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.     

How important are tariffs and nontariff barriers in international markets for fresh fruit?

International markets for agricultural products are often subject to a range of trade barriers, and horticultural products are no exception. This article examines the economic implications of tariffs and sanitary and phytosanitary (SPS) regulations that are applied to global markets for fresh apples and fresh oranges. We calculate regional‐level tariff rates and ad valorem equivalents for SPS barriers following the price‐wedge approach. A simulation model is developed and used to assess the price, quantity, and welfare implications of reducing tariffs, removing SPS barriers, and removing SPS barriers that have been identified as a Specific Trade Concern (STC) by the World Trade Organization. Results suggest that a 36% reduction in global tariffs would lead to greater welfare gains than would the elimination of SPS measures in apple markets. However, in orange markets, we find that SPS measures have much larger economic implications for producers and consumers. Here, a 36% reduction in tariffs would lead to smaller overall welfare effects compared to removal of all SPS measures, and only slightly larger effects than those from removal of STCs alone.     

TRADE REFORM AND THE PROSPECTS FOR PROCESSED FOOD EXPORTS FROM DEVELOPING COUNTRIES

This paper draws attention to the relative neglect of the consequences of barriers to processed food exports from developing countries in the literature examining the effects on these countries of agricultural trade liberalisation. These barriers are of three kinds: trade policy barriers; differing health, food safety and environmental standards; and, barriers arising from the evolving market structure in food processing and distribution in developed country markets. The paper discusses the likely significance of the gains to developing countries from reduction of tariffs on processed food commodities and examines the consequences of the EU single market programme for developing country food exports.     

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.     

The costs of global tariff barriers on wool products: 1997–2005

The Doha round of multilateral trade negotiations commits World Trade Organization (WTO) members to improving market access for both agricultural and nonagricultural goods. Tariff barriers on wool products represent a small but important subset of these negotiations. To inform the debate on the round, we analyze the distortionary effects of recent (1997–2005) tariff barriers on wool products using a model that applies a comprehensive analytical approach with regard to the production, trade, and consumption of wool products. We also account for any indirect effects of wool tariff barriers on the nonwool economy by incorporating the production, trade, and consumption of nonwool products, that is, the framework is a comparative‐static global general equilibrium model with a detailed representation of the world wool market. Changes in wool tariffs over 1997–2005 lead to positive welfare effects for most regions; Italy, China, and the UK are estimated to have gained the most from the changes. The results indicate that the nature of recent wool tariffs severely distort the size of wool industries in different regions. The changes in the output of wool commodities are extreme reflecting the discriminatory nature of the tariffs.     

Market Performance of International Agriculture as Modified by Government Subsidies and Trade Barriers

Many developed countries have reduced agricultural market performance in the last decade with increased domestic subsidies and trade barriers. Several data sets were used to illustrate the extent of market distortion among some markets. Economic theory can show that these distortions reduce the general welfare in the countries with high trade barriers as well as the traditional agricultural exporting countries. The dairy industries appear to have the highest Producer Subsidy Equivalent. Among the developed countries, Western European countries and the Pacific Rim countries have caused major distortions in international markets of many agricultural products. Market performance in agricultural industries would be substantially improved if these major distortions were eliminated.     

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.     

European Agriculture after Brexit: Does Anyone Benefit from the Divorce?

The UK exited the EU on 31 January 2020, with a transition period agreed as part of the Withdrawal Agreement. During this transition period the UK and the EU will decide on their future trading relationship. No matter what form this relationship takes, there will be disturbances to agri‐food markets. This study analyses four different scenarios with increasing barriers to trade, ranging from a very close relationship similar to the European Economic Area to a distant relationship in which the UK and EU trade on Most Favoured Nation terms, using the EU focused global agricultural sector model CAPRI. In the UK, food prices will increase in all scenarios, making consumers in the UK the biggest losers. Only in a free trade agreement scenario does the UK show an unambiguous positive net welfare gain in just the agri‐food sector. In the case of the European Economic Area scenario, which assumes continued access to the single market, the net welfare impact would depend on the size of the UK’s continued contribution to the EU. In the EU, declining food prices would benefit consumers but the sum of the loss in farmers’ incomes and the UK’s EU CAP contribution would be much greater than the consumer’s gain. These impacts in agricultural markets under different future trade arrangements will also be influenced by the UK’s agricultural policy changes in direct payments as well as by possible further UK trade liberalisation after the end of the transition period.     

