they 

result in the subsidized products’ being sold at prices that 

are less than the cost of producing them. The effect is 

more pronounced for export subsidies than for domestic 

subsidies because many of the sales of products receiving 

domestic subsidies are to domestic customers. Highincome countries grant more than 90 percent of the domestic subsidies and more than 95 percent of the export 

subsidies reported to the WTO by member countries. 

Therefore, one would expect that eliminating those subsidies would benefit many high-income countries and 

harm many developing countries and that the effect 

would be more pronounced for export subsidies than for 

domestic subsidies.26

Results from the GTAP-AGR model analysis of the 2006 

World Bank study and the ERS study back up that theory 

(see Tables 2-17 and 2-18). The GTAP-AGR model analysis indicates that eliminating export subsidies would increase the economic welfare of high-income countries by 

$2.6 billion and reduce that of developing countries by 

$1.0 billion. Moreover, it indicates that 14 of the 17 individual developing countries and developing-country regions modeled would see their welfare decline. Similarly, 

the ERS study indicates that the economic welfare of developed countries would increase by $2.5 billion and that 

the welfare of developing countries would decline by $2.3 

billion. Moreover, the study indicates harm to all six of 

the individual developing countries and developingcountry regions examined.

As would be expected from the theory just described, the 

results are less pronounced for domestic subsidies. The 

GTAP-AGR model analysis indicates a benefit to developing countries as a group from eliminating such subsidies; however, the benefit is small, and a number of 

developing countries are harmed. The ERS study indicates harm to developing countries as a group and to five 

of the six individual developing countries and developing-country regions examined. Both studies indicate that 

26. However, eliminating domestic and export subsidies would benefit those developing countries that are net agricultural exporters 

because such subsidies give a competitive advantage to the agricultural sectors of the (primarily) developed countries that grant 

them.
22 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

high-income countries benefit from the elimination of 

such subsidies.

The difference between the two scenarios in the study by 

Beghin, Roland-Holst, and van der Mensbrugghe is the 

liberalization of domestic subsidies (see Table 2-19 on 

page 48). Therefore, the differences in the estimates from 

the two scenarios constitute estimates of the effects of 

eliminating those subsidies. Comparison of the results 

from the two scenarios indicates that eliminating domestic subsidies benefits developing (low- and middleincome) countries as a group, with China the only modeled developing country that is harmed. Contrary to expectation from theory, the comparison indicates that 

eliminating domestic subsidies harms developed (high-income) countries as a group. Among developed countries, 

the harm occurs to Western Europe and high-income 

Asia—not to the United States, which gains.

Although it does not give the actual numbers, the study 

by Brown, Deardorff, and Stern reports that its underlying modeling results show that when export subsidies are 

eliminated, “welfare increases in the EU/EFTA and declines in all of the countries/regions in the model, except 

Thailand.” It further reports that “the EU/EFTA region 

benefits the most when its agricultural production subsidies are reduced, whereas welfare declines for most developing countries/regions.”27

27. See pages 14-15 in Brown, Deardorff, and Stern in the 

bibliography.

24 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-1.

Estimated Welfare Effects on the World of Agricultural Liberalization—

All Surveyed Studies

Source: Congressional Budget Office based on the studies cited. 

Notes: S = static effects; I = investment effects; P = productivity effects.

Welfare effects are measured by equivalent variation. For additional details on the studies listed in this table, see the notes that 

accompany Tables 2-8 through 2-16.

a. Some models have exogenously imposed rates of growth for certain variables such as population, the labor force, and productivity (or 

some component of productivity) of each country. Those models predict deviations of variables from baseline values for the year in question, whereas other models predict deviations from the values that the variables had in the base year. Models with such baseline economic 

growth over time tend to produce larger estimates of welfare effects many years after liberalization than do other models.

b. The first year is the base year for economic variables such as imports, exports, and the production of various goods. The second year is 

the base year for policy variables such as tariffs and subsidies.

c. Dollar estimates in each study are based on the value of the dollar in the base year for economic variables used in that study. Thus, dollar 

estimates in the 2006 World Bank study are in 2001 dollars, and those in the study by Beghin, Roland-Holst, and van der Mensbrugghe are 

in 1997 dollars.

d. Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” Chapter 

12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan 

and the World Bank, 2006).

Study

Types of 

Liberalization 

Effects 

Included

Exogenous 

Baseline 

Growth?a

Base Years for 

Economy/

Trade Policiesb

Year(s) of 

Liberalization

Year of 

Estimated 

Welfare 

Effect

Estimated

Welfare Effect

Billions of 

Dollarsc Percent

Full Liberalization of All Agricultural Policies

2006 World Bank Study

LINKAGE model 

analysisd,e S, I Yes 2001/2005f 2005–2010 2015 182 0.43

GTAP-AGR model 

analysisg,e S No 2001/2005f h h 55.7 i

2002 World Bank Studyj

Result 1e S, I Yes 1997/1997 2005–2010 2015 248 0.63

Result 2e S, I, P Yes 1997/1997 2005–2010 2015 587 1.47

Economic Research Servicek

Result 1 S No 1997/1998 h h 31.1 0.13

Result 2 S,I No 1997/1998 1998l 2013l 36.3 0.16

Result 3 S, I, P No 1997/1998 1998l 2013l 56.4 0.24

Equal Partial Liberalization of All Agricultural Policies

Brown, Deardorff, 

and Sternm,n S No 2005/2005o h h -3.1 i

Roberts and Othersp,q S No 1995/1995 h h 34.3 i

Unequal Liberalization of Agricultural Policies

Buetre and Othersr,s S,I Yes 1997/2002t 2005–2014 2014 61.0u i

Beghin, Roland-Holst, 

and van der 

Mensbrugghev,w S, I, P Yes 1997/1998 2005–2010 2015 82.1 0.21
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 25

e. The 2006 and 2002 World Bank studies simulate full liberalization of all goods sectors, not just agriculture. The welfare-effect estimates 

presented in this table are the components of the welfare-effect estimates from that scenario that the studies attribute to liberalization of 

the agriculture and food sectors.

f. Both projections in the 2006 World Bank study start with a base year of 2001 for both economic and policy variables but effectively update 

the base year for policy variables to 2005. Specifically, in the case of the LINKAGE model, the baseline projection incorporates major 

changes in protection that occurred between 2001 and 2005 (the final stages of the Uruguay Round implementation, tariff-reduction 

commitments made by China and Taiwan as conditions of their accession to the World Trade Organization, and enlargement of the European Union to 25 members). In the case of the GTAP-AGR model, a preliminary simulation was run incorporating any liberalization that 

had been committed to in the WTO but not yet implemented by 2001. The end point of that simulation was then used as the starting point 

for the simulation that produced the estimates given in this table.

g. Thomas W. Hertel and Roman Keeney, “What’s at Stake: The Relative Importance of Import Barriers, Export Subsidies, and Domestic Support,” Chapter 2 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan and the World Bank, 2006).

h. The year(s) of liberalization and the year of the welfare-effect estimate are not relevant for a projection from a static model because there 

is no growth—of the labor force, the capital stock, or productivity—in such models.

i. The study in question does not give an estimate of the welfare effect as a percentage of income.

j. World Bank, “Envisioning Alternative Futures: Reshaping Global Trade Architecture for Development,” Chapter 6 in Global Economic 

Prospects and the Developing Countries, 2002 (Washington, D.C.: World Bank, 2002).

k. Mary E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. Department 

of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001).

l. The ERS study does not indicate calendar years of liberalization and the welfare-effect estimate. Rather, the estimates presented here are 

those estimated by the study for 15 years after liberalization. Because the study assumes no baseline growth, the year of liberalization is 

irrelevant just as it is in static modeling studies.

m. Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, “Computational Analysis of Multilateral Trade Liberalization in the Uruguay 

Round and Doha Development Round,” Discussion Paper No. 489 (Ann Arbor, Mich.: University of Michigan, School of Public Policy,

Research Seminar in International Economics, December 8, 2002).

n. The study by Brown, Deardorff, and Stern models a 33 percent reduction in post-Uruguay Round agricultural import tariffs, domestic production subsidies, and export subsidies.

o. The study by Brown, Deardorff, and Stern starts with a data set with a base year of 1995. To estimate what the values of major economic 

variables would have been in 2005 in the absence of the Uruguay Round Agreement, the study makes projections based on growth rates 

contained in the 1999 edition of World Development Indicators and the 1998-1999 edition of World Development Report, both published 

by the World Bank. The study then simulates the liberalization agreed to in the Uruguay Round Agreement. The end point of that simulation is used as the starting point for the simulation that produced the estimate given in this table. As such, the policies that are liberalized 

to produce the estimate presumably do not reflect the admission of China and Taiwan into the WTO and the expansion of the European 

Union to 25 countries.

p. Ivan Roberts and others, Reforming World Agricultural Trade Policies, Australian Bureau of Agricultural and Resource Economics Research 

Report 99.12 and Rural Industries Research and Development Corporation Publication No. 99/96 (September 1999).

q. The study by Roberts and others models a 36 percent reduction in all forms of agricultural protection and support.

r. Benjamin Buetre and others, “Agricultural Trade Liberalization: Effects on Developing Countries' Output, Incomes, and Trade,” Australian 

Bureau of Agricultural and Resource Economics Project 110039 (paper presented to the Seventh Annual Conference on Global Economic 

Analysis, Trade, Poverty, and the Environment, Washington, D.C., June 17-19, 2004).

s. The study by Buetre and others models a 50 percent reduction in all tariffs—agricultural and nonagricultural.

t. The year with the largest number of applied tariffs in the database is 2002. The years with the second- and third-largest numbers are 

2000 and 2001, while the oldest tariffs date to 1998.

u. The estimate for the study by Buetre and others is for the effect on gross national product, not the effect on welfare.

v. John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are the 

Implications for North and South?, Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and Rural 

Development, June 2002).

w. The study by Beghin, Roland-Holst, and van der Mensbrugghe removes all agricultural trade-distorting policies in high-income countries 

only (Australia and New Zealand, Canada, the European Union, the European Free Trade Area, high-income Asia, and the United States). 
26 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-2.

Estimated Effects on the World of Agricultural Liberalization, as Adjusted by CBO 

for Approximate Comparability—All Surveyed Studies 

Source: Congressional Budget Office based on the studies cited. 

Notes: Welfare effects are measured by equivalent variation.

A blank space indicates that the study presents no estimate for the effect in question.

Estimates given for the LINKAGE model analysis of the 2006 World Bank study are for the welfare benefit to the world in 2015 (in 2001 

dollars) from fully liberalizing agriculture (that is, completely phasing out all tariffs, domestic subsidies, and export subsidies) in equal 

increments from 2005 through 2010. Estimates given for the other studies are the estimates from those studies as adjusted by CBO for 

approximate comparability with that scenario as described in the text of the paper. In the case of estimates of static effects only, the 

effects are scaled up to reflect economic growth through 2015.

a. Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” Chapter 

12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan 

and the World Bank, 2006).

b. Thomas W. Hertel and Roman Keeney, “What's at Stake: The Relative Importance of Import Barriers, Export Subsidies, and Domestic 

Support,” Chapter 2 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan and the World Bank, 2006).

c. World Bank, “Envisioning Alternative Futures: Reshaping Global Trade Architecture for Development,” Chapter 6 in Global Economic Prospects and the Developing Countries 2002 (Washington, D.C.: World Bank, 2002).

d. Mary E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. Department 

of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001).

e. Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, “Computational Analysis of Multilateral Trade Liberalization in the Uruguay 

Round and Doha Development Round,” Discussion Paper No. 489 (Ann Arbor, Mich.: University of Michigan, School of Public Policy,

Research Seminar in International Economics, December 8, 2002).

f. It is not possible to adjust the estimate from the study by Brown, Deardorff, and Stern for comparability.

g. Ivan Roberts and others, Reforming World Agricultural Trade Policies, Australian Bureau of Agricultural and Resource Economics Research 

Report 99.12 and Rural Industries Research and Development Corporation Publication No. 99/96 (September 1999).

h. Benjamin Buetre and others, “Agricultural Trade Liberalization: Effects on Developing Countries' Output, Incomes, and Trade,” Australian 

Bureau of Agricultural and Resource Economics Project 110039 (paper presented to the Seventh Annual Conference on Global Economic 

Analysis, Trade, Poverty, and the Environment, Washington, D.C., June 17-19, 2004).

i. John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are the 

Implications for North and South?, Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and Rural 

Development, June 2002), Table 2, p. 12.

Study

Static Effects Only

Static Plus Investment 

Effects

Static Plus Investment

Plus Productivity-Growth 

Effects

Billions of 

Dollars Percent

Billions of 

Dollars Percent

Billions of 

Dollars Percent

2006 World Bank Study

LINKAGE model analysisa 182 0.43 292 0.69

GTAP-AGR model analysisb 102 0.24

2002 World Bank Studyc 182 0.47 431 1.08

Economic Research Serviced 41 0.13 50 0.16 75 0.24

Brown, Deardorff, and Sterne f

Roberts and Othersg 102–167 0.24–0.39

Buetre and Othersh 60–122 0.14–0.29

Beghin, Roland-Holst, and van der 

Mensbrugghei 81–146 0.21–0.37
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 27

Table 2-3.

Estimated Welfare Effects of Full Liberalization of All Goods, by Industry

Sector and Benefiting Region—2006 World Bank Study, LINKAGE Model

Analysis 

(Billions of 2001 dollars)

Source: Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” 

Chapter 12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: 

Palgrave Macmillan and the World Bank, 2006), Table 12.6, p. 349.

Notes: Welfare effects are measured by equivalent variation. Small interaction effects are distributed proportionately, and numbers are 

rounded to sum to 100 percent. 

Model: A version of the World Bank’s LINKAGE model with 27 regions and 25 economic sectors. Agriculture and food comprise 13 of

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. The simulations include static effects plus investment effects resulting from the influence 

of liberalization on household saving and on the prices of investment goods.

Data: Release 6.05 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 2001. However, the baseline simulation also includes major changes in trade policy through 2005, including the final stages of implementation of the Uruguay Round 

Agreement, tariff reductions made by China and Taiwan as conditions of their accession to the World Trade Organization, and the

enlargement of the European Union to 25 members. Unlike previous GTAP releases, version 6.05 includes bilateral and unilateral trade 

preferences.

Liberalization scenario simulated: The phased elimination from 2005 through 2010 of all subsidies, tariffs, and other trade-distorting 

measures in all goods sectors. The welfare-effect estimates are for the year 2015. 

Benefiting Region

Industry Sector Liberalized

Agriculture 

and Food

Textiles and 

Clothing

Other 

Merchandise Total

High-Income Countries 128 16 57 201

Developing Countries 54 22 10 86

World total 182 38 67 287
28 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-4.

Estimated Static Welfare Effects of Full Liberalization of All Goods, by 

Industry Sector and Benefiting Region—2006 World Bank Study, GTAP-AGR 

Model Analysis

(Billions of 2001 dollars)

Source: Thomas W. Hertel and Roman Keeney, “What’s at Stake: The Relative Importance of Import Barriers, Export Subsidies, and Domestic Support,” Chapter 2 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New 

York: Palgrave Macmillan and the World Bank, 2006), Table 2.9, p. 54.

Notes: Welfare effects are measured by equivalent variation. GTAP = Global Trade Analysis Project.

Model: The GTAP-AGR model. The model is a special-purpose variant of the GTAP static general-equilibrium model that is tailored to 

analysis of global agricultural trade policy issues. 

Data: Release 6.05 of the GTAP data set, which has a base year of 2001. However, before running the simulation of the liberalization

scenario, the study runs a preliminary simulation incorporating liberalization that had been committed to in the World Trade Organization (WTO) but not yet implemented by 2001, such as the final stages of implementation of the Uruguay Round Agreement (including 

the phasing out of textile and apparel quotas) and tariff-reduction commitments made by China and Taiwan in connection with their 

accession to the WTO. The end point of that simulation is then used as the starting point for the main simulation that produces

the estimates given in this table. Unlike previous releases of the GTAP data set, version 6.05 includes bilateral and unilateral trade 

preferences.

Liberalization scenario simulated: The elimination of all subsidies, tariffs, and other trade-distorting restrictions in all goods sectors. 

Benefiting Region

Industry Sector Liberalized

Agriculture 

and Food

Textiles and 

Clothing

Other 

Merchandise Total

High-Income Countries 41.6 1.3 16.5 59.4

Transition Economies 2.2 -0.3 0.9 2.8

Developing Countries 11.9 8.8 1.4 22.1

World total 55.7 9.8 18.9 84.3
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 29

Table 2-5.

Estimated Welfare Effects of Full Liberalization of All Goods,

by Industry Sector and Benefiting Region—2002 World Bank Study 

(Billions of 1997 dollars)

Source: World Bank, “Envisioning Alternative Futures: Reshaping Global Trade Architecture for Development,” Chapter 6 in Global 

Economic Prospects and the Developing Countries, 2002 (Washington, D.C.: World Bank, 2002), Table 6.1, p. 171.

Note: Welfare effects are measured by equivalent variation.

Model: A version of the World Bank’s LINKAGE model with 15 regions and 20 economic sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to grow over time even with no liberalization. The simulations without productivity effects include static effects plus investment effects resulting from the influence of liberalization on 

household saving and on the prices of investment goods. The simulations with productivity effects include those same effects plus 

effects of liberalization on productivity.

Data: Version 5 of the Global Trade Analysis Project data set, which has a base year of 1997. Hence, the starting point for liberalization 

is the policies that existed in that year.

Liberalization scenario simulated: In each year from 2005 through 2010, all tariffs, domestic production subsidies, and export subsidies in all goods sectors are reduced by one-sixth of their preliberalization levels, ending with their complete elimination.

Industry Sector Liberalized

Benefiting Region

Agriculture and

Food

Textiles and

Clothing

All Other

 Sectors Total

Simulations Without Productivity Effects

High-Income Countries 106 17 50 171

Low- and Middle-Income Countries 142 24 20 184

World total 248 41 70 355

Simulations with Productivity Effects

High-Income Countries 196 66 35 293

Low- and Middle-Income Countries 390 123 27 539

World total 587 189 62 832
30 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-6.

Estimated Welfare Effects on the United States of Agricultural Liberalization—

All Surveyed Studies

Source: Congressional Budget Office based on the studies cited.

Notes: S = static effects; I = investment effects; P = productivity effects.

Welfare effects are measured by equivalent variation. For additional details on the studies listed in this table, see the notes that 

accompany Tables 2-8 through 2-16.

a. Some models have exogenously imposed rates of growth for certain variables such as population, the labor force, and productivity (or 

some component of productivity). Those models predict deviations of variables from baseline values for the year in question, whereas 

other models predict deviations from the values that the variables had in the base year. Models with such baseline economic growth over 

time tend to produce larger estimates of welfare effects many years after liberalization than do other models.

b. The first year given is the base year for economic variables such as imports, exports, and production of various goods. The second year is 

the base year for policy variables such as tariffs and subsidies.

c. Dollar estimates in each study are based on the value of the dollar in the base year for economic variables used in that study. Thus, dollar 

estimates in the 2006 World Bank study are in 2001 dollars, and those in the study by Beghin, Roland-Holst, and van der Mensbrugghe are 

in 1997 dollars.

d. Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” Chapter 

12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan 

and the World Bank, 2006).

e. The projection in the LINKAGE model analysis of the 2006 World Bank study starts with a base year of 2001 for both economic and policy 

variables but effectively updates the base year for policy variables to 2005. Specifically, the baseline projection incorporates major 

changes in protection that occurred between 2001 and 2005 (the final stages of the Uruguay Round implementation, tariff-reduction 

commitments made by China and Taiwan as conditions of their accession to the World Trade Organization, and enlargement of the 

European Union to 25 members).

Study

Types of

Liberalization 

Effects 

Included

Exogenous 

Baseline 

Growth?a

Base Years for

Economy/

Trade Policiesb

Year(s) of

Liberalization

Year of

Estimated 

Welfare

Effect

Estimated Welfare Effect

Billions of

Dollarsc Percent

Full Liberalization of All Agricultural Policies

2006 World Bank Study

 LINKAGE model 

analysisd S, I Yes 2001/2005e 2005–2010 2015 16.2f 0.1f

Economic Research Serviceg

Result 1 S No 1997/1998 h h 6.6 0.10

Result 2 S, I No 1997/1998 1998i 2013i 11.8 0.18

Result 3 S, I, P No 1997/1998 1998i 2013i 13.3 0.20

Equal Partial Liberalization of All Agricultural Policies

Brown, Deardorff, and 

Sternj,k S No 2005/2005l h h -11.1 -0.122

Roberts and Othersm,n S No 1995/1995 h h 3.2 o

Unequal Liberalization of Agricultural Policies

Buetre and Othersp,q S, I Yes 1997/2002r 2005–2014 2014 6.2s o

Fontagne, Guerin, and 

Jeant,u S, I v 1997/1999 2000–2009v 2013v w 0.2

Beghin, Roland-Holst, and 

van der Mensbrugghex,y S, I, P Yes 1997/1998 2005–2010 2015 5.0 0.05
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 31

f. The estimate reported for the 2006 World Bank study is for full liberalization of all goods sectors, not just agriculture. The study does not 

report an estimate for liberalization of agriculture and food only.

g. Mary E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. Department 

of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001).

h. The year(s) of liberalization and the year of the welfare-effect estimate are not relevant for a projection from a static model because there 

is no growth—of the labor force, capital stock, or productivity—in such models.

i. The ERS study does not indicate calendar years of liberalization and the welfare-effect estimate. Rather, the estimates presented here are 

those estimated by the study for 15 years after liberalization. Because the study assumes no baseline growth, the year of liberalization is 

irrelevant just as it is in static modeling studies.

j. Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, “Computational Analysis of Multilateral Trade Liberalization in the Uruguay 

Round and Doha Development Round,” Discussion Paper No. 489 (Ann Arbor, Mich.: University of Michigan, School of Public Policy,

Research Seminar in International Economics, December 8, 2002).

k. The study by Brown, Deardorff, and Stern models a 33 percent reduction in post-Uruguay Round agricultural import tariffs, domestic production subsidies, and export subsidies.

l. The study by Brown, Deardorff, and Stern starts with a data set with a base year of 1995. To estimate what the values of major economic 

variables would have been in 2005 in the absence of the Uruguay Round Agreement, the study makes projections based on growth rates 

contained in the 1999 edition of World Development Indicators and the 1998-1999 edition of World Development Report, both published 

by the World Bank. The study then simulates the liberalization agreed to in the Uruguay Round Agreement. The end point of that simulation is used as the starting point for the simulation that produces the estimate given in this table. As such, the policies that are liberalized 

to produce the estimate presumably do not reflect the admission of China and Taiwan into the WTO and the expansion of the European 

Union to 25 countries.

m. Ivan Roberts and others, Reforming World Agricultural Trade Policies, Australian Bureau of Agricultural and Resource Economics Research 

Report 99.12 and Rural Industries Research and Development Corporation Publication No. 99/96 (September 1999).

n. The study by Roberts and others models a 36 percent reduction in all forms of agricultural protection and support.

o. The study does not give an estimate of the welfare effect as a percentage of income.

p. Benjamin Buetre and others, “Agricultural Trade Liberalization: Effects on Developing Countries’ Output, Incomes, and Trade,” Australian 

Bureau of Agricultural and Resource Economics Project 110039 (paper presented to the Seventh Annual Conference on Global Economic 

Analysis, Trade, Poverty, and the Environment, Washington, D.C., June 17-19, 2004).

q. The study by Buetre and others models a 50 percent reduction in all tariffs—agricultural and nonagricultural.

r. The year with the largest number of applied tariffs in the database is 2002. The years with the second- and third-largest numbers are 

2000 and 2001, while the oldest tariffs date to 1998.

s. The estimate for the study by Buetre and others is for the effect on gross national product, not the effect on welfare.

t. Lionel Fontagne, Jean-Louis Guerin, and Sebastien Jean, Market Access Liberalisation in the Doha Round: Scenarios and Assessment, 

Working Paper No. 2003-12 (Paris: Centre d'Etudes Prospectives et d'Informations Internationales, September 2003).

u. The study by Fontagne, Guerin, and Jean models a 35 percent reduction in all tariffs—not just agricultural tariffs—at the six-digit 

Harmonized System level. Results presented are for 14 years after the liberalization agreement.

v. The study by Fontagne, Guerin, and Jean is unclear as to whether its model contains baseline growth. Nor does it specify the calendar 

years in which liberalization takes place or the calendar year of the estimate, specifying instead the number of years after the liberalization agreement over which liberalization occurs and the number of years after the agreement that the estimate is for. The liberalization is 

phased in in equal increments over six years for developed countries and over 10 years for developing countries. The calendar years and 

whether there is exogenous growth in the model do not matter because the estimate is in percentage rather than dollar value. Whereas 

the dollar value of the effect of liberalization is proportional to the size of the economy and therefore is a function of any exogenous 

growth that might occur with time, the percentage effect is not.

w. The study by Fontagne, Guerin, and Jean does not give a dollar-value estimate of the welfare effect.

x. John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are the 

Implications for North and South? Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and Rural Development, June 2002).

y. The study by Beghin, Roland-Holst, and van der Mensbrugghe models the elimination of all agricultural-trade-distorting policies in 

high-income countries only (Australia and New Zealand, Canada, the European Union, the European Free Trade Association, high-income 

Asia, and the United States).
32 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-7.

Estimated Welfare Effects on the United States of Agricultural Liberalization, as 

Adjusted by CBO for Approximate Comparability—All Surveyed Studies 

Source: Congressional Budget Office based on the studies cited.

Notes: Welfare effects are measured by equivalent variation.

A blank space indicates that the study presents no estimate for the effect in question.

Estimates given for the LINKAGE model analysis of the 2006 World Bank study are for the welfare benefit to the United States in 2015 

(in 2001 dollars) that would result from fully liberalizing all goods sectors (that is, completely phasing out all tariffs, domestic subsidies, and export subsidies) in equal increments from 2005 through 2010, adjusted by CBO as described in the text to approximate only 

the full liberalization of the agriculture and food sectors. Estimates presented for the other studies are adjusted by CBO for approximate comparability with the adjusted World Bank estimates. In the case of estimates of static effects only, the estimates are scaled up 

to reflect economic growth through 2015.

a. Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” Chapter 

12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan 

and the World Bank, 2006).

b. Mary E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. Department 

of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001).

c. Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, “Computational Analysis of Multilateral Trade Liberalization in the Uruguay 

Round and Doha Development Round,” Discussion Paper No. 489 (Ann Arbor, Mich.: University of Michigan, School of Public Policy,

Research Seminar in International Economics, December 8, 2002).

d. Ivan Roberts and others, Reforming World Agricultural Trade Policies, Australian Bureau of Agricultural and Resource Economics Research 

Report 99.12 and Rural Industries Research and Development Corporation Publication No. 99/96 (September 1999).

e. Benjamin Buetre and others, “Agricultural Trade Liberalization: Effects on Developing Countries’ Output, Incomes, and Trade,” Australian 

Bureau of Agricultural and Resource Economics Project 110039 (paper presented to the Seventh Annual Conference on Global Economic 

Analysis, Trade, Poverty, and the Environment, Washington, D.C., June 17-19, 2004).

f. Lionel Fontagne, Jean-Louis Guerin, and Sebastien Jean, Market Access Liberalisation in the Doha Round: Scenarios and Assessment, 

Working Paper No. 2003-12 (Paris: Centre d'Etudes Prospectives et d'Informations Internationales, September 2003).

g. John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are the 

Implications for North and South?, Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and Rural 

Development, June 2002), Table 2, p. 12.

h. It is not possible to adjust the U.S. welfare effect from the study by Beghin, Roland-Holst, and van der Mensbrugghe for comparability.

