A top-down application in SEAMLESS-IF

Icône de l'outil pédagogique A top-down application in SEAMLESS-IF

The trade liberalization scenario focuses on the evaluation of a possible outcome of the ongoing World Trade Organization (WTO) negotiations (Doha Development Round) that aim at reducing international barriers to trade. The example aims at assessing the impact of changes in border protection on European agriculture, consumers of agricultural goods and the income from agricultural tariffs. The analysis is based on the “G20 proposal on market access” which provides a certain formula for the reduction in border protection depending on the initial level of protection and the developing status of a nation. The G20 is a group of developing countries that emphasizes that special and differential treatment for developing countries constitutes an integral part of all elements of the negotiation. In terms of ambition their proposal lies in between the proposals made by the EU and other (importing) countries protecting agriculture, and the proposals made by exporting countries like the US that aim at a strong reduction of agricultural trade barriers.


Icône de l'outil pédagogique Policy parameters

The key policy parameters in our practical illustration need to translate the G20 proposal for a reduction in trade barriers into parameters with which the model chain can be run. We focus on two major elements in the proposal: reduction of tariffs and export subsidies. The proposal contains several other aspects, like exceptions for sensitive and special products. The criteria for assigning and implementing these exceptions are however not established yet and we therefore ignore these in this first application.

The reduction in tariffs depends on the country being considered. Although we focus on the impact on the EU we also need to take into account the changes in import tariff made by other countries since these will affect the international competitiveness of EU agricultural producers. Table 1 summarizes the reduction in tariffs in the different scenarios. For example, an initial EU tariff of 50% falls in the second band of the formula for developed countries and therefore a reduction percentage of 55% applies in the G20 proposal. Since an eventual outcome of the Doha round is the result of elaborate negotiations the G20 proposal is likely to change. We therefore also assess two sensitivity scenarios decreasing and increasing the reductions by 10 percent points. In the case of 50% initial tariff of the EU this would be a 45% and a 65% reduction for each of the sensitivity scenarios. 

 

Table 1. Reduction in tariffs by scenario (G20 proposal, 10 % less than G20 proposal and 10% more than G20 proposal).

 

Reductions for developed countries (in %)

 

Reductions for developing countries (in %)

Thresholds for tariffs1)

G20

G20

-10%

G20

+ 10%

 

Thresholds for tariffs1)

G20

G20

-10%

G20

+ 10%

0 ≤ 20

45

35

55

 

0 ≤ 30

25

15

35

20 ≤ 50

55

45

65

 

30 ≤ 80

30

20

40

50 ≤ 75

65

55

75

 

80 ≤ 130

35

25

45

>75

75

65

85

 

>130

40

30

50

Cap2)

100

100

100

 

Cap2)

150

150

150

1) Tariffs are translated to Ad Valorem Equivalents (AVEs) to determine which reduction percentage applies.

2)  The cap is imposed after reduction: if tariffs exceed this number after implementing the reduction formula they are reduced to maximum 100% for developed and 150% for developing countries.

For the developing countries, reductions are lower because the four bands of tariffs are wider (for example the lowest band is from 0 to 30% whereas for developed countries it runs from 0 to 20%), because the reduction percentages are lower; and because the cap on tariffs after reduction is higher. This is characteristic of the Doha round negotiations where so called “special and differential treatment” of developing countries is key.

Apart from the tariff reductions the second element of the scenarios is the complete elimination of export subsidies. This elimination of subsidies was offered by the EU in exchange for concessions of the other negotiating parties and has been part of every proposal since the offer was made.

We therefore assess three scenarios (each consisting of a single experiment or model run): G20, G20 minus 10%, G20 plus 10%.  In each experiment we fully eliminate export subsidies.




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