The impact of EU trade preferences on the extensive and intensive margins of agricultural and food products

In this article, we study the trade creation effects of EU preferential trade agreements (PTAs) in the agriculture and food sectors for a large sample of developing countries in the period 1990–2006. We investigate the extent to which the PTAs affect trade through the extensive margin—number of exported products—or the intensive margin—volume of existing products. We use a gravity framework in a panel data setting, and different estimators to deal with the issues of zero trade flows and the presence of an upper bound in the dependent variable. The results show that EU PTAs positively affect the extensive margin in agricultural trade, but not in processed foods. As regards the intensive margin, the effect is driven by the role of tariffs alone, whereas the other provisions of PTAs do not exert any other significant impact on agricultural or food products.     

中美贸易战对林产品贸易的影响及其对策建议

在梳理中美林产品贸易相互关系的基础上,分析了新一轮贸易战将对中美林业产业、林产品贸易、就业等的影响。结果表明:贸易战对中低级技术水平的从业人员影响较大,短期内对中国传统优势产品出口冲击较大,但长期反而能分摊和降低贸易风险,以价格优势为主的微利型木材加工企业和以美国为主要出口市场的出口导向型企业将面临较大风险;同时,贸易战不仅会直接损害美国消费者利益,还会加速其木材产业的萎缩。拓宽进口渠道,扩展替代市场和国内市场,加快国际合作,加强技术创新,落实财政政策是中国减缓和避免贸易战对中美双方林产品贸易产生不利影响的应对措施。     

International Marketing of Organic Foods: Consumers,Standards, and Harmonization

Differing technical standards can be barriers to international trade. Harmonizing standards is one means of removing barriers to trade. It is argued in this article that international harmonization may not be welfare enhancing if consumers have a strong attachment to their domestic standards. Standards for organic products differ among countries and act as a barrier to trade. International harmonization has been proposed. Consumers were surveyed in the United States, United Kingdom, and Canada to determine their likely attachment to existing domestic organic standards. The results suggest that consumers, even those with a preference for organic foods, have little understanding of their domestic standards and only weakly identify with them. As a result, harmonization could be pursued. Agribusiness firms that are interested in harmonization to expand their access to export markets should promote the development of a new international standard rather than harmonization to one of the existing domestic standards.     

Food Security and Agricultural Protection in South Korea

South Korea has been pursuing food self-sufficiency using high tariffs and high administrative prices in key agricultural and food markets. Using a dual approach to trade and trade restrictiveness indices, we analyze the impact of these market distortions on welfare and trade volume. Then, we compute second-best distortions, which minimize the welfare cost of meeting observed levels of self-sufficiency and production. We rationalize these second-best distortions to what could be claimed as legitimate protection under a "food security" (FS) box in World Trade Organization (WTO) negotiations. FS-box protection is sensitive to changes in the definition and the extent of the FS objectives. We show that FS via production targets and reliance on imports would be more palatable to consumers and trade partners, while preserving income transfer to the farm sector.     

‘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.     

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.     

The Impact of an EU–US Transatlantic Trade and Investment Partnership Agreement on Biofuel and Feedstock Markets

We assess the impact of a potential TTIP bilateral free trade agreement on the EU and US bio‐economies (feedstock, biofuels, by‐products, and related competing crops) and major trade partners in these markets. The analysis develops a multi‐market model that incorporates bilateral trade flows (US to EU, EU to US, and similarly with third countries) and is calibrated to the OECD‐FAO baseline for 2013–2022 to account for recent policy decisions. The major policy reforms from a TTIP involve tariff and TRQ liberalisation and their direct contractionary impact on US sugar supply, EU biofuel production, and indirect negative effect on US high fructose corn syrup (HFCS) production. EU sugar and isoglucose production expand along with US ethanol and biodiesel and oilseed crushing. EU sugar would flow to the US, US biofuels and vegetable oil to the EU. We further quantify non‐tariff measures (NTM) affecting these trade flows between the EU and the US. EU oilseed production contracts, and EU crushing expands with improving crushing margins following reduced NTM frictions. Our analysis reveals limited net welfare gains with most net benefits reaped by Brazil and not the two trading partners of the TTIP.     

