TARGETING OF U.S. AGRICULTURAL EXPORT SUBSIDIES: A THEORETICAL ANALYSIS

The United States has proposed that all direct and most indirect agricultural export subsidies be eliminated by the year 2000. Prospects for success depend on major agricultural exporters reaching a consensus that elimination of the subsidies would be mutually beneficial. This report illustrates a methodology that can be refined to show whether the United States has the power to influence other exporters, especially the European Community (EC). It is assumed that the United States seeks a consensus based on U.S. capacity to threaten to use targeted export subsidies to disrupt world wheat and corn markets to its own benefit. Preliminary results indicate that there are potentially large gains to a targeted subsidy program for wheat but probably not for corn. The marginal gain to a program involving more than $2.5 billion is likely to be small. If the EC decides to target its wheat subsidies in response to the U.S. program, it can more than offset the losses due to the U.S. program