The impact of agricultural subsidies on global welfare.

Recent trends in trade liberalization and the increasing global nature of the world economy have sparked much debate as to whether globalization is a vehicle for growth and development or a bane to society. The debate is not simply one between the informed and the uneducated. Some of the most respected economists in the world disagree as to the impacts of globalization. Stiglitz (2002) refers to "the devastating effect that globalization can have on developing countries." On the other hand, Bhagwati (2004) holds that globalization can be beneficial for both developed and developing countries. He postulates that, for this to occur, there must be a set of new policies and institutions that will help developing countries handle increased volatilities resulting from globalization.

The agricultural sector is a central part of this issue, as the provision of agricultural subsidies has been a point of debate during recent trade negotiations. Most countries use some form of subsidies to protect their agricultural sector. Table 1 shows the levels of domestic subsidies provided to producers in selected developed and developing countries, The subsidy levels in developing countries are much lower than those in developed countries, even though agriculture typically comprises a greater proportion of the GDP in developing countries than developed countries. The total spending on domestic subsidies was $72 billon in the United States, $75.7 billion in the European Union (EU), and $25.1 billion in Japan in 2001. In addition to domestic subsidies, export subsidies have been used to increase and promote exports. Of the countries shown in table 2, export subsidies are exclusively used by the EU.

Developing countries strongly oppose domestic and export subsidies by developed countries. Since developing countries cannot afford to support their producers at the levels of developed countries, subsidies tend to limit fair competition. In general, both domestic and export subsidies distort production patterns. Some argue that subsidies given to producers in developed countries have resulted in overproduction and lower world prices of agricultural goods, which have been harmful to agriculture in developing countries. Others have argued that although subsidies distort trade flows, they have been beneficial for consumers in both exporting and importing countries, resulting in a net increase in global welfare, especially in developing importing countries (Bhagwati 2004). This is mainly because subsidies lower world prices for agricultural goods.

Under the Doha trade negotiations of the WTO, the United States, EU, and other countries, including Brazil and India, have called for steep cuts in domestic subsidies and the elimination of export subsidies. For example, the United States proposed a 60% cut in the payment cap, while other countries are calling for even greater cuts. Furthermore, the EU called for eliminating export subsidies by 2012. However, their proposal is contingent on the United States restricting its export credits.

In order to better understand the impacts of the agricultural subsidies on global welfare, this study will seek to accomplish two objectives. First, it will analyze changes in the distribution of social welfare among consumers and producers in both exporting and importing countries resulting from reductions in subsidies. Second, this analysis will assess the impact of subsidies on domestic production, consumption, and trade for the United States and the rest of the world (ROW).

Although considerable research has examined the impact of agricultural subsidies on domestic producers, relatively little has been done to determine the impact of subsidies on trading partners. Houck (1992) analyzed theoretically the impacts of domestic and export subsidies on trade flows but provided limited analysis on changes in social welfare in exporting and importing countries. In a series of articles, Alston, Carter, and Smith (1993, 1995) and Gardner (1995) examine the role of subsidies in providing support to domestic producers. These analyses did not consider the impact on trading partners. The impact of export subsidies on competing countries is considered by Leathers (2001), but only as a means to determine the optimal subsidy level.

The impact of the U.S. Export Enhancement Program on welfare in competing countries is examined by Anania, Bohman, and Carter (1992). Their analysis concludes that, although the United States gains with respect to quantity exported, neither the United States nor any of the other exporting countries experience welfare gains. Brander and Spencer (1984) note that, although export subsidies can be welfare enhancing in unusual circumstances, one country gains only at the expense of another.

Abbott, Paarlberg, and Sharples (1987) demonstrate that targeted export subsidies can improve the welfare of the subsidizing country by exploiting differences in excess demand elasticities. Welfare effects for other countries were not reported. Bohman, Carter, and Dorfman (1993) examined targeted export subsidies from a general equilibrium perspective. They conclude that certain conditions may improve the welfare of the subsidizing country and that subsidized countries can potentially experience welfare gains as a result of the subsidized exports.

