## Trade Issues in the Doha Round: Dispelling Some Misconceptions ## Source details **Canonical URL:** [Trade Issues in the Doha Round: Dispelling Some Misconceptions](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/pdp/2006/_pdp04.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/pdp/2006/_pdp04.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/pdp/2006/_pdp04.pdf.json) --- ### Introduction: scope and headline findings - The World Bank estimated that a plausible outcome to the Doha Round could generate gains in real income for all countries of close to US$100 billion in 2015, with about one-fifth accruing to developing countries. - This represents only about one-third of the total gains that could result from removal of all trade barriers by all countries. - Dynamic effects of trade liberalization are not captured in these estimates and could be very large. - Four central misconceptions addressed: - Developing countries would benefit more from liberalization by rich countries than from their own liberalization. - Multilateral tariff reductions would wipe out a large portion of trade between rich countries and developing countries because of preference erosion. - Agricultural subsidies in OECD countries are more damaging than tariffs. - Agricultural subsidy recipients in rich countries are predominantly small, low-income farmers. ### Developing countries stand to gain from their own reforms - Import barriers discourage exports: - Import tariffs create a bias against exports by raising domestic prices of imports relative to exports (equivalent to a tax on exports) and increase costs of imported intermediate inputs. - Duty drawback schemes can mitigate this bias but can be difficult to administer. - Empirical findings on export-tax equivalents: - Tokarick (2006) studied 26 low-income countries and found that, on average, import tariffs were equivalent to about a 12½ percent tax on their exports. - 4 of these countries had export-tax equivalents between 26 and 34 percent. - Nontariff barriers (NTBs) and informal barriers imply the actual bias against exports is likely larger. - Policy design for tariff reductions: - To maximize benefits, countries should reduce higher tariffs by more than lower ones and avoid exempting sectors from reductions. - At the WTO Ministerial Meeting in Hong Kong SAR in December 2005, countries agreed in principle to reduce higher tariffs by a larger percentage than lower ones on non-agricultural products. - Impact on real income and distribution of gains: - Small countries gain from tariff reductions via efficiency improvements without terms-of-trade losses. - Large countries face efficiency gains but terms-of-trade deterioration; net effects depend on magnitudes. - Anderson, Martin, and van der Mensbrugghe (2005) estimate that if all trade barriers were eliminated, real income in developing countries would increase by US$86 billion, and half of this amount (US$43 billion) comes from their own liberalization. - For high-income countries, 58 percent (116 out of 201) of gains come from their own reform. - If regions have very little ability to influence their terms of trade, the proportion of gains from their own reforms could be as high as 90 percent (Tokarick (2005) on eliminating tariffs and subsidies on agricultural goods). - Political economy constraints: - Reluctance to unilaterally reduce tariffs can stem from reliance on tariff revenue and distributional effects creating “gainers” and “losers” that can block reforms. ### Preference erosion: magnitude and distribution of effects - Public concern example: - EU Commissioner Peter Mandelson warned that “a tariff-cutting spree in Europe of the sort being demanded [referring to the U.S. proposal] would spell disaster, wiping out a possible two-thirds of their agricultural trade with Europe.” - Evidence and key mitigating points: - Preferences may be less generous than they appear: average tariffs applied against exports from non-African LDCs in U.S. and EU markets are higher than tariffs applied against other developing countries (Amiti and Romalis, 2006). - Value of preferences relative to exports: - For sub-Saharan Africa, the value of preferences is 4 percent of their exports to the EU market, about 1½ percent of their exports to the U.S. market, and only one-tenth of one percent of their exports to Japan (Brenton and Ikezuki, 2005). - Concentration of benefits: - For sub-Saharan Africa, 80 