Static Effects Only

Static Plus

Investment Effects

Static Plus Investment 

Plus ProductivityGrowth Effects

Study

Billions of 

Dollars Percent

Billions of 

Dollars Percent

Billions of 

Dollars Percent

2006 World Bank Study

LINKAGE model analysisa 10.3 0.07 to 0.09

Economic Research Serviceb 12.0 to 14.7 0.10 21.6 to 26.4 0.18 24.0 to 29.3 0.20

Brown, Deardorff, and Sternc -44.4 to -54.2

Roberts and Othersd 8.9 to 17.9 0.07 to 0.12

Buetre and Otherse 8.3 to 12.4 0.06 to 0.10

Fontagne, Guerin, and Jeanf 41.6 to 50.8 0.35 to 0.57

Beghin, Roland-Holst, and van der 

Mensbruggheg h

34 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-8.

Estimated Welfare Effects of Full Liberalization of All Goods Trade, by Country or 

Region—2006 World Bank Study, LINKAGE Model Analysis

Continued

Country or Region

Simulations Without

Productivity Effects

Simulations with

Productivity Effects

Billions of

Dollars Percent

Billions of

Dollars Percent

Australia and New Zealand 6.1 1.0

EU(25) Plus EFTA 65.2 0.6

United States 16.2 0.1

Canada 3.8 0.4

Japan 54.6 1.1

South Korea and Taiwan 44.6 3.5

Hong Kong and Singapore 11.2 2.6

Argentina 4.9 1.2

Bangladesh 0.1 0.2

Brazil 9.9 1.5

China 5.6 0.2

India 3.4 0.4

Indonesia 1.9 0.7

Mexico 3.6 0.4

Russia 2.7 0.6

South Africa 1.3 0.9

Thailand 7.7 3.8

Turkey 3.3 1.3

Vietnam 3.0 5.2

Rest of South Asia 1.0 0.5

Rest of East Asia 5.3 1.9

Rest of Latin America and the Caribbean 10.3 1.2

Rest of Europe and Central Asia 1.0 0.3

Middle East and North Africa 14.0 1.2

Selected Sub-Saharan African Countries 1.0 1.5

Rest of Sub-Saharan Africa 2.5 1.1

Rest of the World 3.4 1.5

High-Income Countries 201.6 0.6 261.1 0.8
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 35

Table 2-8.

Continued

Sources: Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Global Impacts of the Doha Scenarios on Poverty,” Chapter 17 

in Thomas W. Hertel and L. Allan Winters, eds., Putting Development Back into the Doha Agenda: Poverty Impacts of a WTO Agreement (New York: Palgrave Macmillan and the World Bank, 2006), Table 17.3, p. 509; and Kym Anderson, Will Martin, and Dominique 

van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” Chapter 12 in Kym Anderson and Will Martin, 

eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan and the World Bank, 2006), 

Table 12.4, p. 346 and Table 12.20, p. 384.

Notes: Welfare effects are measured by equivalent variation. Dollar values are in 2001 dollars. WTO = World Trade Organization.

A blank space indicates that the study presents no estimate of the effect for the country or region in question.

Model: A version of the World Bank’s LINKAGE model with 27 regions and 25 economic sectors. Agriculture and food comprise 13 of

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. The simulations without productivity effects include static effects plus investment effects 

resulting from the influence of liberalization on household saving and on the prices of investment goods. The simulations with productivity include those same effects plus effects of liberalization on productivity.

Data: Release 6.05 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 2001. However, the baseline simulation also incorporates major changes in trade policy through 2005, including the final stages of implementation of the Uruguay Round 

Agreement, tariff reductions made by China and Taiwan as conditions of their accession to the World Trade Organization, and the

enlargement of the European Union to 25 members. Unlike previous GTAP releases, Release 6.05 includes bilateral and unilateral 

trade preferences.

Liberalization scenario simulated: The phased elimination from 2005 through 2010 of all tariffs, subsidies, and other trade-distorting 

measures in all goods sectors. The welfare-effect estimates are for the year 2015.

a. The WTO’s definition of developing countries includes Hong Kong, South Korea, Singapore, and Taiwan, whereas the World Bank’s definition, which is based on income levels, does not.

Country or Region

Simulations Without

Productivity Effects

Simulations With

Productivity Effects

Billions of

Dollars Percent

Billions of

Dollars Percent

Developing Countries—WTO Definitiona 141.5 1.2 258.7 2.2

Developing Countries—World Bank Definitiona 85.7 0.8 200.1 2.0

Middle-income countries 69.5 0.8 145.1 1.8

Low-income countries 16.2 0.8 55.0 2.8

East Asia and Pacific 23.5 0.7

South Asia 4.5 0.4

Europe and Central Asia 7.0 0.7

Middle East and North Africa 14.0 1.2

Sub-Saharan Africa 4.8 1.1

 Latin America and the Caribbean 28.7 1.0

World total 287.3 0.7 461.2 1.1
36 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-9.

Estimated Static Welfare Effects of Global Agricultural Liberalization—

2006 World Bank Study, GTAP-AGR Model Analysis

(Millions of 2001 dollars)

Source: Thomas W. Hertel and Roman Keeney, “What’s at Stake: 

The Relative Importance of Import Barriers, Export Subsidies, and Domestic Support,” Chapter 2 in Kym Anderson 

and Will Martin, eds., Agricultural Trade Reform and the 

Doha Development Agenda (New York: Palgrave Macmillan and the World Bank, 2006), Tables 2.7 and 2.8, 

pp. 49, 52, and 53.

Notes: Welfare effects are measured by equivalent variation.

GTAP = Global Trade Analysis Project.

Model: The GTAP-AGR model. The model is a specialpurpose variant of the GTAP static general-equilibrium 

model that is tailored to analysis of global agricultural trade 

policy issues. 

Data: Release 6.05 of the GTAP data set, which has a base 

year of 2001. However, before running the simulation of the 

liberalization scenario, the study runs a preliminary simulation incorporating liberalization that had been committed to 

in the World Trade Organization (WTO) but not yet implemented by 2001, such as the final stages of implementation 

of the Uruguay Round Agreement (including the phasing out 

of textile and apparel quotas) and tariff-reduction commitments made by China and Taiwan in connection with their 

accession to the WTO. The end point of that simulation is 

then used as the starting point for the main simulation that 

produces the estimates given in this table. Unlike previous 

releases of the GTAP data set, Release 6.05 includes bilateral 

and unilateral trade preferences.

Liberalization scenario simulated: The elimination of all subsidies, tariffs, and other trade-distorting policies in all goods 

sectors. The welfare-effect estimates presented are those 

attributed by the study to agricultural liberalization.

Benefiting Country or Region

Estimated

Welfare Effect

High-Income Countries 41,569

Transition Economies 2,160

Developing Countries 11,930

China 560

Indonesia 85

Philippines -85

Vietnam -7

Other East Asia 2,135

India 1,275

Bangladesh -50

Other South Asia 231

Argentina 1,137

Brazil 5,039

Other Latin America and the Caribbean 1,079

Morocco 92

Other North Africa and the Middle East -190

SACU 529

Mozambique -6

Other Southern Africa 275

Other Sub-Saharan Africa -167

World total 55,658
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 37

Table 2-10.

Estimated Welfare Effects of Full Trade Liberalization—2002 World Bank Study

Source: Dollar figures are from World Bank, “Envisioning Alternative Futures: Reshaping Global Trade Architecture for Development,” Chapter 6 in Global Economic Prospects and the Developing Countries 2002 (Washington, D.C.: World Bank, 2002), Table 6.1, p. 171. 

Percentage figures are by Congressional Budget Office based on the dollar figures and on Figure 6.2, p. 168, of the World Bank 

study.

Notes: Welfare effects are measured by equivalent variation.

Model: A version of the World Bank’s LINKAGE model with 15 regions and 20 economic sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to grow over time even with no liberalization. The simulations without productivity effects include static effects plus investment effects resulting from the influence of liberalization on 

household saving and on the prices of investment goods. The simulations with productivity effects include those same effects plus 

effects of liberalization on productivity.

Data: Version 5 of the Global Trade Analysis Project data set, which has a base year of 1997. Hence, the starting point for liberalization 

is the policies that existed in that year.

Liberalization scenario simulated: In each year from 2005 through 2010, all tariffs, domestic production subsidies, and export subsidies in all goods sectors are reduced by one-sixth of their preliberalization levels, ending with their complete elimination. The numbers presented are the components of the resulting welfare effects in 2015 attributed by the study to the liberalization of the food and 

agriculture sector.

Benefiting Region

Simulations Without

Productivity Effects

Simulations with

Productivity Effects

Billions of 1997 Dollars

High-Income Countries 106 196

Low- and Middle-Income Countries 142 390

World total 248 587

Percent

High-Income Countries 0.4 0.7

Low- and Middle-Income Countries 1.2 3.4

World total 0.6 1.5
38 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-11.

Estimated Welfare Effects of Global Elimination of Agricultural Tariffs and

Subsidies—Economic Research Service Study

Source: Xinshen Diao, Agapi Somwaru, and Terry Roe, “A Global Analysis of Agricultural Reform in WTO Member Countries,” Chapter 1 in 

Mary E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. 

Department of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001), Table 1-7, p. 37, and Table 

1-8, p. 39.

Notes: Welfare effects are measured by equivalent variation. Dollar values are in 1997 dollars.

Model: The Economic Research Service’s own model with 12 countries/regions, nine production sectors relating to agriculture and

food, and other production sectors aggregated together. The model does not have exogenously imposed growth in populations, labor 

forces, or productivity. The only growth in countries’ economies and trade over time is that resulting from the liberalization being 

modeled. Consequently, the results of liberalization simulations are compared with corresponding values in the base year before liberalization instead of with a baseline.

Data: The model is calibrated using data from version 5.2 of the Global Trade Analysis Project database, which has a base year of 1997. 

The study is based on 1998 levels of applied agricultural tariffs, domestic support and export subsidies, and tariff-rate quotas. Tariffs 

are from the Agriculture Market Access Database. Bound tariffs are used where applied rates are not available. Domestic support numbers are from the producer support estimates published by the Organisation for Economic Co-operation and Development. Export subsidies are from member countries’ reports to the World Trade Organization (WTO).

Liberalization scenario: All tariffs and tariff equivalents of nontariff barriers are eliminated for all WTO members as are all export subsidies. (Notably, this liberalization excludes China, which was not a WTO member when the study was published.) Domestic support is 

eliminated in Australia, New Zealand, Japan, Korea, the United States, Canada, the European Union, and in three countries in the 

European Free Trade Association (EFTA). Those countries provided between 90 percent and 92 percent of the domestic support 

reported by members to the WTO for 1998, depending on which three of the four members of the EFTA are referred to. The dynamic 

results presented are those for the 15th year after liberalization. (Because there is no exogenous growth in the model, the year that 

the liberalization occurs is irrelevant. All that matters are the starting point for the simulation—the size of the economy and trade in 

the base year, 1997—and the length of time after liberalization that the effects are estimated.)

Static Effects

Static Plus

Investment Effects

Static Plus

Investment Plus

Productivity Effects

Benefiting Country or Region

Billions of 

Dollars Percent

Billions of 

Dollars Percent

Billions of 

Dollars Percent

Developed Countries 28.5 0.16 29.7 0.17 35.1 0.20

Australia and New Zealand 1.6 0.44 3.4 0.94 3.5 0.90

Canada 0.8 0.15 1.2 0.25 1.4 0.28

EFTA 1.7 0.58 0.1 0.03 0.2 0.07

EU 9.3 0.14 8.2 0.12 10.6 0.16

Japan and Korea 8.6 0.27 5.1 0.16 6.2 0.19

United States 6.6 0.10 11.8 0.18 13.3 0.20

Emerging Economies and Developing Countries 2.6 0.05 6.5 0.12 21.3 0.40

China 0.4 0.07 1.8 0.29 2.2 0.35

Latin America 3.7 0.28 4.7 0.36 6.1 0.47

Mexico -0.2 -0.06 0.1 0.03 1.6 0.54

Other Asian countries 1.5 0.14 0.3 0.09 5.1 0.47

Southern African countries 0.3 0.09 0.5 0.17 0.8 0.28

Rest of world -3.1 -0.18 -0.4 -0.08 5.4 0.32

World total 31.1 0.13 36.3 0.16 56.4 0.24
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 39

Table 2-12.

Estimated Static Welfare Effects of a 33 Percent Reduction in Agricultural Import 

Tariffs, Domestic Support, and Export Subsidies, by Country or Region—

Study by Brown, Deardorff, and Stern

Source: Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, “Computational Analysis of Multilateral Trade Liberalization in the Uruguay Round and Doha Development Round,” Discussion Paper No. 489 (Ann Arbor, Mich.: University of Michigan, School of Public 

Policy, Research Seminar in International Economics, December 8, 2002), Table 4.

Notes: Model: The Michigan Model of World Production and Trade, which is a static general-equilibrium model that has 21 countries/regions 

and 18 production sectors, of which agriculture is one sector. The model incorporates some aspects of the “New Trade Theory,” 

including increasing returns to scale, monopolistic competition, and product heterogeneity.

Data: Version 4 of the Global Trade Analysis Project database, which has a base year of 1995. The study updates the base year in a very 

rough fashion to 2005. To estimate what the values of major economic variables would have been in 2005 in the absence of the Uruguay Round Agreement, the study makes projections based on growth rates contained in the 1999 edition of World Development 

Indicators and the 1998-1999 edition of World Development Report, both published by the World Bank. The study then simulates the 

liberalization agreed to in the Uruguay Round Agreement. The end point of that simulation is used as the starting point for the simulation that produces the estimate given in this table. As such, the policies that are liberalized to produce the estimate presented here 

presumably do not reflect the admission of China and Taiwan into the World Trade Organization and the expansion of the European

Union to 25 countries. Moreover, they would not reflect any other changes in applied tariffs that occurred between 1995 and 2005 that 

were not required by the Uruguay Round Agreement.

Liberalization scenario: A 33 percent reduction in agricultural import tariffs, domestic production subsidies, and export subsidies.

Country or Region Millions of Dollars

Estimated

Welfare Effect

Developed Countries

Australia and New Zealand -320.7 -0.063

Canada -368.4 -0.051

EU and EFTA 28,328.0 0.258

Japan -2,826.4 -0.044

United States -11,081.1 -0.122

Developing Countries

Asia

India 1,617.4 0.384

Sri Lanka -455.7 -2.734

Rest of South Asia 362.1 0.310

China -3,932.0 -0.434

Hong Kong -379.0 -0.294

South Korea -1,311.4 -0.230

Singapore -181.4 -0.244

Indonesia -3,185.5 -1.259

Malaysia -315.8 -0.264

Philippines -1,179.1 -1.336

Thailand 92.4 0.045

Other

Mexico -425.6 -0.121

Turkey -871.4 -0.414

Central Europe -1,695.6 -0.457

Central and South America -4,988.0 -0.285
40 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-13.

Estimated Static Welfare Effects of a Global 36 Percent Reduction of All Policies 

That Distort Agricultural Trade—Study by Roberts and Others

(Millions of 1995 dollars)

Source: Ivan Roberts and others, Reforming World Agricultural 

Trade Policies, Australian Bureau of Agricultural and 

Resource Economics Research Report 99.12 and Rural 

Industries Research and Development Corporation Publication No. 99/96 (September 1999), Table 2, p. 37.

Notes: Welfare effects are measured by equivalent variation.

Model: The Global Trade Analysis Project (GTAP) static 

general-equilibrium model, with 24 countries/regions and 

22 commodities.

Data: Version 4 of the GTAP database (modified slightly to 

improve the data representation of policies where necessary), which has a base year of 1995.

Liberalization scenario: The liberalization modeled is a 36 

percent reduction in all forms of agricultural support, 

restrictions on market access (in tariff equivalents), export 

subsidies, and domestic support.

a. Excludes South Africa, Fiji, and Papua New Guinea.

b. Includes regions outside those shown.

Country or Region

Estimated Welfare 

Effects

Australia 1,025

New Zealand 632

South Africa 168

Japan 4,050

South Korea 305

European Union 17,005

United States 3,247

China 705

India 171

Asian Cairns Group 2,292

American Cairns Group 2,001

Total Cairns Groupa 6,117

Rest of the World 2,666

Globalb 34,266
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 41

Table 2-14.

Estimated Effects on Gross National Product of a 50 Percent Reduction in 

Applied Merchandise Tariffs, by Country or Region—Study by Buetre and Others

(Millions of 1995 dollars)

Source: Benjamin Buetre and others, “Agricultural Trade Liberalization: Effects on Developing Countries’ Output, 

Incomes, and Trade,” Australian Bureau of Agricultural 

and Resource Economics Project 110039 (paper presented to the Seventh Annual Conference on Global Economic Analysis, Trade, Poverty, and the Environment, 

Washington, D.C., June 17-19, 2004), Table 6, p. 15.

Notes: Model: The Global Trade and Environment Model, developed 

by the Australian Bureau of Agricultural and Resource Economics from the MEGABARE model and the static Global 

Trade Analysis Project (GTAP) model. It is a dynamic 

general-equilibrium model with 18 countries/regions and 

26 economic sectors, of which 16 are agriculture and food 

(excluding forestry, fisheries, and wool). According to the 

study, “The reference case provides projections of growth 

of labor and capital in each country or region, and the associated changes throughout the rest of the economy in the 

absence of the policy measures to be examined.” The model 

includes investment effects. Economies grow even in the 

absence of liberalization, so the effects of liberalization are 

determined as deviations from a baseline simulation.

Data: Numbers for trade and other economic variables are 

from version 5 of the GTAP database, which has a base year 

of 1997. Starting applied tariffs from which liberalization is 

assumed to begin are from the 2003 Integrated Tariff Database of the World Trade Organization (WTO). Starting bound 

rates are from the Consolidated Tariff Schedule of the WTO. 

According to the study, “Many of the applied tariffs taken 

from the WTO database apply for calendar year 2002....The 

years with the second and third most numerous observations on applied tariffs are 2000 and 2001, while the oldest 

observations are for 1998. For bound tariffs, most of the 

information is based on concessions made in 1996, with the 

latest countries to accede to the WTO having the latest 

information—for example, China, which committed to tariff 

bindings in 2001.”

Liberalization scenarios: Policy changes are assumed to 

occur from 2005 through 2014, with no greater detail on the 

timing of the changes reported in the study. Estimated 

effects are for 2014.

Country or Region

Estimated

Increase in Gross 

National Product

Australia 873

New Zealand 716

Japan 7,522

ASEAN 3,270

China 2,620

Rest of North Asia 3,760

India 2,457

Rest of South Asia 738

Canada 1,443

United States 6,210

Latin America and the Caribbean 2,114

Argentina 825

Brazil 2,048

EU(15) Plus EFTA 18,590

Non-European Union 1,379

Middle East 2,470

Africa 3,779

Rest of the World 160

Total 60,973
42 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-15.

Estimated Welfare Effects of a 35 Percent Reduction in All Merchandise 

Tariffs, by Country or Region—Study by Fontagne, Guerin, and Jean

(Percent)

Source: Lionel Fontagne, Jean-Louis Guerin, and Sebastien Jean, 

Market Access Liberalisation in the Doha Round: Scenarios and Assessment, Working Paper No. 2003-12 (Paris: 

Centre d'Etudes Prospectives et d'Informations Internationales, September 2003), Table 5.1, p. 29.

Notes: Model: The MIRAGE (Modelling International Relationships 

in Applied General Equilibrium) model, which is a dynamic 

general-equilibrium model. The model includes investment 

effects but no productivity effects. The model includes 

growth unrelated to trade, and therefore results are compared to a baseline.

Data: The model is calibrated using version 5 of the Global 

Trade Analysis Project database, which has a base year of 

1997. The study uses actual tariffs—not bound and not 

most-favored-nation tariffs. The reference year for tariffs is 

1999, and that for all other distorting policies is 1997. 

Hence, any changes in policy since those years are not 

reflected in the results.

Liberalization scenarios: A 35 percent reduction in all tariffs 

at the six-digit Harmonized System level is phased in in 

equal increments over six years for developed countries and 

over 10 years for developing countries. Results presented 

are for 14 years after the liberalization agreement.

Country or Region Estimated Welfare Effect

EU(25) 0.4

United States 0.2

Japan 0.9

Cairns Group 0.3

Developing Asia 0,8

ACP Group 0.4

Rest of the World 0.5
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 43

Table 2-16.

Estimated Welfare Effects of Full Agricultural Liberalization in High-Income 

Regions, by Country or Region—Study by Beghin, Roland-Holst, and 

van der Mensbrugghe

Source: John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are 

the Implications for North and South? Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and 

Rural Development, June 2002), Table 2, p. 12.

Notes: Welfare effects are measured by equivalent variation.

Model: A version of the World Bank’s LINKAGE model with 14 countries/regions and 25 sectors. Agriculture and food comprise 17 of 

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. 

Data: Version 5.3 of the Global Trade Analysis Project database, which has a base year of 1997 for economic variables and 1998 for 

policy variables.

Liberalization scenario: The liberalization scenario involves the removal of all distortions—output subsidies, input subsidies, land and 

capital subsidies, export subsidies, and import tariffs—in high-income countries, which are defined to include Australia and New 

Zealand, Canada, the European Union, the European Free Trade Association, high-income Asia, and the United States. The liberalization is phased in from 2005 through 2010, with one-sixth of the relevant benchmark policy eliminated in each year. The numbers presented are the welfare effects in 2015.

Country or Region Billions of 1997 Dollars Percent

United States 5.0 0.05

Western Europe 17.0 0.17

High-Income Asia 22.1 0.34

Canada 4.2 0.55

Australia and New Zealand 7.7 0.12

Argentina 3.6 0.79

Brazil 3.2 0.32

China -0.7 -0.04

India 1.6 0.23

Rest of East Asia 0.6 0.07

Rest of Latin America and the Caribbean 9.2 0.72

Eastern Europe and Central Asia 3.2 0.57

Sub-Saharan Africa and SACU 1.8 0.57

Rest of the World 3.6 0.22

Low- and Middle-Income Countries 26.0 0.27

High-Income Countries 56.1 0.20

Cairns Group 28.5 0.57

World total 82.1 0.21
44 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-17.

Estimated Static Welfare Effects of Global Agricultural Liberalization, by Type of 

Policy Liberalized—2006 World Bank Study, GTAP-AGR Model Analysis

(Millions of 2001 dollars)

Source: Thomas W. Hertel and Roman Keeney, “What’s at Stake: The Relative Importance of Import Barriers, Export Subsidies, and 

Domestic Support,” Chapter 2 in Will Martin and Kym Anderson, eds., Agricultural Trade Reform and the Doha Development Agenda

(New York: Palgrave Macmillan and the World Bank, 2006), Tables 2.7 and 2.8, pp. 49, 52, and 53.

Note: Welfare effects are measured by equivalent variation. GTAP = Global Trade Analysis Project.

Model: The GTAP-AGR model. The model is a special-purpose variant of the GTAP static general-equilibrium model that is tailored to 

analysis of global agricultural trade policy issues.

Data: Release 6.05 of the GTAP data set, which has a base year of 2001. However, before running the simulation of the liberalization 

scenario, the study runs a preliminary simulation incorporating liberalization that had been committed to in the World Trade Organization (WTO) but not yet implemented by 2001, such as the final stages of implementation of the Uruguay Round Agreement (including 

the phasing out of textile and apparel quotas) and tariff-reduction commitments made by China and Taiwan in connection with their 

accession to the WTO. The end point of that simulation is then used as the starting point for the main simulation that produces the 

estimates given in this table. Unlike previous releases of the GTAP data set, Release 6.05 includes bilateral and unilateral trade preferences.

Liberalization scenario simulated: The elimination of all subsidies, tariffs, and other trade-distorting policies in all goods sectors. The 

welfare-effect estimates presented here are those attributed by the study to agricultural liberalization

a. High-income countries provide more than 90 percent of what the Uruguay Round Agreement on Agriculture classifies as amber-box subsidies and more than 95 percent of the export subsidies reported by member countries to the World Trade Organization.

Trade-Distorting Policies Removed

Benefiting Country or Region

Import

Market Access

Domestic Support in 

High-Income

Countriesa

Export Subsidies in 

High-Income 

Countriesa

Total Agricultural 

Liberalization

High-Income Countries 36,566 2,450 2,554 41,569

Transition Economies 2,571 76 -488 2,160

Developing Countries 12,669 284 -1,023 11,930

China 1,066 -428 -78 560

Indonesia 148 -43 -19 85

Philippines 17 -67 -36 -85

Vietnam -56 51 -2 -7

Other East Asia 2,098 66 -29 2,135

India 1,189 72 13 1,275

Bangladesh -10 -31 -9 -50

Other South Asia 236 4 -9 231

Argentina 558 503 75 1,137

Brazil 4,366 649 24 5,039

Other Latin America and the Caribbean 1,218 -26 -112 1,079

Morocco 177 -32 -55 92

Other North Africa and the Middle East 885 -528 -547 -190

SACU 499 46 -17 529

Mozambique -5 1 -1 -6

Other Southern Africa 284 23 -33 275

Other Sub-Saharan Africa 1 22 -189 -167

World total 51,806 2,809 1,043 55,658

46 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-18.

Estimated Static Welfare Effects of Global Agricultural Liberalization, by Type of 

Policy Liberalized—Economic Research Service Study

Continued

Trade-Distorting Policies Removed

Benefiting Country or Region

All Tariffs

Worldwide

Domestic Support in

Developed Countries

All Export Subsidies 

Worldwide

All Support and 

Protection

Worldwide

Welfare Effects (Billions of 1997 dollars)

Developed-Country Group 19.56 4.74 2.53 28.48

Australia and New Zealand 1.17 0.24 0.01 1.57

Canada 0.4 0.28 -0.09 0.75

EFTA 0.2 0.83 0.32 1.73

EU 0.14 6.06 3.72 9.28

Japan and Korea 13.81 -3.66 -1.34 8.59

United States 3.83 0.97 -0.09 6.57

Developing-Country Group 5.66 -1.94 -2.28 2.6

China 0.85 -0.28 -0.21 0.42

Latin American group 2.71 0.68 -0.05 3.65

Mexico 0.19 -0.27 -0.11 -0.16

Other Asian countries 1.71 -0.09 -0.25 1.52

Southern African countries 0.6 -0.22 -0.22 0.25

Rest of the world -0.39 -1.76 -1.43 -3.07

World 25.22 2.80 0.25 31.06
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 47

Table 2-18.

