‘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.     

Brexit and Tariff Rate Quotas on EU Imports: A Complex Problem

Tariff rate quotas (TRQ s) are a means by which non‐EU suppliers of agri‐food products can be given preferential access to EU markets within a regulated framework of quotas at tariff rates below the Most Favoured Nation rates bound in the GATT . TRQ s are common in governing trade in the meat and dairy sectors of the EU , although they apply to a wide range of other agricultural commodity and processed agri‐food products. Brexit poses a complex set of problems regarding TRQ s in terms of how the respective parties should divide up jointly undertaken commitments within the WTO , since TRQ s have been negotiated by the Commission on behalf of all EU Member States. Whilst individual quota allocations can be allocated to specific third country suppliers, individual Member States receive no specific allocation of the global product TRQ either in total, or from any named preferential supplier. The article outlines the nature of TRQ s in the meat and dairy sectors of the EU , and how a simple partitioning of existing quotas between the EU ‐27 and the UK is unlikely to resolve the complex issue of access rights of third countries to both markets. Possible solutions are explored, including the potential need for reciprocal EU ‐27–UK TRQ s post Brexit.     

Brexit Impacts on Irish Agri‐food Exports to the UK

The Irish agri‐food sector is particularly exposed to the consequences of the UK's departure from the EU given that the UK is the destination for 37 per cent of its exports. This article discusses the main channels whereby Brexit may impact this trade. They include the impact of possible further depreciation of sterling and the loss of the protected market status that Irish exporters currently enjoy on their sales on the UK market. There is the possibility that tariffs may be imposed on trade flows between the two countries as well as higher trade costs when either exporting to or importing from the UK. There would also be potential disruption of supply chains on the island of Ireland and the particular difficulties of policing the land border between the North and South of Ireland. Solutions to address some of these problems are available, but will take time to negotiate. Even if the worst outcomes can be avoided, Brexit is likely to have significant structural implications for Irish agriculture. The erosion of the value of privileged access to the UK market will require structural adjustments both in terms of market diversification as well as farm‐level production.     

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.     

Domestic Support and Border Measures for Processed Horticultural Products

In horticultural markets, trade barriers often apply to the processed products whereas domestic support applies to farm-produced raw commodities. Here we assess the effects of such trade barriers and domestic support by simulating the effects of policy reform on global processing tomato markets, which are faced with modest processed product tariffs and high domestic support in the European Union (EU). Both protection and EU subsidy drive down world welfare, but we find that reducing import tariffs for tomato products would yield greater effects on markets and larger welfare impacts outside Europe than would reductions in EU domestic support.     

The End of a Romance? A Note on the Quantitative Impacts of a ‘Brexit’ from the EU

This study suggests UK equivalent variation (EV) gains of €8.9 billion on withdrawal from the EU budget. Factoring in associated trade facilitation costs from the loss of UK access to the single market, annual UK EV losses could be as high as €14.0 billion, with the EU‐28 facing a corresponding loss of €40.4 billion. Interestingly, the extrapolated UK gain arising from withdrawal from the ‘CAP’ component of the EU budget exceeds estimated lower and upper bound trade facilitation costs exclusively on EU agrofood trade. Accordingly, the UK should realistically remain as an EU member, although continue to lobby for reductions in the CAP budget.     

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.     

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.     

Bilateral Import Protection,Free Trade Agreements,and Other Factors Influencing Trade Flows in Agriculture and Clothing

Many factors shape the global network of bilateral trade including fundamental forces of supply and demand factors and government policies. This study uses the generalised gravity framework to distinguish among the different drivers that either deter or aid partner trade in land‐intensive agriculture and labour‐intensive clothing. The dataset used in the analysis includes bilateral trade among 70 countries in 1995, 2000 and 2005. Collectively, the 70 countries account for 85% of the world’s trade in agriculture and 96% of its GDP. Empirical results lend support to the Heckscher–Ohlin explanation of trade, namely that relative factor endowments motivate cross‐border trade. Results also show that tariffs are not always binding and bilateral free‐trade agreements more often divert rather than create trade.     

Armington Elasticities and Tariff Regime: An Application to European Union Rice Imports

The European Union’s (EU) import sources for rice include developing countries and least developed countries (LDCs). The EU has made a commitment to allow duty‐free and quota‐free access to rice imports originating in the LDCs from September 2009 onward. The purpose of this article is to answer two questions: (1) does the inclusion of import tariffs lead to different estimated Armington elasticities? (2) when a discriminating tariff is introduced, what happens to the market share of large rice exporters to the EU, especially of poor countries? We present the Armington model, derived from a constant elasticity of substitution (CES) utility function, and a non‐homothetic CES utility functional form, which is more flexible. We then estimate the Armington model, with and without the inclusion of a tariff, and we compare the elasticities. Lastly, we model five scenarios with different discriminated import tariff rates to calculate the changes in the market access of large rice exporters to the EU. Our empirical results show the importance of non‐homothetic preferences and import tariffs. Ignoring import tariffs and the non‐homothetic parameter may produce results which are biased and of uncertain validity. Furthermore, the simulation findings demonstrate that, in spite of a large difference between import tariff rate of Suriname and other countries (scenario V), its market access would not change greatly. This may be caused by supply side problems like poor infrastructures, weak technology and small capacity production in LDCs.     