percent of benefits from the EU’s preference schemes and 95 percent of benefits from the U.S.’s schemes go to 10 countries. - For LDCs as a whole, 91 percent of benefits from the EU’s schemes and 100 percent of benefits from the U.S. schemes go to 10 countries (Brenton and Ikezuki, 2005). - Product concentration: - The EU’s schemes apply broadly, but three products account for 56 percent of the EU’s preference schemes; three products account for 80 percent of the U.S.’s schemes (Brenton and Ikezuki, 2005). - Compliance costs and utilization: - Francois, Hoekman, and Manchin (2005) estimate compliance costs at about 4 percent of exports on average. - The average preference margin reported in Hoekman, Martin, and Braga (2005) is less than 4 percent on average across preference-receiving countries. - In 2001, utilization rate for LDCs of the U.S. GSP was 96 percent; for the EU’s GSP scheme it was 47 percent (UNCTAD, 2003). Utilization rates are higher if the EU’s ACP preferences are included. - Quantitative assessments of preference erosion: - Subramanian (2003): - A 40 percent cut in MFN tariffs in Quad countries would lead to a reduction in exports from LDCs of 2 percent on average. - Country-specific potential losses: Malawi (11½ percent), Mauritania (9 percent), Cape Verde (6¼ percent), São Tomé and Principe (5¼ percent), and Tanzania (4½ percent). - Losses could be mitigated by phased implementation, allowing adjustment time. - Alexandraki and Lankes (2004): - A 40 percent reduction in MFN tariffs would produce small aggregate losses for middle-income countries but large losses for some (particularly small island countries exporting bananas, sugar, textiles and garments). - Examples: Mauritius could suffer a reduction in export earnings of nearly 20 percent; Seychelles (7¾ percent); Swaziland (5¾ percent); Tunisia, Côte d’Ivoire, and Morocco (4¼ percent each). - Estimates may understate losses because they did not incorporate the phase out of textile quotas in 2005. - Amiti and Romalis (2006) extended prior work by estimating effects of three types of tariff reductions on products exported by LDCs that do not currently receive preferential treatment: - Uniform 40 percent cut in the United States and the European Union. - Exempting the three highest tariff lines from reductions. - A formula cutting higher tariffs by a larger percentage. ### Main results from tariff-cutting scenarios - A 40 percent cut in tariffs yields an increase in export earnings in the U.S. and EU markets for all country groupings except African LDCs. - Losses for African LDCs average about one-tenth of one percent of their exports. - Countries that could experience large reductions in export earnings include Lesotho and Cape Verde. - Non-African LDCs would enjoy the largest percentage increase in market access to the combined U.S. and EU markets: 8½ percent, under all three tariff-cutting scenarios. - Gains in market access for all country groupings are reduced if there were no reductions on goods facing the highest tariff rates (the highest three percent of tariff lines). - Largest gains for all countries would occur under a tiered-reduction formula: a reduction in average tariffs in the European Union of 50 percent and an average reduction in the United States of 47 percent. - Some countries would suffer losses regardless of the type of tariff reductions: Cape Verde, Equatorial Guinea, Haiti, Lesotho, Madagascar, Mauritania, and Senegal. - Dominica and St. Lucia could suffer losses between 20 and 40 percent as a result of lower banana exports. ### Estimates of income effects from other studies - Francois, Hoekman, and Manchin (2005): tariff elimination in OECD countries would reduce real income for LDCs by US$110 million; after adjusting for compliance costs, multilateral tariff reductions could generate a small gain in real income for LDCs in sub-Saharan Africa of US$6.3 million. - Anderson, Martin, and van der Mensbrugghe (2005): plausible Doha outcome could affect sub-Saharan Africa real income in a range from a loss of US$200 million to a gain of US$1.2 billion. ### Policy response: Trade Integration Mechanism (TIM) - In 2004, the IMF introduced the trade integration mechanism (TIM) to support countries that experience a reduction in export earnings as a consequence of multilateral trade liberalization, by making resources more predictably available under existing IMF arrangements. - Assistance under this