Farm income support with minimal trade distortions

The stalemate in the GATT negotiations on agriculture is due to US insistence on the elimination of all subsidies while the European Community and Japan demand the right to support farmers. This paper presents an alternative called 'production entitlement guarantees' (PEGs) that allow countries to satisfy farm support objectives yet minimize trade distortions. PEGs involve a limit on production receiving payments only. The removal of all other forms of trade-distorting market interventions is required such that consumers pay world market prices. PEGs would be negotiated and bound in the GATT and represent a politically acceptable method of supporting farm incomes.