An Economic Analysis of a Troubled Relationship, Second Edition
Given the wave of liberalization and reform in the last three decades, restrictions on agricultural trade have declined from the high levels of the 1980s, even though barriers to agricultural trade remain significant in developed countries. Agriculture is protected by tariff barriers, production support and the use of export subsidies in many countries. Very few of these price distortions can be explained as being required to deal with market failures. Developed economies account for nearly 80 per cent of agricultural market distortions, as measured by world price effects. However, even among developed countries, support levels vary widely. In general – and unsurprisingly – support is smallest in countries that have efficient, export-oriented sectors (notably, Australia and New Zealand) and largest in those that are relatively inefficient and compete with imports (Japan, Korea, the EU). The EU accounts for 38 per cent of world price distortions, compared to Japan plus Korea (12 per cent), the US (16 per cent), and Canada (2 per cent). Among the numerous distortions in international agricultural trade, those imposed by the EU are the most disruptive, resulting in substantial welfare costs for the EU itself and for the world economy generally.
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