Continued

Source: Xinshen Diao, Agapi Somwaru, and Terry Roe, “A Global Analysis of Agricultural Reform in WTO Member Countries,” Chapter 1 in 

Mary E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. 

Department of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001), Table 1-7, p. 37, and 

Table 1-3, p. 31.

Note: Welfare effects are measured by equivalent variation.

Model: The Economic Research Service’s own model with 12 countries/regions, nine production sectors relating to agriculture and

food, and other production sectors aggregated together. The model does not have exogenously imposed growth in populations, labor 

forces, or productivity. The only growth in countries’ economies and trade over time is that resulting from the liberalization being 

modeled. Consequently, the results of liberalization simulations are compared with corresponding values in the base year before liberalization instead of with a baseline.

Data: The model is calibrated using data from version 5.2 of the Global Trade Analysis Project (GTAP) database, which has a base year 

of 1997. The study is based on 1998 levels of applied agricultural tariffs, domestic support and export subsidies, and tariff-rate quotas. 

Tariffs are from the Agriculture Market Access Database. Bound tariffs are used where applied rates are not available. Domestic support numbers are from the producer support estimates published by the Organisation for Economic Co-operation and Development. 

Export subsidies are from member countries’ reports to the World Trade Organization.

Liberalization scenario: All tariffs and tariff-equivalents of nontariff barriers are eliminated for all WTO members, as are all export subsidies. (Notably, this liberalization excludes China, which was not a WTO member when the study was published.) Domestic support is 

eliminated in Australia, New Zealand, Japan, South Korea, the United States, Canada, the European Union, and in three countries in 

the European Free Trade Association (EFTA). Those countries provided between 90 percent and 92 percent of the domestic support 

reported by members to the WTO for 1998, depending on which three of the four members of the EFTA are referred to.

Trade-Distorting Policies Removed

Benefiting Country or Region

All Tariffs

Worldwide

Domestic Support in

Developed Countries

All Export Subsidies 

Worldwide

All Support and 

Protection

Worldwide

Effects on Export Values (Percent)

Developed-Country Group 31.28 0.85 -1.43 31.81

Developing-Country Group 18.93 5.54 0.51 26.50

Effects on Import Values (Percent)

Developed-Country Group 28.66 5.43 -0.44 35.93

Developing-Country Group 22.89 -1.54 -1.01 20.02
48 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 2-19.

Estimated Welfare Effects of Agricultural Liberalization in High-Income 

Countries, by Type of Policy Liberalized—Study by Beghin, Roland-Holst, and 

van der Mensbrugghe

(Billions of 1997 dollars)

Source: John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are 

the Implications for North and South?, Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and 

Rural Development, June 2002), Table 2, p. 12.

Notes: Welfare effects are measured by equivalent variation.

Model: A version of the World Bank’s LINKAGE model with 14 countries/regions and 25 sectors. Agriculture and food comprise 17 of 

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization.

Data: Version 5.3 of the Global Trade Analysis Project database, which has a base year of 1997 for economic variables and 1998 for 

policy variables.

Liberalization scenarios: The “Removal of All Protection” scenario involves the removal of all distortions—output subsidies, input subsidies, land and capital subsidies, export subsidies, and import tariffs—in high-income countries, which are defined to include

Australia and New Zealand, Canada, the European Union, the European Free Trade Association, high-income Asia, and the United 

States. The “Removal of Border Protection” scenario involves the removal of export subsidies and import tariffs of those countries. 

In both scenarios, the liberalization is phased in from 2005 through 2010, with one-sixth of the relevant benchmark policy eliminated 

in each year. The numbers presented are the welfare effects in 2015.

Benefiting Country or Region

Removal of 

Border Protection

Removal of All 

Agricultural 

Distortions

United States 4.3 5.0

Western Europe 21.4 17.0

High-Income Asia 25.8 22.1

Canada 3.0 4.2

Australia and New Zealand 6.2 7.7

Argentina 2.0 3.6

Brazil 1.8 3.2

China 1.5 -0.7

India 1.1 1.6

Rest of East Asia 0.5 0.6

Rest of Latin America and the Caribbean 8.2 9.2

Eastern Europe and Central Asia 2.2 3.2

Sub-Saharan Africa and SACU 1.6 1.8

Rest of the World 3.4 3.6

Low- and Middle-Income Countries 22.3 26.0

High-Income Countries 60.6 56.1

Cairns Group 21.6 28.5

World total 82.9 82.1
CHAPTER TWO ECONOMYWIDE EFFECTS OF FULL LIBERALIZATION 49

Table 2-20.

Estimated Static Effects of a 50 Percent Cut in Domestic Subsidies and of a 50 

Percent Cut in Tariffs on Only Those Items That Also Have Domestic Subsidies—

Study by Hoekman, Ng, and Olarreaga

Source: Bernard Hoekman, Francis Ng, and Marcelo Olarreaga, Reducing Agricultural Tariffs Versus Domestic Support: What's More 

Important for Developing Countries? Policy Research Working Paper 2918 (Washington, D.C.: World, Bank, October 2002), Table 8, 

p. 33.

Notes: The study includes only the tariff lines for which there are domestic subsidies for the product in at least one country. There are 158 

such tariff lines out of a total of 900 at the six-digit Harmonized System level.

Model: Study authors’ own partial-equilibrium model.

Data: Initial tariff rates, export values, and import values are all averages for 1998 based on data from the World Bank’s WITS database. Domestic subsidy levels are averages of total aggregate measures of support (amber-box subsidies) for 1995 to 1998, as 

reported to the World Trade Organization by members (obtained from WTO document G/AG/NGIS/1, April 13, 2000).

Tariff Cut

Cut in 

Domestic Subsidies

Change 

in Welfare

Country Group

Change in 

Export Value

Change in 

Import Value

Change in 

Export Value

Change in 

Import Value Tariff Cut

Domestic 

Subsidies Cut

Millions of Dollars

Industrial Countries 3,262 7,677 314 121 14,464 541

Developing Countries 4,146 4,136 504 -92 2,293 -273

Least-Developed Countries 116 118 64 -4 52 36

Percent

Industrial Countries 4.7 9.8 0.5 0.2 18.37 0.69

Developing Countries 6.7 6.0 0.8 -0.1 0.56 -0.07

Least-Developed Countries 3.7 5.3 2.0 -0.2 0.12 0.08

CHAPTER

3

Considerations Concerning Partial Liberalization

Full agricultural liberalization is not on the table in 

the Doha Round—only partial liberalization. Assessment 

of partial liberalization is complicated by a number of 

factors that are not relevant to the assessment of full liberalization. Important considerations include the distinction between bound and applied tariffs and between 

bound and applied domestic support, exceptions made 

for sensitive and special products, the effects of liberalization of other goods sectors, special and differential treatment for developing countries, and the effects of different 

ways of partially liberalizing tariff-rate quotas. Some of 

those considerations have the potential to make a liberalization agreement much less beneficial than it may initially appear.

The Need for Large Reductions in

Tariff and Subsidy Bindings

The Doha Round negotiations regarding reductions in 

tariffs and domestic subsidies are framed in terms of reductions in tariff bounds and subsidy bounds—not reductions in actual tariffs and subsidies. The idea is that 

the reductions in bounds will cause reductions in actual 

applied values. However, most tariff and subsidy bounds 

are significantly higher than the actual applied tariffs and 

subsidies they are meant to constrain. Consequently, reductions in the bounds will not begin to reduce many actual tariffs and subsidies until substantial slack between 

bound and actual values is eliminated.

Tariff Bindings

The Congressional Budget Office’s August 2005 paper on 

policies that distort agricultural trade presented statistics 

showing that the most-favored-nation agricultural tariffs 

imposed by most countries are significantly lower than 

their bound values: 19 percent lower on average for developed countries and far lower for developing countries, 

ranging from 42 percent in Africa to 65 percent in the 

Middle East. The framework agreement for the Doha 

Round stipulates that “[t]ariff reductions will be made 

from bound rates” and that “[s]ubstantial overall tariff reductions will be achieved as a final result from negotiations.” Because of the first stipulation, the second will indeed have to be accomplished to have even a small effect 

on actual tariffs and therefore on trade, since actual tariffs 

will not begin to be affected until the bound rates are reduced enough to eliminate the gap between bound and 

actual rates. As a corollary, the reductions in applied tariffs will be much smaller on average than the reductions 

negotiated in the Doha Round.

That conclusion is strengthened by the fact that many 

countries’ average applied tariffs are lower than their average MFN tariffs. Some developed countries, such as the 

United States and the European Union, have preferential 

tariffs for imports from some developing countries, and 

members of free-trade agreements generally charge no 

tariffs at all on imports from other countries that are partners in the agreements. Consequently, the differences between average tariff bounds and average applied rates are 

larger than the differences between average tariff bounds 

and average MFN rates (see Table 3-1 on page 60). 

Worldwide, the average bound tariff for agricultural 

products is 37.4 percent, whereas the average MFN tariff 

is 24.0 percent and the average applied tariff is 17.0 percent. Thus, the average applied rate is 54.5 percent (not 

percentage points) lower than the average bound rate.

In the Uruguay Round Agreement, developed countries 

were generally required to set their bound rates equal to 

their current MFN rates, whereas developing countries 

were allowed to set their bound rates significantly higher 

than their current MFN rates. That is the reason for the 

larger difference noted above for developing countries, 

which is evident in the numbers in Table 3-1. The average developed-country tariff rate of 22.1 percent is 18.1 

percent lower than the average developed-country bound
52 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

rate of 27.0 percent.1 For developing countries, the average MFN rate is 44.5 percent lower than the average 

bound rate, and for least-developed countries, the average 

MFN rate is 81.6 percent below the average bound rate.

However, preferential tariff rates are a bigger factor in developed countries’ policies than in developing countries’ 

policies. Consequently, the percentage differences between average bound and average applied rates are closer 

to equal for developed and developing countries—and 

are a good bit larger—than are the percentage differences 

between average bound and average MFN rates. For developed countries, the average applied rate is 47.4 percent 

lower than the average bound rate. For developing and 

least-developed countries, the average applied rates are 

57.2 percent lower and 82.7 percent lower, respectively, 

than the average bound rates.

A negotiated cut in tariff bounds does not have to exceed 

the percentage difference between a country’s average tariff bound and its average applied tariff to have an effect 

on the country’s average applied tariff rate. The reason is 

that some tariffs are closer to their bounds than others. 

To take a simple example, suppose that half of a country’s 

tariffs are equal to their bounds and half are 50 percent 

below their bounds. Then the country’s average applied 

tariff is 25 percent below its average bound. Now suppose 

that a cut of 20 percent in all tariff bounds is negotiated. 

The result would be a 20 percent cut in the half of tariffs 

that are equal to their bounds and no cut in the tariffs 

that are 50 percent below their bounds. Averaging together the 20 percent cut for half of the tariffs and no cut 

for the other half would give a 10 percent cut in the average applied tariff—despite the fact that the 20 percent 

cut in tariff bounds is less than the 25 percent difference 

between the average tariff bound and the average applied 

tariff.

Of course, if all of the country’s applied tariffs were 25 

percent below their bound values, then a 20 percent cut 

in bounds would have no effect at all on the average applied tariff. Thus, to determine the effect on average applied tariffs of a particular formula for cutting bound tariffs, it is necessary to examine every applied tariff 

individually to determine if the formula cut in that tariff’s bound will require a cut in the applied tariff and, if 

so, by how much. The 2006 World Bank study does that 

for a number of possible tariff-cutting formulas to determine how they might affect the average tariffs of countries around the world.2

The framework agreement for the Doha Round calls for 

the negotiation of a tiered tariff-reduction formula in 

which deeper cuts are made in higher tariffs so as to reduce the disparity in tariffs across products. It also calls 

for special and differential treatment for developing 

countries, meaning that developing countries are not required to liberalize as much as developed countries are. In 

accordance with those two requirements, one of the tariff-cutting formulas analyzed in the World Bank study is 

a fairly aggressive tiered formula with one set of tiers and 

cuts for developed countries and a less severe set for developing countries. The formula applies to agricultural 

tariffs a marginal bracket formula of the sort used in the 

U.S. federal income tax system, with different marginal 

rates and inflection points for developed and developing 

countries. The brackets and required marginal cuts are as 

follows:

1. Readers who are especially alert may note that the percentage difference between average bound and average MFN tariffs for developed countries given here, which is based on the tariff averages in 

Table 3-1, is slightly different from that given at the beginning of 

the section, which is taken from CBO’s August 2005 paper. The 

reason is that the two numbers are based on tariff averages taken 

from different sources. As noted in Appendix A of the August 

paper, several difficulties arise in the calculation of tariff averages, 

and analysts handle those difficulties in different ways that can 

result in slight differences in the calculated averages. 2. See Jean, Laborde, and Martin in the bibliography.
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 53

Thus, for a 100 percent tariff by a developed country, the cut would be:

45 x 15 + 70 x (90 - 15) + 75 x (100 - 90) = 66.75 percentage points.

Despite the seeming aggressiveness of the cuts in the formula, with marginal cuts in bound rates ranging from 35 

percent to 75 percent, the resulting cuts in applied tariffs 

are only moderate on average and are small to nonexistent 

for a number of developing countries (see the first two 

columns of Table 3-2 on page 62). The average tariff 

worldwide before the cut is 15.8 percent. The formula 

cuts that average by 5.5 percentage points, or 34.8

percent.

The 14.1 percent average applied tariff for developed 

countries is cut by 6.6 percentage points, or 46.8 percent. 

However, in the case of developing and least-developed 

countries, the higher percentage difference between average bound and average applied tariffs combines with the 

less aggressive tariff-cutting formula in accordance with 

special and differential treatment to result in much 

smaller cuts in average applied tariffs. The 17.9 percent 

average of developed countries is cut by 4.3 percentage 

points, or 24.0 percent; and the 13.3 percent average of 

least-developed countries is not cut at all.

Domestic Support Bindings

The framework agreement for the Doha Round stipulates 

that the negotiations to reduce domestic support, like the 

tariff-reduction negotiations, proceed with bound values 

as their starting point. Specifically, it mandates the negotiation of reductions in levels of trade-distorting domestic 

support, where that term is defined as amber-box support 

plus de minimis support plus blue-box support. Further, 

the agreement stipulates that the negotiations take as 

their starting point for each country an amount equal to 

the country’s amber-box bound plus its maximum permitted level of de minimis support plus either its level of 

blue-box support in a recent historical period to be agreed 

upon or 5 percent of the value of its production in that 

historical period, whichever is greater. In addition, the 

agreement mandates negotiation of reductions in amberbox support alone and stipulates that those negotiations 

take each country’s amber-box bound as their starting 

point.

CBO’s August 2005 paper presented statistics showing 

that actual amber-box support is significantly lower than 

its bound value for most countries—more than 50 percent lower for many countries. Consequently, the same 

issue arises as in the tariff-reduction negotiations: that 

substantial reductions will have to be negotiated to have 

even a small effect on the domestic subsidies that countries actually grant.

In an extensive discussion of domestic support limits in 

the World Trade Organization, the 2006 World Bank 

study argues that the necessary reductions may be even 

larger because of an unintended consequence of the way 

amber-box support is calculated—unless the Doha 

Round Agreement changes the method of calculation.3

In particular, one component of amber-box support is 

market price support (MPS). MPS programs typically involve tariff protection of the product in question accompanied by some kind of support payments to maintain 

the country’s internal market price for the product at a 

target level—called the administered price—that is 

higher than the price that would otherwise prevail. In the 

calculation of amber-box support, the value of market 

price support is calculated by multiplying the quantity of 

the product whose price is being supported by the difference between the administered price and a fixed external 

reference price, where the fixed external reference prices 

for the various agricultural products were set on the basis 

of international prices in a historical period.

Developed Countries Developing Countries

Tariff Rate Bracket Marginal Cut Tariff Rate Bracket Marginal Cut

0-15 45 0-20 35

15-90 70 20-60 40

Above 90 75 60-120 50

Above 120 60

3. See the references by Hart and Beghin and by Jensen and Zobbe 

in the bibliography.
54 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Not all of the difference between the administered price 

and the external reference price arises from the MPS payments. Part of it arises from the tariff protection, and that 

is what gives rise to the unintended consequence. A country can reduce the MPS component in its amber-box support to zero and maintain substantial support for the agricultural sector in question by eliminating its administered 

price and MPS payments while leaving the tariff protection in place. If there is enough slack between its tariff on 

the product and the bound value for that tariff, the country can even raise the tariff to make up for the elimination 

of the MPS payments; or it might find other ways to 

make up for the elimination that do not count in the 

amber-box calculation.

According to the 2006 World Bank study, Japan has reduced its reported amber-box support by abolishing its 

official price for rice with little, if any, reduction in the 

actual support received by rice farmers. If support bounds 

are reduced sufficiently in the Doha Round negotiations 

to actually restrain countries’ amber-box support, other 

countries may follow suit with their own MPS programs, 

thus substantially reducing the effect that the negotiated 

reductions have on the actual support that countries 

grant to agriculture.

The Doha framework agreement calls for substantial reductions in trade-distorting domestic support using a 

tiered formula by which members with higher levels of 

such support must make larger reductions. The 2006 

World Bank study contains an analysis to determine how 

much such a formula could be undercut by the current 

difference between bound and actual levels of support in 

combination with the elimination of MPS programs to 

reduce calculated amber-box support without substantially reducing the benefit to the agricultural sectors the 

MPS programs support.

The analysis assumes that countries do not reduce their 

calculated amber-box support until the formula cut in the 

trade-distorting support bound forces them to. It also assumes that the first thing a country does to accommodate 

the cut is eliminate its MPS programs in such a manner 

as to avoid eliminating the benefit to the agricultural sectors those programs support. Only after a country has 

completely eliminated its MPS programs does it begin 

cutting non-MPS amber-box support. The purpose of 

the analysis is to determine how much non-MPS amberbox support must be cut.

The formula analyzed requires 75 percent cuts in the 

trade-distorting and amber-box support bounds of each 

developed country whose trade-distorting support bound 

is greater than or equal to 20 percent of the value of its 

agricultural production, 60 percent cuts for other developed countries, and 40 percent cuts for developing countries. Further, the limit on de minimis support is reduced 

from the current 5 percent of the value of production for 

developed countries and 10 percent for developing countries to 2.5 percent for developed countries and 5 percent 

for developing countries.

Take the United States as an example. Trade-distorting 

domestic support in the United States is equal to 20 percent of the value of production, so the formula prescribes 

a 75 percent cut in the U.S. trade-distorting support 

bound (see Table 3-3 on page 64). Because of the current 

difference between U.S. trade-distorting support and its 

bound, the 75 percent reduction requires only a 55.2 percent reduction in actual trade-distorting domestic support. Eliminating MPS programs would accomplish 27.2 

percentage points of that cut, leaving 28.1 percentage 

points of cuts that would have to take the form of nonMPS trade-distorting domestic support.

More generally, despite the aggressiveness of the cuts in 

the formula, countries’ levels of support are so far below 

their bounds that only 10 countries must make cuts in 

their actual levels of trade-distorting domestic support. 

Of those 10, four can accommodate the entire required 

cut by reducing or eliminating their MPS programs. 

Only six countries must make cuts in non-MPS support, 

and those cuts are not anywhere near as large as the cuts 

in the formula: Thailand at 30.4 percent of tradedistorting domestic support, the United States at 28.1 

percent, Norway at 18.4 percent, the European Union at 

15.9 percent, Australia at 10.4 percent, and Iceland at 

0.9 percent.4

 Of those countries, Thailand, Australia, and 

Iceland are insignificant in terms of the total dollar value 

of their trade-distorting support, and Norway is of borderline significance.

4. Members of the European Union have no barriers to trade and 

investment with other members. Moreover, all members have the 

same policy regarding trade and investment with nonmembers, 

and that policy is determined by the governing bodies of the European Union—not the individual members’ governments. Thus, 

for purposes of trade policy, the European Union is effectively one 

country and is treated as such in this paper.
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 55

The calculation presented here represents the maximum 

degree to which eliminating MPS might be used to reduce amber-box support without harm to the agricultural 

sector supported. Especially if tariff protection does not 

currently provide a large fraction of the calculated MPS 

support, a country might not have other methods at its 

disposal to offset the reductions in MPS payments when 

the MPS program is eliminated (for example, tariff 

bounds may prevent it from raising its tariffs enough to 

offset the reductions). Moreover, the authors of the study 

note that it is doubtful that the European Union would 

eliminate administered prices because they have been the 

backbone of the Common Agricultural Policy since its 

foundation in 1960. However, as mentioned earlier, they 

also note that Japan has already eliminated its administered price for rice.

Effects on the Economy

Two studies present results showing the influence of the 

gap between bound values and actual values on the economic benefits from partial liberalization. The first, the 

2006 World Bank study, presents simulation results for a 

scenario characterized by the tiered tariff-cutting formula 

used in Table 3-2 on page 62 and the tiered formula 

for cuts in trade-distorting domestic support used in

Table 3-3 on page 64 (assuming that countries eliminate 

their MPS programs as a means of mitigating actual cuts 

in support). The cuts in the formulas appear aggressive—

marginal cuts of 35 percent to 75 percent in tariff bounds 

with the highest tariffs (which are the ones most costly to 

economic welfare) getting the largest cuts, and cuts of 40 

percent to 75 percent in support bounds, with 75 percent 

cuts applied to the two countries granting by far the most 

subsidies (the European Union and the United States). 

Nevertheless, the welfare benefit to the world from the 

cuts is only one-quarter of the estimated welfare benefit 

from full liberalization of all merchandise trade (see the 

first two columns of results in Table 3-4 on page 66). 

More to the point, recall from Chapter 1 that the component of the benefit from full merchandise trade liberalization that is attributable to agricultural policies is $182 

billion. The $74.5 billion benefit from the tiered formula 

is only 41 percent of that.

The second study is the one by Buetre and others. It finds 

that a reduction in bound tariffs of 15 percent would increase world GDP by $2.2 billion, whereas a reduction of 

50 percent would increase world GDP by $12 billion (see 

Table 3-5 on page 69). Thus, increasing the reduction in 

bound tariffs by a factor of 3.3 increases the effect on 

world GDP by a factor of 5.5. That happens because a 

significant portion of the initial 15 percent reduction is 

devoted to taking up the slack between the bound tariffs 

and actual tariffs and does not affect the actual tariffs at 

all. After that initial reduction, the slack has already been 

taken up on many tariffs, so less of the subsequent 35 

percent reduction gets taken up by slack and more of it 

reduces actual tariffs.

The study further finds that a 50 percent reduction in all

applied tariffs (not just agricultural tariffs) would increase 

world GDP by $61.0 billion—five times as much as the 

50 percent reduction in bound agricultural tariffs. The 

reason for that result is not merely that tariffs are reduced 

for more products. Recall from Chapter 2 that policies 

distorting agricultural trade produce the vast bulk of the 

cost of all policies distorting goods trade and that agricultural tariffs produce the vast bulk of the cost of all policies 

distorting agricultural trade. It would seem unlikely, 

therefore, that applying the same tariff cut to nonagricultural goods that is applied to agricultural goods would 

multiply the increase in world GDP five times.

Rather, the explanation—or at least part of it—lies in the 

difference between bound and applied tariffs. The 50 

percent reduction in all applied tariffs results in a much 

larger increase in agricultural trade than does the 50 percent reduction in bound agricultural tariffs (see Table 3-6 

on page 70). It does so because the 50 percent reduction 

in actual agricultural tariffs (a component of the 50 percent reduction in all actual tariffs) is a much larger reduction in those tariffs than would be caused by the 50 percent reduction in bound agricultural tariffs.

It might also be the case that the reduction in nonagricultural tariffs increases agricultural trade through generalequilibrium effects on the exchange rate as described in 

Chapter 1. The possible magnitude of such effects will be 

discussed later in this chapter.

Allowance for Sensitive and

Special Products

Extremely high tariffs are a common feature in the agricultural sector.5

 A number of countries—particularly, a 

number of developing countries and high-income foodimporting countries—want to protect some of those high 

5. See Congressional Budget Office, Policies That Distort World 

Agricultural Trade, pp. 10-12.
56 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

tariffs from the reduction that would otherwise occur under the tiered reduction formula required by the framework agreement. Consequently, the agreement also contains provisions for sensitive products and special products. 

With regard to sensitive products, it states:

Selection

31. Without undermining the overall objective 

of the tiered approach, Members may designate 

an appropriate number, to be negotiated, of tariff lines to be treated as sensitive, taking account 

of existing commitments for these products. 

Treatment

32. The principle of “substantial improvement” 

will apply to each product.

33. “Substantial improvement” will be achieved 

through combinations of tariff quota commitments and tariff reductions applying to each 

product. However, balance in this negotiation 

will be found only if the final negotiated result 

also reflects the sensitivity of the product 

concerned.

34. The extent of MFN-based tariff quota expansion and any required tariff reduction for all 

such products will be determined in the negotiations. A base for tariff quota expansion will be 

established, taking account of coherent and equitable criteria to be developed in the negotiations. In order not to undermine the objective 

of the tiered approach for all such products, 

MFN-based tariff quota expansion will be provided under specific rules to be negotiated taking into account deviations from the tariff 

formula.6

With regard to special products, it states:

41. Developing country Members will have the 

flexibility to designate an appropriate number 

of products as Special Products, based on criteria of food security, livelihood security and rural 

development needs. These products will be eligible for more flexible treatment. The criteria 

and treatment of these products will be further 

specified during the negotiation phase and will 

recognize the fundamental importance of 

Special Products to developing countries.7

It is unclear from that language exactly how much liberalization of extremely high tariffs will occur. The issue is 

important because such tariffs are the cause of a substantial portion of the cost of all policies that distort agricultural trade. Moreover, if care is not taken to ensure that 

the number of such tariffs exempted from the tiered reduction formulas is indeed extremely small, the exemptions will eliminate almost all of the benefit from liberalization.

Results from the study by Fontagne and others show the 

significance of extremely high tariffs. The study estimates 

the effects on welfare, GDP, and trade of several different 

trade liberalization scenarios that differ primarily in how 

they treat extremely high tariffs. A “uniform” scenario 

consists of a 35 percent reduction in all tariffs (not just 

agricultural tariffs) at the six-digit HS level. A “uniform, 

except peaks” scenario consists of a 35 percent reduction 

in all tariffs at the six-digit HS level except for nonagricultural tariffs that are higher than 15 percent and agricultural tariffs that are higher than 85 percent, both of 

which are left unreduced. An “evening out” scenario consists of a 35 percent reduction in all tariffs at the six-digit 

HS level except for nonagricultural tariffs that are higher 

than 15 percent and agricultural tariffs that are higher 

than 85 percent. The higher tariffs are reduced by a formula that results in a more substantial reduction of the 

higher tariff rates than occurs in the uniform scenario, 

thereby evening out the higher tariffs to bring them more 

in line with the lower ones. All scenarios eliminate tariffs 

below 2 percent.

