Explaining National Border Effects in the QUAD Food Trade

Using a ‘structural’ gravity‐like model, this paper first provides estimates of bilateral ‘border effects’ in food trade among the QUAD countries (the US, Canada, Japan and the EU) at the ISIC (International Standard Industrial Classification) four‐digit level (18 food sectors). It then investigates the underlying reasons for border effect, assessing the role played by policy barriers (tariffs, non‐tariff barriers to trade (NTBs) and domestic support) with respect to barriers unrelated to trade policy, such as information‐related costs, cultural proximity and preferences. In contrast to several previous findings, our results show that policy trade barriers, especially in the form of NTBs, are part of the story in explaining national border effects. Interestingly, in all country pair combinations, NTBs significantly dominate the trade reduction effect induced by tariffs. However, results show that elements linked to information‐related costs and consumer preferences matter a great deal in explaining the magnitude of border effects. These findings have implications for the economic and welfare‐related significance of national borders.     

Brexit: How Will UK Agriculture Fare?

There is little doubt that Brexit would have significant implications for UK agriculture, a sector with strong trade links to the EU and strong reliance on CAP income support. This article reports preliminary results from employing a Computable General Equilibrium Model, a Partial Equilibrium Model and Farm Level Models to explore selected trade and domestic policy scenarios post‐Brexit. These allow for the estimation of changes in producer prices, production and farm incomes against a baseline scenario of continued EU membership. Under a Free Trade Agreement with the EU, agricultural impacts are relatively modest. By contrast, unilateral removal of import tariffs has significant negative impacts on prices, production and incomes. Adoption of the EU's WTO tariff schedule for all imports favours net importers (e.g. dairy) and harms net exporters (e.g. sheep). Given the strong dependence of most UK farms on direct payments, their removal worsens negative impacts of new trade arrangements and offsets positive impacts. Impacts vary across different types and sizes of farm, but also regionally. However, the period of adjustment to new trade and domestic policy conditions may prove very challenging for a large number of farm businesses.     

Tariff Equivalent and Forgone Trade Effects of Prohibitive Technical Barriers to Trade

We derive a method to econometrically estimate the tariff equivalent and forgone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland's Kuhn–Tucker approach to corner solutions in consumer choice. The method overcomes the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive phytosanitary barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the Australian policy would induce net welfare gains around US$50 million annually for Australia.     

Implications of the Comprehensive Economic and Trade Agreement for Processed Food Markets

Canada and the European Union (EU) recently completed the Comprehensive Economic and Trade Agreement (CETA) to liberalize bilateral trade. Processed food trade between Canada and the EU is one of the fastest growing markets, in spite of large trade restrictions due to high tariffs and egregious nontariff barriers (NTB). The processed food sector is characterized by firms which differ in size, productivity, produce differentiated products, and engage in monopolistic competition. We implement a four‐region (Canada, the EU, the United States, and the Rest of the World) model of the processed food industry, incorporating these firm characteristics to study the effects of CETA. The results show Canadian and EU bilateral trade flows expand, the number of exporting firms rises, and net welfare in both these countries increases. Though CETA does not liberalize NTBs, we examine the impacts of a 40% cut in NTBs to highlight the benefits that would have accrued had CETA also covered NTBs. Under this scenario, the trade flows would have expanded significantly, and, more importantly, Canadian and EU welfare would have risen by 11.8‐ and 39.4‐fold, respectively. Since CETA excludes the United States, the U.S. processed food industry loses due to greater competition in Canadian and the EU markets, and the net U.S. welfare declines.     

Multilateral Trade and Agricultural Policy Reforms in Sugar Markets

We analyse the impact of trade liberalisation, removal of production subsidies and elimination of consumption distortions in world sugar markets using a partial‐equilibrium international sugar model calibrated on 2002 market data and current policies. The removal of trade distortions alone induces a 27% price increase while the removal of all trade and production distortions induces a 48% increase in 2011/2012 relative to the baseline. Aggregate trade expands moderately, but location of production and trade patterns change substantially. Protectionist Organisation for Economic Co‐operation and Development (OECD) countries (the EU, Japan, the US) experience an import expansion or export reduction and a significant contraction of production in unfettered markets. Competitive producers in both OECD countries (Australia) and non‐OECD countries (Brazil, Cuba), and even some protected producers (Indonesia, Turkey), expand production when all distortions are removed. Consumption distortions have marginal impacts on world markets and the location of production. We discuss the significance of these results in the context of mounting pressures to increase market access in highly protected OECD countries and the impact on non‐OECD countries.     

