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A General Equilibrium Analysis of the Impact of Eliminating US Cotton Subsidies on US and World Cotton Market

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  • Wubeneh, Nega

Abstract

Industrialized developed countries are blamed for the impasse in the Doha round of world trade negotiations by refusing to deal with their supports to agricultural sector. The OECD countries together annually spend about $300 Billion on agricultural subsidies. The US, EU and Japan alone account for almost 82% of the subsidies. The US cotton subsidy, which has been ruled illegal by the WTO after a successful challenge from Brazil, Australia and four African countries, has become the target of domestic and international critics. This paper simulates the potential impacts of removing all the US cotton subsidy programs using the multiregion GTAP applied general equilibrium model. Results predict that, as a result of the removal of the subsidy, US cotton output would decrease by 26% and US domestic price rises by 31%. The US cotton export is also expected to decline by 65% and the world price of cotton is expected to rise by 5.6%. Other major cotton producers are expected to respond to the decrease in US output and exports and the higher world prices. Consequently, cotton output is expected to increase by 15% in Australia, by 10% in SSA, 5.2% in Brazil. The welfare effects indicate that, the US, Australia, SSA and Brazil are the major beneficiaries of this policy while Asian cotton importers and other subsidizing producers such as EU, the former USSR and Eastern European countries would lose from the implementation of the policy.

Suggested Citation

  • Wubeneh, Nega, 2006. "A General Equilibrium Analysis of the Impact of Eliminating US Cotton Subsidies on US and World Cotton Market," Conference papers 331502, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331502
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    References listed on IDEAS

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    1. Huang, Hsin & van Tongeren, Frank & Dewbre, Joe Dewbre, Joe & van Meijl, Hans, 2004. "A New Representation of Agricultural Production Technology in GTAP," Conference papers 330233, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Richard E. Howitt, 1995. "Positive Mathematical Programming," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 329-342.
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