The results indicate that the effects of the peak tariffs are 

substantial (see Table 3-7 on page 71). For many countries, the evening-out scenario increases GDP by twice as 

much as the uniform-except-peaks scenario. The picture 

is similar with regard to economic welfare and trade.

The importance of keeping the number of sensitive and 

special products small is demonstrated by some results in 

the 2006 World Bank study. In addition to examining the 6. World Trade Organization, Framework for Establishing Modalities 

in Agriculture, Annex A to “Doha Work Programme Draft General Council Decision of 31 July 2004,” WTO document number 

WT/GC/W/535 (July 31, 2004), p. A-6. 7. Ibid., p. A-7.
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 57

effects of a tiered tariff-cutting formula on tariff averages, 

the study also calculates the effects of the same tiered 

tariff-reduction formula but with allowance for sensitive 

and special products. All countries are allowed to select 2 

percent of their tariff lines as sensitive products, and all 

developing countries are allowed to select an additional 2 

percent of their tariff lines as special products. Tariff 

bounds on sensitive and special products are exempted 

from the tiered reduction formula applicable to the 

bounds for other products and instead are cut by 15 percent. Countries are assumed to select as sensitive and special products those tariff lines that would cause the biggest reduction in tariff revenues if the tiered formula was 

applied, ensuring that the tariff lines chosen involve both 

high tariffs and significant import volumes.

The results show that the effects of the allowance are substantial (see Table 3-2 on page 62). Whereas the straight 

tiered tariff-reduction scenario reduces the tradeweighted average world tariff by 5.5 percentage points, 

the scenario with allowance for sensitive and special products reduces it by only 1.1 percentage points. Thus, the 

allowance eliminates 80 percent of the reduction in the 

world average.

Allowing for sensitive and special products has a large effect in part because the 2 percent of tariff lines chosen 

cover a disproportionately large amount of trade. If sensitive and special products are limited to tariff lines covering 2 percent of the value of imports instead of to 2 percent of tariff lines, the reduction in the world average is 

4.5 percentage points. Thus, over 80 percent of the reduction from the tiered formula is maintained.

The framework agreement calls for further evaluation of a 

tariff cap in connection with sensitive products. If a 200 

percent tariff cap is added to the scenario in which countries are allowed to designate 2 percent of tariff lines as 

sensitive and special products—that is, after the cuts in 

that scenario are made, all tariffs over 200 percent are cut 

to 200 percent—the resulting cut in the world tariff average is 3.2 percentage points. Thus, almost 60 percent of 

the reduction from the tiered formula without provision 

for sensitive and special products is maintained.

The welfare effects of allowing for sensitive and special 

products and of a 200 percent tariff cap are what one 

would expect from the effects on tariff averages (see Table 

3-4 on page 66). Without the allowance for sensitive and 

special products, the tiered agricultural formula results in 

a welfare benefit to the world of $74.5 billion. With 

countries allowed to select 2 percent of tariff lines as sensitive products (and developing countries to select an additional 2 percent of lines as special products), the welfare 

benefit drops to only $17.7 billion. Adding a 200 percent 

tariff cap raises the benefit back to $44.3 billion.

The Effects of Liberalizing Other 

Goods Sectors

Agricultural liberalization is not the only item on the 

agenda of the Doha Round negotiations—liberalization 

of trade in other goods is as well. In fact, one of the major 

fault lines among the countries participating in the round 

is between, on the one hand, a number of developing 

countries that want the developed countries to liberalize 

their agricultural policies but are resistant to reducing 

their own barriers to imports of manufactured goods and, 

on the other hand, developed countries that want developing countries to reduce barriers to imports of manufactured goods markets but are resistant to liberalizing their 

own agricultural policies. Participants are attempting to 

strike a deal between the two sides, with the developed 

countries liberalizing their agricultural sectors in exchange for developing countries opening their 

manufactured-goods markets to increased competition 

from imports.

However, as was discussed in Chapter 1, developed countries’ exports of manufactured goods to developing countries would be increased by the developed countries’ 

liberalization of their own agricultural markets, and 

developing countries’ exports of agricultural products to 

developed countries would be increased by developing 

countries’ reducing barriers to imports of manufactured 

goods. Moreover, simulation results from the 2006 World 

Bank study indicate that the gain to developing countries 

from reducing barriers to imports of manufactured goods 

is greater in percentage terms than is the gain to developed countries.

In addition to the tiered agricultural formula scenario 

already discussed, the World Bank study also presents 

results for a scenario identical to that one except that it 

includes additional cuts in tariffs on manufactured goods: 

50 percent for developed countries, 33 percent for developing countries, and 0 percent for least-developed countries (see the fifth column of results in Table 3-4). Both 

developed (or high-income) countries and developing 

countries benefit in terms of economic welfare from the 
58 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

additional tariff cuts on manufactured goods—developed 

countries by $14.3 billion and developing countries (as 

defined by the World Bank) by $7.1 billion. The gain to 

developed countries represents a 0.04 percent increase, 

whereas the gain to developing countries represents a 

0.07 percent increase.

The Effects of Special and Differential 

Treatment

The framework agreement for the Doha Round calls for 

special and differential treatment for developing countries, 

which means that they will not be required to make cuts 

in their tariffs and subsidies that are as deep as those required of developed countries. That provision, which has 

been a feature in previous negotiating rounds as well, is a 

concession by the developed countries to the developing 

countries. However, additional simulation results in the 

2006 World Bank study indicate that special and differential treatment is more harmful to developing countries 

than it is to developed countries, and it is especially 

harmful to low-income developing countries.

The 2006 World Bank study presents results for a scenario identical to the one discussed in the previous section—that is, the tiered agricultural formula plus cuts in 

tariffs on nonagricultural products—except that it contains no special and differential treatment for developing 

countries and instead requires them to make the same 

cuts required of developed countries (see the final column 

of Table 3-4 on page 66). Elimination of special and differential treatment increases the annual welfare benefit to 

developed countries from $79.9 billion to $96.4 billion—a 20.7 percent increase. The annual benefit to 

middle-income developing countries rises from $12.5 billion to $17.1 billion—an increase of 36.8 percent. The 

annual benefit to low-income developing countries grows 

by 63.9 percent—from $3.6 billion to $5.9 billion.

Tariff-Rate Quotas: Quota Expansion 

Versus Tariff Reduction

Tariff-rate quotas (TRQs) are another area in which the 

effects of partial liberalization can be quite different from 

what might be expected.8 The reason is that the effect of 

a given kind of liberalization depends on the quantity of 

the imports coming in under the TRQ relative to the 

quota. If the quota is either substantially overfilled or 

substantially underfilled, then increasing the quota will 

not have any effect on imports. However, if the quota is 

exactly 100 percent filled and binding, then increasing 

the quota will increase imports by the same amount as 

the increase in the quota (up to the point that the quota 

ceases to be binding). Thus, depending on the relative 

amounts of trade regulated by TRQs that are overfilled, 

underfilled, or exactly filled, an increase in quotas could 

have anywhere from no effect to an increase in trade by 

the same percentage as the percentage increase in quotas. 

Similarly, the effect of reductions in within-quota tariffs 

and over-quota tariffs also depends on the relative 

amounts of trade regulated by overfilled, underfilled, and 

exactly filled TRQs.

The issue is important because TRQs are a major feature 

of protection in agriculture. As shown in CBO’s August 

2005 study, TRQs protect 13 percent of agricultural output in Japan, 26 percent in the United States, 39 percent 

in the European Union, and 50 percent in Eastern Europe. Two studies that CBO surveyed for this paper examine that question using two different methodologies. 

Both reach the conclusion that reductions in the overquota tariff are likely to be more beneficial than are increases in the quotas unless the increases in the quotas are 

very large.

A chapter in the 2006 World Bank study identifies eight 

regimes into which the various TRQs around the world 

fall:9

Regime 1a: The quota is overfilled, but the country nevertheless imposes the in-quota tariff on all 

imports.

Regime 1b: The quota is underfilled, so the in-quota tariff applies to all imports.

Regime 2a: The quota is 100 percent filled. The quota is 

binding, and the tariff equivalent of the 

quota is less than the over-quota tariff.

Regime 2b: The quota is less than 100 percent filled, but 

the quota is binding anyway because administrative inefficiency makes it difficult or 

costly for some firms to receive quota allot8. A TRQ consists of a tariff on imports up to a given quota level 

and a higher tariff on imports above that level. 9. See de Gorter and Kliuga in the bibliography.
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 59

ments for the in-quota rate and the tariff 

equivalent of the quota is less than the 

over-quota tariff rate.

Regime 3a: The quota is exactly filled, and the tariff 

equivalent of the quota is equal to the 

over-quota tariff rate. Thus, the over-quota 

tariff is binding.

Regime 3b: The quota is underfilled, but there are imports coming in at the over-quota rate because administrative inefficiency makes it 

difficult or costly for firms to receive quota 

allotments for the in-quota rate.

Regime 3c: The quota is overfilled and the over-quota 

tariff is binding.

Regime 4: The official quota is overfilled, but the actual 

quota is effectively larger than the official 

quota so that all imports face the in-quota 

tariff and the tariff equivalent of the actual 

quota is less than the over-quota tariff rate.

For TRQs in regimes 1a and 1b, the within-quota tariff is 

binding. Consequently, lowering that tariff rate will increase imports, but neither lowering the over-quota tariff 

nor raising the quota will have any effect. For TRQs in 

regimes 2a and 2b, the quota is binding. Consequently, 

raising the quota will increase imports, but neither lowering the within-quota tariff nor lowering the over-quota 

tariff will have any effect provided the over-quota tariff 

remains above the tariff equivalent of the quota. However, if the over-quota tariff is lowered below the tariff 

equivalent of the quota, then the regime changes to regime 3a, 3b, or 3c.

For regimes 3a, 3b, and 3c, the over-quota tariff is binding. Consequently, lowering the over-quota tariff will increase imports, but neither lowering the within-quota tariff nor raising the quota will have any effect. Finally, for 

regime 4, the quantity of imports is determined by the 

administrators of the quota and is not affected by either 

the within-quota tariff, the over-quota tariff, or the 

quota.

The study tallies up the TRQs that fall into each regime 

and the values of trade involved. It assumes that for each 

TRQ in regimes 2a and 2b, the tariff equivalent of the 

quota is halfway between the within-quota tariff and the 

over-quota tariff. It assumes further that the sensitivity of 

import demand to prices is equal to the average of the 

sensitivities that are incorporated into the LINKAGE

model.10 On the basis of those assumptions and the trade 

tally, the study determines the total dollar-value effect on 

imports under each regime of changes in the over-quota 

tariff and changes in the quota, and totals up those effects 

for all regimes (see Table 3-8 on page 72). It concludes 

that a 35 percent reduction in over-quota tariffs would 

increase trade under TRQs by $18.2 billion, or 51.5 percent, whereas a 50 percent increase in quotas would increase it by only $5.1 billion, or 14.5 percent.

A study by Tsigas and Ingco uses a static generalequilibrium model to reach a similar conclusion about 

the welfare effects resulting from tariff reductions and 

increases in quotas. It finds that a 15 percent reduction in 

the tariffs that make up the quotas would increase economic welfare of the world as a whole by five-and-a-half 

times as much as a 15 percent expansion of the quota 

levels would (see Table 3-9 on page 73). For the United 

States, the welfare ratio is closer to three-and-a-half times.

10. In technical terminology, the assumption is that the elasticity of 

excess demand is equal to -4.63.
60 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 3-1.

Trade-Weighted Average Bound, Most-Favored-Nation, and Applied Agricultural 

Tariff Rates in 2001, by Country—2006 World Bank Study

(Percent)

Source: Sebastien Jean, David Laborde, and Will Martin, “Consequences of Alternative Formulas for Agricultural Tariff Cuts,” Chapter 4 in 

Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan 

and the World Bank, 2006), Table 4.2, p. 91.

Note: MERCOSUR is a customs union whose members at the time that the study was published were Argentina, Brazil, Paraguay, and 

Uruguay.

a. Average applied rates are lower than average most-favored-nation (MFN) rates because of free-trade agreements and tariff preferences 

granted to developing countries.

b. The average bound tariff rate given for China is lower than the average MFN rate because the average bound rate includes the effects of 

tariff reductions committed to by China in its accession agreement to the World Trade Organization but not yet in effect in 2001. 

Country

Average Bound 

Tariff

Average 

Most-FavoredNation TariffAverage 

Applied Tariffa

Percentage by Which 

Average Applied Rate 

Is Lower Than 

Average Bound Rate

Australia 5.9 3.6 3.0 49.2

Bangladesh 156.7 14.4 14.4 90.8

Canada 19.6 19.3 9.7 50.5

Chinab 16.2 51.3 38.9 -140.1

Japan 62.1 52.1 34.6 44.3

South Korea 103.5 119.8 93.9 9.3

Mexico 49.4 31.9 10.7 78.3

Pakistan 107.7 30.0 30.4 71.8

India 153.4 55.4 55.1 64.1

Turkey 50.1 16.1 14.0 72.1

United States 6.2 6.0 2.7 56.5

MERCOSUR 34.0 12.9 12.9 62.1

EFTA 70.8 48.2 28.6 59.6

ASEAN 59.7 12.1 11.2 81.2

Sub-Saharan Least-Developed Countries 62.8 14.8 13.1 79.1

Other Sub-Saharan Africa 104.4 26.5 25.6 75.5

Maghreb 38.0 18.9 17.6 53.7

SACU 51.5 13.8 13.0 74.8

EU 20.5 17.2 11.8 42.4

Developed Countries 27.0 22.1 14.2 47.4

Developing Countries 48.1 26.7 20.6 57.2

Least-Developed Countries 77.6 14.3 13.4 82.7

World 37.4 24.0 17.0 54.5

62 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 3-2.

Base-Level and Percentage-Point Cuts in Trade-Weighted Average Applied Duties 

for Various Agricultural Reform Scenarios, by Country or Region—

2006 World Bank Study

Source: Sebastien Jean, David Laborde, and Will Martin, “Consequences of Alternative Formulas for Agricultural Tariff Cuts,” Chapter 4 in 

Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan 

and the World Bank, 2006), Table 4.5, pp. 98 and 99.

Notes: MERCOSUR is a customs union whose members at the time that the study was published were Argentina, Brazil, Paraguay, and

Uruguay. 

Tariffs used are at the six-digit Harmonized System level for 2001 and updated to account for reduction commitments made by countries newly acceded to the World Trade Organization (among them, China), the phasing in of remaining commitments from the Uruguay Round Agreement on Agriculture, and the accession of 10 new members to the European Union in April 2004.

Country or Region

Base-Level 

Average 

Applied Tariff 

Rate

(Percent)

Percentage-Point Cut in Average Applied Tariffs

Tiered 

Agricultural 

Formula

Tiered 

Agricultural 

Formula 

Excluding

Sensitive

Products 

(2 Percent of 

Tariff Lines)

Tiered

Agricultural 

Formula

Excluding

Sensitive

Products 

(2 Percent of 

Tariff Lines) Plus 

Tariff Cap

Tiered

Agricultural 

Formula 

Excluding 

Sensitive 

Products 

(2 Percent of 

Import Value)

Australia 3.0 0.9 0.3 0.4 0.8

Bangladesh 14.4 0 0 0 0

Canada 9.7 4.4 0.1 1.0 3.3

China 10.0 2.3 0.9 1.3 1.8

Japan 34.5 16.6 2.1 8.5 13.1

South Korea 90.1 44.5 12.2 43.0 39.2

Mexico 9.5 1.5 0.2 0.2 1.5

Pakistan 30.4 0.5 0 0 0.5

India 54.5 4.4 1.7 1.7 4.4

Turkey 13.9 1.5 0.2 0.4 1.3

United States 2.7 0.9 0.1 0.3 0.8

MERCOSUR 12.8 0.4 0 0 0.4

EFTA 28.6 11.5 0.8 7.1 9.4

ASEAN 10.9 0.9 0.3 1.2 0.7

Sub-Saharan Least-Developed Countries 13.1 0 0 0 0

Other Sub-Saharan Africa 25.4 2.8 0.6 0.8 2.7

Maghreb 16.9 2.6 0.8 1.0 2.1

SACU 12.6 0.7 0.2 0.2 0.7

EU 11.8 6.1 1.3 2.5 4.9

Developed Countries 14.1 6.6 0.9 3.1 5.3

Developing Countries 17.9 4.3 1.3 3.5 3.8

Least-Developed Countries 13.3 0 0 0 0

World 15.8 5.5 1.1 3.2 4.5
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 63

The “Tiered Agricultural Formula” scenario applies to agricultural tariffs a marginal bracket formula of the sort used in the U.S. federal 

income-tax system, with different marginal rates and inflection points for developed and developing countries. Developed countries:

For tariff rates from zero to 15 percent, the marginal cut is 45 percent. For tariffs from 15 percent to 90 percent, the marginal cut is 70 

percent. For tariffs above 90 percent, the marginal cut is 75 percent. Developing countries: For tariffs from zero to 20 percent, the 

marginal cut is 35 percent. For tariffs from 20 percent to 60 percent, the marginal cut is 40 percent. For tariffs from 60 percent to 120 

percent, the marginal cut is 50 percent. For tariffs above 120 percent, the marginal cut is 60 percent. Thus, for a 100 percent tariff by 

a developed country, the cut would be 45 x 15 + 70 x (90 - 15) + 75 x (100 - 90) = 66.75 percentage points.

The “Tiered Agricultural Formula Excluding Sensitive Products (2 Percent of Tariff Lines)” scenario allows each country—developed or 

developing—to designate 2 percent of its tariff lines as “sensitive products” for which the tariff cut will be only 15 percent. Developing countries may also designate an additional 2 percent of their tariff lines as “special products” for which the tariff cut will also be 

only 15 percent. The tiered agricultural formula is applied to all other tariffs. For sensitive and special products, countries are assumed 

to choose the tariff lines for which application of the tiered formula would cause the greatest reduction in tariff revenue because of a 

combination of high tariff rates, high import values to which they apply, and closeness of the bound rate to the applied rate so that the 

tiered formula would cause a substantial cut.

The “Tiered Agricultural Formula Excluding Sensitive Products (2 Percent of Tariff Lines) Plus Tariff Cap” scenario is the same as the 

“Tiered Agricultural Formula Plus Sensitive Products (2 Percent of Tariff Lines)” scenario with the additional requirement that any tariffs exceeding 200 percent after applying that scenario are cut to 200 percent.

The “Tiered Agricultural Formula Excluding Sensitive Products (2 Percent of Import Value)” scenario is the same as the “Tiered Agricultural Formula Excluding Sensitive Products (2 Percent of Tariff Lines)” scenario except that sensitive and (for developing countries) 

special products are each limited to 2 percent of each country's import value rather than 2 percent of its tariff lines. 
64 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 3-3.

Effects of a Tiered Formula Cut in Domestic Agricultural Support, Assuming

Market Price Support Is Cut Before Other Support—2006 World Bank Study

Source: Congressional Budget Office based on Hans G. Jensen and Henrik Zobbe, “Consequences of Reducing AMS Limits,” Chapter 9 in 

Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan 

and the World Bank, 2006), Tables 9.5, 9.6, and 9A.1, pp. 254-260 and 265-268.

Notes: MPS = Market price support; n.a. = not applicable.

The tiered formula cuts total distorting support by 75 percent or 60 percent for each developed country, depending on whether the 

current allowable amount of such support is greater or less than 20 percent of the value of the country’s agricultural production. It 

cuts such support by 40 percent for each developing country.

Countries listed include all those that currently have amber-box bounds from subsidy-reduction commitments made in the Uruguay 

Round Agreement on Agriculture or in accession agreements except for countries that were admitted to the European Union when it

was expanded in 2004.

Percentage reductions in actual support are based on countries’ reports of such support to the World Trade Organization. Most such 

reports are for 2002 or earlier. 

Resulting Required Reduction in Trade-Distorting Support

Current Allowable 

Trade-Distorting 

Support 

(Percentage of 

Production Value)

Formula

Reduction in 

Trade-Distorting 

Support Bound 

(Percent)

Total 

(Percent)

MPS 

Component 

(Percentage 

of Total 

Trade-Distorting 

Support)

Non-MPS 

Component 

(Percentage 

of Total 

Trade-Distorting 

Support)

Developed Countries

Norway 114 75 71.8 53.4 18.4

Iceland 132 75 71.8 70.9 0.9

Switzerland-Liechtenstein 68 75 67.5 67.5 0

EU(15) 42 75 62.1 46.2 15.9

United States 20 75 55.2 27.2 28.1

Australia 11 60 10.4 0 10.4

Canada 24 75 9.7 9.7 0

Japan 54 75 0 0 0

New Zealand 12 60 0 0 0

Developing Countries

Argentina n.a. 40 43.5 43.5 0

South Korea n.a. 40 38.0 38.0 0

Thailand n.a. 40 30.4 0 30.4

Venezuela n.a. 40 0 0 0

Tunisia n.a. 40 0 0 0

South Africa n.a. 40 0 0 0

Morocco n.a. 40 0 0 0

Mexico n.a. 40 0 0 0

Jordan n.a. 40 0 0 0

Israel n.a. 40 0 0 0

Costa Rica n.a. 40 0 0 0

Colombia n.a. 40 0 0 0

Bulgaria n.a. 40 0 0 0

Brazil n.a. 40 0 0 0

Taiwan n.a. 40 n.a. n.a. n.a.

Papua New Guinea n.a. 40 n.a. n.a. n.a.

66 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 3-4.

Estimated Welfare Effects of Alternative Doha Liberalization Scenarios, by 

Country or Region—2006 World Bank Study, LINKAGE Model Analysis 

(Billions of 2001 dollars)

Continued

Country or Region

Full 

Merchandise 

Trade 

Liberalization

Tiered 

Agricultural 

Formula

Tiered 

Agricultural 

Formula 

Excluding 

Sensitive 

Products

Tiered 

Agricultural 

Formula 

Excluding 

Sensitive 

Products 

Plus Tariff 

Cap

Tiered 

Agricultural 

Formula 

Plus Tariff 

Cuts for 

Nonagricultural 

Products

No S&D: 

Same 

Agricultural 

Formula

and Nonagricultural 

Tariff Cuts 

for All 

Countries

Australia and New Zealand 6.1 2.0 1.1 1.2 2.4 2.8

EU(25) plus EFTA 65.2 29.5 10.7 10.9 31.4 35.7

United States 16.2 3.0 2.3 2.1 4.9 6.6

Canada 3.8 1.4 0.5 0.4 0.9 1.0

Japan 54.6 18.9 1.8 12.9 23.7 25.4

South Korea and Taiwan 44.6 10.9 1.7 15.9 15.0 22.6

Hong Kong and Singapore 11.2 -0.1 -0.1 -0.2 1.5 2.2

Argentina 4.9 1.3 1.0 1.0 1.3 1.6

Bangladesh 0.1 0 0 0.0 -0.1 -0.1

Brazil 9.9 3.3 1.1 1.1 3.6 3.9

China 5.6 -0.5 -1.5 -1.1 1.7 1.6

India 3.4 0.2 0.2 0.2 2.2 3.5

Indonesia 1.9 0.1 0.2 0 1.0 1.2

Mexico 3.6 -0.2 -0.3 -0.3 -0.9 -0.2

Russia 2.7 -0.3 -0.7 -0.7 0.8 1.5

South Africa 1.3 0.1 0.3 0.3 0.4 0.7

Thailand 7.7 0.9 0.6 0.8 2.0 2.7

Turkey 3.3 0.6 0 0 0.7 1.4

Vietnam 3.0 -0.1 0 -0.1 -0.5 -0.6

Rest of South Asia 1.0 0.2 0.1 0.2 0.3 0.7

Rest of East Asia 5.3 0.1 0 1.0 0.3 0.6

Rest of Latin America and the 

Caribbean 10.3 3.7 0.5 0.4 3.9 4.0

Rest of Europe and

Central Asia 1.0 -0.2 -0.3 -0.2 -0.6 -0.7

Middle East and North Africa 14.0 -0.8 -1.2 -1.2 -0.6 0.1

Selected Sub-Saharan African 

Countries 1.0 0.1 0 0.0 0.1 0.2

Rest of Sub-Saharan Africa 2.5 0 -0.3 -0.3 -0.1 0.3

Rest of the World 3.4 0.4 0 0.0 0.6 0.6
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 67

Table 3-4.

Continued

Source: Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” 

Chapter 12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan and the World Bank, 2006), Tables 12.4 and 12.14, pp. 346 and 370-373.

Notes: Welfare effects are measured by equivalent variation; WTO = World Trade Organization; S&D = special and differential treatment.

Model: A version of the World Bank’s LINKAGE model with 27 regions and 25 economic sectors. Agriculture and food comprise 13 of

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. The simulations include static effects plus investment effects resulting from the influence 

of liberalization on household saving and on the prices of investment goods; they do not include effects on productivity growth rates.

Data: Version 6.05 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 2001. However, the baseline simulation also includes major changes in trade policy through 2005, including the final stages of implementation of the Uruguay Round 

Agreement, tariff reductions made by China and Taiwan as conditions of their accession to the World Trade Organization, and enlargement of the European Union to 25 members. Unlike previous GTAP releases, version 6.05 includes bilateral and unilateral trade preferences.

Liberalization scenarios: For each scenario, the liberalization is phased in from 2005 through 2010, and the welfare-effect estimates 

are for the year 2015.

The “Full Merchandise Trade Liberalization” scenario eliminates all tariffs, subsidies, and other trade-distorting measures in all goods 

sectors.