From an empirical perspective, Sumner (2005) concluded that removing U.S. subsidies would allow the world price of corn to rise 9% to 10%, the world price of wheat to rise 6% to 8%, and the world price of rice to rise 4% to 6%. This is due mainly to a decrease in U.S. production under a free trade option.

Welfare Distribution of Domestic and Export Subsidies

Domestic and export subsidies given by exporting and importing countries affect the optimal utilization of resources in producing agricultural goods and distort trade flows (Heckscher-Ohlin). The extent of distortion depends upon the size of the country providing the subsidies. This section focuses on the provision of domestic and export subsidies of an exporting country.

If a small exporting country gives domestic and/or export subsidies, these subsidies do not affect the ROW, since increases in exports due to the subsidies are not large enough to influence the world price. It is assumed that the small exporting country faces a perfectly elastic import demand from the ROW. For instance, a domestic subsidy provided through a target price system, which has been used by the United States, sets the producer price (price received by farmers) at some desired level, while the domestic price (price paid by consumer) remains at the world price level. The subsidy increases domestic production, but domestic consumption remains the same. This results in an increase in exportable surplus. In the case of a small exporting country, the increased exportable surplus will not affect the world price or distort the flow of agricultural commodities (Houck 1992; Koo and Kennedy 2005).

The main purpose of export subsidies differs from the domestic subsidy program. The export subsidy is designed to increase exports by providing a subsidy to exporters. Such an export subsidy might take various forms such as a cash payment to exporters upon shipment of their agricultural goods, a rebate or exemption from a domestic sale and excise tax, or subsidized access to credit which lowers export costs (Houck 1992). The provision of an export subsidy by a small exporting country does not affect the world price of agricultural commodities.

Consider a large exporting country facing a downward sloping import demand schedule from the ROW. Domestic subsidies given to producers in the exporting country increase its domestic production. Increased production raises the aggregate supply of the commodity in the world market and lowers the world price. Similarly, if a large importing country gives domestic subsidies to its producers, domestic production increases. The result is a decrease in the country's imports as well as a drop in the aggregate demand for the commodity in the world market, also lowering the world price. In both scenarios, subsidies given by a large country distort trade and lower world prices. For example, domestic subsidies in developed and developing countries, including the EU, Japan, South Korea, and the United States, have led to the overproduction of agricultural commodities. As a result, world prices have decreased below the cost of production in many countries. The WTO ruling on the subsidization of U.S. cotton production reflects the impacts of domestic subsidies on the world cotton industry (Sumner 2005).

Figure 1 shows the impact of a variable domestic subsidy program, similar to the target price system used by the United States, on domestic production, consumption, and trade. The operation of this program is similar to that in a small country. The only difference is that while a large exporting country faces a downward sloped import demand schedule from ROW, a small country faces a perfectly elastic import demand. Under free trade, the world equilibrium is established where import demand intersects export supply in figure l(c). The equilibrium trade volume is [Q.sub.1] at the world price of [P.sub.w1]. Now consider an exporting country under the subsidy program. The exporting country sets a support price at a level higher than the free-market world price and guarantees the support price to its producers. The domestic supply schedule becomes vertical for the world price lower than [P.sub.s], as shown in figure 1(a) since the exporting country guarantees the support price ([P.sub.s]) to its producers regardless the world price. The corresponding export supply schedule is kinked downward, as shown in figure 1(c).

[FIGURE 1 OMITTED]

The new trade equilibrium is established at point g where import demand intersects the new export supply. The world price decreases from [P.sub.w1] to [P.sub.w2] and the total trade volume increases from [Q.sub.1] to [Q.sub.2]. Since domestic price equals the world price in the exporting country, domestic consumption increases from [D.sub.1] to D: as the world price decreases from [P.sub.w1] to [P.sub.w2]. The increase in consumer surplus is equal to areas D and E. Producers are also better off under this program because they receive the support price ([P.sub.s]), which is higher than the world price. The increase in producer surplus is equal to areas A and B. However, the government outlays under this program are the subsidy per unit times total production, areas A, B, C, D, E, K, F, G, H, and I. Therefore, the net social welfare loss for the exporting country is equal to areas K, F, G, H, I, and C.

