assistance (which on average implied less agricultural protectionism, and the incorporation of major reforms between 1997 and 2005 (most notably implementation of the Uruguay Round agreements, including the phase-out of the Multifibre Arrangement, EU expansion, and the reforms in China that accompanied its accession to WTO). On the one hand, the fact that this drop in the cost of remaining trade distortions was so large is worth celebrating, as it indicates the extent to which distortions in the world’s markets for goods have been reduced in less than one decade. On the other hand, the cost of policies still in place remains huge, hence this paper’s search for opportunities to bring about further liberalization.

# **_Which countries bear the cost, and which sectoral policies impose the cost?_**

The AMV study has laid out how its estimated global cost of current policies affecting merchandise trade is distributed across countries and from which sectoral policies they originate. The basis of that is the estimated tariff structure of 2005, summarized in Table 2. It shows agricultural products are subject to much higher tariffs than manufactures, especially in high-income countries which also provide large subsidies to farmers. It also shows that tariffs in developing countries are much higher than in high-income countries for manufactures, and almost as high for farm products. From that one would expect developing countries to be imposing a high cost on themselves from their own policies, and agricultural policies to be a significant contributor to the global cost of merchandise trade distortions.

The detailed country distribution of AMV’s estimated welfare costs is provided in Table 3, where it is expressed as a gain from full liberalization. The real value in 2001 US dollars is shown in column 1, and it is subdivided in columns 2 and 3 into that part due to the terms of trade effects of current policies (which for small countries in a homogeneous-products model would be equivalent to the effect of other countries’ policies, but not in models using Armington trade elasticities that distinguish products by country of origin and so give each country some degree of market power internationally), and to the rest (which is predominantly due to owncountry policies). The bold rows towards the bottom of the table indicate for highincome countries that one-seventh of the cost to them comes from the adverse terms of trade effects of global distortions, whereas for developing countries the opposite is true: global reform would worsen their terms of trade. Hence the difference between the two country groups in absolute cost of own-country policies is closer than the overall cost, although still higher for high-income countries. When expressed as a percentage of baseline income, however, the loss is greater for the developing country group, at 0.8 percent compared with 0.6 percent for high-income countries; and in so far as column 2 proxies the cost contribution of other countries’ policies, then the final numbers in parentheses suggest developing countries’ losses from policies of that country group are proportionately more than twice those of the much larger highincome economies (1.1 compared with 0.5 percent) – which is consistent with the differences in average tariffs reported in Table 2.

Table 4 summarizes how those costs are attributable to different sectors of the two country groups. Row 9 suggests that agricultural and food policies are responsible for 63 percent of the cost of merchandise trade distortions to both developing and high-income countries. That is, even though that sector represents only about onetwelfth of global production and trade, its policies contribute nearly two-thirds of the welfare loss from trade and subsidies affecting goods markets. Also, columns 4 and 5 show that for developing countries the cost is split equally between policies of high13