All other scenarios abolish all agricultural export subsidies and reduce domestic agricultural subsidies by the amounts shown in the 

final column of Table 3-3: the United States, 28 percent; Norway, 18 percent; the European Union, 16 percent; Australia, 10 percent; 

all other countries, zero. In addition:

Country or Region

Full 

Merchandise 

Trade 

Liberalization

Tiered 

Agricultural 

Formula

Tiered 

Agricultural 

Formula 

Excluding 

Sensitive 

Products

Tiered 

Agricultural 

Formula 

Excluding 

Sensitive 

Products 

Plus Tariff 

Cap

Tiered 

Agricultural 

Formula 

Plus Tariff 

Cuts for 

Nonagricultural 

Products

No S&D: 

Same 

Agricultural 

Formula

and Nonagricultural 

Tariff Cuts 

for All 

Countries

High-Income Countries 201.6 65.6 18.1 43.2 79.9 96.4

Developing Countries—WTO 

Definitiona 141.5 19.7 1.2 16.8 32.6 47.7

Developing Countries—World 

Bank Definitiona 85.7 9.0 -0.4 1.1 16.1 22.9

Middle-Income Countries 69.5 8.0 -0.5 1.0 12.5 17.1

Low-Income Countries 16.2 1.0 0.1 0.0 3.6 5.9

East Asia and Pacific 23.5 0.5 -0.8 0.6 4.5 5.5

South Asia 4.5 0.4 0.3 0.4 2.5 4.2

Europe and Central Asia 7.0 0.1 -0.9 -0.9 0.8 2.1

Middle East and North Africa 14.0 -0.8 -1.2 -1.2 -0.6 0.1

Sub-Saharan Africa 4.8 0.3 0 -0.1 0.4 1.2

Latin America and the 

Caribbean 28.7 8.1 2.3 2.1 7.9 9.2

World total 287.3 74.5 17.7 44.3 96.1 119.3
68 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

The “Tiered Agricultural Formula” scenario applies to agricultural tariffs a marginal bracket formula of the sort used in the U.S. federal 

income tax system, with different marginal rates and inflection points for developed, developing, and least-developed countries. 

Developed countries: For tariff rates from zero to 15 percent, the marginal cut is 45 percent. For tariffs from 15 percent to 90 percent, 

the marginal cut is 70 percent. For tariffs above 90 percent, the marginal cut is 75 percent. Developing countries: For tariffs from zero 

to 20 percent, the marginal cut is 35 percent. For tariffs from 20 percent to 60 percent, the marginal cut is 40 percent. For tariffs from 

60 percent to 120 percent, the marginal cut is 50 percent. For tariffs above 120 percent, the marginal cut is 60 percent. Leastdeveloped countries: No tariffs are cut. Thus, for a 100 percent tariff by a developed country, the cut would be 45 x 15 +70 x (90 - 15) 

+ 75 x (100 - 90) = 66.75 percentage points.

The “Tiered Agricultural Formula Excluding Sensitive Products” scenario allows each country—developed or developing—to designate 2 percent of its agricultural tariff lines as “sensitive products” for which the tariff cut will be only 15 percent. Developing countries may also designate an additional 2 percent of their tariff lines as “special products” for which the tariff cut will also be only 15 

percent. The tiered formula is applied to all other agricultural tariffs. For sensitive and special products, countries are assumed to 

choose the tariff lines for which application of the tiered formula would cause the greatest reduction in tariff revenue because of a 

combination of high tariff rates, high import values to which they apply, and closeness of the bound rate to the applied rate so that the 

tiered formula would cause a substantial cut.

The “Tiered Agricultural Formula Excluding Sensitive Products Plus Tariff Cap” scenario is the same as the “Tiered Formula Excluding 

Sensitive Products” scenario with the additional requirement that any tariffs exceeding 200 percent after applying that scenario are 

cut to 200 percent.

The “Tiered Agricultural Formula Plus Tariff Cuts for Nonagricultural Products” scenario is the same as the “Tiered Agricultural Formula” scenario except that it additionally cuts all nonagricultural tariffs by 50 percent for developed countries, 33 percent for developing countries, and zero for least-developed countries.

The “No S&D: Same Agricultural Formula and Nonagricultural Tariff Cuts for All Countries” scenario eliminates special and differential 

treatment for developing and least-developed countries by applying to all countries—developed, developing, and least-developed—

the cuts applied to developed countries in the “Tiered Agricultural Formula Plus Tariff Cuts for Nonagricultural Products” scenario.

a. The WTO’s definition of developing countries includes Hong Kong, South Korea, Singapore, and Taiwan, whereas the World Bank’s definition, which is based on income levels, does not.
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 69

Table 3-5.

Estimated Effects on Gross National Product of Various Liberalization

Scenarios, by Country or Region—Study by Buetre and Others

(Millions of dollars)

Source: Benjamin Buetre and others, “Agricultural Trade Liberalization: Effects on Developing Countries’ Output, Incomes, and Trade,” 

Australian Bureau of Agricultural and Resource Economics Project 110039 (paper presented to the Seventh Annual Conference on 

Global Economic Analysis, Trade, Poverty, and the Environment, Washington, D.C., June 17-19, 2004), Table 6, p. 15.

Notes: Model: The Global Trade and Environment Model, developed by the Australian Bureau of Agricultural and Resource Economics (ABARE) 

from the MEGABARE model and the static Global Trade Analysis Project (GTAP) model. It is a dynamic general-equilibrium model with 

18 countries/regions and 26 economic sectors, of which 16 are agriculture and food, excluding forestry, fisheries, and wool). According to the study, “The reference case provides projections of growth of labor and capital in each country or region, and the associated 

changes throughout the rest of the economy in the absence of the policy measures to be examined.” The model includes investment

effects. It is unclear whether it includes productivity effects. Economies grow even in the absence of liberalization, so the effects of 

liberalization are determined as deviations from a baseline simulation.

Data: Numbers for trade and other economic variables are from version 5 of the GTAP database, which has a base year of 1997. Starting applied tariffs from which liberalization is assumed to begin are from the 2003 Integrated Tariff Database of the World Trade 

Organization (WTO). Starting bound rates are from the Consolidated Tariff Schedule of the WTO. According to the study, “Many of the 

applied tariffs taken from the WTO database apply for calendar year 2002....The years with the second and third most numerous observations on applied tariffs are 2000 and 2001, while the oldest observations are for 1998. For bound tariffs, most of the information is 

based on concessions made in 1996, with the latest countries to accede to the WTO having the latest information—for example, 

China, which committed to tariff bindings in 2001.”

Liberalization scenarios: Policy changes are assumed to occur from 2005 through 2014, with no greater detail on the timing of the 

changes reported in the study. Estimated effects are for 2014. 

Cut in Bound Agricultural Tariffs 50 Percent Cut in 

Country or Region 15 percent 50 percent Applied Merchandise Tariffs

Australia 67 355 873

New Zealand 47 306 716

Japan 452 2,129 7,522

ASEAN 63 190 3,270

China 60 130 2,620

Rest of North Asia 166 213 3,760

India -42 -177 2,457

Rest of South Asia -16 -71 738

Canada 93 357 1,443

United States 90 770 6,210

Latin America and the Caribbean 146 594 2,114

Argentina 48 199 825

Brazil 111 391 2,048

EU(15) Plus EFTA 450 2,890 18,590

Non-EU 201 993 1,379

Middle East 89 858 2,470

Africa 148 1,683 3,779

Rest of the World 44 190 160

Total 2,217 12,000 60,973
70 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 3-6.

Estimated Effects on Aggregate Trade of Various Liberalization Scenarios—

Study by Buetre and Others 

(Billions of dollars)

Source: Benjamin Buetre and others, “Agricultural Trade Liberalization: Effects on Developing Countries’ Output, Incomes, and Trade,” 

Australian Bureau of Agricultural and Resource Economics Project 110039 (paper presented to the Seventh Annual Conference on 

Global Economic Analysis, Trade, Poverty, and the Environment, Washington, D.C., June 17-19, 2004), Table 9, p. 18.

Notes: Model: The Global Trade and Environment model, developed by the Australian Bureau of Agricultural and Resource Economics 

(ABARE) from the MEGABARE model and the static Global Trade Analysis Project (GTAP) model. The model is a dynamic generalequilibrium model with 18 countries/regions and 26 economic sectors, of which 16 are agriculture and food (excluding forestry, fisheries, and wool). According to the study, “The reference case provides projections of growth of labor and capital in each country or 

region, and the associated changes throughout the rest of the economy in the absence of the policy measures to be examined.” The 

model includes investment effects. Economies grow even in the absence of liberalization, so the effects of liberalization are determined as deviations from a baseline simulation.

Data: Numbers for trade and other economic variables are from version 5 of the GTAP database, which has a base year of 1997. Starting applied tariffs from which liberalization is assumed to begin are from the 2003 Integrated Tariff Database of the World Trade Organization (WTO). Starting bound rates are from the Consolidated Tariff Schedule of the WTO. According to the study, “Many of the

applied tariffs taken from the WTO database apply for calendar year 2002....The years with the second and third most numerous observations on applied tariffs are 2000 and 2001, while the oldest observations are for 1998. For bound tariffs, most of the information is 

based on concessions made in 1996, with the latest countries to accede to the WTO having the latest information—for example, 

China, which committed to tariff bindings in 2001.”

Liberalization scenarios: Policy changes are assumed to occur from 2005 through 2014, with no greater detail on the timing of the 

changes reported in the study. Estimated effects are for 2014. 

Importer

Value of Agricultural Trade Value of Total Trade

Exporter

Developed

Countries

Developing 

Countries Total

Developed 

Countries

Developing 

Countries Total

15 Percent Cut in Bound Tariffs

Developed Countries 2.1 0.7 2.8 3.1 1.6 4.7

Developing Countries 3.2 0.0 3.2 1.9 -0.4 1.5

Total 5.3 0.7 6.0 5.1 1.2 6.3

50 Percent Cut in Bound Tariffs

Developed Countries 12.4 7.0 19.4 15.3 9.4 24.7

Developing Countries 12.8 1.1 13.9 10.1 0.2 10.2

Total 25.3 8.1 33.4 25.3 9.5 34.9

50 Percent Cut in Applied Tariffs on Merchandise Commodities

Developed Countries 21.7 22.3 44.0 88.5 101.8 190.3

Developing Countries 17.5 11.2 28.7 111.2 77.2 188.4

Total 39.2 33.5 72.6 199.7 179.1 378.7
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 71

Table 3-7.

Comparison of Estimated Aggregate Effects of Various Tariff-Reduction

Scenarios—Study by Fontagne, Guerin, and Jean

(Percent)

Source: Lionel Fontagne, Jean-Louis Guerin, and Sebastien Jean, Market Access Liberalisation in the Doha Round: Scenarios and Assessment, Working Paper No. 2003-12 (Paris: Centre d'Etudes Prospectives et d'Informations Internationales, September 2003), Tables 

5.1-5.4, pp. 29, 30, 32, and 33.

Notes: Model: The MIRAGE (Modelling International Relationships in Applied General Equilibrium) model, which is a dynamic generalequilibrium model. It includes investment effects but no productivity effects.

Data: The model is calibrated using version 5 of the Global Trade Agreement Project (GTAP) database, which has a base year of 1997. 

Study uses actual tariffs—not bound or most-favored-nation tariffs. The reference year for tariffs is 1999, and that for all other distortions is 1997. Hence, any changes in policy since those years are not reflected in the results.

Liberalization scenarios: All scenarios are phased in in equal increments over six years for developed countries and over 10 years for 

developing countries. Results presented are for 14 years after the liberalization agreement.

The “Uniform” scenario consists of a 35 percent reduction in all ad valorem tariff equivalents (of ad valorem tariffs, specific duties, 

tariff-rate quotas, prohibitions, and antidumping duties) at the six-digit Harmonized System level. All tariffs below 2 percent are 

eliminated.

The “Uniform, Except Peaks” scenario consists of a 35 percent reduction in all ad valorem tariff equivalents at the six-digit 

Harmonized System level except for nonagricultural tariffs that are higher than 15 percent and agricultural tariffs that are higher than 

85 percent. All tariffs below 2 percent are eliminated.

The “Evening Out” scenario consists of a 35 percent reduction in all ad valorem tariff equivalents at the six-digit Harmonized System 

level except for nonagricultural tariffs that are higher than 15 percent and agricultural tariffs that are higher than 85 percent, and 

reduction of those higher tariffs to a level of a * t / (a +t), where t is the starting tariff rate and a is chosen so as to make the result 

continuous with the lower tariff rates reduced by 35 percent (a = 28 in manufacturing, and a = 158 in agriculture). This scenario 

results in a more substantial reduction of the higher tariff rates than does the uniform scenario, thereby “evening out” the higher 

tariffs to bring them more in line with the lower ones. All tariffs below 2 percent are eliminated. 

Scenario EU(25)

United 

States Japan

Cairns 

Group

Developing 

Asia

ACP

Group

Rest of 

World

Welfare

Uniform 0.4 0.2 0.9 0.3 0.8 0.4 0.5

Uniform, Except Peaks 0.3 0.1 0.3 0.1 0.3 0.3 0.2

Evening Out 0.4 0.2 1.5 0.4 1.1 0.4 0.8

Gross Domestic Product

Uniform 0.1 0.1 0.3 0.1 0.3 0.5 0.5

Uniform, Except Peaks 0 0.1 0.2 0.1 0.1 0.2 0.3

Evening Out 0.1 0.2 0.4 0.1 0.4 0.4 0.6

Exports

Uniform 6.4 6.0 6.6 7.0 13.1 9.3 8.7

Uniform, Except Peaks 4.3 4.5 4.4 3.5 4.7 2.9 4.3

Evening Out 7.3 6.8 7.7 8.8 18.8 10.9 12.3

Imports

Uniform 7.4 5.2 7.6 6.8 12.6 7.8 8.8

Uniform, Except Peaks 4.8 3.8 5.0 3.4 4.6 2.4 4.4

Evening Out 8.6 6.0 8.9 8.6 18.0 9.2 12.4
72 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 3-8.

Effects of Tariff-Rate Quota Liberalization on the Value of Trade—

2006 World Bank Study 

Source: Harry de Gorter and Erika Kliuga, “Reducing Tariffs Versus Expanding Tariff Rate Quotas,” Chapter 5 in Kym Anderson and Will

Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: Palgrave Macmillan and the World Bank, 

2006), Table 5.4, p. 130.

Notes: Calculated increases are based on the assumptions that the elasticity of excess demand equals -4.63 and that the tariff equivalent of 

the quota for each tariff-rate quota in regimes 2a and 2b is halfway between the within-quota tariff rate and the over-quota tariff rate.

n.a. = not applicable.

a. The regimes are as follows: 

Regime 1a: The quota is overfilled, but the country nevertheless imposes the in-quota tariff on all imports.

Regime 1b: The quota is underfilled, so the in-quota tariff applies to all imports.

Regime 2a: The quota is 100 percent filled. The quota is binding and the tariff equivalent of the quota is less than the over-quota tariff.

Regime 2b: The quota is less than 100 percent filled, but the quota is binding anyway because administrative inefficiency makes it difficult 

or costly for some firms to receive quota allotments for the in-quota rate, and the tariff equivalent of the quota is less than the over-quota 

tariff rate. 

Regime 3a: The quota is exactly filled, and the tariff equivalent of the quota is equal to the over-quota tariff rate, so that tariff is binding.

Regime 3b: The quota is underfilled, but there are imports coming in at the over-quota rate because administrative inefficiency makes it 

difficult or costly for firms to receive quota allotments for the in-quota rate.

Regime 3c: The quota is overfilled, and the over-quota tariff is binding.

Regime 4: The official quota is overfilled, but the actual quota is effectively larger than the official quota so that all imports face the 

in-quota tariff, and the tariff equivalent of the actual quota is less than the over-quota tariff rate. 

Regimea

Number of 

Tariff-Rate 

Quotas

Value of 

Trade 

Change in Trade Value 

Resulting from a 

35 Percent Reduction in 

Over-Quota Tariffs

Change in Trade Value 

Resulting from a

50 Percent Increase in 

Quotas Minimum 

(Millions of 

dollars)

(Millions of 

dollars) (Percent)

(Millions of 

dollars) (Percent)

(Millions of 

dollars)

In-Quota Tariff

Regime 1a 216 1,953 493 25.2 n.a. n.a. 493

Regime 1b 224 1,104 426 38.6 n.a. n.a. 426

Total 440 3,057 919 30.0 n.a. n.a. 919

Quota Binding

Regime 2a 16 362 149 41.1 680 187.9 149

Regime 2b 86 1,706 97 5.7 920 53.9 97

102 2,068 246 11.9 1,600 77.4 246

Out-of-Quota Tariff

Regime 3a 74 7,271 5,274 72.5 85 1.2 85

Regime 3b 386 13,543 9,128 67.4 1,115 8.2 1,115

Regime 3c 32 1,914 1,468 76.7 129 6.8 129

Total 492 22,729 15,870 69.8 1,329 5.8 1,329

Over-Quota Imports

Regime 4 87 7,560 1,215 16.0 2,203 29.1 1,215

Total 1,121 35,414 18,249 51.5 5,132 14.5 3,709
CHAPTER THREE CONSIDERATIONS CONCERNING PARTIAL LIBERALIZATION 73

Table 3-9.

Estimated Static Welfare Effects of Tariff-Rate Quota Liberalization— 

Tsigas and Ingco Study

(Millions of dollars)

Source: Marinos E. Tsigas and Merlinda Ingco, Market Access Liberalization for Food and Agricultural Products: A General Equilibrium 

Assessment of Tariff-Rate Quotas, Working Paper No. 2001-10-A (Washington, D.C.: U.S. International Trade Commission, Office of 

Economics, October 2001), Table 3, p. 15, and Table 4, p. 16.

Notes: TRQ = tariff-rate quota.

Model: The Global Trade Analysis Project (GTAP) static general-equilibrium model extended to allow analysis of tariff-rate quotas. The 

model has 17 regions and 10 trade commodities. Four of the 10 are primary agricultural commodities, and two are processed food 

products.

Data: The study begins with GTAP data for 1995 and 1996 and runs a simulation for the reforms agreed to in the Uruguay Round 

Agreement that were implemented from 1995 through 2000: (1) increase quota levels by about 66 percent to simulate the increase in 

quotas from 3 percent of domestic production to 5 percent of domestic consumption; (2) cut the over-quota tariffs imposed by developed regions by 36 percent and the over-quota tariffs imposed by developing regions by 24 percent; and (3) cut export subsidies by 

the same percentages that over-quota tariffs are cut in an attempt to equalize the domestic prices of imported and exported commodities (as in initial equilibrium). The end point of that simulation is then used as the starting point for the simulation that produces the 

results in this table. Thus, the effective base year for tariff-rate quotas for the simulation for this table is 2000.

Liberalization scenarios: Trade liberalization scenarios consist of a 15 percent quota expansion and a 15 percent reduction both in the 

within-quota tariffs and over-quota tariffs of tariff-rate quotas and in export taxes for agricultural and food commodities from their 

2000 estimated levels. 

 Country or Region Total Gains

15 Percent Reduction in 

TRQ Tariffs 

and Export Taxes

15 Percent Expansion of 

TRQ Quota 

Levels

Canada 322 315 7

United States 634 453 130

Mexico 82 82 0

Argentina 425 436 30

Brazil 632 534 119

Chile 64 49 11

Australia and New Zealand 829 888 17

Japan 6,411 5,488 787

South Korea 331 18 272

Indonesia 72 33 31

Malaysia 287 269 16

Philippines -65 -80 11

Thailand 268 195 67

India 13 -5 13

EU(15) 5,629 5,471 227

Middle East and North Africa -1,109 -1,127 19

Rest of the World -1,589 -1,920 312

Total 13,236 11,099 2,069

CHAPTER

4

Other Effects of Agricultural Liberalization

A final group of questions addressed by many 

studies of agricultural liberalization relates to distributional effects:

B Which countries’ agricultural sectors are helped by liberalization and which are hurt?

B What are the effects on wages, the returns to capital, 

and the returns to land?

B Which countries’ liberalization would help developing 

countries the most?

B Which sectors of U.S. agriculture are most likely to 

benefit from liberalization, and which are most likely 

to be harmed?

This chapter addresses each of those questions in turn.

Effects on Countries’ Agricultural 

Sectors

To say that a country benefits from liberalization does not 

necessarily mean that its agricultural sector benefits; nor 

does harm to a country from liberalization necessarily 

mean that the country’s agricultural sector is harmed. Agricultural policies often are implemented for the purpose 

of benefiting a country’s agricultural sector, not the country as a whole. Hence, the question arises as to the effect 

of agricultural liberalization on agricultural output and 

value added.

The two studies that present estimates of the effects on 

world agricultural output both predict that it would decline slightly from the baseline as a result of liberalization. 

Those studies use the same general-equilibrium model 

but use policy data sets for different years and analyze different liberalization scenarios. Four of the five studies that 

present estimates of effects on U.S. output or value 

added, or from which such effects can be inferred, predict 

that the U.S. agricultural sector as a whole will benefit 

from liberalization. The one study that predicts a negative 

effect nevertheless predicts continued growth of the sector, but at a slower rate. The results of the five studies are 

broadly consistent with the proposition that reducing tariffs is likely to benefit the U.S. agricultural sector as a 

whole, whereas reducing domestic support is likely to 

harm it. Of course, domestic support could always be 

converted from forms that distort production decisions to 

forms that do not. The result of that could be a reduction 

in output without harm to farmers.

Among other countries, the studies are largely in agreement that agricultural sectors benefiting substantially 

from liberalization would most likely include those of 

Brazil, Argentina, Australia, New Zealand, Canada, and 

Latin America and the Caribbean. Viewed from the 

standpoint of development, the agricultural sectors of 

middle-income developing countries as a group would 

gain, but there would most likely be little effect on those 

of low-income developing countries.

The World

The LINKAGE model analysis of the 2006 World Bank 

study estimates that the rate of growth of world agricultural output would decline slightly as a result of liberalization (see Table 4-1 on page 84). From the baseline average of 3.2 percent per year, the growth rate would 

decline to an average of 2.9 percent per year under its 

“full goods trade liberalization” scenario and to an average 

of 3.0 percent per year under the “tiered agricultural formula plus tariff cuts for nonagricultural products” scenario (discussed in Chapter 3). Similarly, the study by 

Beghin, Roland-Holst, and van der Mensbrugghe, which 

also uses the LINKAGE model but uses an older data set 

for trade policies, predicts that if full liberalization of all 

goods trade by high-income countries was phased in from 

2005 through 2010 in equal annual increments, world 
76 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

agricultural output in 2015 would be reduced by 0.6 percent from its baseline value. Oddly, nominal rural value 

added would be increased by 1.0 percent under that scenario, although it would be reduced under a scenario that 

removes all tariffs and export subsidies.

The United States

The LINKAGE model analysis of the 2006 World Bank 

Study—alone among the studies that the Congressional 

Budget Office surveyed—predicts that liberalization 

would reduce the average annual growth rate of U.S. agricultural output from 2005 through 2015, with the result 

that agricultural value added would be lower in 2015 

than it would be in the absence of liberalization (see 

Table 4-1). Growth would remain positive, however, at 

1.3 percent per year under the “full goods trade liberalization” scenario and a slightly higher 1.9 percent per year 

under the more realistic “tiered agricultural formula plus 

tariff cuts for nonagricultural products” scenario. As a result of the reduced growth rate, agricultural value added 

would be 15 percent lower in 2015 under full liberalization of all goods trade than it would be in the absence of 

liberalization, and 5.2 percent lower under the scenario of 

the tiered agricultural formula plus tariff cuts for nonagricultural products.

The study by Brown, Deardorff, and Stern predicts that a 

33 percent reduction in all policies distorting trade in agricultural products, other goods, and services would result 

in a static increase in agricultural output of 1.86 percent 

(see Table 4-2 on page 86). Note that the liberalization 

scenario for this result is more comprehensive than the 

one that produced the various results from that study presented in Chapter 2. The scenario for those results involved a 33 percent reduction in only those policies distorting trade in agriculture.

The study by Beghin, Roland-Holst, and van der 

Mensbrugghe estimates a 0.7 percent positive effect on 

U.S. agricultural output from full liberalization by highincome countries only (see Table 4-3 on page 87). It further estimates a 4.8 percent increase in nominal rural 

value added from full liberalization and a 6.6 percent increase from removal of border protection (import tariffs 

and export subsidies). Presumably, the study would predict even larger increases in output if the liberalization 

scenarios were extended to developing countries as well.

The study by Fontagne, Guerin, and Jean does not 

present estimates of effects on either agricultural output 

or value added. It does, however, present data on factor 

returns indicating that all three of the tariff-reduction scenarios discussed in Chapter 3 in relation to that study—

the uniform scenario, the uniform-except-peaks scenario, 

and the evening-out scenario—would result in increases 

in the returns to land in the United States (see Table 4-6 

on page 91). The increases imply that the model predicts 

that the U.S. agricultural sector would benefit under the 

tariff-reduction scenarios. As would be expected from the 

discussion in Chapter 3 concerning the importance of 

peak tariffs, the increase in the return to land is lowest for 

the uniform-except-peaks scenario, at 1.0 percent, and 

highest for the evening-out scenario, at 1.8 percent.

Finally, a study by Cooper, Johansson, and Peters that 

uses a partial-equilibrium model of the agricultural sector 

estimates that full agricultural liberalization globally 

would cause a static increase of 0.27 percent in U.S. agricultural output volume and a 4.23 percent increase in 

output value (see Table 4-13 on page 100).

The results of the five studies taken together are consistent with the proposition that agricultural tariff liberalization benefits U.S. agriculture as a whole and that reduction or elimination of domestic support harms U.S. 

agriculture as a whole. In particular, the study by Beghin, 

Roland-Holst, and van der Mensbrugghe estimates a 

larger increase in rural value added from removal of border protection than from full liberalization. In addition, 

one of the three studies that model tariff and subsidy reduction or elimination together—the LINKAGE model 

analysis of the 2006 World Bank study—is the only one 

of the five studies to predict a negative effect on U.S. agriculture. A second—the study by Brown, Deardorff, and 

Stern—finds the static effect to be small in magnitude, 

suggesting that the effects of the two liberalizations may 

be offsetting each other. The third—the study by Cooper, 

Johansson, and Peters—finds the effect on output volume 

to be very small.

Other Countries

Notwithstanding the different liberalization scenarios examined, the studies are largely in agreement concerning 

which other countries’ agricultural sectors would gain 

and which would lose from liberalization. According to 

the LINKAGE model analysis in the 2006 World Bank 

study, the big winners under full goods trade liberalization and the scenario of the tiered agricultural formula 

plus tariff cuts for nonagricultural goods are the agricultural sectors of Brazil, Argentina, Australia and New 
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 77

Zealand, Canada, and Latin America and the Caribbean 

generally. The agricultural sectors of developing countries 

as a group gain, but that gain is almost entirely among 

middle-income developing countries. The agricultural 

sectors of low-income developing countries as a group are 

almost unaffected. The study estimates no effect on Chinese agriculture. Full liberalization would cause a very 

small loss for India’s agricultural sector, and the tiered agricultural formula plus tariff cuts for nonagricultural 

goods would lead to a very small gain.

The study by Beghin, Roland-Holst, and van der 

Mensbrugghe predicts that the agricultural sectors benefiting from liberalization by high-income countries would 

be those of Australia and New Zealand, Argentina, Canada, and Latin America and the Caribbean. Brazil’s and 

India’s agriculture would see small gains, and Chinese agriculture would see a very small gain. The factor-returns 

results from the study by Fontagne, Guerin, and Jean imply that tariff reduction would benefit the agricultural 

sectors of members of the Cairns Group and members of 

the African, Caribbean, and Pacific Group of States 

(ACP).