This subsidy also affects consumers and producers in importing countries. Since the world price decreases under this subsidy program, producers in importing countries are worse off, while consumers are better off. Producers in importing countries lose their surplus by area L in figure l(b), while consumers gain by areas L, M, N, and P. This implies that importing countries enjoy the net gain in social welfare equal to areas M, N, and P, which is equal to areas K, F, G, and H in figure l(a). This indicates the total welfare loss in the exporting country is divided into areas K, F, G, and H, which is an income transfer from this exporting country to importing countries, and areas land C, which is the net loss in social welfare due to increases in inefficient production under the subsidy. This area is also equal to area J in figure l(c). Area C represents the loss in social welfare due to the misallocation of domestic resources to increase production, while area I represents the loss stemming from a depressed world price resulting from the domestic subsidy.

If a large exporting country gives a variable export subsidy by setting the domestic price at [P.sub.d], similar to that given by the EU, then domestic demand and supply schedules become vertical for the world price lower than the domestic price ([P.sub.d]) (Houck 1992). At [P.sub.d], domestic demand decreases from [D.sub.1] to [D.sub.2], while domestic supply increases from [S.sub.1] to [S.sub.2] in the exporting country, as shown in figure 2(a). The corresponding export supply schedule becomes vertical for world prices lower than [P.sub.d], as shown in figure 2(c). The quantity [Q.sub.2] is the volume of exports if [P.sub.d] is the guaranteed domestic price in the exporting country. This export volume is larger than that under free-market conditions. To move this new volume onto the world market, the world price must adjust downward. A new equilibrium condition is established at point g, where the new vertical export supply intersects with import demand from ROW. The world price decreases from [P.sub.w1] to [P.sub.w2] to accommodate increased exports from [Q.sub.1] to [Q.sub.2]. The difference between the domestic price ([P.sub.d]) and the new world price ([P.sub.w2]) is the per unit subsidy. The subsidy per unit sold abroad is required to maintain the domestic price at [P.sub.d]. Since domestic price ([P.sub.d]) is set at a level higher than the world price, consumers are worse off, while producers are better off in the exporting country. The decrease in consumer surplus is equal to areas A and B, and the increase in producer surplus is equal to areas A, B, and C. The government outlays are the per unit subsidy times the quantity of exports, which is equal to areas B, C, D, E, F, G, H, and I. The net loss in social welfare is equal to areas B, D, E, F, G, H, and I in the exporting country.

[FIGURE 2 OMITTED]

Because of the lower world price, producers in importing countries are worse off, while consumers are better off. At [P.sub.w2], domestic production decreases from [S'.sub.1] to [S'.sub.2], while domestic consumption increases from [D'.sub.1] to [D'.sub.2] as shown in figure 2(b). The increase in consumer surplus is equal to areas L, M, N, and P, while the decrease in producer surplus is equal to area L. The net increase in social welfare is equal to areas M, N, and P, which is equal to areas J and K in figure 2(c). Areas J and K are also equal to areas H, F, and I, implying that that net increase in social welfare in importing countries (areas M, N, and P) is also equal to areas H, F, and I in figure 2(a), the portion of the net welfare loss in the exporting country transferred to importing countries. The remaining area (B, D, E, and G) represents the loss in social welfare due to the increase in inefficient production and a decrease in consumption, mainly an increase in exports, under this subsidy program. This area is equal to areas Q and R in figure 2(c). Area Q is equal to the sum of areas B and D, which represents the inefficiencies occurring due to subsidy induced changes in production and consumption in the exporting country. On the other hand, area R is equal to the sum of areas E and G. This can be viewed as a welfare loss stemming from a depressed world price to accommodate increased exports. Thus, areas Q and R represent the loss in global social welfare due to an export subsidy.

As shown in figures 1 (c) and 2(c), the export supply schedule under a variable export subsidy is vertical for the world price lower than predetermined domestic price, but it has an upward slope under a variable domestic subsidy. Therefore, the impact of two programs on the world price differs, with identical import demand from ROW. A comparison between the variable domestic and export subsidies with identical import demand equation indicates that the world prices under both domestic and export subsidy programs are lower than the price under a free trade. However, the magnitude of a decrease in the world price under the export subsidy program is larger than that under the domestic subsidy program. This indicates that, for an equivalent unit support price under both domestic and export subsidy programs, the export subsidy given by a large country lowers the world price more than does the domestic subsidy, implying that the variable export subsidy program distorts trade more than does the domestic subsidy in the case of a large exporting country.

