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GTAP Resource #2112

"Extending General Equilibrium Analysis to the Tariff Line: U.S. Dairy in the Doha Development Agenda"
by Grant, Jason, Thomas Hertel and Thomas Rutherford

Agricultural trade policies are notorious for their complexity and detail. This has always made the analysis of agricultural trade liberalization a formidable task. The Uruguay Round (UR) of multilateral trade negotiations brought agriculture under the disciplines of the General Agreement on Tariffs and Trade (GATT), 1994 for the first time. One of the cornerstones of the UR was the requirement of WTO members to convert non-tariff barriers into more transparent tariff equivalents through a process known as tariffication. The resulting bound tariffs were reduced by an average of 36 percent over six years for developed countries and 24 percent over 10 years for developing countries. The UR round also allowed members to introduce systems of tariff-rate-quotas (TRQs) on certain commodities designated in members’ tariff schedules. These TRQs are typically characterized by a low tariff applied to a fixed amount of imports (the tariff quota) and a much higher tariff applied to out of quota imports. Many developed countries opted for this alternative, especially in international dairy markets (Meilke et al. 1999).

Despite these efforts to bring agriculture under the disciplines of the GATT, 1994, countries still maintain a complex array of border policies. Bureau and Salvatici, 2003 note that it is precisely this reason that almost all modeling efforts of agricultural trade liberalization and market access run into major difficulties that limit the scope and accuracy of their results. Typically, the limitations and criticisms of modeling trade liberalization arise for two reasons, one related to aggregation issues, and the second, due to the lack of a reliable and consistent protection dataset.
Several partial and general equilibrium (PE and GE) trade models have been used to assess the impacts of agricultural reform and increased market access on the welfare of economic agents. Computable general equilibrium models (CGE) provide important insights of the economy-wide effects from trade liberalization. However, most if not all, CGE models face serious aggregation issues (Bureau and Salvatici, 2003). Partial equilibrium (PE) models on the other hand, are often (although not always) more disaggregated but lack internal consistency and have nothing to say about the economy-wide effects of policies and how reform in other sectors might interact with those in the target sectors. Such inter-sectoral trade-offs are the hallmark of successful trade negotiations.

The lack of a reliable and consistent protection dataset also limits the scope of both GE and PE analyses. For tractability, most GE and PE models require an aggregation of product lines into a manageable number of sectors. Aggregating sector detail in CGE models requires an aggregation of the implied protection rates using simple averages or perhaps some more sophisticated weighting mechanism. This problem is compounded when several tariff lines contain both ad valorem and specific tariffs, as well as TRQs. This is the case for most developed countries in the international dairy complex which is the focus of this paper.
To illustrate our point regarding dairy trade, consider a few of the most widely used GE and PE policy simulation models including the Global Trade Analysis Project (GTAP) model, USDA’s SWOPSIM model, OECD’s Partial Evaluation Matrix (PEM) model, UNCTAD’s Agricultural Trade Policy Simulation Model (ATPSM) and the FAO’s World Food Model (WFM). In 3 out of 5 of these models (SWOPSIM, ATPSM and the PEM model) dairy is broken into three or four product lines including fluid milk, cheese, butter and powder. In the other two models (GTAP and FAO), dairy is treated as just one sector.

Meilke et al. 1999 document in detail the level of product aggregation for 16 simulation studies of world and/or regional dairy trade. For 12 out of 16 studies, dairy was treated as just a single commodity sector; for two studies, dairy was disaggregated into 5 commodities; and 2 studies disaggregated dairy into seven product lines. Thus, while a high degree of product aggregation has been required from a practical standpoint in GE and PE, multi-region models, to date, these models have been limited in their ability to analyze complex policies among several product lines comprising the dairy sector. Bureau and Salvatici (2003) claim that product and tariff line aggregation are one of the biggest reasons why policy results are often fundamentally different when analyzing the same set of trade liberalization scenarios.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2006
Created: Hertel, T. (5/2/2006)
Updated: Batta, G. (5/4/2006)
Visits: 4,623
No keywords have been specified.

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