policy is limited to multilateral liberalization and does not cover adverse effects arising from unilateral liberalization. ### Agriculture: tariffs versus subsidies — overview - Purpose: clarify that agricultural tariffs in OECD countries have a much larger impact on developing countries than subsidies, except for subsidies applied to the production of cotton. - Production subsidies in OECD countries harm developing countries to a small degree; export subsidies actually benefit developing countries in aggregate because they reduce imported goods' prices in importing countries. - Export subsidies benefit consumers but harm producers in importing countries; despite aggregate benefits to importers, export subsidies are a source of inefficiency and are not recommended for retention on that basis. ### Subsidy data (OECD PSEs) - OECD “producer support estimates” (PSEs) classify support into eight categories; “market price support” measures assistance provided by altering prices (import tariffs, export subsidies, quantitative restrictions). - Market price support accounted for about 60 percent of the aggregate PSE for OECD countries in 2004. - Market price support fell from about 67 percent of producer support in 1999 to about 60 percent in 2004. - In 2004, import tariffs accounted for nearly all of the market price support component; export subsidies were used by only a few countries (namely the European Union). - Out of total support to agricultural producers in OECD countries of US$280 billion in 2004, export subsidies accounted for no more than about US$6 billion. ### Economic impact of tariffs and subsidies in agriculture - Import tariffs and export subsidies alter both the price paid by the consumer and the price received by the producer; production subsidies alter only the producer margin. - Hertel and Keeney (2006): removal of all tariffs on agricultural goods would account for 93 percent of the global gain in real income from eliminating all forms of agricultural support. - For both high-income and developing countries, tariff removal would deliver much larger gains than removal of either export or production subsidies. - Removal of export subsidies would harm developing countries that are importers of subsidized products because it would raise import prices; aggregate effects mask heterogeneous country-level impacts (export-competing countries gain; importers lose). ### Cotton: an important exception - Cotton is one of the few commodities subsidized and exported by OECD countries (mainly the United States) and exported by several low-income countries (e.g., countries in West Africa and Brazil). - Cotton subsidies in OECD countries depress international prices and export earnings of cotton-exporting countries. - Tariffs on cotton imports in OECD countries would also depress world prices but are low; subsidies have larger quantitative effects. - Empirical estimates of world-price effects from removing U.S. cotton subsidies vary: - Tokarick (2003): removing U.S. cotton subsidies in 2000 would raise the world price by about 3 percent. - Overseas Development Institute (2004): world price increases of 20 percent or more. - Anderson, Martin, and Valenzuela (2005): removal of all cotton subsidies would boost real income for sub-Saharan Africa by US$147 million, relative to 2001; developing countries as a group would experience a reduction in real income of US$182 million because cotton-importing countries (Latin America and south Asia, especially Bangladesh and India) would be harmed by higher world prices. ### Who receives agricultural subsidies? — United States - Since the late 1980s, U.S. government payments have shifted to larger farms and higher-income farmers. - 2004 distribution highlights: - Smallest farms (production of US$50,000 per year or less) accounted for about 73 percent of all farms and received 15¾ percent of government payments. - Farms with production value in excess of $250,000 made up only 9¼ percent of all farms and received 57½ percent of government payments. - Table 1 key series (selected): - < 50,000 U.S. dollars: Share of all farms (in percent) — 2004: 73.1; Share of all Payments (in percent) — 2004: 15.7. - > 250,000 U.S. dollars: Share of all farms (in percent) — 2004: 9.3; Share of all Payments (in percent) — 2004: 57.6. - Income levels of recipients rose faster than incomes of entire U.S. population (Table 2 highlights): - Government payments distribution, 