Measuring social benefits in exporting and importing countries and government outlays in exporting countries under both domestic and export subsidy scenarios in figures 1 and 2, respectively, the following proposition is developed:

PROPOSITION. Both domestic and export subsidies given by a large exporting country result in net welfare losses for the countries providing the subsidies, but are beneficial to importing countries while harmful to other exporting countries.

An Empirical Analysis of the U.S. Corn Industry

The U.S. corn industry was selected to demonstrate welfare distribution effects of domestic subsidies for a large country, given the United States' dominant position as the largest corn producing country in the world. Other exporting countries include Argentina, Brazil, China, South Africa, Thailand, and the Ukraine. Since the subsidy levels of other countries are relatively small compared to that in the United States, we can more clearly examine the impact of the U.S. domestic subsidy on the United States and world corn industries.

A static economic model is developed for this study. The world is divided into three regions: the United States, other exporting countries, and all importing countries. U.S. supply of and demand for corn is stated in simplified form as:

(1) [S.sup.US.sub.t] = [[alpha].sub.0] + [[alpha].sub.1] [P.sup.S.sub.1] (supply)

(2) [D.sup.US.sub.t] = [[beta].sub.0] - [[beta].sub.1] [P.sub.t]]+ [[beta].sub.2][P.sup.l.sub.t] + [beta].sub.3][P.sup.L.sub.t] (demand)

(3) [CS.sup.US.sub.t] = [[gamma].sub.0] +[[gamma].sub.1] [P.sub.t-1](stocks)

where [S.sup.US.sub.t] is the U.S. supply of corn in time t, [P.sup.s.sub.t] is the U.S. support price of corn, [D.sup.US.sub.t] is the U.S. demand for corn, [P.sup.l.sub.t] is the average price index for industrial output produced from corn; [P.sup.L.sub.t] is the average price of livestock; and [CS.sup.US.sub.t] represents carry-over stocks. It is assumed [P.sup.S.sub.t] = [P.sub.t] + [S.sub.t], where St is domestic subsidy per ton of corn.

Under the current domestic subsidy program, it is assumed that production decisions depend upon the support price (P.sup.S.sub.t]) rather than the market price, while domestic consumption of corn is influenced by the market price of corn and the average price of industrial outputs produced from corn. Carryover stocks are specified as a function of [P.sub.t-1]. Increased market price lagged one period reduces domestic consumption of corn and increases carry-over stocks.

U.S. export supply of corn is equal to the difference in the quantity of corn between total U.S. supply, which is domestic production ([S.sup.US.sub.t]) plus carry-over stocks for the previous period ([CS.sup.US.sub.t-1]), and total domestic consumption ([D.sup.US.sub.t]) plus carry-over stocks to the next period. Thus, the U.S. export supply of corn is

(4) [X.sup.US.sub.t] = [S.sup.US.sub.t] + [CS.sup.US.sub.t] - [D.sup.US.sub.t-1]

= ([[alpha].sub.0] - [[beta].sub.0] - [[beta].sub.2] [P.sup.l.sub.t] [[beta]./sub.3] [P.sup.L.sub.t] + [[gamma].sub.1] [P.sub.t-1]])

+ [alpha].sub.1] [S.sub.t] + ([[alpha].sub.1] + [[beta].sub.1] + [[gamma].sub.1])[P.sub.t].

This equation indicates that U.S. exports of corn are positively related to the level of the domestic subsidy and market price.

Assuming that the U.S. market price of corn is equal to the world price, the aggregate export supply of corn from other exporting countries and the aggregate import demand are specified as:

(5) [X.sup.W.sub.t] = [e.sub.0] + [e.sub.1][P.sub.t]

(6) [M.sup.W.sub.t] = [m.sub.0] - [m.sub.1][P.sub.t] + [m.sub.2][Y.sub.t]

where [X.sup.W.sub.t] and [M.sup.W.sub.t] are the aggregate export supply and import demand for corn, respectively. [Y.sub.t] is the average per capita income in all importing countries.

