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GTAP Resource #1430

"Assessing the Economic Impacts of Incorporating Romania's Agricultural and Food Sectors into EU's Customs Union: An Applied General Equilibrium Approach"
by Scrieciu, Silviu S.

Incorporating Romania’s agricultural and food sectors into European Union’s (EU) customs union, is expected to have significant implications for domestic farmers and food processors. Agro-food activities might be affected both directly through changes in agricultural and food trade policies, and indirectly through the interactions and feedback effects with other sectors of the economy. In addition, as bilateral trade in manufactures between EU and Romania has already been liberalised, it is likely that agro-food
sectors would be the most impacted by further elimination of trade distortions. Joining the EU club implies, among many other policy changes, full integration of the country’s economy into EU’s customs union. This generally entails the mutual abolition of import tariffs on bilateral trade between the two parties, and the implementation by the candidate country of EU’s Common External Tariff (CET) vis-à-vis its non-member trade partners. For this purpose the paper constructs a single-country Applied General
Equilibrium (AGE) model to investigate likely changes in relative prices, production and trade patterns associated with fifteen local agro-food activities and aggregate economic welfare effects. Moreover, the aim of the model is to identify those agro-food sectors that might benefit from EU enlargement provided that producers are capable of responding to the incentives provided by the respective integration process. The modelling application adopts a stepwise approach in running simulations that helps disentangle and explain final outcomes. This includes three main scenarios associated with agro-food trade: unilateral trade liberalisation, formation of a free trade area with the EU, and integration into EU’s customs union. The model predicts that further integration of agro-food sectors into the preferential trade agreement with the EU seems to bring benefits to Romanian producers of mainly (bovine) live animals and meat products, sugar, and cereal grains. Agro-food trade with the EU intensifies in particular in those commodities for which trade restrictions are still substantial prior to accession. Nonetheless, the
magnitude of changes is relatively small due to the initial weak integration of domestic agro-food sectors into international trade structures. In terms of static welfare effects, the AGE model predicts a gain in terms of equivalent variation as a percentage of GDP of 0.65. The bulk of these gains, in terms of welfare, export and production expansion, is attributed to open access to EU markets and increased export prices that Romanian producers receive, whereas the unilateral elimination of import tariffs and the adjustment
of customs duties to CET levels have a weaker impact on production incentives and real incomes.

Keywords: agro-food sectors, EU enlargement, customs union, Romania, AGE modelling

Notes: The paper represents work in progress and is part of the ongoing PhD research on ``Economic and Environmental Implications of Agricultural Reforms in an Enlarged EU: The Case of Romania''. I am indebted to Adam Blake and Colin Kirkpatrick for valuable comments on an earlier version of the paper. The author is solely responsible for all remaining errors and shortcomings.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: (4/19/2004)
Updated: (6/2/2004)
Visits: 2,256
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