Transcript WTO Agreements and Indian Agriculture: Retrospection and

An Approach Paper on Indo-US
Trade in Wheat and Mango
A Game Theoretic Framework
Satish Y. Deodhar (IIM-A)
Siddharth Rastogi (IIM-A)
International Agricultural Trade Research Consortium meetings
January 6-9, 2008
Synopsis
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Motivation for the study
Literature Review
Product Choice
Methodology: A Game Theory Approach
Data scouting
Potential for Policy Implications
Motivation
• WTO: Quota & tariffs going down in ag trade
• NTBs: SPS issues coming to the fore
– Sanitary and phytosanitary (SPS) measures
– There is a separate SPS agreement under WTO
• What do SPS restrictions on imports do?
– Protect producers from negative externalities arising
from invasive pest, weeds, organisms
– However, it also protects domestic producers from
foreign competition!
• Thus, impact assessment becomes important
• But how to go about doing it?
Literature Review
• FAO (2001): Lists six types of impacts
– Impact on production, price & market, trade, food
security & nutrition, human health & environment,
and, financial cost
• Surveys and interviews
– E.g., Mutasa & Nyamandi (1998)
• Taking inventory of SPS restrictions & cases
– E.g., Wilson & Otsuki (2001)
• Price Wedge models
– Calvin & Krissoff (1998)
– Japanese apple imports into US
Literature Review …
• Gravity Models
– Study of bilateral flows to identify NTB related trade
restriction
– E.g. Otsuki, Wilson, and Sewadeh (2000)
• Iso-Risk framework
– E.g., Bigsby (2001). Pest Risk = Eco. Impact times Probability
of pest Introduction
• Cost-Benefit analysis
– Studies on banana and avocado
• E.g., James and Anderson (1998), Peterson and Orden (2006)
– Measure compliance cost and expected net welfare changes
Limitations
• Some studies measure only qualitative impact
• Some use SPS case statistics – not based on
science/economics
• Some other measure only the trade restriction
or expansion
• Yet others look at cost of compliance and
expected welfare, but use single commodity,
single country framework
• Reality is a little different
Strategic Interaction
• Countries get engaged in bilateral negotiations
• Countries get engaged in multilateral
negotiations (WTO rounds)
• Strategic give-and-take across commodities
– E.g., agree to reduce subsidies against geographic
indications for wine
• Thus, studies in isolation for each commodity
and country may not represent true picture
• Policy choices are interdependent
Trade in Wheat and Mango
• Wheat:
– US production and exports are about 50 and 25
million tonne
– In 2007 India imported 6.7 million tonne
– None from US ! (Phytosanitary restrictions)
• Mango:
– India’s production and exports are 10 and 0.8
million tonne (2006)
– US imported mangoes worth $233 million but none
from India
– Fear of Fruit fly and weevil
• President Bush
– During his trip to promote bilateral trade in 2006:
– “By the way Mr. Prime Minister, the US is looking
forward to eating Indian mangoes.”
– Probably what he really meant was:
– “By the way Mr. Prime Minister, the US is looking
forward to sending some US wheat to India.”
Dominant Strategy Equlibrium and
Prisoners’ Dilemma
USA
India
Import Ban
Complete Import
Liberalization
Import Ban
0, 0
U, X-Y
Complete
Import
Liberalization
A-B, V
U+(A-B), (X-Y)+V
• If Net welfare is positive for imported good,
– Complete liberalization is dominant solution
• If Net welfare is sufficiently negative for
imported goods i.e., U+A-B <0, V+X-Y<0
– Import ban is the dominant solution
• If Net welfare is negative for imported
goods, but U+A-B and V+X-Y are positive
– Prizoners’ dilemma occurs
– Repeated game signals might work
Payoffs with partial liberalizataion and
spillover effects
USA
I
N
D
I
A
Complete
Ban, n=0
Partial Liberalization
0<n<1
Complete Liberalization
n=1
Complete Ban, m=0
0, 0
nU, n(X-Y-Z)
U, (X-Y-Z)
Partial
Liberalization
0<m<1
m(A-B-C), mV
nU+m(A-B-C),
mV+n(X-Y-Z)
U+m(A-B-C),
mV+(X-Y-Z)
Complete
Liberalization
m=1
(A-B-C), V
nU+(A-B-C),
V+n(X-Y-Z)
U+(A-B-C),
V+(X-Y-Z)
Data Analysis for the payoffs
• Risk Assessment
– Need to get probabilities of pest invasion, crop
loss, spillovers
– Estimate magnitudes of losses
• Risk Management
– Evaluate mitigation options
– Evaluate liberalization degree
Overview of Pest Risk Analysis
Griffin (2000)
Possible Data Sources
• International Agencies
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UNCTAD database on Trade Control Measures
WTO disputes database
International Plant Protection Convention databases
International Portal on Food Safety, Animal & Plant Health
• In India
– Plant Quarantine Organization of India
– Agricultural statistics from Ministry of Agriculture
– FICCI Agribusiness Information Center
• In US
– US department of agriculture (USDA)
– Animal and Plant Health Inspection Service (APHIS).