The agricultural sectors experiencing the biggest declines 

under the two liberalization scenarios of the LINKAGE

model analysis of the 2006 World Bank study are those of 

the European Union (25), the European Free Trade Association, and Japan, which actually experience negative 

growth from 2005 through 2015. Also registering declines are the agricultural sectors of Korea and Taiwan, 

which have almost no growth over those years under the 

scenario for full goods trade liberalization and slower 

growth than that of the U.S. agricultural sector under the 

more realistic scenario of the tiered agricultural formula 

plus tariff cuts for nonagricultural goods.

Sectors experiencing declines as a result of full liberalization by high-income countries in the study by Beghin, 

Roland-Holst, and van der Mensbrugghe include those of 

Western Europe and high-income Asian countries (Japan, 

South Korea, Taiwan, Singapore, and Hong Kong). In 

the tariff-reduction scenarios in the study by Fontagne, 

Guerin, and Jean, the agricultural sectors of Japan, the 

European Union, developing Asia (excepting under the 

evening-out scenario), and the rest of the world (that is, 

other than the European Union, the United States, Japan, 

the Cairns Group, developing Asia, and the ACP countries) see declines.

Effects on Factor Returns

Four of the studies that CBO surveyed present estimates 

of the effects of liberalization on returns to factors of production (such as wages, rents, and returns to capital). 

Such effects are of interest because of their implications 

for equality of income among and within countries. 

Three of the four studies show the same patterns of effects to varying degrees. Those patterns and their implications are clearest in the results from the 2006 World Bank 

study, so the following discussion treats that study’s results in some detail and follows with briefer discussions of 

the other studies.

2006 Study by the World Bank

The LINKAGE model analysis of the 2006 World Bank 

study presents estimates of the effects of full liberalization 

of all goods trade on real factor returns (see Table 4-4 on 

page 88). Recall from Chapter 2 that policies distorting 

agricultural trade are by far the most significant of the 

policies distorting trade in goods, so the results from that 

study should reflect primarily the effects of agricultural 

liberalization. The estimates exhibit four overall patterns 

overlaid upon one another.

First, for the world as a whole and for almost all countries 

and regions individually, the wages of both unskilled and 

skilled labor and the returns to capital increase. Skilledlabor wages increase in all countries and regions modeled. 

The wages of unskilled labor increase in all countries and 

regions except one comprising the European Union and 

European Free Trade Area, where those wages remain flat. 

Returns to capital increase in 22 countries/regions, decline in four, and remain flat in one.

Second, the percentage increases in wages and returns to 

factors tend to vary inversely with the level of development of the country, thereby reducing inequality of incomes among countries. For unskilled labor, the average 

wage increases by 4.2 percent for low-income developing 

countries, by 3.2 percent for middle-income developing 

countries, and by 0.6 percent for high-income countries. 

For skilled labor, the average wage increases by 3.9 percent for low-income developing countries, by 2.6 percent 

for middle-income developing countries, and by 1.1 percent for high-income countries. Returns to capital increase by 1.9 percent for low- and middle-income developing countries and by 0.5 percent for high-income 

countries.
78 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Third, for the world as a whole and for the vast majority 

of the individual countries and regions modeled, the percentage increases in wages are larger than the percentage 

increases in returns to capital. Assuming that owners of 

capital tend to be wealthier on average than either unskilled or skilled labor, which is likely to be the case in 

most countries, the larger increase in wages should tend 

to reduce income inequality within countries.

Fourth, in countries and regions where growth of agricultural output increases, the wages of unskilled labor rise 

more than those of skilled labor, and returns to land rise. 

In countries and regions where growth of agricultural 

output declines (or actual output declines), the wages of 

unskilled labor rise by smaller amounts than those of 

skilled labor, and returns to land decline.

As an example, as was noted in the previous section, the 

LINKAGE model analysis estimates that a slight decline in 

the annual rate of growth of agricultural output for the 

world as a whole—from 3.2 percent to 2.9 percent—

would result from full liberalization of all goods trade. 

Correspondingly, the world average return to land declines by 0.8 percent, and the 1.2 percent rise in the average wage of unskilled labor is slightly less than the 1.5 

percent rise in the average wage of skilled labor.

Developing countries see their annual rate of agricultural 

output growth increase to 4.2 percent from the baseline 

rate of 3.9 percent. Correspondingly, the returns to land 

rise by 0.9 percent, and the 3.5 percent rise in unskilled 

wages is larger than the 3.0 percent rise in skilled wages. 

Conversely, high-income countries as a group see their 

output growth decline to -0.1 percent from the baseline 

rate of 1.6 percent. Correspondingly, returns to land fall 

by 20.0 percent, and the 0.6 percent rise in the wages of 

unskilled labor is less than the 1.1 percent rise in the 

wages of skilled labor.

For the United States, the analysis estimates that growth 

in agricultural output would decline from the baseline 

rate of 2.2 percent per year to 1.3 percent per year under 

full liberalization of all goods trade. Correspondingly, the 

return to land declines by 11.0 percent, and the 0.1 percent rise in unskilled wages is less than the 0.3 percent 

rise in skilled wages. As noted in the previous section, 

however, this study is the only one among the studies 

CBO surveyed for this paper that shows a reduction

in growth of U.S. agricultural output resulting from 

liberalization.

The correlations between the effects of liberalization on 

agriculture and the effects on returns to land and the 

wages of unskilled labor relative to those of skilled labor 

result from the fact that agriculture is land- and unskilled-labor-intensive relative to other industries. As a 

result of that relative factor intensity, in countries where 

agriculture expands, the demands for unskilled labor and 

land rise, causing their prices to rise. Conversely, in countries where the agricultural sector shrinks (or grows more 

slowly), the demands for unskilled labor and land decline, 

causing their prices to decline.

The effect on land prices is much more pronounced than 

that on wages of unskilled labor because agricultural land 

generally has few or no alternative uses. Thus, when the 

agricultural sector of a country declines, reducing what 

the producers are willing and able to pay in rent and 

wages, the owners of land generally must accept a decline 

in rent, whereas unskilled labor can seek employment at 

better wages in another sector of the economy. As a result, 

in no country or region does contraction of the agricultural sector do more than reduce the rise in the wages of 

unskilled labor, whereas the returns to land decline substantially in a number of countries.

2002 Study by the World Bank

Because the 2002 World Bank study also uses the 

LINKAGE model, it is not surprising that the same general 

patterns emerge from its estimates of effects on factor returns (see Table 4-5 on page 90). Correlating the effects 

of liberalization on factor prices with the effects on agricultural output is problematic because the study does not 

present estimates of effects on output. However, the effects on output should be similar to those in the study by 

Beghin, Roland-Holst, and van der Mensbrugghe, which 

uses the same model and almost the same data set (version 5.3 of GTAP with policy data for 1998 rather than 

version 5 with policy data for 1997). The main difference 

between the two studies is that the 2002 World Bank 

study models full liberalization by all countries whereas 

the study by Beghin, Roland-Holst, and van der Mensbrugghe models full agricultural liberalization by high-income countries only.

The results for most countries are similar in character, 

even if different in magnitude, to those from the 2006 

study. One country whose results are different is the 

United States. Its agricultural output is estimated to grow 

more rapidly instead of more slowly as a result of liberal-
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 79

ization; hence, the wages of unskilled labor rise slightly 

more than those of skilled labor.

Study by Fontagne, Guerin, and Jean

The study by Fontagne, Guerin, and Jean presents estimates of the effects of various tariff-reduction scenarios 

on factor returns (see Table 4-6 on page 91). Like the 

World Bank studies, it estimates that the effects on wages 

and returns to capital are generally positive around the 

world. It also estimates that those effects are larger for developing countries (developing Asia and the ACP countries) than for high-income countries (the United States, 

the European Union, and Japan). Finally, it also appears 

to weakly and somewhat inconsistently exhibit the same 

correlation between the effects on output and the relative 

effects on the wages of unskilled and skilled labor.

Thus, the negative effect predicted for the return to land 

in the European Union under the evening-out scenario 

indicates that the effect on EU output growth (or possibly output itself) is negative. Correspondingly, the rise in 

the average wage of skilled labor is higher than that for 

unskilled labor. The same is true for Japan. The positive 

effect on the return to land for the Cairns Group indicates a positive effect on output, as would be expected. 

Correspondingly, the rise in the average wage of unskilled 

labor is higher than that for skilled labor in both the uniform and uniform-except-peaks scenarios. Some countries do not show the correlation for some scenarios; and 

in the case of the ACP countries, the correlation goes the 

wrong way. Nevertheless, the results are more supportive 

of than contradictory to the World Bank results.

Study by Brown, Deardorff, and Stern

In its estimates of factor returns—as in its estimates of 

welfare effects—the study by Brown, Deardorff, and 

Stern is unique among the studies that CBO surveyed 

(see Table 4-7 on page 93). The study incorporates only 

one type of labor and therefore has only one wage. Moreover, the study predicts that a 33 percent reduction in agricultural subsidies and tariffs would cause the average 

wage to decline in all countries except South Korea and 

Malaysia.

Countries Whose Liberalization Would 

Most Help Developing Countries

Developing countries as a group would benefit more 

from liberalization of their own policies that distort agricultural trade than they would from liberalization of developed countries’ policies. However, that does not mean 

that developing countries’ exports would increase more as 

a result of developing-country liberalization than they 

would as a result of developed-country liberalization. On 

the contrary, they would increase more as a result of 

developed-country liberalization. The seeming contradiction is explained by the fact that countries benefit economically from imports as well as exports, and 

developing countries’ imports would increase significantly as a result of liberalization. To the extent that developing countries are harmed by developed countries’ 

policies that distort trade, the evidence points to the European Union and high-income Asian countries as much 

larger sources of harm than the United States.

High-Income Countries’ Policies Versus Developing 

Countries’ Policies

Results from the LINKAGE model analysis of the 2006 

World Bank study indicate that in terms of welfare effects, developing countries would gain slightly more from 

full liberalization of their own policies distorting goods 

trade (not just agricultural trade) than they would from 

full liberalization by high-income countries—$28 billion 

versus $26 billion (see Table 4-8 on page 94). In the earlier 2002 World Bank study, the results had been more 

lopsided, with developing countries gaining $114 billion 

in economic welfare from their own full liberalization of 

all goods trade and only $31 billion from such liberalization by high-income countries (see Table 4-9 on 

page 95).

Benefits from liberalization result both from exports and 

from imports. Whereas competing domestic producers 

may be harmed by imports, consumers generally benefit 

by a greater total amount. Consequently, the likelihood 

that developing countries would benefit more from their 

own liberalization than from that of high-income countries does not necessarily mean that their own liberalization would increase their exports more than would liberalization by high-income countries. In fact, estimates 

from two studies indicate that they would not.
80 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

The LINKAGE model analysis of the 2006 World Bank 

study estimates that full liberalization of all goods trade 

by developing countries would increase the value of developing countries’ exports by $77 billion, whereas the 

same liberalization by high-income countries would increase developing countries’ exports by $133 billion (see 

Table 4-10 on page 96).

Results from the study by the Economic Research Service 

support the same conclusion. They indicate that elimination of developing countries’ policies that distort agricultural trade would increase the value of developing countries’ exports by 5.5 percent, whereas trade liberalization 

alone (leaving aside subsidy liberalization) by developed 

countries would increase developing countries’ exports by 

18.1 percent (see Table 4-11 on page 97). However, developing-country liberalization would increase developing countries’ imports by 24.6 percent.

U.S. Policies Versus Those of Other 

High-Income Countries

CBO’s August 2005 paper on policies that distort agricultural trade presented statistics indicating that Western 

Europe and high-income Asian countries generally have 

the most substantial agricultural trade restrictions and 

other distortions. That fact would seem to suggest that 

those countries’ policies are more detrimental to developing countries than are those of the United States. Stronger evidence for that proposition comes from the study 

by Beghin, Roland-Holst, and van der Mensbrugghe. Its 

results indicate that for the products for which the productive output by low- and middle-income countries increases the most as a result of agricultural liberalization, 

productive outputs by Western Europe and high-income 

Asia decline by substantial amounts (see Table 4-12 on 

page 98). For the United States, however, productive outputs of most of those products (notable exceptions being 

raw and refined sugar and, to a lesser extent, oil seeds) 

increase slightly.1

Product-Specific Effects on 

U.S. Agriculture

Not all of U.S. agriculture can be expected to fare equally 

well from a liberalization agreement. Assessing the 

product-specific results of the studies that CBO surveyed 

is difficult because of differences in how the studies divide agriculture into sectors and because of conflicts 

among the studies’ predictions of how some sectors 

would fare under liberalization. Product-specific effects 

appear to be among the least reliable predictions of the 

modeling studies. Overall, it would appear that more sectors within U.S. agriculture would benefit than would be 

harmed by liberalization. Among the likely gainers are 

beef and, to a lesser degree of certainty, rice. Sugar would 

most likely lose. Given the difficulties and the conflicts 

among the studies, it is hard to justify much confidence 

in predictions one way or the other for most other individual sectors.

Some Background for Examining and

Interpreting the Estimates

Of the studies that CBO surveyed, 10 present productspecific effects of agricultural liberalization. Seven of the 

10 are broad examinations of liberalization of all agricultural products (see Tables 4-13 through 4-19), and three 

are narrow partial-equilibrium studies of individual product sectors (see Tables 4-20 through 4-22). Of the seven 

that examine all agricultural products, four (Tables 4-13 

through 4-16) examine balanced liberalization of all three 

of the major types of policies that distort agricultural 

trade—trade barriers, domestic subsidies, and export subsidies—although one of them (Table 4-14 on page 102) 

also presents estimates for liberalization of only border 

measures (tariffs and export subsidies). The other three 

present estimates for liberalization of only one kind of 

policy: tariff-rate quotas (Table 4-17 on page 106), domestic subsidies (Table 4-18 on page 107), and export 

subsidies (Table 4-19 on page 108).

Product-Specific Effects That Are of Interest. Ideally, the 

product-specific effects one would like to know are those 

on either output volume or output value. The former is 

the change in the quantity of output produced by the sector—measured either in terms of some nonmonetary 

unit, such as tons of grain, or in terms of value calculated 

at constant prices. The latter is the change in the value of 

1. Although strongly suggestive, the results presented here do not 

completely prove the case. To do that would require output numbers expressed in actual value changes rather than percentage 

changes. It is always possible that a product with a high percentage 

increase in output has a small base from which to increase and 

therefore has a smaller dollar-value increase in output than 

another product with a smaller percentage increase. Moreover, the 

data set used in the study by Beghin and others does not include 

tariff preferences, such as those granted by the United States and 

the European Union to a number of developing countries. In 

principle, the inclusion of such preferences could change the 

results.
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 81

output produced by the sector—measured as the difference between the value of the output after liberalization 

calculated at the new prices that prevail after liberalization and the value of output before liberalization calculated at the old prices that prevailed before liberalization. 

The change in output volume is of interest as an indicator 

of effects on employment and use of resources such as agricultural land, fertilizer, and farm equipment. The 

change in output value is of interest as an indicator of effects on the income of farmers.

Several of the studies that CBO surveyed present estimates of product-specific effects on either output volume 

or output value (one of them presents both). For those 

that do not, a second-best alternative is estimates of the 

effects on trade volumes or values presented in terms of 

changes in actual volumes or values rather than percentage changes. If liberalization causes the trade balance in a 

product to increase (in volume or in value), it probably 

causes output of the product to increase (in volume or in 

value), although quite likely by a smaller amount than the 

trade balance increases. An increase in the trade balance 

would represent an increased demand for U.S. output. 

The increased demand would put upward pressure on the 

price, which in turn would tend to reduce domestic demand for the product. The consequent reduced output 

going to domestic consumption would offset to some extent the increased output going to exports.

A distinctly inferior third-best alternative is estimates of 

effects on trade volumes or values given in percentage 

terms. That alternative is inferior because it can be misleading if one is not careful. For example, the study by 

Beghin, Roland-Holst, and van der Mensbrugghe estimates that full agricultural liberalization would increase 

U.S. exports of refined sugar by 213.7 percent and U.S. 

imports of it by only 133 percent. On its face, that would 

appear to be beneficial to the U.S. sugar industry, but it is 

not. Current U.S. exports of sugar are very small in comparison with current U.S. imports, so the increase in exports is much less significant than the increase in imports. 

The study predicts declines of 45.4 percent and 

45.6 percent, respectively, in U.S. production of raw and 

refined sugar.

Difficulty Drawing Reliable Conclusions. Assessing the 

modeling results for particular agricultural products is 

difficult for a number of reasons. First, the different studies divide the agricultural and food sector into different 

numbers of products and groups of products, so one-forone comparisons cannot always be made for each agricultural product.

Second, the studies do not all agree on the effects on all 

agricultural sectors. A notable example is rice. At one end 

of the range is a study by the Food and Agricultural Policy Research Institute (FAPRI), which predicts that full 

liberalization of agriculture by all countries would cause a 

large decline in U.S. rice output over the next 10 years 

(see Table 4-14 on page 102). At the other end of the 

range, the study by Beghin, Roland-Holst, and van der 

Mensbrugghe; the study by Roberts and others; and the 

study by the ERS all predict large increases in output (see 

Tables 4-15, 4-16, and 4-18). In the middle is the study 

by Cooper, Johansson, and Peters, which predicts a small 

loss (see 4-13). The studies offer conflicting predictions 

not just about rice but also about dairy products such as 

nonfat dry milk, butter, and cheese.

Part of the reason for the different results among studies 

is different liberalization scenarios. The estimates from 

the Tsigas and Ingco study are for partial liberalization of 

tariff-rate quotas only, and those from the ERS study are 

for amber-box subsidy liberalization only. Moreover, the 

ERS study gets substantially different results for different 

amber-box liberalization scenarios, with a large increase 

in output for rice in one scenario and a much smaller increase in another. However, even excluding all studies except those with balanced liberalization by all countries, 

one is still left with the FAPRI study predicting a large 

loss; the study by Cooper, Johansson, and Peters predicting a small loss; and the study by Roberts and others predicting a large gain. The study by Beghin, Roland-Holst, 

and van der Mensbrugghe, which gives estimates for balanced liberalization for high-income countries only, sides 

with the study by Roberts and others in predicting a large 

gain.

Several factors can cause differences in studies’ predictions. One is that some studies report changes in values 

whereas others report changes in volumes. The results of 

the study by Cooper, Johansson, and Peters, which reports both volume and value changes, indicate that the 

two can be very different. Not only are the magnitudes 

different, but for some products the predicted effect on 

output volume is negative while the predicted effect on 

output value is positive.

A second reason is that different studies have different 

base years for the policies whose liberalization they 
82 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

model. Policies change over time, and not necessarily 

equally for all agricultural sectors in a given country. Even 

if the changes over time were equal for all sectors in a 

given country, that would not make the changes equal for 

all products worldwide because different countries produce different distributions of agricultural products.

A third reason is differences in the models. Several of the 

studies in this section use general-equilibrium models, 

whereas others use partial-equilibrium models. As noted 

in Chapter 1, partial-equilibrium models can treat the 

sector they examine with more realistic complexity and 

detail, but they cannot include effects that are inherently 

general equilibrium in nature.

Moreover, general-equilibrium models in particular require assumptions about the values of many parameters 

(for example, the elasticities of substitution between domestic products and imported products for the various 

industries). The correct values for many of the parameters 

are not known with much accuracy. Whereas errors in the 

assumed values might cancel each other out to some extent in their effects on aggregate predictions of the models, such as welfare effects, an incorrect elasticity for a 

given product might have a sizable effect on the prediction of output for that product.

Effects of Balanced Liberalization

In general, it would appear from the results of the studies 

that more U.S. agricultural sectors would gain from balanced liberalization than would lose. However, given the 

previously noted differences in the breakdown of agriculture into sectors and the conflicting results among the 

studies, it is difficult to have much confidence in either 

gains or losses for most individual sectors.

One exception is beef, for which all four of the balanced 

liberalization studies predict output gains. Another likely, 

although less certain, beneficiary is rice. Although the 

studies are in disagreement with regard to rice, as noted 

above, the balance of their results—three indicating large 

gains, one a small loss, and one a large loss—would seem 

more supportive of gains than of losses.

Sugar would most likely lose. The two balanced liberalization studies that single it out for estimates both predict 

substantial losses (see Tables 4-15 and 4-16). Those results are supported by the results of two partialequilibrium studies focused specifically on sugar, which 

predict losses to varying degrees. None of the studies 

contradicts that conclusion.

Effects of Liberalization of Particular 

Types of Policies

Four studies present estimates of sector-specific effects of 

liberalizing particular types of policies. However, each of 

the types of policies is examined by only one or two studies, and the variability in results demonstrated by the 

larger number of studies of balanced liberalization discussed above indicates that one should not place high 

confidence in the sector-specific results of only one or 

two studies.

Border Protection. The FAPRI study presents results for 

the removal of border protection, which means trade barriers and export subsidies. Most of the sectors for which 

the study presents results experience gains. (The study 

does not present results for all sectors in all countries.) 

The biggest gains are to nonfat dry milk and peanuts. 

Soybeans, rice, and cotton have small losses.

Tariff-Rate Quotas. The Tsigas and Ingco study examines 

a 15 percent reduction in the tariffs of tariff-rate quotas 

in combination with a 15 percent increase in the quotas 

(see Table 4-17 on page 106). Its estimates show all agricultural sectors increasing output, with the largest gain 

being a 1.6 percent increase for rice and the smallest being a 0.5 percent increase for livestock. The study breaks 

down agriculture into only six sectors, however, so the 

numbers could be hiding more sizable gains and losses in 

more-narrowly defined sectors.

Domestic Subsidies. Two studies present sector-specific 

estimates relating to liberalization of domestic subsidies.

The ERS study gets significantly different results depending on the specifics of the liberalization scenario (see Table 4-18 on page 107). In both scenarios, most of the sectors gain (11 out 12 sectors for one scenario and nine out 

of 12 for the other), but the products that benefit most 

differ between the scenarios. With a 20 percent reduction 

in all amber-box bounds, the biggest gainers in terms of 

the total dollar value of trade balance are oilseeds, followed by coarse grains, other livestock, wheat, and beef. 

The gains for other products are significantly smaller. 

With a reduction of amber-box bounds to no more than 

30 percent of production value, the biggest gainers (again 

in terms of total dollar value of trade balance) are beef, 
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 83

rice, and wheat. The gains for other products are significantly smaller.

The FAPRI study does not simulate the effects of domestic subsidy liberalization directly. Rather, the difference 

between its scenario of full agricultural liberalization and 

its scenario of removing only border protection is the 

elimination of domestic subsidies. Comparison of the 

two scenarios indicates that by far the biggest effect of 

adding liberalization of domestic subsidies to liberalization of border measures is to substantially increase the 

loss to rice. All other effects are fairly small. Small gains 

for wheat and cheese are turned into even smaller losses, 

and the gains for peanuts are reduced. The gains for nonfat dry milk, butter, corn, soybean oil, and soybean meal 

are slightly increased.

Export Subsidies. A study by the Organisation for 

Economic Co-operation and Development examines the 

effects of global elimination of export subsidies in equal 

steps from 2001 through 2005 (see Table 4-19 on 

page 108). It predicts that the resulting effects on the 

United States in 2005 would be a 100 percent decline in 

exports of butter, a 46 percent decline in exports of 

skimmed milk powder, a 5 percent decline in exports of 

cheese, and a 1 percent decline in exports of milk.
84 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-1.

Growth Rates of Agricultural Output and Effects on Agricultural Value Added 

Under Various Scenarios, by Country or Region—2006 World Bank Study

(Percent) 

Continued

Country or Region

Average Annual Percentage Growth in Agricultural 

Output Under Various Scenarios, 2005-2015

Effects of Liberalization on 

Agricultural Value Added in 2015

Baseline

Full Goods 

Trade 

Liberalization

Tiered Agricultural 

Formula Plus 

Tariff Cuts for 

Nonagricultural 

Products

Full Goods 

Trade 

Liberalization

Tiered Agricultural 

Formula Plus 

Tariff Cuts for 

Nonagricultural 

Products

Australia and New Zealand 3.5 5.2 4.3 25.6 9.8

EU(25) plus EFTA 1.0 -1.5 -0.3 -26.4 -13.8

United States 2.2 1.3 1.9 -15.0 -5.2

Canada 3.5 5.2 4.0 23.3 5.8

Japan 0.5 -4.3 -1.4 -39.5 -16.6

South Korea and Taiwan 2.2 0.1 1.5 -33.3 -12.1

Hong Kong and Singapore 2.8 3.3 2.9 7.5 1.4

Argentina 2.9 5.1 3.5 33.8 9.4

Bangladesh 4.2 4.4 4.2 -4.4 0.4

Brazil 3.3 6.1 4.4 46.3 16.7

China 4.3 4.3 4.3 0.1 0.4

India 4.3 4.1 4.4 -8.1 0.2

Indonesia 3.0 2.9 3.0 2.7 1.7

Mexico 3.9 4.1 4.0 2.5 3.2

Russia 1.5 1.0 1.4 -6.5 -0.8

South Africa 2.5 3.3 2.6 9.6 1.2

Thailand -0.1 1.3 0.4 25.0 7.2

Turkey 3.0 2.6 3.0 -7.2 -0.3

Vietnam 5.8 6.1 5.9 13.6 0.3

Rest of South Asia 4.8 4.8 4.9 -1.3 1.8

Rest of East Asia 3.7 3.5 3.8 -0.7 1.9

Rest of Latin America and the 

Caribbean 4.4 6.6 5.3 30.2 11.1

Rest of Europe and Central Asia 3.3 3.3 3.3 -1.8 -0.2

Middle East and North Africa 4.0 4.0 4.0 0.3 0.9

Selected Sub-Saharan African 

Countries 5.3 5.7 5.4 9.1 1.7

Rest of Sub-Saharan Africa 4.6 4.8 4.8 5.4 1.9

Rest of the World 5.0 6.4 5.5 16.4 5.4

High-Income Countries 1.6 -0.1 0.8 -19.4 -8.9
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 85

Table 4-1.

Continued

Source: Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” 

Chapter 12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: 

Palgrave Macmillan and the World Bank, 2006), Tables 12.11 and 12.17, pp. 358, 359, 378, and 379.

Notes: Welfare effects are measured by equivalent variation.

Model: A version of the World Bank’s LINKAGE model with 27 regions and 25 economic sectors. Agriculture and food comprise 13 of

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. The simulations include static effects plus investment effects resulting from the influence 

of liberalization on household saving and on the prices of investment goods but no productivity effects.

Data: Release 6.05 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 2001. However, the baseline simulation also includes major changes in trade policy through 2005, including the final stages of implementation of the Uruguay Round 

Agreement, tariff reductions made by China and Taiwan as conditions of their accession to the World Trade Organization, and enlargement of the European Union to 25 members. Unlike previous GTAP releases, Release 6.05 includes bilateral and unilateral trade preferences.

