The formula approach used in many trade negotiations involves large formula cuts in high tariffs, with flexibilities that allow smaller cuts for selected products. Difficulties in evaluating the effects of these exceptions can create major problems. We use a political-economy welfare function and detailed data on the current WTO agricultural negotiations to assess the implications of this approach for welfare and for market access. We find that some previous rules of thumb greatly underestimate the impacts of such exceptions. Indeed, treating even a small number of tariff lines as sensitive and subjecting them to reduced cuts has a sharply adverse impact on welfare, and a smaller but still negative impact on market access.

Many trade negotiations involve large cuts in high tariffs, with flexibilities allowing much smaller cuts for an agreed number of politically-sensitive products. The effects of these flexibilities on market access opportunities are difficult to predict, creating particular problems for developing countries in assessing whether to support a proposed agreement. Some widely-used ad hoc approaches to identifying likely sensitive products -- such as the highest-bound-tariff rule -- suggest that the impacts of a limited number of such exceptions on average tariffs and on market access are likely to be minor. This paper uses a rigorous specification based on the apparent objectives of policy makers in setting the pre-negotiation tariff. Applying this approach with detailed data allows the authors to assess the implications of sensitive-product provisions for average agricultural tariffs, economic welfare, and market access under the Doha negotiations. The authors conclude that highest-tariff rules are likely to seriously underestimate the impacts on average tariffs, and that treating even 2 percent of tariff lines as sensitive is likely to have a sharply adverse impact on economic welfare. The impacts on market access are also adverse, but much smaller, perhaps reflecting the mercantilist focus of the negotiating process.

International Trade is vital to the agricultural sector in many countries of the world, especially the United States. International trade allows productive capacity in agriculture to expand without seriously eroding prices, and there is no question that trade will become more critical to many nations in the future. It is surprising, then, that there is no up-to-date text book at the undergraduate or graduate level that provides a complete treatment of the major issues in international agricultural trade. This book is an effort to provide that complete treatment.This book covers all the essential topics for an agricultural trade policy course: gains from trade, agricultural trade policies (of exporters and importers), exchange rates, and multilateral trade negotiations. These have been key elements in agricultural trade classes for decades. These topics are fundamental to understanding how the current trade regime works and which parties benefit and lose as the regime changes.The book also presents concepts on issues that have become more important to a fundamental understanding of agricultural trade: the environment, preferential trade agreements, technical barriers, and flexible exchange rates. Without a clear understanding of these new issues in agricultural trade, one cannot fathom where world agriculture has been and is going.The final four chapters of the book cover company issues that shed light on what helps firms succeed in international markets. This should help instructors who teach in programs that are more agribusiness oriented. The chapters on foreign direct investment and competitiveness take a large-picture view of factors influencing firm behavior and success, while the chapters on export analysis and strategy are oriented toward steps that firms must take in entering and expanding their international markets.The chapters on Europe and China are quite different than the others. The European Union is mentioned throughout the book, so it is important to understand the unique E.U. context. China has been such a large focus for food markets in recent years that it also merits a chapter. One cannot understand world agricultural markets without understanding these important countries.This text is written for those who have had an intermediate microeconomics class because trade issues can be understood best through extensive graphical analysis. The book attempts to make linkages back to everyday life through examples and case studies so that the learning experience is enhanced. Any professor can find numerous current events that support the chapters during a typical semester.