Assuming that [P.sup.l.sub.t], [S.sub.t], [Y.sub.t], and [P.sub.t-1] are exogenous, the equilibrium condition for the world corn market is

(7) [x.sup.US.sub.t] + [X.sup.W.sub.t] = [M.sup.W.sub.t]

Substituting equations (4)-(6) into (7) yields the world price ([P.sub.t]), as follows:

(8) [P.sub.t] = [m.sub.0] - [e.sub.0] [[alpha].sub.0] + [[beta].sub.0] + [[beta].sub.2][P.sub.l.sub.t]] + [[beta].sub.3][P.sup.L.sub.t] - [[gamma].sub.1][P.sub.t-1] + [m.sub.2][Y.sub.t] - [[alpha].sub.1][S.sub.t]/ [[alpha].sub.1] + [[beta].sub.1] + [e.sub.1] + [m.sub.1] - [[gamma].sub.1]

Since [S.sub.t] > 0, the U.S. domestic subsidy lowers the world price.

The empirical analysis of the U.S. corn industry and world trade is based on the model presented above under the current policy and free trade scenarios. We simulated the model using the elasticities presented in table 3. The elasticities are obtained through previous estimates and from the Food and Agricultural Policy Research Institute (FAPRI). The last two columns present results from simulations based on the current U.S. domestic subsidy (2005/2006) and free trade. Elimination of U.S. domestic subsidies causes U.S. corn production to decrease by 2%, from 282 to 277.2 mmt while domestic consumption decreases by 1% from 231.7 to 229.1 mmt, resulting in a decrease in U.S. exports of 5%. Reduced U.S. exports increase the world price by 5.7%, from $89.6 to $94.8 per ton. This results in an increase in the exports of other exporting countries from 27.7 to 28.2 mmt. However, world imports decrease from 75.7 to 74.3 mmt.

Given the actual levels of U.S. corn production and consumption in 2005/2006, total government spending for the corn program was $4,283 million (Sumner 2005) (table 4). Under this program, producers receive the support price, which is higher than the world price. Thus, producers in the United States benefit, with a producer surplus increase of $2,437.1 million under the current subsidy program. Since the world price is lower with the domestic subsidy as compared to free trade, U.S. consumers benefit with an increase in consumer surplus of $1,184.9 million. Thus, the net loss in U.S. social welfare resulting from the domestic subsidy program is $661.0 million.

Because of the downward pressure it puts on the world price, the U.S. domestic subsidy program penalizes other exporting countries with a net social welfare loss of $143.7 million. However, the program benefits importing countries, given that consumers pay a lower price for corn. The increase in net social welfare for importing countries is $385.8 million, which is to a large extent an income transfer from U.S. taxpayers to consumers in importing countries (areas M, N, and P in figure 1). Overall, the net loss in global welfare attributed to U.S. corn subsidies is $418.9 million.

Conclusions

The provision of subsidies by developed countries, including the United States, EU, and Japan, has been a contentious issue in the Doha round of WTO trade negotiations. This article has examined the impact of domestic and export subsidies on welfare distribution in both exporting and importing countries.

Our theoretical analysis indicates that both domestic and export subsidies distort trade flows of agricultural goods from exporting countries to importing countries. However, trade distortions are larger under export subsidy programs, similar to those that have been used by the EU, than under domestic subsidy programs used by the United States.

We also demonstrate that both domestic and export subsidies result in net welfare losses for the countries providing the subsidies. The impact for the ROW is mixed, with these subsidies increasing the net social welfare in importing countries and decreasing net social welfare in other exporting countries. However, regardless of whether a country is a net exporter or importer, the reduction in world prices resulting from subsidies benefits consumers while penalizing producers.

An empirical analysis shows that U.S. domestic subsidies for its corn industry results in a net loss in social welfare for the United States of $661.0 million, a net loss in social welfare for other exporting countries of $143.7 million, and an increase in the social welfare of importing countries of $385.8 million. Although consumers in importing countries experience considerable welfare gains, U.S. domestic corn subsidies result in a net reduction in global welfare of $418.9 million.

