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Tracking the Nature of Distortions to Agricultural Prices: the Case of China and its Accession to the WTO

Aug 2003
Stanford King Center on Global Development Working Paper
By  Jikun Huang, Scott Rozelle, Min Chang

Trade liberalization affects rural populations in a number of offsetting ways. On the one hand, increases in the demand for a nation’s industrial goods through higher exports can increase employment and raise wages of workers from rural areas. On the other hand, rising imports of lower priced commodities reduce farm profits. While all of the effects are important, trade officials that have concerns about the profitability of their producers frequently are interested in understanding the impact of trade liberalization on agricultural prices. However, there is often confusion over how trade liberalization will affect producer prices. In this paper, we create an approach to help researchers and trade officials have a better understanding of how trade liberalization will affect agricultural prices and how the price changes will be experienced in different parts of the nation being studied. We also carry out a case study of the impact on agricultural prices of China’s accession to the WTO. First, we review China’s trade policy liberalization in the past and its current WTO promises. Next we discuss the way we collected our data that we use to create measures of nominal protection rates and present a new set of protection rates for China. We examine how these distortions should be expected to change as China implements its WTO obligations and gains access (or not) to the promises that were made to it. Finally, we analyze the nature of China’s agricultural markets in an effort to understand how trade liberalization effects on prices can affect different types of farm households. We also discuss some implications of our findings.