Third‐Country Effects and Second‐Best Grain Trade Policies: Export Subsidies and Bilateral Liberalization

Abstract

Abstract An incumbent export subsidy will affect the size and distribution of gains from bilateral trade liberalization but, in theory, may still permit increased trade volume and mutual benefits from freer trade. These points are illustrated using the case of Canada‐U.S. durum wheat trade, which grew rapidly following the 1989 Canadian‐U.S. Free Trade Agreement (CUSTA). An empirical analysis suggests that, given its Export Enhancement Program (EEP), the United States lost from freer trade in durum. Conversely, freer trade in durum means greater gains to the United States from eliminating EEP.

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