References

Abbott, RC., P.L. Paarlberg, and J.A. Sharpies. 1987. "Targeted Agricultural Export Subsidies and Social Welfare." American Journal of Agricultural Economics 69:723-32.

Alston, J.M., C.A. Carter, and V.H. Smith. 1993. "Rationalizing Agricultural Export Subsidies." American Journal of Agricultural Economics 75:1000-09.

Alston, J.M., C.A. Carter, and V.H. Smith. 1995. "Rationalizing Agricultural Export Subsidies: Reply." American Journal of Agricultural Economics 77:209-13.

Anania, G., M. Bohman, and C.A. Carter. 1992. "United States Export Subsidies in Wheat: Strategic Trade Policy or Beggar-Thy-Neighbor Tactic." American Journal of Agricultural Economics 74:534-45.

Bhagwati, J.N. 2004. In Defense of Globalization. New York: Oxford University Press.

Bohman, M., C.A. Carter, and J.H. Dorfman. 1993. "The Welfare Effects of Targeted Export Subsidies: A General Equilibrium Approach." American Journal of Agricultural Economics 75:693-702.

Brander, J.A., and B.J. Spencer. 1984. "Trade Warfare: Tariffs and Cartels." Journal of International Economics 16:227-42.

Food Agricultural Policy Research Institute. 2006. "Stochastic U.S. Corn Model." Columbia, Missouri: University of Missouri.

Gardner, B.L. 1995. "Rationalizing Agricultural Export Subsidies: Comment." American Journal of Agricultural Economics 77:205-08.

Houck, J.R 1992. Elements of Agricultural Trade Policies. Prospect Heights, IL: Waveland Press, Inc.

Koo, W.W., and EL. Kennedy. 2005. International Trade and Agriculture. Malden, MA: Blackwell Publishing.

Leathers, H.D. 2001. "Agricultural Export Subsidies as a Tool of Trade Strategy: Before and After the Federal Agricultural Improvement and Reform Act of 1996." American Journal of Agricultural Economics 83:209-21.

Stiglitz, J.E. 2002. Globalization and Its Discontents. New York: W.W. Norton & Co., Inc.

Sumner, D.A. 2005. Boxed In: Conflicts Between U.S. Farm Policies and WTO Obligations. Washington DC: Cato Institute.

Won W. Koo is Chamber of Commerce Distinguished Professor and Director, Center for Agricultural Policy and Trade Studies, in the Department of Agribusiness and Applied Economics at North Dakota State University. R Lynn Kennedy is the Crescent City Tiger Alumni Professor in the Department of Agricultural Economics and Agribusiness at Louisiana State University.

This article was presented in a principal paper session at the AAEA annual meeting (Long Beach, CA, July 2006). The articles in these sessions are not subjected to the journal's standard refereeing process. Table 1. Domestic Support for Agriculture by Category and Country