Liberalization scenarios: For each scenario, the liberalization is phased in from 2005 through 2010, and the welfare-effect estimates 

are for the year 2015.

The “Full Goods Trade Liberalization” scenario eliminates all tariffs, subsidies, and other trade-distorting measures in all goods sectors.

The “Tiered Agricultural Formula Plus Tariff Cuts for Nonagricultural Products” scenario is the same as the scenario of the same name 

in Table 3-4: All agricultural export subsidies are abolished and domestic agricultural subsidies are reduced by the amounts shown in 

Table 3-3: the United States, 28 percent; Norway, 18 percent; the European Union, 16 percent, Australia, 10 percent; all other countries, zero. Nonagricultural tariffs are cut by 50 percent for developed countries, 33 percent for developing countries, and zero for 

least-developed countries. Agricultural tariffs are cut by a marginal bracket formula of the sort used in the U.S. federal income-tax system, with different marginal rates and inflection points for developed, developing, and least-developed countries. Developed countries: For tariff rates from zero to 15 percent, the marginal cut is 45 percent. For tariffs from 15 percent to 90 percent, the marginal 

cut is 70 percent. For tariffs above 90 percent, the marginal cut is 75 percent. Developing countries: For tariffs from zero to 20 percent, the marginal cut is 35 percent. For tariffs from 20 percent to 60 percent, the marginal cut is 40 percent. For tariffs from 60 percent to 120 percent, the marginal cut is 50 percent. For tariffs above 120 percent, the marginal cut is 60 percent. Least developed 

countries: No tariffs are cut. 

Country or Region

Average Annual Percentage Growth in Agricultural 

Output Under Various Scenarios, 2005-2015

Effects of Liberalization on 

Agricultural Value Added in 2015

Baseline

Full Goods 

Trade 

Liberalization

Tiered Agricultural 

Formula Plus 

Tariff Cuts for 

Nonagricultural 

Products

Full Goods 

Trade 

Liberalization

Tiered Agricultural 

Formula Plus 

Tariff Cuts for 

Nonagricultural 

Products

Developing Countries 3.9 4.2 4.1 2.9 2.0

Middle-Income Countries 3.7 4.1 3.9 5.3 2.4

Low-Income Countries 4.4 4.5 4.5 -2.5 1.0

East Asia and the Pacific 4.0 4.0 4.0 1.1 0.8

South Asia 4.4 4.2 4.4 -6.8 0.5

Europe and Central Asia 3.0 2.9 3.1 -4.0 -0.3

Middle East and North Africa 4.0 4.0 4.0 0.3 0.9

Sub-Saharan Africa 4.5 4.9 4.7 6.7 1.8

Latin America and the Caribbean 3.8 5.8 4.6 27.4 10.2

World total 3.2 2.9 3.0 -2.4 -0.6
86 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-2.

Estimated Static Effects on Output of a 33 Percent Reduction in All

Merchandise and Services Trade Barriers and All Agricultural Domestic Support 

and Export Subsidies, by Economic Sector and Country—Study by Brown,

Deardorff, and Stern

(Percent)

Source: Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, 

“Computational Analysis of Multilateral Trade Liberalization in the Uruguay Round and Doha Development 

Round,” Discussion Paper No. 489 (Ann Arbor, Mich.: 

University of Michigan, School of Public Policy, Research 

Seminar in International Economics, December 8, 2002), 

Tables 5 and 6.

Notes: Model: The Michigan Model of World Production and Trade, 

which is a static general-equilibrium model that has 21 

countries/regions and 18 production sectors, of which agriculture is one sector. The model incorporates some aspects 

of the “New Trade Theory,” including increasing returns to 

scale, monopolistic competition, and product heterogeneity.

Data: Version 4 of the Global Trade Analysis Project (GTAP) 

database, which has a base year of 1995. The study updates 

the base year in a very rough fashion to 2005. To estimate 

what the values of major economic variables would have 

been in 2005 in the absence of the Uruguay Round Agreement, the study makes projections based on growth rates 

contained in the 1999 edition of World Development Indicators and the 1998-1999 edition of World Development 

Report, both published by the World Bank. The study then 

simulates the liberalization agreed to in the Uruguay Round 

Agreement. The end point of that simulation is used as the 

starting point for the simulation that produces the estimates 

given in this table. As such, the policies that are liberalized 

to produce the estimates presented here presumably do not 

reflect the admission of China and Taiwan into the World 

Trade Organization and the expansion of the European Union 

to 25 countries. Moreover, they would not reflect any other 

changes in applied tariffs that occurred between 1995 and 

2005 that were not required by the Uruguay Round Agreement.

Liberalization scenario: A 33 percent reduction in agricultural import tariffs, domestic production subsidies, and 

export subsidies, a 33 percent reduction in all tariffs on 

imports of manufactures, and a 33 percent reduction in the 

ad valorem equivalents of services barriers.

United States India

Agriculture 1.86 -0.19

Mining 0.61 2.68

Food, Beverages, and Tobacco 0.27 0.40

Textiles -1.29 1.82

Wearing Apparel -4.30 9.30

Leather Products and Footwear -4.56 6.63

Wood and Wood Products 0.50 0.03

Chemicals 0.67 -0.65

Nonmetallic Mineral Products 0.25 0.55

Metal Products 0.44 -2.15

Transportation Equipment 0.39 -0.03

Machinery and Equipment 0.48 -3.04

Other Manufactures 0.49 -0.51

Electricity, Gas, and Water 0.42 0.71

Construction 0.42 0.63

Trade and Transport 0.44 0.26

Other Private Services 0.59 0.58

Government Services 0.25 1.22

Average 0.42 0.50
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 87

Table 4-3.

Estimated Effects of Agricultural Reform in High-Income Regions on

Agriculture and Food Output and Nominal Rural Value Added—

Study by Beghin, Roland-Holst, and van der Mensbrugghe 

(Percent) 

Source: John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are 

the Implications for North and South?, Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and 

Rural Development, June 2002), Table 8, p. 26.

Notes: Loss in value is net of agriculture subsidies.

Model: A version of the World Bank’s LINKAGE model with 14 countries/regions and 25 sectors. Agriculture and food comprise 17 of 

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. 

Data: Version 5.3 of the Global Trade Analysis Project (GTAP) database, which has base years of 1997 for economic variables and 1998 

for policy variables.

Liberalization scenarios: The “Removal of All Protection” scenario involves the removal of all distortions—output subsidies, input subsidies, land and capital subsidies, export subsidies, and import tariffs—in high-income countries, which are defined to include

Australia and New Zealand, Canada, the European Union, the European Free Trade Association, high-income Asia, and the United 

States. The “Removal of Border Protection” scenario involves the removal of export subsidies and import tariffs of those countries. In 

both scenarios, the liberalizations are phased in between 2005 and 2010, with one-sixth of the relevant benchmark policy eliminated 

in each year. The numbers presented are the effects in 2015.

Agriculture and

Food Output Nominal Rural Value Added

Removal of 

All Protection

Removal of 

All Protection

Removal of 

Border Protection

Western Europe -13.4 -15.5 -18.6

United States 0.7 4.8 6.6

High-Income Asia -6.7 -36.6 -37.2

Canada 0.2 15.4 11.1

Australia and New Zealand 25.4 41.5 34.9

Argentina 5.5 15.5 8.9

Brazil 2.9 7.0 4.0

China 0.2 2.0 1.1

India 1.3 3.3 2.4

Rest of East Asia 0.3 1.4 0.4

Rest of Latin America and the Caribbean 9.1 15.2 12.2

Eastern Europe and Central America 7.4 10.8 6.2

Sub-Saharan Africa and SACU 4.0 6.3 4.8

Rest of the World 3.9 6.8 4.1

Low- and Middle-Income Countries 3.4 5.5 3.6

High-Income Countries -5.7 -11.2 -12.6

Cairns Group 5.8 10.8 7.7

World total -0.6 1.0 -0.8
88 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-4.

Estimated Effects on Real Factor Returns of Full Liberalization of All Goods 

Sectors—2006 World Bank Study, LINKAGE Model Analysis 

(Percent) 

Continued

Unskilled Labor Skilled Labor Capitala Landa

Australia and New Zealand 3.1 1.1 -0.3 17.4

EU(25) plus EFTA 0.0 1.3 0.7 -45.4

United States 0.1 0.3 0.0 -11.0

Canada 0.7 0.7 0.4 22.8

Japan 1.3 2.2 1.1 -67.4

South Korea and Taiwan 6.5 7.1 3.8 -45.0

Hong Kong and Singapore 3.2 1.6 0.3 4.4

Argentina 2.9 0.5 -0.7 21.3

Bangladesh 1.8 1.7 -0.2 1.8

Brazil 2.7 1.4 1.6 32.4

China 2.2 2.2 2.8 -0.9

India 2.8 4.6 1.8 -2.6

Indonesia 3.3 1.5 0.9 1.0

Mexico 2.0 1.6 0.5 2.8

Russia 2.0 2.8 3.5 -2.2

South Africa 2.8 2.5 1.8 5.7

Thailand 13.2 6.7 4.2 11.4

Turkey 1.3 3.4 1.1 -8.1

Vietnam 25.3 17.6 11.0 6.8

Rest of South Asia 3.7 3.2 0.1 0.1

Rest of East Asia 5.8 4.2 5.2 -0.9

Rest of Latin America and the Caribbean 5.7 1.4 -0.4 17.8

Rest of Europe and Central Asia 2.3 4.2 2.1 -0.3

Middle East and North Africa 4.1 4.1 2.6 2.4

Selected Sub-Saharan African Countries 6.0 1.6 0.0 4.6

Rest of Sub-Saharan Africa 8.2 6.5 2.2 5.2

Rest of the World 4.4 2.7 1.1 6.3
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 89

Table 4-4.

Continued

Source: Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” 

Chapter 12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: 

Palgrave Macmillan and the World Bank, 2006), Table 12.10, p. 356.

Notes: Nominal factor prices are deflated by the consumer price index. 

Model: A version of the World Bank’s LINKAGE model with 27 regions and 25 economic sectors. Agriculture and food comprise 13 of

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. The simulations include static effects plus investment effects resulting from the influence 

of liberalization on household saving and on the prices of investment goods.

Data: Release 6.05 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 2001. However, the baseline simulation also includes major changes in trade policy through 2005, including the final stages of implementation of the Uruguay Round 

Agreement, tariff reductions made by China and Taiwan as conditions of their accession to the World Trade Organization, and the

enlargement of the European Union to 25 members. Unlike previous GTAP releases, Release 6.05 includes bilateral and unilateral 

trade preferences.

Liberalization scenario simulated: The phased elimination from 2005 through 2010 of all subsidies, tariffs, and other trade-distorting 

measures in all goods sectors. The welfare-effect estimates are for the year 2015.

a. The returns to capital and land represent the subsidy-inclusive rental costs.

Unskilled Labor Skilled Labor Capitala Landa

High-Income Countries 0.6 1.1 0.5 -20.0

Developing Countries 3.5 3.0 1.9 0.9

Middle-Income Countries 3.2 2.6 1.9 2.2

Low-Income Countries 4.2 3.9 1.9 -1.0

World total 1.2 1.5 0.8 -0.8
90 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-5.

Estimated Effects on Factor Returns of Full Liberalization of All Goods Sectors—

2002 World Bank Study 

(Percent)

Source: World Bank, “Envisioning Alternative Futures: Reshaping Global Trade Architecture for Development,” Chapter 6 in Global Economic 

Prospects and the Developing Countries, 2002 (Washington, D.C.: World Bank, 2002), Table 6.4, p. 173.

Notes: Nominal factor prices are deflated by economywide consumer price indices.

Model: A version of the World Bank’s LINKAGE model with 15 regions and 20 economic sectors. Exogenously imposed growth in populations, labor forces, and productivity cause countries’ economies and trade to grow over time even with no liberalization. The simulations without productivity effects include static effects plus investment effects resulting from the influence of liberalization on 

household saving and on the prices of investment goods. The simulations with productivity include those effects plus effects of liberalization on productivity.

Data: Version 5 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 1997. Hence, the starting point for liberalization is the policies that existed in that year.

Liberalization scenario simulated: In each year from 2005 through 2010, all tariffs, domestic production subsidies, and export subsidies in all goods sectors are reduced by one-sixth of their preliberalization levels, ending with their complete elimination. The numbers presented are the effects in 2015. 

Country or Region 

Simulations Without

Productivity Effects

Simulations With

Productivity Effects

Unskilled 

Labor

Skilled 

Labor Capital

Unskilled 

Labor

Skilled 

Labor Capital

High-Income Countries 1.0 1.6 0.2 1.1 2.2 0.7

United States 0.5 0.4 0.1 0.5 0.1 0.4

Western Europe 0.7 2.6 0.1 0.7 3.1 0.7

Japan 1.5 2.7 1.2 1.9 3.4 2.2

Other high-income OECD countries 3.1 0.6 0.8 2.3 1.3 0.7

Newly industrialized economies 4.1 2.9 0.5 4.1 3.8 -0.4

Low- and Middle-Income Countries 5.7 5.6 2.7 7.4 9.6 5.1

Sub-Saharan Africa 6.9 4.5 0.8 5.4 6.8 3.4

East Asia and Pacific 6.2 7.8 4.6 11.2 15.0 9.3

South Asia 6.0 3.4 1.7 5.7 5.8 3.7

Eastern Europe and Central Asia 5.4 4.3 1.4 5.3 6.7 3.3

Middle East and North Africa 4.1 12.5 8.0 6.1 17.0 10.9

Latin America and the Caribbean 5.3 2.5 0.7 4.8 4.3 1.4

Rest of the world 3.3 2.2 0.8 2.7 4.2 3.2

World total 2.3 2.5 1.0 2.8 3.8 2.1
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 91

Table 4-6.

Estimated Effects on Factor Returns of Various Tariff-Reduction Scenarios—

Study by Fontagne, Guerin, and Jean

(Percent)

Continued

Table 4-6.

Continued

Source: Lionel Fontagne, Jean-Louis Guerin, and Sebastien Jean, Market Access Liberalisation in the Doha Round: Scenarios and Assessment, Working Paper No. 2003-12 (Paris: Centre d’Etudes Prospectives et d’Informations Internationales, September 2003), Tables 

5.1-5.4, pp. 29, 30, 32, and 33.

Notes: Model: The MIRAGE (Modelling International Relationships in Applied General Equilibrium) model, which is a dynamic generalequilibrium model. It includes investment effects but no productivity effects.

Data: The model is calibrated using version 5 of the Global Trade Analysis Project (GTAP) database, which has a base year of 1997. The 

study uses actual tariffs—not bound and not most-favored-nation tariffs. The reference year for tariffs is 1999, and that for all other 

Scenario EU(25)

United 

States Japan

Cairns 

Group

Developing 

Asia

ACP

Group

Rest of 

World

Unskilled Labor

Uniform 0.3 0.2 0.4 0.4 0.8 1.2 0.5

Uniform, Except Peaks 0.1 0.1 0.2 0.2 0.3 0.5 0.3

Evening Out 0.4 0.2 0.5 0.5 1.2 1.4 0.6

Skilled Labor

Uniform 0.3 0.2 0.6 0.3 1.2 1.2 0.8

Uniform, Except Peaks 0.1 0.1 0.3 0.1 0.4 0.5 0.4

Evening Out 0.5 0.2 0.9 0.5 1.3 2.0 0.9

Capital

Uniform 0.3 0.2 0.3 0.2 0.6 0.8 0.6

Uniform, Except Peaks 0.2 0.2 0.2 0.1 0.2 0.3 0.3

Evening Out 0.5 0.2 0.4 0.2 0.7 1.0 0.8

Natural Resources

Uniform -0.3 -0.2 -3.3 0.0 -1.0 1.1 2.2

Uniform, Except Peaks 0.1 0.1 -3.3 0.2 -0.5 0.8 0.7

Evening Out -0.7 -0.5 -2.7 -0.5 -1.7 0.3 4.1

Scenario EU(25)

United 

States Japan

Cairns 

Group

Developing 

Asia

ACP

Group

Rest of 

World

Land

Uniform -0.4 1.6 -5.0 2.8 -0.1 1.5 -1.7

Uniform, Except Peaks -0.5 1.0 -1.4 1.5 -0.1 0.5 -1.0

Evening Out -0.6 1.8 -11.6 3.7 0.4 1.4 -1.6
92 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

distortions is 1997. Hence, any changes in policy since those years are not reflected in the results.

Liberalization scenarios: All scenarios are phased in in equal increments over six years for developed countries and over 10 years for 

developing countries. Results presented are for 14 years after the liberalization agreement.

The “Uniform” scenario consists of a 35 percent reduction in all ad valorem tariff equivalents (of ad valorem tariffs, specific duties, 

tariff-rate quotas, prohibitions, and antidumping duties) at the six-digit Harmonized System level. All tariffs below 2 percent are 

eliminated.

The “Uniform, Except Peaks” scenario consists of a 35 percent reduction in all ad valorem tariff equivalents at the six-digit Harmonized System level except for nonagricultural tariffs that are higher than 15 percent and agricultural tariffs that are higher than 85 percent. All tariffs below 2 percent are eliminated.

The “Evening Out” scenario consists of a 35 percent reduction in all ad valorem tariff equivalents at the six-digit Harmonized System 

level except for nonagricultural tariffs that are higher than 15 percent and agricultural tariffs that are higher than 85 percent, and 

reduction of those higher tariffs to a level of a * t / (a +t), where t is the starting tariff rate and a is chosen so as to make the result 

continuous with the lower tariff rates reduced by 35 percent (a=28 in manufacturing, and a=158 in agriculture). This scenario results 

in a more substantial reduction of the higher tariff rates than does the uniform scenario, thereby “evening out” the higher tariffs to 

bring them more in line with the lower ones. All tariffs below 2 percent are eliminated. 
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 93

Table 4-7.

Estimated Static Effects on Factor Returns of a 33 Percent Reduction in 

Agricultural Import Tariffs, Domestic Support, and Export Subsidies, by 

Country or Region—Study by Brown, Deardorff, and Stern

(Percent)

Source: Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, “Computational Analysis of Multilateral Trade Liberalization in the 

Uruguay Round and Doha Development Round,” Discussion Paper No. 489 (Ann Arbor, Mich.: University of Michigan, School of 

Public Policy, Research Seminar in International Economics, December 8, 2002), Table 4.

Notes: Model: The Michigan Model of World Production and Trade, which is a static general-equilibrium model that has 21 countries/regions 

and 18 production sectors, of which agriculture is one sector. The model incorporates some aspects of the “New Trade Theory,” 

including increasing returns to scale, monopolistic competition, and product heterogeneity.

Data: Version 4 of the Global Trade Analysis Project (GTAP) database, which has a base year of 1995. The study updates the base year 

in a very rough fashion to 2005. To estimate what the values of major economic variables would have been in 2005 in the absence of 

the Uruguay Round Agreement, the study makes projections based on growth rates contained in the 1999 edition of World Development Indicators and the 1998-1999 edition of World Development Report, both published by the World Bank. The study then simulates the liberalization agreed to in the Uruguay Round Agreement. The end point of that simulation is used as the starting point for 

the simulation that produces the estimates given in this table. As such, the policies that are liberalized to produce the estimates presented here presumably do not reflect the admission of China and Taiwan into the World Trade Organization and the expansion of the 

European Union to 25 countries. Moreover, they would not reflect any other changes in applied tariffs that occurred between 1995 and 

2005 that were not required by the Uruguay Round Agreement.

Liberalization scenario: A 33 percent reduction in agricultural import tariffs, domestic production subsidies, and export subsidies.

Country or Region Real Wage Return to Capital

Developed Countries

Australia and New Zealand -0.182 -0.224

Canada -0.218 -0.209

EU and EFTA -0.045 0.023

Japan -0.039 -0.003

United States -0.190 -0.193

Developing Countries

Asia

India -0.109 -0.030

Sri Lanka -0.307 -0.480

Rest of South Asia -0.078 -0.119

China -0.163 -0.320

Hong Kong -0.186 -0.180

South Korea 0.132 0.134

Singapore -0.038 -0.068

Indonesia -0.113 -0.462

Malaysia 0.189 0.104

Philippines -0.062 -0.076

Thailand -0.703 0.054

Other

Mexico -0.354 -0.185

Turkey -0.327 -0.347

Central Europe -0.363 -0.391

Central and South America -0.252 -0.358
94 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-8.

Estimated Welfare Effects of Full Agricultural Liberalization, by Liberalizing and 

Benefiting Regions—2006 World Bank Study, LINKAGE Model Analysis

(Billions of 2001 dollars)

Source: Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” 

Chapter 12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: 

Palgrave Macmillan and the World Bank, 2006), Table 12.6, p. 349.

Notes: Welfare effects are measured by equivalent variation. Small interaction effects are distributed proportionately, and numbers are 

rounded to sum to 100 percent.

Model: A version of the World Bank’s LINKAGE model with 27 regions and 25 economic sectors. Agriculture and food comprise 13 of

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. The simulations include static effects plus investment effects resulting from the influence 

of liberalization on household saving and on the prices of investment goods.

Data: Release 6.05 of the Global Trade Analysis Trade Project (GTAP) data set, which has a base year of 2001. However, the baseline 

simulation also includes major changes in trade policy through 2005, including the final stages of implementation of the Uruguay 

Round Agreement, tariff reductions made by China and Taiwan as conditions of their accession to the World Trade Organization, and 

enlargement of the European Union to 25 members. Unlike previous GTAP releases, Release 6.05 includes bilateral and unilateral 

trade preferences.

Liberalization scenario simulated: The phased elimination from 2005 through 2010 of all subsidies, tariffs, and other trade-distorting 

measures in all goods sectors. The welfare-effect estimates are for the year 2015.

Benefiting Region

Liberalizing Region

High-Income

Countries

Developing

Countries All Regions

High-Income Countries 109 19 128

Developing Countries 26 28 54

Total 135 47 182
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 95

Table 4-9.

Estimated Welfare Effects of Full Agricultural Liberalization, by Liberalizing and 

Benefiting Regions—2002 World Bank Study 

(Billions of 1997 dollars) 

Source: World Bank, “Envisioning Alternative Futures: Reshaping Global Trade Architecture for Development,” Chapter 6 in Global Economic 

Prospects and the Developing Countries 2002 (Washington, D.C.: World Bank), Table 6.1, p. 171.

Notes: Welfare effects are measured by equivalent variation.

Model: A version of the World Bank’s LINKAGE model with 15 regions and 20 economic sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to grow over time even with no liberalization. The simulations without productivity effects include static effects plus investment effects resulting from the influence of liberalization on 

household saving and on the prices of investment goods. The simulations with productivity include those effects plus effects of liberalization on productivity.

Data: Version 5 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 1997. Hence, the starting point for liberalization is the policies that existed in that year.

Liberalization scenario simulated: In each year from 2005 through 2010, all tariffs, domestic production subsidies, and export subsidies in all goods sectors are reduced by one-sixth of their preliberalization levels, ending with their complete elimination. The numbers presented are the component of the resulting welfare effect in 2015 that is attributed by the study to liberalization of the 

agriculture and food sector.

Benefiting Regions

Liberalizing Region

High-Income Countries

Low- and Middle-Income 

Countries All Regions

Simulations Without Productivity Effects

High-Income Countries 73 23 106

Low- and Middle-Income Countries 31 114 142

Total 104 136 248

Simulations With Productivity Effects

High-Income Countries 144 53 196

Low- and Middle-Income Countries 99 294 390

Total 243 346 587
96 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-10.

Estimated Effects of Full Liberalization of All Goods on Agriculture and Food 

Trade, by Exporting and Importing Country Groups—2006 World Bank Study, 

LINKAGE Model Analysis 

(Billions of 2001 dollars)

Source: Kym Anderson, Will Martin, and Dominique van der Mensbrugghe, “Market and Welfare Implications of Doha Reform Scenarios,” 

Chapter 12 in Kym Anderson and Will Martin, eds., Agricultural Trade Reform and the Doha Development Agenda (New York: 

Palgrave Macmillan and the World Bank, 2006), Table 12.16, p. 377.

Notes: Model: A version of the World Bank’s LINKAGE model with 27 regions and 25 economic sectors. Agriculture and food comprise 13 of 

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. The simulations include static effects plus investment effects resulting from the influence 

of liberalization on household saving and on the prices of investment goods.

Data: Release 6.05 of the Global Trade Analysis Project (GTAP) data set, which has a base year of 2001. However, the baseline simulation also incorporates major changes in trade policy through 2005, including the final stages of implementation of the Uruguay Round 

Agreement, tariff reductions made by China and Taiwan as conditions of their accession to the World Trade Organization, and the

enlargement of the European Union to 25 members. Unlike previous GTAP releases, Release 6.05 includes bilateral and unilateral 

trade preferences.

Liberalization scenario simulated: The phased elimination from 2005 through 2010 of all subsidies, tariffs, and other trade-distorting 

measures in all goods sectors. The trade-effect estimates are for the year 2015.

Exporting Country Group

Importing Country Group

High-Income Countries Developing Countries World

High-Income Countries 54 50 104

Developing Countries 133 77 210

World 186 128 314
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 97

Table 4-11.

Estimated Static Effects on Developing Countries’ Agricultural Trade of 

Full Agricultural Liberalization, by Liberalizing Country Group—Economic 

Research Service Study

(Percent) 

Source: Mary E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. 

Department of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001), Table 16, p. 21.

Notes: Model: The Economic Research Service’s own model with 12 countries/regions, nine production sectors relating to agriculture and 

food, and other production sectors aggregated together. The model does not have exogenously imposed growth in populations, labor 

forces, or productivity. The only growth in countries’ economies and trade over time is that resulting from the liberalization being 

modeled. Consequently, the results of liberalization simulations are compared with corresponding values in the base year before liberalization instead of with a baseline.

Data: The model is calibrated using data from version 5.2 of the Global Trade Analysis Project (GTAP) data set, which has a base year 

of 1997. The study is based on 1998 levels of applied agricultural tariffs, domestic support and export subsidies, and tariff-rate quotas. 

Tariffs are from the Agriculture Market Access Database. Bound tariffs are used where applied rates are not available. Domestic support numbers are from the producer support estimates published by the Organisation for Economic Co-operation and Development. 

Export subsidies are from member countries’ reports to the World Trade Organization (WTO).

Liberalization scenario: All tariffs and tariff equivalents of nontariff barriers are eliminated for all WTO members, as are all export subsidies. (Notably, this liberalization excludes China, which was not a WTO member when the study was published.) Domestic support in 

Australia, New Zealand, Japan, South Korea, the United States, Canada, the European Union, and three countries in the European Free 

Trade Association (EFTA) is eliminated. Those countries provided between 90 percent and 92 percent of the domestic support reported 

by members to the WTO for 1998, depending on which three of the four members of the EFTA are referred to. 

