Commodity Policy Compatibility with Free Trade Agreements

Abstract

We analyze the effects of international market opening in the context of a variety of common agricultural commodity programs. We show that direct payments programs are more compatible and price support policies are less compatible removal of border barriers. The second half of the paper develops the implications for trade negotiations. We argue that internal subsidy program that distort trade will be disciplined by limits on import barriers and export measures and that devoting negotiating effort on direct sanctions for internal policies is likely to be counter productive.

JEL Classification: Q1, F1