A General Equilibrium Analysis of the Impact of Eliminating US Cotton Subsidies on US and World Cotton Market

Industrialized developed countries are blamed for the impasse in the Doha round of world trade negotiations by refusing to deal with their supports to agricultural sector. The OECD countries together annually spend about $300 Billion on agricultural subsidies. The US, EU and Japan alone account for almost 82 % of the subsidies. The US cotton subsidy, which has been ruled illegal by the WTO after a successful challenge from Brazil, Australia and four African countries, has become the target of domestic and international critics. This paper simulates the potential impacts of removing all the US cotton subsidy programs using the multiregion GTAP applied general equilibrium model. Results predict that, as a result of the removal of the subsidy, US cotton output would decrease by 26 % and US domestic price rises by 31%. The US cotton export is also expected to decline by 65 % and the world price of cotton is expected to rise by 5.6%. Other major cotton producers are expected to respond to the decrease in US output and exports and the higher world prices. Consequently, cotton output is expected to increas