Effects of WTO export subsidy abolition and tariff rate reduction on agriculture on global and national level

Commitments by the EU in multilateral trade negotiations have diverse effects on the member countries and especially their prospects in agricultural production. Each of the details in the current agricultural negotiations within the WTO have an impact on country level production possibilities and this raises a real interest for single farmers and their representatives to get information on the transmittance of global commitments to national decision making, either in production possibilities or support programmes. GTAP framework is a well-known approach in the analysis of global trade liberalisation. Changes in world market prices have repercussions on national production and consumption decisions thus producing a new equilibrium with altered production and consumption patterns. Considering agriculture and use of agricultural land, the consequences of changing trade flows and product prices, as well as consequences of possibly changing support levels for agriculture, are important to be analysed also at national and regional level. The DREMFIA sector model (Lehtonen 2001) is utilised to investigate the medium-term impacts of the policy changes in production, input use, incomes, and structure of Finnish agricultural sector. The model is disaggregated in 4 main regions and 18 smaller regions which facilitate a very detailed representation of agricultural policy and use of region specific information of agricultural production. Relevant EU level price changes, which are exogenous in the DREMFIA model, are derived from the GTAP model. In this paper some of the scenarios in the WTO negotiations are taken as examples of international commitments whose effects are studied on the national level. We rely mostly on the commitment in December 2005 Ministerial meeting where the WTO members engaged in removing agricultural export subsidies by 2013. This scenario has bee also analysed in isolation from other negotiation chapters in our previous paper (Kerkelä, Lehtonen and Niemi 2005). Apart from that we shortly include one of the tariff reduction scenarios into the analysis. Both the tariff cuts as well as export subsidy abolition show decreasing prices and production for the EU members in agricultural production. Giving these price decreases as shocks to Dremfia model give negative output responses exceeding those of coming from the GTAP model. Still, the drastic output decline is dampened when short run and long run price effects are taken separately to the Dremfia model.