A Game Theoretic Analysis of U.S. Rice Exports under Alternative Japanese and South Korean Policy Scenarios

As a result of the Uruguay Round (UR), the impact on the international rice market is profound. In addition, another round of the WTO trade negotiations has started and the impacts of potential policy changes on rice trade are unknown. The major U.S. benefit of the UR has been the access to the Japanese market. However, the U.S. share of this import market has been unstable and the share of Korean rice market is zero percent. Therefore, this study attempts to analyze the potential implication of U.S. rice exports to Japan and Korea.The Japanese and Korean rice economies as well as U.S. export demand are analyzed using empirical supply and demand models. This study captures the dynamics inherent in supply and demand of the Japanese and Korean rice sectors. For the study, the supply parameters are estimated using two stage least squares (2SLS), and the demand equations are estimated using ordinary least squares (OLS).Since rice is a political commodity, this study incorporates the political influence of various interest groups in the policy-making process. The analysis measures the pattern of the implicit political weights given to the interest groups, considering a Political Preference Function (PPF).In the final stage, the estimated elasticities and political weights are incorporated in a noncooperative dynamic game framework to analyze the possible impacts of policy changes in the three countries. This study analyses various policies, including several reasonable scenarios regarding changes in Japanese and Korean tariff equivalents from 2% to 8% with respect to U.S. export programs, such as credit guarantee and market development programs.The results show that the best export policy option from the U.S. perspective is obtained at a 4% tariff reduction for Japan and Korea under a combination of U.S. market access program and foreign market development program. The results suggest that the U.S. policy makers might focus more on the U.S. export policy options than the tariff reduction of Japan and Korea. However, it depends on how the policies are implemented, given the state trading enterprises and implicit trade barriers in both countries.