Sweetness and Power – Public Policies and the ‘Biofuels Frenzy’

Sweetness and Power – Public Policies and the ‘Biofuels Frenzy’ In the last decade, there has been a huge policy‐led expansion in biofuels production and consumption. This paper presents some of the findings of a funded research project which has sought to identify the drivers of biofuels policies over this period. It focuses on the EU, US and Brazil which, together, represent about 90 per cent of global biofuels markets. Biofuels policies have three key drivers: as a partial substitute for fossil fuels, to lower greenhouse gas emissions; as a way of improving energy security, by diversifying away from fossil fuels and from the limited number of countries with fossil‐fuel reserves; and as a means of promoting rural development, given the opportunities offered by the production of biofuel feedstocks and their processing into biofuels. One particular challenge for both the EU and US has been to create and sustain a broad coalition of stakeholder interests in support of biofuels and biofuel policies. Both have sought to promote ‘conventional’ biofuels now, whilst trying to aid the development of ‘advanced’ biofuels industries that will address problems with existing technologies. The continued failure to deliver significant quantities of advanced biofuels raises questions for biofuels policymakers going forward, not least dealing with the downsides of conventional biofuels that, so far, have not been mitigated by a successful transition to advanced biofuels.     

Brexit,Trade Agreements and CAP Reform

Although a number of reforms have significantly changed the Common Agricultural Policy (CAP ) over the past two decades, a defining characteristic of the policy is its prohibitively high import tariffs on a number of key commodities as tariff cuts have not formed part of CAP reform. These high tariffs, whilst protecting EU producers, complicate the EU 's attempts to negotiate Free Trade Area (FTA ) agreements around the world, and will likewise be problematic for agri‐food trade with a post‐Brexit UK , particularly over the politically sensitive border between the EU ‐27 and the UK on the island of Ireland. An open border could be more easily secured if the UK 's tariff barriers on CAP products matched those of the EU ‐27. This, however, implies either that the UK will have to abandon its plans to pursue ‘free‐trade’ policies with other countries around the world, or that the EU ‐27 needs to complete its reform of the CAP by unilaterally reducing its tariff barriers. It seems highly unlikely that the challenges posed by Brexit would prompt the EU to unilaterally reduce its excessively high CAP tariffs.     

The impact of OECD biofuels policies on developing countries

OECD countries’ biofuels policies, derived from energy and environmental legislation and activated by high oil prices, were the primary cause of not only the sudden spike in grain and oilseed prices in 2007–2008 but also of the ensuing price volatility. Even though developing countries have a comparative advantage in biofuels production, they were shut out of rich countries’ biofuel markets by trade discriminating biofuels policies. Developing countries would not have been able to take full advantage of the price spike in the short run anyway given the low supply elasticities and the long time required for biofuel production to come online, unlike for corn‐ethanol. The controversy over the right price of food is misplaced and policy makers should instead focus on improving biofuels policies, which like their counterpart agricultural policies in previous decades, have damaged the welfare of developing countries.     

Agricultural Comparative Advantage and Government Policy Interventions

International trade patterns are often explained by comparative advantage which is frequently thought to depend on variations in national factor endowments. Government intervention in agricultural markets may also have an impact on trade patterns. This study explores the relation between factor endowments and agricultural trade patterns and examines the impact of agricultural and environmental policies on trade flows. Measures of national endowments of capital, labour, land and energy reserves are computed for a sample of 40 countries and used to estimate Heckscher‐Ohlin‐Vanek equations with net trade in several agricultural commodities as the dependant variable. Variables measuring agricultural policy and environmental regulations are added to the equations and tested for significance. The variables representing government intervention do not contribute to the explanation of trade patterns while national factor endowments do account for much of the variation in trade patterns of grains, oilseeds, cotton, and, to a lesser extent, meat products and an aggregate of all agricultural goods. Commodities such as sugar, tropical products and fruits and vegetables do not appear to be well explained by factor endowments.     