50th percentile (median) household income in 2003: 75,772; 1989-2003 percent change: 65.4. - Government payments distribution, 75th percentile household income in 2003: 160,142; 1989-2003 percent change: 69.0. - Government payments distribution, 90th percentile household income in 2003: 342,918; 1989-2003 percent change: 81.3. - All U.S. Households, 50th percentile (median) household income in 2003: 43,318; 1989-2003 percent change: 1.0. - All U.S. Households, 90th percentile household income in 2003: 118,200; 1989-2003 percent change: 9.9. ### Who receives agricultural subsidies? — European Union - Government support in the European Union is highly skewed toward larger, wealthier farms. - Table 3 selected 2003 figures: - Sales of Farms < 10,000 EUR: Share of all farms (in percent) — 86.8; Share of all Payments (in percent) — 27.6. - Sales of Farms > 10,000, but < 100,000 EUR: Share of all farms (in percent) — 12.9; Share of all Payments (in percent) — 60.2. - Sales of Farms > 100,000, but < 500,000 EUR: Share of all farms (in percent) — 0.3; Share of all Payments (in percent) — 10.4. - Sales of Farms > 500,000 EUR: Share of all farms (in percent) — 0.01; Share of all Payments (in percent) — 1.80. - Farms with 100,000 EUR in sales or more per year in 2003—representing less than ½ of one percent of the total number of farms—received about 12 percent of all government payments; about 87 percent of European farmers in 2003 (sales of 10,000 EUR or less) received about 28 percent of government payments. ### Conclusions: clarified misconceptions - Developing countries have much to gain from reducing their own barriers to trade; their well-being does not hinge exclusively on trade reforms in rich countries. - Preference erosion is not a legitimate rationale for rejecting ambitious tariff-cutting proposals; size of losses from multilateral tariff reductions would be nowhere near the magnitude suggested by the European Union. - Attention given to farm subsidies is misplaced: import tariffs are far more detrimental to developing countries than subsidies, with the exception of cotton. - Large, wealthy farmers receive a disproportionately large share of government support in the United States and the European Union. *Prepared by Stephen Tokarick, IMF Policy Discussion Paper PDP/06/4, August 2006.* ### Section 1 ### Trade Issues in the Doha Round: Dispelling Some Misconceptions ### Introduction: scope and headline findings - The World Bank estimated that a plausible outcome to the Doha Round could generate gains in real income for all countries of close to US$100 billion in 2015, with about one-fifth accruing to developing countries. - This represents only about one-third of the total gains that could result from removal of all trade barriers by all countries. - Dynamic effects of trade liberalization are not captured in these estimates and could be very large. - The paper addresses four central misconceptions: - Developing countries would benefit more from liberalization by rich countries than from their own liberalization. Research shows developing countries have much to gain from their own reforms. - Multilateral tariff reductions would wipe out a large portion of trade between rich countries and developing countries because of preference erosion. Research shows aggregate erosion is small and affects only a few countries/products. - Agricultural subsidies in OECD countries are more damaging than tariffs. In fact, import tariffs in OECD countries harm developing countries much more than production or export subsidies (with the exception of cotton); export subsidies can lower prices for importing developing countries. - Agricultural subsidy recipients in rich countries are disproportionately large, wealthy farmers, not predominantly small, low-income farmers. ### Developing countries stand to gain from their own reforms - Import barriers discourage exports: - Import tariffs create a bias against exports by raising domestic prices of imports relative to exports (equivalent to a tax on exports) and increase costs of imported intermediate inputs. - Duty drawback schemes can mitigate this bias but can be difficult to administer. - Empirical findings on export-tax equivalents: - Tokarick (2006) studied 26 low-income countries and found that, on average, import tariffs were equivalent to about a 12½ percent tax on their exports. - 4 of these countries had export-tax equivalents between 26 and 34 