Effects of the WTO and Free Trade Agreements on Japonica Rice Markets

Three trade policy changes underway and on the horizon have the prospect to alter global markets for japonica rice. This paper considers likely global market effects of expansion of access into the market in Japan and Korea, and reduced subsidy for japonica rice (among other crops) in the United States. We consider these policy changes in the context of a proposed Doha Development Agenda WTO agreement and one potential outcome of the proposed Free Trade Agreement between Korea and the United States (KUS-FTA). We use an equilibrium displacement model to ask how market prices, quantities and other aggregates change as a result of policy changes. The global model includes six aggregates in the world market, China, Korea, Japan, the United States, other exporters and other importers. Under the WTO scenario that U.S. subsidies decrease by 25 percent in addition to the full implementation of quota expansion in Korea and Japan, our results indicate that: 1) U.S. production falls by about 16 percent, and U.S. exports fall by about 51 percent, 2) the world price rises by about 1 percent, and 3) China's exports increase about 43 percent. If no WTO agreement occurs, there would be no expansion of Japan's imports and no reduction in U.S. rice subsidy even though Korea must still expand its WTO-multilateral quota. A KUS-FTA is likely to add a country-specific U.S. quota of another 4 percent of domestic consumption. In this case, world prices rise by only 0.3 percent. In general, world price effects are small and this is mainly due to the strong Chinese supply response. However, it is important to note that the associated changes in Chinese japonica rice production are at most about one percent of the Chinese baseline production. This implies the dominant role of China in the world japonica rice market.