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GTAP Resource #1239

"Free Trade Agreements and the Optimal Liberalisation of Agricultural Trade"
by McDonald, Scott and Terrie Walmsley

Recent years have seen a rapid growth in the number of free trade agreements (FTAs) between developed and developing economies. Typically however many of these FTAs only incorporated a partial liberalisation of food and agricultural trade by developed economies. This paper reports the results from simulations conducted using a global comparative static model CGE model that has been calibrated with data from the GTAP database (version 5). The initial results are developed in the context of the EU South Africa Free Trade Agreement; but are then extended to examine the policy implication in the context of an EU SACU FTA and an EU SADC FTA.

The results indicate that for any degree of unilateral trade liberalisation by the southern African regions the EU has an incentive to only partially reduce trade barriers against imports of food and agricultural commodities from southern Africa. The optimal degree of liberalisation by the EU declines appreciably after the optimum and is remarkably stable in the face of different degrees of liberalisation of food and agricultural trade by southern Africa. Qualitatively similar results emerge for southern Africa. However, the welfare gains for southern Africa increase rapidly with the increasing liberalisation of EU food and agricultural trade, while the welfare gains for the EU increase slowly with the increasing liberalisation of southern African food and agricultural trade.

These results indicate that bilateral agricultural trade negotiations between developing and developed countries may involve a complex bargaining process, wherein the payoffs from different strategies are not necessarily intuitively obvious. The final part of the paper explores the options open to developing countries seeking to realise the potential benefits of increased food and agricultural trade with developing countries.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Created: McDonald, S. (4/29/2003)
Updated: Bacou, M. (10/14/2003)
Visits: 3,831
- Preferential trading arrangements
- Agricultural policies
- European Union

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