percent. - Nontariff barriers (NTBs) and informal barriers (e.g., high port and internal transportation charges) imply the actual bias against exports is likely larger. - Policy design for tariff reductions: - To maximize benefits, countries should reduce higher tariffs by more than lower ones and avoid exempting sectors from reductions. - At the WTO Ministerial Meeting in Hong Kong SAR in December 2005, countries agreed in principle to reduce higher tariffs by a larger percentage than lower ones on non-agricultural products. - Impact on real income and distribution of gains: - Small countries (unable to influence terms of trade) gain from tariff reductions via efficiency improvements without terms-of-trade losses. - Large countries face efficiency gains but terms-of-trade deterioration; net effects depend on magnitudes. - Anderson, Martin, and van der Mensbrugghe (2005) estimate that if all trade barriers were eliminated, real income in developing countries would increase by US$86 billion, and half of this amount (US$43 billion) comes from their own liberalization. - For high-income countries, 58 percent (116 out of 201) of gains come from their own reform. - If regions have very little ability to influence their terms of trade, the proportion of gains from their own reforms could be as high as 90 percent (Tokarick (2005) on eliminating tariffs and subsidies on agricultural goods). - Political economy constraints: - Reluctance to unilaterally reduce tariffs can stem from reliance on tariff revenue and distributional effects creating “gainers” and “losers” that can block reforms. ### Preference erosion: magnitude and distribution of effects - Public concern example: - EU Commissioner for External Trade Peter Mandelson warned that “a tariff-cutting spree in Europe of the sort being demanded [referring to the U.S. proposal] would spell disaster, wiping out a possible two-thirds of their agricultural trade with Europe.” - Evidence and key points weighing against large aggregate harm: - Preferences may be less generous than they appear: Amiti and Romalis (2006) note average tariffs applied against exports from non-African LDCs in U.S. and EU markets are higher than tariffs applied against other developing countries. - Value of preferences relative to exports: - For sub-Saharan Africa, the value of preferences is 4 percent of their exports to the EU market, about 1½ percent of their exports to the U.S. market, and only one-tenth of one percent of their exports to Japan (Brenton and Ikezuki, 2005). - Concentration of benefits: - For sub-Saharan Africa, 80 percent of benefits from the EU’s preference schemes and 95 percent of benefits from the U.S.’s schemes go to 10 countries. - For LDCs as a whole, 91 percent of benefits from the EU’s schemes and 100 percent of benefits from the U.S. schemes go to 10 countries (Brenton and Ikezuki, 2005). - Product concentration: - The EU’s schemes apply broadly, but three products account for 56 percent of the EU’s preference schemes; three products account for 80 percent of the U.S.’s schemes (Brenton and Ikezuki, 2005). - Compliance costs: - Francois, Hoekman, and Manchin (2005) estimate compliance costs at about 4 percent of exports on average. - The average preference margin reported in Hoekman, Martin, and Braga (2005) is less than 4 percent on average across preference-receiving countries (but larger in some cases). - Utilization rates: - In 2001, utilization rate for LDCs of the U.S. Generalized System of Preferences (GSP) was 96 percent, but for the EU’s GSP scheme it was only 47 percent (UNCTAD, 2003). Utilization rates are higher if the EU’s ACP preferences are included. - Quantitative assessments of preference erosion: - Subramanian (2003): - A 40 percent cut in MFN tariffs in Quad countries (United States, Canada, European Union, and Japan) would lead to a reduction in exports from LDCs of 2 percent on average. - Some sub-Saharan African countries could suffer significant losses: Malawi (11½ percent), Mauritania (9 percent), Cape Verde (6¼ percent), São Tomé and Principe (5¼ percent), and Tanzania (4½ percent). - These losses could be mitigated by phased implementation, allowing adjustment time. - Alexandraki and Lankes (2004): - A 40 percent reduction in MFN tariffs would produce small aggregate losses for middle-income countries but large losses for some (particularly small island countries exporting bananas, sugar, textiles and garments). - Examples: