Question

1. Agriculture is one of the main industries that most countries try to protect. The WTO's Agriculture Agreement aims to open up agricultural trade and make policies more market-oriented. The Agricultural Agreement does allow governments some flexibility to continue protecting their domestic agricultural industries with tariffs, quotas, and subsidies, but it limits the types of protectionist policies that can be used. Consider a WTO member country with high tariffs and subsidies to protect its domestic agricultural industry.

What would happen if that country lowered its tariffs on imported agricultural goods and cut back its subsidies? Name one potential benefit for the country's domestic economy, and one potential drawback or loss.

Answer 1

First, let's address the question of what would happen in such a case:

Lowered tariffs would allow cheaper agricultural products, perhaps of worse quality or produced by cheap or even slave labour, to enter the country. This would have 2 effects:

1) food could become cheaper and many people would be able to afford more food, but perhaps of lower quality
2) local farmers could be driven out of business by the foreign competition and by the lack of subsidies.