On Exporting by Import State Traders and Peculiar Effects of Negotiated Minimum Access Commitments

It has been alleged that exportation by import state trading enterprises (ISTEs) must involve unfair trade practices. We show that such exporting may result from a rational use of market power by a sufficiently protected price discriminating ISTE. We argue that the flawed design and implementation of the tarffication process initiated in the last GATT agreement is providing ISTEs with incentives to export. The tariffication of import quotas and other related import restrictions was dirty in the sense that it permitted the setting of prohibitively high tariffs on many commodities. More importantly, it failed to eliminate quantitative trade barriers as the previous import quotas were replaced by minimum access commitments (MACs). In this paper, we use a simple partial equilibrium framework to explore the trade and welfare consequences of trade liberalization through tariff reductions and MAC enlargements under the small country assumption when domestic production and imports are controlled by an ISTE. We show that tariff reductions and MAC enlargements have very different effects on the behavior of the ISTE. MAC enlargements induce inefficient trade by encouraging the profit maximizing ISTE to increase its exports. In terms of welfare, MAC enlargements are immiser-izing. We conclude that tariff reductions are to be preferred to MAC increases as a means to liberalize trade .     

Measuring the Trade Restrictiveness of Domestic Support using the EU Common Agricultural Policy as an Example

We develop an index that measures the overall trade effects of domestic support payments. Our index is based on the Mercantilist Trade Restrictiveness Index (MTRI) and is capable of analysing the development of the trade restrictiveness of domestic support payments over time and across countries. It facilitates the evaluation of agricultural policy reforms introducing changes in the composition of domestic support payments. We conduct this analysis with a computable general equilibrium model that is extended to depict detailed agricultural policies using the Common Agricultural Policy of the European Union (EU) as an example. For the representation of agricultural policies, we updated the underlying database by incorporating detailed EU domestic support payments taken from the OECD Producer Support Estimate (PSE) tables and reconcile PSE data with the WTO classification scheme. Our index confirms a decrease in trade distortion stemming from the implementation of decoupled support in the EU. In addition, the trade-equivalent protection rate shows that the trade restrictiveness of domestic support payments depends on the assumptions made with regard to the degree of decoupling of those payments.     

A POST-KENNEDY ROUND LOOK AT SOME PROBLEMS IN AGRICULTURAL TRADE

The Kennedy Round, concluded in 1967, ws the most far-reaching in the series of trade negotiations. The United States insisted on the inclusion of agricultural products, with the support of other foodexporting countries. The results for agriculture should not be underestimated. The agreement on cereals gave practical recognition of joint responsibility in food aid. There were also many agricultural tariff concessions. However, it is domestic agricultural policies, not tariffs, which really hamper agricultural trade. The cost of these policies and the extent to which they achieve their objectives are questionable. Competition becomes fiercer for the remaining accessible markets, and export subsidies multiply. The Kennedy Round left the basis problems untouched. It did, however, strengthen the “global” or comprehensive, multilateral approach.     

LIBERALISING OECD AGRICULTURAL POLICIES IN THE URUGUAY ROUND: EFFECTS ON TRADE AND WELFARE

A dynamic, stochastic, multi-commodity model of world food markets is used to estimate the effects of liberalising agricultural policies in industrial countries. The effects on international and domestic prices, on trade volumes and on economic welfare of a phased liberalisation of industrial-country policies between 1988 and 1992 are compared with the effects of a similar hypothetical liberalisation in the early 1980s. The results suggest that, because of the dramatic increase in agricultural protection during the 1980s, the effects of a liberalisation under the Uruguay Round would be, in real terms, more than double those that would have resulted from a similar liberalisation a decade earlier. Major gainers are consumers in Western Europe and Japan and farmers in developing countries. But the cost to tax-payers in Western Europe is also escalating, not to mention the burden on non-agricultural producers in those countries whose competitiveness is reduced by farm policies. These domestic pressures from treasuries and from producers of non-farm products, together with greater international pressure for reform from agricultural-exporting countries, have raised the probability of at least some liberalisation during the Uruguay Round of multilateral trade negotiations.     

TRQ‐complications: who gets the benefits when the EU liberalizes Mercosur's access to the beef markets?

The European Union (EU) and the Mercosur countries resumed negotiations on trade liberalization in May 2010 after several years of interruption. The article analyzes who stands to benefit and who is likely to lose if the EU liberalizes Mercosur's access to domestic beef markets. This economic assessment is performed using a partial equilibrium model for beef operating at a low level of product aggregation, paying specific attention to the role of Tariff Rate Quotas (TRQs). Consultations with experts from the meat sector allowed us to identify the allocation of the quota rents to different stakeholders. Under an agreement based on the EU's negotiation proposal, trade impacts are projected to be small due to the present quota overfill. As expected, impacts are more pronounced under the conditions set out in Mercosur's proposal. The results confirm that the distribution of quota rents can be decisive in determining welfare effects.