‘Deal’ or ‘No Deal’? Impacts of Alternative Post‐Brexit Trade Agreements on UK Agriculture

Brexit will have important implications for UK agricultural commodity markets due to potentially significant changes to trade flows. We quantify the sectoral impacts on UK agriculture of three illustrative scenarios, which capture a broad range of potential trade arrangements: Bespoke Free Trade Deal , WTO Default and Unilateral Trade Liberalisation . It is estimated that the projected market impacts are relatively small if the UK negotiates a Bespoke Free Trade Agreement with the EU. The projected impacts are much greater under the two other scenarios, which capture potential trade arrangements if ‘no deal’ is reached. The high tariffs imposed under the WTO default scenario lead to significant adjustments in trade between the UK and EU‐27, with the impact on the domestic UK market depending on whether the UK is a net importer or a net exporter of the relevant commodity. All sectors experience price and production declines under the trade liberalisation scenario in which the UK unilaterally sets tariffs on imports from both the EU‐27 and the rest of the world to zero; the impacts are particularly severe in the beef and sheep sectors where international competition is very strong.     

FTA,Exchange rate pass‐through and export price behavior – Lessons from the Australian dairy sector

The growing number of bilateral and regional free trade agreements (FTAs) alongside exchange rate volatility has raised a question on whether these affect exporters’ pricing behaviors, hence competitiveness. This study contributes to this topic by examining Australian dairy export price behavior across eight major markets taking into account the extent of pass‐through of exchange rate and tariff as well as FTAs between Australia and its trading partners. Commodity‐level dairy trade data from 1996 to 2016 and the feasible generalized least squares methods are employed. The study finds incomplete pass‐through at the industry level. The dairy export prices decrease by 1.7% if Australian dollar depreciates by 10%, while 10% tariff reduction is associated with 0.7% export price cut. Results at the commodity level show different pricing behaviors across destination and commodity markets. Overall, apart from the tariff effects, there is minimal evidence of the impacts of FTAs on dairy export prices.     

《日美贸易协定》对我国农产品贸易的影响及对策

本文在分析日美农产品关税、贸易和在《日美贸易协定》中降税情况的基础上,采用GTAP模型定量分析《协定》实施对我国农产品贸易的影响。结果显示:《协定》的实施将对我国农业总体发展产生一定冲击,日美相互减免农产品关税将带来一定程度的贸易转移效应,尤其对我国出口日本的蔬果和畜产品影响尤为明显。结合我国自贸区谈判和农业发展情况,本文提出积极推动多双边农业谈判、培育出口竞争优势、借鉴日本经验灵活处理农产品降税、利用自贸试验区积极对接农业国际规则等政策建议。     

The War on Terroir: Geographical Indications as a Transatlantic Trade Conflict

Terroir, the concept of an essential link between location of production and a specific quality attribute, is emerging as a contentious issue in trade negotiations and disputes. This issue is manifest through disputes and disagreements about appropriate protection of ‘geographical indications’ (GIs). This paper explores the differences in approach taken by the EU and the US towards GI protection, and illustrates the nature of the legal and economic arguments. The transatlantic dispute is spreading to other countries through the inclusion of GI protection in regional and bilateral trade pacts. It also has implications for the eventual conclusion of the WTO Doha Round negotiations, as the terroir issue arises in both the agricultural and the Trade‐Related Intellectual Property (TRIPS) agendas, once again pitting the US and EU as protagonists. But there are signs of change in these positions as the GI system in the EU comes under review and producers in the US reconsider the possible advantages of location‐based identifiers. These issues are important in a number of food sectors, and are likely to be persistent. They deserve more attention from practising applied economists than they have yet received.     

Russian Roulette at the Trade Table: A Specific Factors CGE Analysis of an Agri‐food Import Ban

In the summer of 2014 Russia imposed a ban on most agri‐food products from countries enforcing Ukraine‐related sanctions against Russia. We use a specific factors computable general equilibrium (CGE) model to simulate the short‐run impact of this retaliatory policy. The baseline is carefully designed to isolate the impacts of the ban on the European Union (EU), Russia itself and a selection of key trade partners. The modelling of the ban follows a novel approach, where it is treated as a loss of established trade preferences via reductions in consumer utility in the Armington import function. Not surprisingly, the results indicate that Russia bears the highest income loss (about €3.4 billion) while the EU recovers part of its lost trade through expansion of exports to other markets. An ex‐post comparison between simulation results and observed trade data reveals the model predictions to be broadly accurate, thereby validating the robustness of the modelling approach.     

Potential impact of a Transatlantic Trade and Investment Partnership on the global forest sector

The effects of a transatlantic trade agreement on the global forest sector were assessed with the Global Forest Products Model, conditional on previous macroeconomic impacts predicted with a general equilibrium model. Comprehensive tariff elimination per se had little effect on the forest sector. However, with deeper reforms and integration consumption would increase twice as much in percent in the US as in the EU. Net trade decreased in the US more than in the EU while it increased in Asia. Consumers and producers’ welfare increased by $7000 million in the EU and $14,000 million in the US, but decreased in some third countries, especially in Asia.     

