How significant are export subsidies to agricultural trade? Trade and welfare implications of global reforms

We analyze the impacts of removing export subsidies with or without reforms to domestic support and tariffs using a multi-country trade model and incorporating comprehensive per-unit export subsidies derived from WTO submissions. The analysis explores both the direct and the second best effects of policy distortions, giving particular focus to net food importers. Results show that the removal of export subsidies alone is welfare improving only for the subsidizing country and net exporters, but welfare reducing for net food importers who experience both worsening terms of trade and loss of allocative efficiency. Higher food prices reduce imports but increase welfare cost of import protection. Under scenario combining removal of export subsides, domestic subsidies and import barriers, most countries show welfare gain, including net food importers due to improved economic efficiency from removing own import barriers. This analysis shows that reducing export subsidies by themselves may not be beneficial for food importing countries as long as import barriers are also not addressed. That is, the potential welfare gains expected from trade liberalization are for a large part contingent on removing the fairly dominant domestic support and import trade barriers.