CONSUMER FINANCED EXPORT SUBSIDIES AND THE AGREEMENT ON AGRICULTURE

Current agricultural trade negotiations under the auspices of the World Trade Organization (WTO) call for an elimination of export subsidies. However, the current language in the Uruguay Round Agreement on Agriculture omits an important implicit export subsidy in the form of price discrimination with or without revenue pooling. We develop a general theoretical framework that identifies these implicit exports subsidies and the associated production and consumption distortions. Using the U.S. dairy sector, which has elements of both infra-marginal support and price discrimination with revenue pooling, as an empirical example, we show the distortions resulting from such policies are significant.