Developing-Country 

Trade Component

Liberalizing Country Group

Developed Countries

Developing 

Countries All Countries

Market 

Access

Domestic 

Support

Export 

Subsidies

Market 

Access All Policies

Imports

Value 0.6 -1.5 -1.1 24.6 20.0

Volume 0.2 -4.7 -2.7 17.1 7.9

Exports

Value 18.1 5.5 0.6 5.5 26.5

Volume 10.7 3.4 0.3 4.1 16.1
98 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-12.

Estimated Output Effects of Full Removal of All Agricultural Distortions in 

High-Income Regions, by Product and Country—Study by Beghin, Roland-Holst, 

and van der Mensbrugghe

(Percentage change in 2015)

Continued

Product

Low- and 

MiddleIncome 

Countries

United 

States

Western 

Europe

HighIncome Asia CanadaAustralia and 

New Zealand

Dairy Products 15.2 1.1 -16.1 -50.5 -16.6 82.0

Other Meat Products 14.3 2.4 -18.5 -20.5 -10.5 3.7

Refined Sugar 13.2 -45.6 -65.4 -59.0 32.0 -2.2

Bovine Meat Products 12.8 3.1 -36.4 -8.8 9.8 57.2

Bovine Cattle, etc. 9.5 5.3 -39.8 -27.2 12.7 30.9

Other Cereal Grains 8.5 -0.1 -51.2 -60.8 -0.9 -6.4

Wheat 7.0 4.2 -44.0 -77.1 43.3 12.0

Raw Sugar 6.1 -45.4 -43.3 -58.6 23.5 -2.2

Raw Milk 5.7 1.0 -15.7 -40.9 -12.1 73.3

Oil Seeds 5.1 -9.9 -31.2 -44.3 17.9 10.2

Agriculture 3.6 2.7 -22.3 -24.4 6.4 26.2

Agriculture and Food 3.4 0.7 -13.4 -6.7 0.2 25.4

Processed Foods 3.2 -0.2 -10.1 -0.9 -3.4 24.8

Other Livestock 2.9 1.3 -15.6 -2.4 -14.8 -7.6

Paddy Rice 1.9 473.5 -71.4 -63.7 1,285.7

Other Crops 1.7 -10.7 1.6 -12.0 -3.3 10.0

Vegetables and Fruits 1.1 4.6 -11.3 -5.0 -2.4 -5.2

Vegetable Oils and Fats 0.6 -3.2 -7.0 45.5 -1.7 -5.6

Construction 0.1 0.0 0.1 0.0 0.3 1.0

Total 0.1 0.0 0.0 0.1 -0.1 0.6
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 99

Table 4-12.

Continued

Source: John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are 

the Implications for North and South?, Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and 

Rural Development, June 2002), Table 3, pp. 14-15.

Notes: Loss in value is net of agricultural subsidies.

A blank space indicates that the study presents no estimate for the effect in question.

Model: A version of the World Bank’s LINKAGE model with 14 countries/regions and 25 sectors. Agriculture and food comprise 17 of 

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization. 

Data: Version 5.3 of the Global Trade Analysis Project (GTAP) database, which has base years of 1997 for economic variables and 1998 

for policy variables.

Liberalization scenario: The “Removal of All Protection” scenario, which involves the removal of all distortions—output subsidies, 

input subsidies, land and capital subsidies, export subsidies, and import tariffs—in high-income countries, which are defined to 

include Australia and New Zealand, Canada, the European Union, the European Free Trade Association, high-income Asia, and the 

United States. The liberalization is phased in between 2005 and 2010, with one-sixth of the relevant benchmark policy eliminated in 

each year. The numbers presented are the output effects in 2015.

Product

Low- and 

MiddleIncome 

Countries

United 

States

Western 

Europe

HighIncome Asia CanadaAustralia and 

New Zealand

Electricity and Gas 0.0 0.2 0.4 0.3 -0.1 -0.6

Plant-Based Fibers -0.2 1.9 19.1 104.0 -18.6

Other Services -0.2 0.0 0.5 0.2 0.1 -0.2

Services -0.2 0.0 0.5 0.2 0.1 -0.2

Other Natural Resources -0.3 0.3 1.8 1.7 -0.3 -5.5

Manufacturing -0.6 -0.1 1.2 0.5 -0.3 -3.2

Textiles, Leather, and Apparel -0.8 0.3 2.7 1.6 -0.4 -7.2

Chemicals, Plastic, Rubber -0.8 -0.1 1.3 0.4 -0.6 -4.1

Other Manufacturing -0.8 -0.1 1.4 0.6 -0.6 -4.2

Fossil Fuels -0.9 0.6 3.2 2.4 0.8 -6.1

Other Processed Food, Beverages, 

Tobacco -0.9 -0.4 -0.7 3.5 -1.9 -4.0
100 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-13.

Estimated Product-Specific Static Effects on U.S. Agricultural Output of Global 

Full Agricultural Liberalization—Study by Cooper, Johansson, and Peters

(Percent)

Source: Joseph Cooper, Robert Johansson, and Mark Peters, “Some Domestic Environmental Effects of U.S. Agricultural Adjustments Under 

Liberalized Trade: A Preliminary Analysis” (paper presented to an international conference titled Agricultural Policy Reform and the 

WTO: Where Are We Heading?, Capri, Italy, June 23-26, 2003), Table 1, p. 28.

Notes: Model: The Economic Research Service/Penn State trade model, which is a dynamic partial-equilibrium model of policy and trade with 

four countries/regions—the United States, the European Union (15), Japan, and the rest of the world—and 21 commodities, including seven crops, four oilseed products, four livestock products, and five processed dairy products.

Data: The Agricultural Market Access Database; the U.S. Department of Agriculture’s Production, Supply, and Distribution database; 

and sources from various countries modeled. Base year for the data is 2000.

Liberalization scenario: Elimination of all policies distorting agricultural trade. The estimates presented are effectively static estimates. 

Although the model is dynamic, the dynamics are solely for projecting the path from one long-term equilibrium to another.

Product Output Volume Output Value

Corn 2.4 13.9

Other Coarse Grains 1.7 10.9

Poultry Meat 1.6 10.5

Beef and Veal -0.1 8.1

Pork 0.0 5.0

Soybeans -0.7 3.9

Wheat -0.1 2.5

Cotton 0.0 2.1

Rice -1.2 -0.8

Other Dairy 1.9 -1.1

Fluid Milk 1.7 -1.2

Nonfat Dry Milk -15.0 -1.6

Cheese -0.6 -1.9

Butter -15.0 -12.0

Whole Dry Milk -31.6 -13.4

Total 0.27 4.23

102 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-14.

Estimated Product-Specific Effects on U.S. Agriculture of Two Agricultural

Liberalization Scenarios—FAPRI Study

(Percent)

Continued

Product Output Volume

Consumption

Volume Export Volume Import Volume

Full Agricultural Liberalization

Nonfat Dry Milk 16. -9.8 62.19

Peanuts 5.84 8.47 -16.38

Butter 4.7 3.1 -100.

Corn 1.99 2.32 1.16

Soybean Oil 1.96 -0.63 18.23

Soybean Meal 1.96 5.13 9.60

Wheat -0.09 0.05 0.25

Cheese -0.3 -1. -58.

Soybeans -0.85 1.72 -5.78

Cotton -2.3 -5.03 0.9

Rice -40.4 -0.95 -146.7

Pork 215.

Broilers 29.00

Removal of Border Measures Only

Nonfat Dry Milk 14. -4.7 84.06

Peanuts 8.94 -2.40 90.99

Butter 3.6 2.2 -88.

Soybean Oil 1.82 -0.83 18.81

Soybean Meal 1.82 5.61 -12.00

Corn 1.59 2.81 -2.46

Wheat 0.61 -1.20 3.39
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 103

Table 4-14.

Continued

Source: Food and Agricultural Policy Research Institute, The Doha Round of the World Trade Organization: Appraising Further Liberalization 

of Agricultural Markets, Iowa State University and University of Missouri-Columbia Working Paper 02-WP 317 (Ames, Iowa: Iowa 

State University, Center for Agricultural and Rural Development, November 2002), Tables A.3-A.46 and B.1-B.44.

Notes: FAPRI = Food and Agricultural Policy Research Institute, which has research centers at Iowa State University and the University of 

Missouri-Columbia.

A blank space indicates that the study presents no estimate for the effect in question.

The study presents changes in trade for each product only for selected countries. Presumably, all changes that are in some sense substantial are presented. However, the study does not explicitly say that, so the United States might have changes in exports or imports 

of some products that are not indicated in the table.

The change of -146.7 percent for rice under the “Full Agricultural Liberalization” scenario represents a change from net exports to net 

imports. The change of -14,896 for beef under the “Removal of Border Measures Only” scenario represents a change from net imports 

to net exports.

Model: The FAPRI multimarket world agricultural model. The model is an econometric forecasting model, not a general-equilibrium

model. Macroeconomic variables such as real gross domestic product (GDP), the GDP deflator, population, and exchange rates are not 

determined by the model; rather, forecasts of those variables are exogenous inputs to the model. The model captures numerous linkages among different agricultural sectors but does not take into account feedback effects from liberalization in other sectors.

Data: The baseline scenario is the one established for the FAPRI 2002 World Agricultural Outlook. It incorporates the Uruguay Round 

Agreement on Agriculture, the Berlin Accord on Agenda 2000 reforms to the European Union’s Common Agricultural Policy, the 1996

U.S. Federal Agriculture Improvement and Reform Act, and the accessions of China and Taiwan to the World Trade Organization. It

does not incorporate the 2002 U.S. Food Security and Rural Investment Act, assuming instead a simple extension of 1996 farm legislation.

Liberalization scenario: The “Full Agricultural Liberalization” scenario involves the complete elimination of all trade restrictions, production subsidies, and export subsidies simultaneously and instantaneously in 2002. The “Removal of Border Measures Only” scenario 

involves the complete elimination of all trade restrictions and export subsidies simultaneously and instantaneously in 2002. Estimates 

presented are for 2011. 

Product Output Volume

Consumption

Volume Export Volume Import Volume

Removal of Border Measures Only (Continued) 

Cheese 0.5 -2. -73.

Soybeans -0.68 1.61 -5.33

Rice -0.9 -0.42 -2.1

Cotton -2.9 -3.22 0.4

Beef -14,896.

Pork 221.

Broilers 30.07
104 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-15.

Estimated Product-Specific Effects on U.S. Agriculture of Full Agricultural

Liberalization by High-Income Countries—Study by Beghin, Roland-Holst, and 

van der Mensbrugghe

(Percent)

Source: John C. Beghin, David Roland-Holst, and Dominique van der Mensbrugghe, Global Agricultural Trade and the Doha Round: What Are 

the Implications for North and South?, Working Paper 02-WP 308 (Ames, Iowa: Iowa State University, Center for Agricultural and 

Rural Development, June 2002), Table 5, pp. 20-21.

Notes: Model: A version of the World Bank’s LINKAGE model with 14 countries/regions and 25 sectors. Agriculture and food comprise 17 of 

the 25 sectors. Exogenously imposed growth in populations, labor forces, and productivity causes countries’ economies and trade to 

grow over time even with no liberalization.

Data: Version 5.3 of the Global Trade Analysis Project (GTAP) database, which has base years of 1997 for economic variables and 1998 

for policy variables.

Liberalization scenario: The “Removal of All Protection” scenario, which involves the removal of all distortions—output subsidies, 

input subsidies, land and capital subsidies, export subsidies, and import tariffs—in high-income countries, which are defined to 

include Australia and New Zealand, Canada, the European Union, the European Free Trade Association, high-income Asia, and the 

United States. The liberalization is phased in between 2005 and 2010, with one-sixth of the relevant benchmark policy eliminated in 

each year. The numbers presented are the output effects in 2015.

a. The data set does not distinguish between raw sugar and refined sugar in trade. 

Product Output Volume Export Volume Import Volume

Paddy Rice 473.5 2,543.5 101.5

Bovine Cattle, etc. 5.3 212.4 11.4

Vegetables and Fruits 4.6 31.9 2.7

Wheat 4.2 13.4 33.1

Bovine Meat Products 3.1 47.8 16.5

Other Meat Products 2.4 27.6 6.5

Plant-Based Fibers 1.9 4.7 -3.0

Other Livestock 1.3 -1.3 -0.6

Dairy Products 1.1 150.0 92.4

Raw Milk 1.0 18.9

Other Cereal Grains -0.1 -12.5 16.8

Other Processed Food, 

Beverages, Tobacco -0.4 -7.8 0.5

Vegetable Oils and Fats -3.2 -4.8 15.2

Oil Seeds -9.9 -15.6 64.4

Other Crops -10.7 15.1 27.1

Raw Sugar -45.4 a a

Refined Sugar -45.6 213.7 133.0
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 105

Table 4-16.

Estimated Product-Specific Effects on U.S. Agricultural Trade of a Global 

36 Percent Reduction in All Policies Distorting Agricultural Trade—

Study by Roberts and Others 

(Percent)

Source: Ivan Roberts and others, Reforming World Agricultural Trade Policies, Australian Bureau of Agricultural and Resource Economics 

Research Report 99.12 and Rural Industries Research and Development Corporation Publication No. 99/96 (September 1999), 

Table 3, p. 39, and Table 4, p. 40.

Notes: A blank space indicates that the study presents no estimate for the effect in question.

Model: The Global Trade Analysis Project (GTAP) static general-equilibrium model, with 24 countries/regions and 22 commodities.

Data: Version 4 of the GTAP database (modified slightly to improve the data representation of policies where necessary), which has a 

base year of 1995.

Liberalization scenario: The liberalization modeled is a 36 percent reduction in all forms of agricultural support, restrictions on market 

access (in tariff equivalents), export subsidies, and domestic support. 

Product Export Value Import Value

Live Cattle, Sheep, and Wool 60 5

Rice 58 -5

Beverages and Tobacco 19 14

Other Grains 17 4

Beef and Veal 14 3

Other Meat Products 12 -2

Oilseeds 9 4

Other Animal Products 7 0

Other Crops 6 3

Wheat 5 12

Dairy Products 4 23

Other Food Products 3 2

Vegetables, Fruit, and Nuts 2 2

Vegetable Oils and Fats -2 3

Sugar 24
106 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-17.

Estimated Product-Specific Effects on U.S. Agriculture of Tariff-Rate Quota

Liberalization—Tsigas and Ingco Study

Source: Marinos E. Tsigas and Merlinda Ingco, Market Access Liberalization for Food and Agricultural Products: A General Equilibrium 

Assessment of Tariff-Rate Quotas, Working Paper No. 2001-10-A (Washington, D.C.: U.S. International Trade Commission, Office of 

Economics, October 2001), Table 3, p. 15.

Notes: Model: The Global Trade Analysis Project (GTAP) static general-equilibrium model extended to allow analysis of tariff-rate quotas. The 

model has 17 regions and 10 trade commodities. Four of the 10 are primary agricultural commodities, and two are processed food 

products.

Data: The study begins with GTAP data for 1995 and 1996 and runs a simulation for the reforms agreed to in the Uruguay Round 

Agreement that were implemented from 1995 through 2000: (1) an increase in quota levels by about 66 percent to simulate the 

increase in quotas from 3 percent of domestic production to 5 percent of domestic consumption; (2) a cut in the over-quota tariffs 

imposed by developed regions by 36 percent and the over-quota tariffs imposed by developing regions by 24 percent; and (3) a cut in 

export subsidies by the same percentages that over-quota tariffs are cut in an attempt to equalize the domestic prices of imported and 

exported commodities (as in initial equilibrium). The end point of that simulation is then used as the starting point for the simulation 

that produces the results in this table. Thus, the effective base year for tariff-rate quotas for the simulation for this table is 2000.

Liberalization scenario: Trade liberalization scenario consists of the combination of a 15 percent reduction both in the within-quota 

tariffs and over-quota tariffs of tariff-rate quotas and in export taxes for agricultural and food commodities from their 2000 estimated 

levels. Estimates presented are for static effects.

Product 

Output 

(Percent)

Trade Balance 

(Millions of Dollars)

Rice 1.6 15

Other Grains 1.4 839

Nongrains 1.2 510

Livestock 0.5 5

Meat, Milk 0.7 856

Other Food 0.9 1,284
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 107

Table 4-18.

Estimated Product-Specific Effects on U.S. Agricultural Trade of Two Global 

Domestic-Subsidy Reduction Scenarios—Economic Research Service Study

(Millions of 1997 dollars)

Source: C. Edwin Young and others, “Options for Reducing the Aggregate Measurement of Support in OECD Countries,” Chapter 4 in Mary 

E. Burfisher, ed., Agricultural Policy Reform in the WTO—The Road Ahead, Agricultural Economic Report No. 802 (U.S. Department 

of Agriculture, Economic Research Service, Market Trade Economics Division, May 2001), Tables 4-6 and 4-7, p. 76.

Notes: Model: The Global Trade Analysis Project (GTAP) static general-equilibrium model.

Data: The model is calibrated to version 5.2 of the GTAP data set, which has a base year of 1997. Subsidy rates from which liberalization begins are those existing in 1998.

Liberalization scenario: All members of the World Trade Organization (WTO) reduce their amber-box subsidies as indicated in the

table. (At the time the study was published, China was not a member of the WTO.) Estimates are for static effects. 

Product Trade Balance Exports Imports

20 Percent Reduction in Amber-Box Bounds

Oilseeds 222.6 222.4 -0.2

Coarse Grains 149.5 136.0 -13.9

Other Livestock 145.5 145.0 -0.5

Wheat 141.6 140.5 -1.1

Beef 139.4 126.0 -13.4

Fruit and Vegetables 57.3 65.1 7.8

Dairy Products 51.1 50.5 -0.6

Rice 24.1 23.9 -0.2

Processed Foods 10.9 3.3 -7.6

Cotton and Fiber 1.8 1.8 0.0

Sugar 1.7 1.3 -0.4

Other Crops -23.4 -12.1 11.3

Total 922.2 903.5 -18.7

Reduction of Product-Specific Amber-Box Bounds to 

No More than 30 Percent of the Value of Production

Beef 325.2 286.2 -39.0

Rice 261.4 263.0 1.6

Wheat 130.3 134.0 3.7

Coarse Grains 88.8 63.4 -25.4

Fruit and Vegetables 77.5 75.4 -2.1

Oilseeds 41.6 41.6 0.0

Other Livestock 25.1 23.5 -1.6

Dairy Products 23.2 197.0 173.8

Cotton and Fiber 16.0 15.9 -0.1

Other Crops -24.5 -20.8 3.7

Processed Foods -57.6 -39.5 18.1

Sugar -106.4 4.9 111.3

Total 800.5 1,044.5 244.0
108 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-19.

Estimated Product-Specific Effects of Global Export Subsidy Elimination on the 

United States—OECD Study 

(Percent)

Source: Organisation for Economic Co-operation and Development, A Forward Looking Analysis of Export Subsidies in Agriculture (Paris: 

OECD, January 6, 2001), Table 2, p. 20.

Notes: A blank space indicates that the study presents no estimate for the effect in question.

Model: The Organisation for Economic Co-operation and Development’s Aglink model, which is a structural econometric model representing selected OECD member, nonmember, and world markets for certain traded agricultural commodities.

Data: Subsidy notifications by member countries to the World Trade Organization as summarized in Export Subsidies: Background 

Paper by the Secretariat, World Trade Organization document number G/AG/NG/S/5, and in Market Access, Domestic Support, and 

Export Subsidy Aspects of the Uruguay Round Agreement on Agriculture: Implementation in OECD Countries, OECD document number COM/AGR/TD/WP(2000)/89/FINAL. The most recent notifications are for the 1998-1999 Global Agreement on Tariffs and Trade 

year or the 1998 calendar year. Subsidy numbers used are the actual export subsidies not the export subsidy bounds.

Liberalization scenario: All export subsidies are eliminated by all countries in equal steps from 2001 through 2005. Estimates are deviations from a baseline in 2005. 

Product U.S. Export Volume World Prices

Butter -100 26

Skimmed Milk Powder -46 9

Cheese -5

Milk -1

Whole Milk Powder 15

Beef (Argentina) 1

Beef (United States) -1

Pork (United States) 0

Wheat -1

Maize 1

Oilseed -4

110 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-20.

Estimated Effects of Global Full Liberalization of Policies That Distort 

Trade in Sugar—Elobeid and Beghin Study

(Percent) 

Continued

Country or Region 

Production 

Volume

Export 

Volume

Import 

Volume

Consumption 

Volume

Price, FOB 

Caribbean

Price, 

New York 

Spot

Net Exporters

Argentina 1.82 78.83 -2.42

Australia 9.81 12.66 -4.77

Brazil 17.89 43.66 -8.68

Colombia -1.24 -2.61 -0.37

Cuba 25.37 32.42 -7.75

EU -59.56 -263.04 2.87

India -2.54 -169.42 0.88

Mexico -6.90 -29.78 -7.29

Pakistan 7.95 -123.60 -5.39

South Africa 5.92 12.13 -0.40

Thailand -0.72 -1.73 1.13

Net Importers

Algeria 6.70 -4.18 -4.09

Canada 2.15 -4.24 -3.78

China 8.78 -71.02 -6.81

Eastern Europe -7.97 27.20 1.63

Egypt 8.27 -44.36 -11.16

Former Soviet Union 2.16 -0.93 0.12

Indonesia 72.93 -63.56 -7.14

Iran 3.97 -5.39 -2.64

Japan -83.71 51.11 1.39
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 111

Table 4-20.

Continued

Source: Amani Elobeid and John C. Beghin, Multilateral Trade and Agricultural Policy Reforms in Sugar Markets, Working Paper 04-WP 356 

(Ames, Iowa: Iowa State University, Center for Agricultural and Rural Development, July 2004), Tables B1 and B2, pp. 40-49.

Notes: FOB = free on board.

A blank space indicates that the study presents no estimate for the effect in question.

Model: The international sugar model at the Center for Agricultural and Rural Development, which is a dynamic partial-equilibrium 

econometric model with 29 countries/regions.

Data: Sugar production, consumption, and ending stocks obtained from PS&D View of the U.S. Department of Agriculture. Sugarcane

and sugar-beet areas, and sugar, sugarcane, and sugar-beet production for most countries are from the Foreign Agricultural Service 

GAIN country reports, and from the Food and Agricultural Organization of the United Nations. Gross domestic products (GDPs), GDP 

deflators, populations, and exchange rates are from the International Monetary Fund and Global Insight. The study does not indicate 

the year of the most recent numbers.

Liberalization scenario: All trade barriers, domestic production subsidies, and export subsidies are removed in 2002/2003. The estimates are for effects in 2011/2012. 

Country or Region 

Production 

Volume

Export 

Volume

Import 

Volume

Consumption 

Volume

Price, FOB 

Caribbean

Price, 

New York 

Spot

Malaysia 40.19 -11.32 -6.29

Morocco 1.70 -8.53 -3.03

Peru 0.22 143.35 -0.72

Philippines -4.62 43.57 0.48

South Korea 5.37 5.30

Turkey 68.78 -797.6 1.79

United States -4.62 9.51 0.15

Venezuela 3.44 -35.49 -1.76

Rest of the world -33.35

Total -1.76 8.19 8.19 -1.93 47.94 -4.83
112 THE EFFECTS OF LIBERALIZING WORLD AGRICULTURAL TRADE: A REVIEW OF MODELING STUDIES

Table 4-21.

Estimated Effects on the United States of Sugar Trade Liberalization in the 

United States and the European Union—Koo Study

Source: Congressional Budget Office based on Won W. Koo, The U.S. Cane and Beet Sugar Industry Under Alternative Trade Liberalization 

Policy Options, Agricultural Economics Report No. 434 (Fargo, N.D.: North Dakota State University, Department of Agricultural Economics, January 2000), Table 5, p. 18.

Notes: Model: A dynamic global partial-equilibrium econometric model of sugar production and trade, described in M. Benirschka, Won W. 

Koo, and J. Lou, World Sugar Policy Simulation Model: Description and Computer Program Documentation, Agricultural Economics 

Report No. 356 (Fargo, N.D.: North Dakota State University, Department of Agricultural Economics, 1996). Macroeconomic variables 

such as gross domestic product growth rates, interest rates, exchange rates, and inflation rates are not modeled but rather are exogenous inputs to the model.

Data: Base year for sugar data is 1999. Other inputs to the model are forecasts from the WEFA Group, Project Link, and the Food and 

Agricultural Policy Institute.

Liberalization scenario: Elimination of restrictions on imports of sugar in the United States and the European Union in 2001. Estimates 

are deviations from a baseline in 2004.

Percentage Change

Production

Beet sugar (Volume) -13.3

Cane sugar (Volume) -9.1

Consumption (Volume) 4.1

Imports (Volume) 56.6

Price

Sugar beets -12.6

Sugarcane -15.6

Caribbean 38.5

Import -15.8

Wholesale -15.2

Retail -13.5
CHAPTER FOUR OTHER EFFECTS OF AGRICULTURAL LIBERALIZATION 113

Table 4-22.

Estimated Effects of Removing Oilseed-Related Tariffs—Study by Meilke, 

Wensley, and Cluff

(Percent)

Source: Karl Meilke, Mitch Wensley, and Merritt Cluff, “The Impact of Trade Liberalization on the International Oilseed Complex,” Review of 

Agricultural Economics, vol. 23, no. 1 (Spring-Summer 2001), Tables 8 and 9, p. 11.

Notes: Model: A modified version of the Organisation for Economic Co-operation and Development’s (OECD’s) AGLINK model, which is a 

structural econometric model representing selected OECD member, nonmember, and world markets for certain traded agricultural 

commodities.

Data: From The Agricultural Outlook 1997–2000, published by the OECD in 1997.

Liberalization scenario: Elimination of tariffs but not nontariff barriers to trade, in 1996. Estimates are for 2001. 

Country or

Region

Prices Volumes

Oilseed

Oilseed 

Oil

Oilseed 

Meal Palm Oil

Oilseed 

Production

Oilseed 

Crush

Oilseed Oil 

Consumption

Oilseed Meal 

Consumption

Argentina 6.0 6.5 1.4 9.8 1.0 -3.2 -2.0 -0.2

Australia 1.3 1.3 1.6 9.8 0.5 1.2 -0.7 -0.5

Brazil 2.3 5.0 1.4 -0.1 1.2 1.9 -1.6 0.4

Canada 3.1 6.2 1.6 3.2 1.8 7.2 -1.8 0.0

China 3.2 -10.6 1.4 0.8 0.6 -13.9 1.6 0.4

EU(15) 2.2 6.2 1.5 4.6 0.1 4.0 -1.8 -0.3

Japan 2.1 -10.3 1.5 9.8 0.0 -24.3 2.0 -0.3

United States 2.3 5.0 1.4 9.8 0.5 3.6 -1.0 -0.2

Rest of the 

World -7.8 -9.6 -3.8 -4.0 -3.0 2.7 1.9 1.5

World 

total 2.1 6.4 1.6 9.8 0.2 0.2 -0.1 0.3

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