Mauritius could suffer a reduction in export earnings of nearly 20 percent; Seychelles (7¾ percent); Swaziland (5¾ percent); Tunisia, Côte d’Ivoire, and Morocco (4¼ percent each). - Estimates may understate losses because they did not incorporate the phase out of textile quotas in 2005. - Amiti and Romalis (2006) extend prior work by estimating effects of three types of tariff reductions (uniform 40 percent cut in the United States and the European Union; exempting the three highest tariff lines from reductions; and a formula cutting higher tariffs by a larger percentage) on products exported by LDCs that do not currently receive preferential treatment. *Prepared by Stephen Tokarick, IMF Policy Discussion Paper PDP/06/4, August 2006.* ### Section 2 ### _pdp04 - Section 2 ### Main results from tariff-cutting scenarios - A 40 percent cut in tariffs yields an increase in export earnings in the U.S. and EU markets for all country groupings except African LDCs. - Losses for African LDCs average about one-tenth of one percent of their exports. - Countries that could experience large reductions in export earnings: Lesotho and Cape Verde. - Non-African LDCs would enjoy the largest percentage increase in market access to the combined U.S. and EU markets: 8½ percent, under all three tariff-cutting scenarios. - Gains in market access for all country groupings are reduced if there were no reductions on goods facing the highest tariff rates (the highest three percent of tariff lines). - Largest gains for all countries would occur under a tiered-reduction formula: a reduction in average tariffs in the European Union of 50 percent and an average reduction in the United States of 47 percent. - Some countries would suffer losses regardless of the type of tariff reductions: Cape Verde, Equatorial Guinea, Haiti, Lesotho, Madagascar, Mauritania, and Senegal. - Dominica and St. Lucia could suffer losses between 20 and 40 percent as a result of lower banana exports. ### Estimates of income effects from other studies - Francois, Hoekman, and Manchin (2005): tariff elimination in OECD countries would reduce real income for LDCs by US$110 million; after adjusting for compliance costs, multilateral tariff reductions could generate a small gain in real income for LDCs in sub-Saharan Africa of US$6.3 million. - Anderson, Martin, and van der Mensbrugghe (2005): plausible Doha outcome could affect sub-Saharan Africa real income in a range from a loss of US$200 million to a gain of US$1.2 billion. ### Policy response: Trade Integration Mechanism (TIM) - In 2004, the IMF introduced the trade integration mechanism (TIM) to support countries that experience a reduction in export earnings as a consequence of multilateral trade liberalization, by making resources more predictably available under existing IMF arrangements. - Assistance under this policy is limited to multilateral liberalization and does not cover adverse effects arising from unilateral liberalization. ### Agriculture: tariffs versus subsidies — overview - Purpose: clarify that agricultural tariffs in OECD countries have a much larger impact on developing countries than subsidies, except for subsidies applied to the production of cotton. - Production subsidies in OECD countries harm developing countries to a small degree; export subsidies actually benefit developing countries in aggregate because they reduce imported goods' prices in importing countries. - Export subsidies benefit consumers but harm producers in importing countries; despite aggregate benefits to importers, export subsidies are a source of inefficiency and are not recommended for retention on that basis. ### Subsidy data (OECD PSEs) - OECD “producer support estimates” (PSEs) classify support into eight categories; “market price support” measures assistance provided by altering prices (import tariffs, export subsidies, quantitative restrictions). - Market price support accounted for about 60 percent of the aggregate PSE for OECD countries in 2004. - Market price support fell from about 67 percent of producer support in 1999 to about 60 percent in 2004. - In 2004, import tariffs accounted for nearly all of the market price support component; export subsidies were used by only a few countries (namely the European Union). - Out of total support to agricultural producers in OECD countries of US$280 billion in 2004, export subsidies accounted for no more than about US$6 billion. ### Economic