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Effects Of Farm Programs On Gains From Canada-U.S. Wheat Trade

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  • Alston, Julian M.
  • Carter, Colin A.

Abstract

This paper explores the implications of domestic distortions arising from farm programs for the size and distribution of gains from bilateral trade liberalization and illustrates the ideas using the case of Canada-U.S. trade in durum wheat following the 1989 Canadian-U.S. Free Trade Agreement (CUSTA). The CUSTA resulted in increased sales of Canadian grain to the United States and the escalating trade resulted in a legal trade dispute. The conflict centered on the trade effects of domestic farm policy, because Canada and the United States have significantly different farm programs for major field crops. This paper argues that while the existence of farm programs will modify the size and distribution of the gains from trade, dissimilar farm programs may still permit increased trade volume and mutual benefits from freer trade. While disparate programs make implementing a free trade agreement difficult, we demonstrate that in the presence of existing farm programs, both countries can still gain from freer trade. In the case of durum wheat, Canada is likely to gain because the U.S. export subsidy program raises U.S. domestic prices and this makes it attractive for Canada to sell into the United States, rather than to third markets. The United States is likely to gain, too, in part because its export subsidy program is less costly than it would be in the absence of imports from Canada.

Suggested Citation

  • Alston, Julian M. & Carter, Colin A., 1993. "Effects Of Farm Programs On Gains From Canada-U.S. Wheat Trade," 1993 Annual Meeting, August 1-4, Orlando, Florida 271410, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea93:271410
    DOI: 10.22004/ag.econ.271410
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    References listed on IDEAS

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    1. Giancarlo Moschini & Karl D. Meilke, 1992. "Production Subsidy and Countervailing Duties in Vertically Related Markets: The Hog-Pork Case Between Canada and the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 951-961.
    2. Julian M. Alston & Colin A. Carter & Vincent H. Smith, 1993. "Rationalizing Agricultural Export Subsidies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 1000-1009.
    3. Stallings, David A., 1990. "Increased Protection in the 1980's: Exchange Rates and Institutions," 1990: The Environment, Government Policies, and International Trade Meeting, December 1990, San Diego, CA 50885, International Agricultural Trade Research Consortium.
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    1. Alston, Julian M. & Gray, Richard S. & Sumner, Daniel A., 2001. "Wheat Disputes Under Nafta," Proceedings of the 6th Agricultural and Food Policy Systems Information Workshop, 2000: Trade Liberalization Under NAFTA: Report Card on Agriculture 16842, Farm Foundation, Agricultural and Food Policy Systems Information Workshops.

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