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THE IMPACT OF TRADE LIBERALIZATION 47


drinking milk as well as manufacturing milk. The producer support estimate in 2003 for milk represented 77 percent of the value of production, an indica- tion that more than two-thirds of the value of Japanese milk production relies on government interventions either through barriers to imports or through subsidies to farmers (Obara, Dyck, and Stout 2005).


The United States created the Milk Income Loss Contract Program to pro- vide targeted countercyclical payments to small dairy farms. In addition, the United States uses foreign donation programs and casein production subsidies to reduce excessive stocks of surplus skim milk powder (Bailey 2005). The producer support estimate for the U.S. dairy sector is 45 percent, signifi- cantly lower than the estimate for Japan and somewhat lower than that for the E.U. (Turner 2005).


Canada’s dairy policy is a complex web of interrelated policies, programs, and people nested in a number of private and public institutions under the federal-provincial supply management marketing scheme; it results in a pro- ducer support estimate of around 60 percent (Stanbury 2002).


Expected Effects of Trade Liberalization on World Prices Although studies on the effects of trade liberalization on commodity prices are abundant, they present a broad range of results that have to do with the types of models used, the level of liberalization simulated, and the sectoral and geographical aggregation of the studies. We first present the results from Bouët (2008), which estimates changes in world prices for agricultural com- modities using MIRAGE, a multisector, multiregion CGE model. The inclusion of all five commodities in the model provides a consistent base to which we can compare other findings.


The study reports price changes from a stylized full trade liberalization simulation that consists of eliminating import tariffs as well as production and export subsidies.3 Although the model uses earlier versions of the Global Trade Analysis Project (GTAP) and MAcMap–HS6 databases for 2001, a pre- liminary experiment was conducted to bring the equivalent tariffs to 2005, the base year for the study.4 The results represent percentage changes from a baseline without liberalization in 2015. It is estimated that world prices


3 For a summary of the basic technical specifications of the Modeling International Relationships


in Applied General Equilibrium model, see Chapter 7. 4 In particular, tariffs are adjusted to take into account such changes as the last implementation of the Uruguay Round, the elimination of the Multi-Fibre Arrangement, enlargement of the E.U., implementation of the EBA initiative and the AGOA, and, finally, the accession of China to the WTO (Bouët 2008).


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