impact of tariffs and subsidies in agriculture - Import tariffs and export subsidies alter both the price paid by the consumer and the price received by the producer; production subsidies alter only the producer margin. - Hertel and Keeney (2006): removal of all tariffs on agricultural goods would account for 93 percent of the global gain in real income from eliminating all forms of agricultural support. - For both high-income and developing countries, tariff removal would deliver much larger gains than removal of either export or production subsidies. - Removal of export subsidies would harm developing countries that are importers of subsidized products because it would raise import prices; aggregate effects mask heterogeneous country-level impacts (export-competing countries gain; importers lose). ### Cotton: an important exception - Cotton is one of the few commodities subsidized and exported by OECD countries (mainly the United States) and exported by several low-income countries (e.g., countries in West Africa and Brazil). - Cotton subsidies in OECD countries depress international prices and export earnings of cotton-exporting countries. - Tariffs on cotton imports in OECD countries would also depress world prices but are low; subsidies have larger quantitative effects. - Empirical estimates of world-price effects from removing U.S. cotton subsidies vary widely: - Tokarick (2003): removing U.S. cotton subsidies in 2000 would raise the world price by about 3 percent. - Overseas Development Institute (2004): world price increases of 20 percent or more. - Anderson, Martin, and Valenzuela (2005): removal of all cotton subsidies would boost real income for sub-Saharan Africa by US$147 million, relative to 2001; developing countries as a group would experience a reduction in real income of US$182 million because cotton-importing countries (Latin America and south Asia, especially Bangladesh and India) would be harmed by higher world prices. ### Who receives agricultural subsidies? — United States - Since the late 1980s, U.S. government payments have shifted to larger farms and higher-income farmers. - 2004 distribution highlights: - Smallest farms (production of US$50,000 per year or less) accounted for about 73 percent of all farms and received 15¾ percent of government payments. - Farms with production value in excess of $250,000 made up only 9¼ percent of all farms and received 57½ percent of government payments. - Table 1 key series (selected): - < 50,000 U.S. dollars: Share of all farms (in percent) — 2004: 73.1; Share of all Payments (in percent) — 2004: 15.7. - > 250,000 U.S. dollars: Share of all farms (in percent) — 2004: 9.3; Share of all Payments (in percent) — 2004: 57.6. - Income levels of recipients rose faster than incomes of entire U.S. population (Table 2 highlights): - Government payments distribution, 50th percentile (median) household income in 2003: 75,772; 1989-2003 percent change: 65.4. - Government payments distribution, 75th percentile household income in 2003: 160,142; 1989-2003 percent change: 69.0. - Government payments distribution, 90th percentile household income in 2003: 342,918; 1989-2003 percent change: 81.3. - All U.S. Households, 50th percentile (median) household income in 2003: 43,318; 1989-2003 percent change: 1.0. - All U.S. Households, 90th percentile household income in 2003: 118,200; 1989-2003 percent change: 9.9. ### Who receives agricultural subsidies? — European Union - Government support in the European Union is highly skewed toward larger, wealthier farms. - Table 3 selected 2003 figures: - Sales of Farms < 10,000 EUR: Share of all farms (in percent) — 86.8; Share of all Payments (in percent) — 27.6. - Sales of Farms > 10,000, but < 100,000 EUR: Share of all farms (in percent) — 12.9; Share of all Payments (in percent) — 60.2. - Sales of Farms > 100,000, but < 500,000 EUR: Share of all farms (in percent) — 0.3; Share of all Payments (in percent) — 10.4. - Sales of Farms > 500,000 EUR: Share of all farms (in percent) — 0.01; Share of all Payments (in percent) — 1.80. - Farms with 100,000 EUR in sales or more per year in 2003—representing less than ½ of one percent of the total number of farms—received about 12 percent of all government payments; about 87 percent of European farmers in 2003 (sales of 10,000 EUR or less) received about 28 percent of government payments. ### Conclusions (four clarified misconceptions) - Developing countries