Amber Blue Country Year Box (AMS) De Minimis Box

Billion U.S. dollars United States 1995 6.2 1.49 7.0

1999 16.9 7.43 0.0

2000 16.8 7.34 0.0

2001 14.4 7.05 0.0 European Union 1995 64.4 1.06 26.9

1999 47.6 0.31 19.7

2000 38.9 0.50 19.8

2001 35.2 0.77 21.2 Japan 1995 36.4 0.38 0.0

1999 6.7 0.29 0.0

2000 6.4 0.29 0.0

2001 5.3 0.26 0.0

2002 6.0 0.36 0.0 Argentina 1995 0.1 0.00 0.0

1999 0.1 0.00 0.0

2000 0.1 0.00 0.0 Brazil 1995 0.0 0.30 0.0

1999 0.0 1.25 0.0

2000 0.0 1.05 0.0

2001 0.0 0.98 0.0

2002 0.0 1.02 0.0

2003 0.0 1.32 0.0 Mexico 1995 0.5 0.00 0.0

1998 1.3 0.00 0.0 Thailand 1995 0.6 0.00 0.0

1999 0.5 0.03 0.0

2000 0.5 0.10 0.0

2001 0.4 0.07 0.0 Hungary 1995 0.0 0.17 0.0

1999 0.3 0.24 0.0

2000 0.4 0.00 0.0

2001 0.6 0.01 0.0

2002 0.7 0.05 0.0 Poland 1995 0.3 0.00 0.0

1999 0.2 0.00 0.0

2000 0.3 0.00 0.0

2001 0.5 0.00 0.0

2002 0.4 0.00 0.0 India 1995 0.0 5.96 0.0

1997 0.0 1.00 0.0

Special &

Green Differential Country Box Treatment Total

Billion U.S. dollars United States 46.0 0 60.7

49.7 0 74.0

50.1 0 74.2

50.7 0 72.2 European Union 24.2 0 116.6

19.8 0 87.4

19.5 0 78.7

18.5 0 75.7 Japan 32.9 0 69.7

24.1 0 31.1

23.2 0 29.9

20.4 0 26.0

18.7 0 25.1 Argentina 0.1 0 0.2

0.3 0 0.4

0.3 0 0.4 Brazil 4.9 0.36 5.6

1.6 0.16 3.0

1.5 0.31 2.9

1.5 0.08 2.6

0.9 - 1.9

0.8 - 2.1 Mexico 0.8 0.64 1.9

0.5 0.13 1.9 Thailand 1.3 0.21 2.1

0.9 0.08 1.5

1.0 0.07 1.7

1.1 0.00 1.6 Hungary 0.1 0 0.3

0.1 0 0.6

0.1 0 0.5

0.2 0 0.8

0.2 0 1.0 Poland 0.4 0 0.7

0.6 0 0.8

0.6 0 0.9

0.7 0 1.2

0.7 0 1.1 India 2.2 0.25 8.4

2.9 5.17 9.1 Source: OECD Table 2. Total Export Subsidies by Country, 1995-2001(US$ million) Country 1995 1996 1997 1998 European Union 6,495.9 7,071.2 4,856.7 5,989.0 United States 25.6 121.5 112.2 146.7 Switzerland 454.6 392.1 294.5 292.8 Norway 83.9 77.9 99.9 76.9 Rest of World 263.7 223.0 192.0 162.4 Total 7,323.6 7,885.6 5,555.3 6,667.7 Country 1999 2000 (a) 2001 (a) European Union 5,853.7 2,516.6 2,297.1 United States 80.2 15.3 54.6 Switzerland 268.9 187.7 0.0 Norway 126.2 44.0 32.0 Rest of World 175.1 139.5 41.3 Total 6,504.1 2,903.1 2,425.0 (a) Not all countries have notified as vet for this year. Source: Economic Research Service (FRS) calculations from World Trade Organization (WTO) export subsidy notifications. http://www.ers.usda.gov/dh/wto. Table 3. The U.S. Corn Industry and World Trade under the U.S. Domestic Subsidies and Free Trade Scenarios

U.S. Domestic

Subsidies

Price Scenario Free Trade Category Elasticity (a) (2005/2006) Scenario United States

Domestic production 0.17 282,260 277,250

(1,000 metric tons)

Domestic consumption -0.18 231,663 229,118

(1,000 metric tons)

Exports (1,000 50,586 48,132

metric tons)

Carryover stocks -0.22

(1,000 metric tons)

World price/ton 89.63 94.78

Target price/ton 103.52

Avg. LDP rate/ton 16.14

CCP rate/ton 15.74

Direct payment/ton 11.02 11.02 Other exports 0.30 27,696 28,161

(1,000 metric tons) World imports -0.25 75,677 74,280

(1,000 metric tons) (a) Obtained from Food and Agricultural Policy Research Institute (FAPRI) and previous estimates. Table 4. Changes in Social Welfare under the U.S. Domestic Subsidies Compared to the Free Trade Scenario

Amount Item (Million U.S. Dollars) U.S. subsidy excluding direct 4,283.0

payment in 2005/2006 (a) Increase in U.S. producer 2,437.1

surplus Increase in U.S. consumer 1,184.9

surplus Net loss in U.S. social 661.00

welfare Increase in social welfare in 385.80

importing countries Decrease in social welfare 143.70

in exporting countries Loss in global welfare 418.90 (a) Summer (2005).