What ’ s the Appropriate Agricultural Protection Counterfactual for Trade Analysis ?

Abstract

Most traditional analyses of trade reform assume that protection rates will—in the absence of the reform being considered—remain at their initial level. This is appropriate in many cases, including when protection tends to be stable over time, and when the evolution of protection cannot realistically be predicted. But, in many cases, such as agricultural trade as economies develop, the pattern of protection moves in ways that seem amenable to prediction using available political-economy models. This paper first surveys the evidence on the evolution of agricultural protection over time. It then examines the available theories for explaining changes in rates of protection. Building on these theories, it provides projections of future agricultural distortions. Finally, it considers the economic costs associated with projections of agricultural distortions. The results suggest that the value of commitments—such as those under the Doha proposals—to restrain agricultural protection to specified levels are likely to be of much greater value than would be implied by the standard assumptions about counterfactual rates of protection. If the expected results of the negoiations come to pass, it seems likely that the value of any agreement to bind staff in the future would be fairly difficult to achieve. Study of these proposals may, however, be useful because of the lessons it provides for future negotioans