As indicated above there is a variety of data needed to simulate the ATPSM model. In this section we indicate and discuss the cotton data related to the model. While the ATPSM is a multicommodity model, that incorporates substitution in production and consumption among many agricultural commodities, the cotton sector in ATPSM is modelled as not having any direct substitution linkages. This implies that the ATPSM-cotton submodel can be run as a stand-alone cotton specific model. This structural assumption in the model essentially implies that the effects simulated maybe stronger than in reality. For instance, if a policy change results in domestic producer price declines, then one would expect that the area devoted to cotton production would decline, and some other crops would be produced instead, even if no policy change takes place in the other sectors. The increased production of the other crops would, in turn, induce an increase in the supply of these products, and hence a decrease in their world prices. These effects should have a secondary positive feedback effect on the supply of cotton, through substitution, moderating the negative direct effect. The way in which these effects are captured in the current version of the model is by appropriate adjustments of the supply elasticities in an essentially one commodity model.
The basic data for the major cotton producing and trading countries utilized in the ATPSM for the base period are shown in Annex 1 Table 1. All production, trade and consumption[19] data are averages over the period 1996-2000. As the model includes 161 countries, it is not possible to exhibit the data for all, but they are included separately in the model.
The values of the price elasticities of supply and demand for all major cotton producing and consuming countries used for the base scenario in the ATPSM are shown in Annex 1 Table 2. These parameters were checked, drawing upon the literature and market assessment. The 29 exhibited countries account for 90 percent of world trade and production. For all other countries for which rechecking was not done the supply price elasticity was set at 0.2 and the demand price elasticity was set at -0.2. Since the only other elasticity estimates available for comparison are the ones in Sumner (2003), the table also shows the values used there. Overall, the simple average of the ATPSM supply elasticities used here is over 2.5 times the value assumed by Sumner, while the average ATPSM demand elasticities are on average twice as large as the ones used by Sumner. The likely effects of larger elasticity parameters imply that the ATPSM model can be expected to show smaller impacts on world market prices than the Sumner model, but larger quantity effects.
The final table that we exhibit here (Table 6) describes the basic policy parameters utilized for the main countries that exhibit some policy interventions in cotton. As regards tariffs[20], actual applied cotton tariffs were reviewed carefully for this particular study covering all the major importing and producing countries (see Table 6 for these countries). As expected, it was found that actual applied tariffs were mostly zero. Even where there were TRQs on cotton, applied rates were found to be zero and the quota volumes were expanded often so that cotton was imported free of duty. Table 6 shows that the weighted average applied tariff on cotton imports is only 0.2 percent, the weights being import volumes for 28 countries that account for about 65 percent of global import in the base period (the corresponding WTO bound rate is 17 percent). If we included all importing countries, the weighted average would be even smaller. Even allowing for some margin of error, or policy changes, the size of the distortion in the cotton market in terms of border protection is negligible.
Table 6 also shows the domestic support parameters used for this study. The second column shows subsidy amounts, the averages of the most recent three year period for which the notifications to the WTO were available. For the United States and the EU, for instance this is the period 1997-1999. Total base year support for all countries shown is $2.4 billion.
The last column shows subsidy rates which are the parameters that the ATPSM model utilizes. These are expressed in ad valorem equivalents. They are computed by first dividing the total value of subsidies by the domestic production[21] to produce a figure for the per ton subsidy. Then this amount is divided by the three year (1998-2000) average world cotton export unit value, computed from FAO trade data, to arrive at a proportional subsidy rate per unit of the product. The actual producer price wedge used in the model is this estimated ad valorem rate. In cases where there is also a tariff, the tariff rate is added to the direct ad valorem equivalent subsidy rate. For the consumer price wedges only applied tariffs are utilized, which, as was seen, are very small. The results of the model then are driven largely by the ad valorem equivalent producer subsidy rates indicated in Table 6. All domestic support data used are trade-distorting according to the WTO definition, i.e. these are Aggregate Measurement of Support and do not include other categories like Green Box measures.
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[19] As the
supply-utilization accounts for every year also include stock changes, and as
trade and production data do not always cover the same period within the year,
the averages over 1996-2000 for production and imports do not always equal the
sum of domestic consumption plus exports over the same period. [20] The reported tariff rates are averages of the period 1998-2000 [21] The three year averages for domestic production of 1998-2000 were used |