Role of international politics on agri‐food trade: Evidence from US–Canada bilateral relations

A well‐functioning trade relationship between Canada and the United States is crucial to the economic vitality of the Canadian agri‐food industry. However, agri‐food trade is more susceptible than other sectors to political interventions. The Trump presidency has strained Canada–US relations and his trade policy actions have significantly increased trade restrictions and trade policy uncertainty and undermined the rules‐based global trading system. We examine the pattern of agri‐food trade between the two countries and find that the upward trajectory of bilateral agri‐food trade ended in 2013. Although this flatlining predates the Trump administration, we show that Trump increased trade policy uncertainty starting in 2017 and likely impacted further expansion of trade. We examine what might change under the Biden presidency and argue that the new administration is likely to restore strong relationships with allies and work to rebuild important international institutions such as the World Trade Organization (WTO). Although protectionist forces will continue to impact bilateral agri‐food trade, we expect closer political ties between a Biden administration and the Canadian Prime Minister. This should have a positive effect on the Canadian agri‐food industry by reducing trade uncertainties, thereby increasing agri‐food trade between Canada and the United States.     

Implications of biofuels mandates for the global livestock industry: a computable general equilibrium analysis

The rapid growth of biofuels production, particularly in the United States, the EU, and Brazil, has had important implications for the global livestock industry—both by raising the cost of feed grains and oilseeds and by forcing onto the market a large supply of biofuel by‐products, most of which end up in livestock feed rations. This article investigates the impact of an expanding biofuels industry on the mix and location of global livestock production. Surprisingly, we find that growth in the U.S. and EU biofuels industries results in larger absolute reductions in livestock production overseas than in those regions, due to the international transmission of grains prices which is offset locally by the lower cost of by‐products. We also find that nonruminant production is cut more than ruminant livestock, because it is less able to use biofuel by‐products in its feed rations. Implementing biofuel mandates increases cropland area, a large portion of which is estimated to come from reduced grazing lands. The biofuel producing regions are expected to reduce their coarse grains exports and increase imports of oilseeds and vegetable oils, while they increase their exports of processed feed materials. In sum, biofuel mandates have important consequences for livestock as well as crops, with net effects influenced by the important role of by‐products in substituting for feedstuffs.     

Domestic support and the WTO negotiations

In their attempt to maximise trade benefits, agricultural trade negotiators must allocate scarce resources and consider trade-offs across issues such as liberalising foreign border measures or reducing foreign domestic subsidies. Analysis and examples support the notion that more liberalisation will be achieved in the new WTO round by emphasis on lowering border barriers and export subsidies rather than attempting to discipline domestic farm subsidies directly. Analyses of EU grain policy, Korean rice policy and US sugar policy show how reduced export subsidy or more import access have substantial trade benefits, even if farmers are compensated with payments or price supports.     

The impact of agricultural productivity increases in the former Soviet Union and Eastern Europe on world agricultural markets

This paper studies the impact of productivity increases in the former Soviet Union and Eastern Europe on world agricultural markets and the regions’ bilateral and sectoral agricultural trade flows. We use a six‐region, 13‐sector general equilibrium model. We find that productivity increases lead to a significant increase in the regions’ agricultural output and exports and the former Soviet Union's agricultural imports. The former Soviet Union's net agricultural imports increase, whereas Eastern Europe's net agricultural trade balances improve. Overall, agricultural exporters will benefit, particularly, if productivity increases are not limited to or disproportionally high in agriculture.     

Re‐evaluating the Harbinson Proposal – Prospects for the EU25: A Note

In this study, we use the Harbinson Proposal and July Framework to compare a ‘likely’ Doha scenario with a realistic baseline. The novelty of this study is that we focus exclusively on the trade‐led welfare impacts in selected EU member states. The important features of this note are the: (i) usage of the latest Global Trade Analysis Project (version 6) data; (ii) focus on EU25 regions incorporating all major Common Agricultural Policy instruments and reforms; and (iii) inclusion of binding tariff overhangs into the Harbinson tariff reductions. Results show the damping effects of tariff‐binding overhangs on welfare outcomes. This and other factors which limit the gains to liberalisation mean that the EU25 only realises 10% of its long‐run welfare gain potential, as defined by complete liberalisation.