关税对水产品贸易量的影响——基于引力模型的实证研究

水产品是各国间最重要的贸易品之一,各国间的水产品贸易量受多种因素影响,关税无疑是其中重要的因素之一.论文在考察多种面板引力模型设定形式的基础上,选取了包含两两国家固定效应（country-pair fixed effects）的引力模型对1990～2011年间128个国家（地区）的双边水产品贸易情况进行了实证分析,重点研究了关税水平对各国水产品贸易量的影响.研究结果显示,较高的关税水平对贸易量有显著的负面影响,若保持其他条件不变,关税水平下降一半,贸易量将增加14.2％.     

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.     

The Tariff-Only Import Regime for Bananas in the European Union: Impacts on ACP and Non-ACP Suppliers

The European Union is bound by World Trade Organisation agreements to move to a tariff-only import regime for bananas no later than 1 January 2006. What should change at that date is the trade regime, not the level of protection offered to African, Caribbean and Pacific (ACP) countries. This article provides an assessment of the trade impact of this tariff-only regime on the basis of simulations carried out with a dynamic partial equilibrium model of the world banana market using 2002–03 as the base year. Simulation results show that the tariff levied on imports from non-ACP countries should be set at around €250 per tonne in order to maintain in 2008 the EU import structure that prevailed in 2003. A lower tariff would increase EU total imports, to the benefit of non-ACP countries and to the detriment of the group of ACP countries. Conversely, a higher tariff would decrease EU imports from non-ACP countries and increase imports from ACP suppliers. Under this assumption, the increase in ACP exports to the EU would mainly benefit the two West African suppliers, Cameroon and Ivory Coast, who are more competitive and have a more price elastic supply than the ACP suppliers of the Caribbean islands.     

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 .     

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.     

The Effectiveness of Antidumping Measures: Some Evidence for Farmed Atlantic Salmon

Counterfactual simulations of a partial equilibrium model of the world salmon market suggest safeguard tariffs imposed by the European Commission on salmon imports from Norway, Chile, and the Faroe Islands would do more to punish producers in the named exporting countries than to reward United Kingdom producers. The reason is that export supply is less elastic than import demand on a bilateral basis, which means that most of the tariff's incidence is borne by the targeted producers rather than EU consumers. The incidence problem is exacerbated by the feed quota (now biomass limit) that Norway uses to limit its production. A marketing fee that expands market demand is shown to be less distortionary than its tariff equivalent, and thus may be preferred from a second‐best perspective.     

Economic issues in tariffication: an overview

The agricultural trade liberalization proposal known as ‘ tariffication’ aims at converting all existing non-tariff barriers (NTBs) to trade into bound tariffs, and to reduce these tariffs over time. This is in tune with the original philosophy of the General Agreement on Tariffs and Trade (GATT) and it calls for a dramatic overhaul of existing agricultural policies in many developed countries. The main economic issues that arise with tariffication stem from the non-equivalence of tariffs and NTBs in a number of scenarios. This paper analyzes non-equivalence arising from the existence of: imperfect competition in importing countries; price instability in importing and exporting countries; and, inefficient allocation of quantitative restrictions. It is shown that in all these cases the definition of an appropriate 'equivalent tariff to be used in tariffication is not straightforward, and that in general this equivalent tariff cannot be computed on the basis of only observed price differences between countries. Tariff-rate quotas, which are meant to be the main tool of implementation of tariffication according to the existing proposal, are analyzed in some detail. Concerning the relationship between tariffication and the other elements of the trade liberalization package, it is shown that tariffication would limit the scope of export subsidy policies. It is also shown that the existence of production and export subsidies makes observed price gaps between countries of questionable value in setting equivalent tariff levels. Finally, it is argued that the main focus of tariffication should be the conversion of NTBs to acceptable long-run (bound) tariffs rates, and considerable flexibility in this conversion process could be exercised in the transition period.     

An Analysis of Removal of Agricultural Trade Barriers between the United States and Canada with Emphasis on the Southeast

A four-region, 23-commodity small world agricultural trade liberalization model within the SWOPSIM framework is used to measure the impact of tariff removal between the United States and Canada. The tariffs are simply defined as negative import subsidy equivalents in the model and are then removed from the trade prices. The model recalculates domestic supply and demand levels in all regions, rebalancing world trade, production, consumption and prices. In summary, the impacts of the Canada-U.S. Trade Agreement on selected commodity groups are significant. Canadian imports of beef and veal, poultry meat, soybean oil and fresh strawberries increase. Furthermore, the results indicate larger trade flows for selected products and declines in producer and consumer prices in Canada, U.S. and Southeast regions. Since the U.S. share of Canadian agricultural imports averaged 60% in the 1980s, the impact of trade liberalization will be greater in Canada in selected commodities than in the U. S. or the southeastern region, and Canadian dependence on the U.S. market will be increasing in the future. The tariff phaseout, together with a reduction in nontariff barriers and harmonizing of domestic agricultural policies, will create more export opportunities in selected commodities for both the United States and Canada, and will create the world's largest free trade market.