Agricultural Policies and the GATT: Reconciling Protection, Support and Distortion

This paper analyzes the relationship between the theory of protection, farm income support and international trade distortion. To parallel those of protection, a measure of distortion is derived which compares trade volumes under support policies with those which would occur under multilateral free trade. Estimates are made of these measures for the European Community and the United States for a selection of commodities. The relationship between measures of protection and economic efficiency is also highlighted. The conclusion is that present measures of protection such as the Producer Subsidy Equivalent are confusing as measures of either trade distortion or income support. Some implications are drawn for the GAIT negotiations on agriculture and for the design of domestic policies which minimize trade distortion.