Does the WTO Increase Trade? The Case of U.S. Cocoa Imports from WTO-Member Producing Countries

Market access to export cocoa beans in many cocoa producing countries has improved greatly due to trade liberalization in the cocoa sector. This has been accomplished through a variety of policy instruments, primarily structural adjustment programs (SAPs). In reducing or eliminating the role of state-owned and operated marketing and exporting boards, cocoa-producing countries have opened themselves up to foreign-owned corporate agribusiness exporting companies and producers have received a higher share of a lower world price. Trade liberalization was also accomplished through free trade agreements (FTAs) in a few countries from which the U.S. imports fewer cocoa beans than those that underwent SAPs. These major exporters also became World Trade Organization members in addition to the SAPs and FTAs. This study analyzes U.S. cocoa bean imports from ten major cocoa-producing and exporting countries during the pre- and post-liberalization period of 1970-2007 using the gravity equation and the one-way fixed effects model. The objective was to measure trade creation for a WTO member that has undergone trade liberalization. Cocoa beans can serve as a proxy for any tropical commodity upon which a developing country heavily relies on for export revenue, such as is the case with Côte d’Ivoire and cocoa, for example. Our results find FTAs and WTOs do contribute to increased U.S. cocoa bean imports at the one percent and ten percent confidence levels, respectively.