have much to gain from reducing their own barriers to trade; their well-being does not hinge exclusively on trade reforms in rich countries. - Preference erosion is not a legitimate rationale for rejecting ambitious tariff-cutting proposals; size of losses from multilateral tariff reductions would be nowhere near the magnitude suggested by the European Union. - Attention given to farm subsidies is misplaced: import tariffs are far more detrimental to developing countries than subsidies, with the exception of cotton. - Large, wealthy farmers receive a disproportionately large share of government support in the United States and the European Union. *Source: _pdp04 - Section 2* ### Section 3 ### _pdp04 - Section 3 ### Government support structure - "This is due in part to the structure of government support, with payments being based on land area planted." ### References - Alexandraki, Katerina, and Hans-Peter Lankes, 2004, “The Impact of Preference Erosion on Middle-Income Developing Countries,” IMF Working Paper 04/169 (Washington: International Monetary Fund). - Amiti, Mary, and John Romalis, 2006, “Will the Doha Round Lead to Preference Erosion?” IMF Working Paper 06/10 (Washington: International Monetary Fund). - Anderson, Kym, and Ernesto Valenzuela, 2006, “WTO’s Doha Cotton Initiative: A Tale of Two Issues,” March (Washington: World Bank). - Anderson, Kym, William Martin, and Dominique van der Mensbrughhe, 2005, “Market and Welfare Implications of Doha Reform Scenarios,” in Agricultural Trade Reform and the Doha Development Agenda, ed. by Kym Anderson and Will Martin (Washington: World Bank). - Brenton, Paul, and Takako Ikezuki, 2006, “The Value of Trade Preferences for Africa,” in Trade, Doha, and Development: A Window into the Issues, ed. by Richard Newfarmer (Washington: World Bank). - Economic Research Service, various years, U.S. and State Farm Income Data, Washington: U.S. Department of Agriculture, Washington . Available via the Internet www.ers.usda.gov/data/FarmIncome/finfidmu.htm - European Commission, 2001-05, “The Agricultural Situation in the European Union,” Brussels. - Francois, Joseph, Bernard Hoekman, and Miriam Manchin, 2005, “Preference Erosion and Multilateral Trade Liberalization,” Policy Research Paper WPS3730, (Washington: World Bank). - Hertel, Thomas, and Roman Keeney, 2006, “What Is at Stake: The Relative Importance of Import Barriers, Export Subsidies, and Domestic Support,” in Agricultural Trade Reform and the Doha Development Agenda, ed. by Kym Anderson and Will Martin (Washington: World Bank). - Hoekman, Bernard, William Martin, and Carlos Braga, 2006, “Preference Erosion: The Terms of the Debate,” in Trade, Doha, and Development: A Window into the Issues, ed. by Richard Newfarmer (Washington: World Bank). - MacDonald, James, Hoppe, Robert, and David Banker, 2006, “Growing Farm Size and the Distribution of Farm Payments,” U.S. Department of Agriculture, Economic Brief No. 6 (Washington: Economic Research Service). - Mandelson, Peter, 2005, “Where Next for Doha,” The Wall Street Journal, November 3. available via the Internet: http://europa.eu.int/comm/commission_barroso/mandelson/speeches_articles. - .Organization for Economic Cooperation and Development, 2005, Agricultural Policies in OECD Countries: Monitoring and Evaluation (Paris: OECD). - Overseas Development Institute, 2004, “Understanding the Impact of Cotton Subsidies on Developing Countries and Poor People in Those Countries” (London: ODI). - Oxfam, 2002, “The Great EU Sugar Scam: How Europe’s Sugar Regime is Devastating Livelihoods in the Developing World,” Oxfam Briefing Paper 27 (London) . - Subramanian, Arvind, 2003, “Financing of Losses from Preference Erosion,” paper prepared for the World Trade Organization, WT/TF/COH/14 (Geneva: WTO). - Tokarick, Stephen, 2005, “Who Bears the Cost of Agricultural Support in OECD Countries?” The World Economy, Vol. 28, No. 4 (April), pp. 573-N93. - ________, 2006, “Does Import Protection Discourage Exports?” IMF Working Paper 06/20 (Washington: International Monetary Fund). - United Nations Conference on Trade and Development, UNCTAD, 2003, Trade Preferences for LDCs: An Early Assessment of Benefits and Possible Improvements, UNCTAD/ITCD/TSB/2003/8, New York and Geneva. *Source: _pdp04 - Section 3 — https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/pdp/2006/_pdp04.pdf* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/pdp/2006/_pdp04.pdf_