International Trading Rules and the Market Mechanisms: Changes in the International Market of Agricultural Commodities

The purpose of this paper is to discuss the relation between international trading rules and the market mechanisms. The aim of the GATT/WTO is to promote international trade through market mechanism based on a competitive market structure and to be supported by the fundamental theorem of welfare economics that states a competitive market equilibrium induces the Pareto optimal resource allocation. However, if a market is not competitive or is distorted, it may fail to optimize national welfare through resource allocation. Under the current international trading rules, the Free Trade Agreements and State Trade Enterprises are exceptionally allowed. Trade diversion effects and the market power of the State Trade Enterprises might deteriorate the national welfare. In the long run, it is of utmost importance to remove these distortions. When the welfare change in domestic policies harmonized under the international trading rules is evaluated in the short and medium terms, it is necessary to consider the market distortions as well as the appropriate market structure. Since there are a few econometric studies that identify the international market structure, it is valuable to accumulate the empirical studies regarding international agricultural markets.

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Journal of Rural Economics, 85, 2
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 Record created 2017-04-01, last modified 2019-10-11

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