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GTAP Resource #1481

"Agricultural Trade Liberalization in the Doha Round. Alternative Scenarios and Strategic Interactions between Developed and Developing countries"
by Conforti, Piero and Luca Salvatici


Abstract
The paper explores the impact of multilateral tariff reduction, with emphasis on the effects of alternative scenarios. The objective is to simulate the tariff reduction strategies proposed by the United States (US) and the European Union (EU) during the Doha Round. Attention is devoted on the effect of liberalization both in agriculture and in other sectors.
The analysis is based on the model of the Global Trade Analysis Project (GTAP) (Hertel, 1997) - which is a comparative static Applied General Equilibrium model - on the related software, and on the related version 5 database. Work includes the construction of a baseline taking into account a number of events that have affected (and are likely to further affect in the coming years) world agricultural markets between 1997 – the reference year of the GTAP version 5 database - and year 2013. This latter year was chosen as a period in which a new multilateral trade agreement is likely to fully come into force. Policy changes included in the 2013 baseline are the Agenda 2000 reform of the Common Agricultural Policy of the EU, its Mid-Term Review decided in 2003, the enlargement of the EU to 25 States, and the “Everything But Arms” (EBA) Agreement between the EU and the Least Developed Countries. This baseline allows to focus on the effects that are specifically attributable to further trade liberalization in the Doha Round.
A number of commodity groups are distinguished, including: paddy rice, cereals, fruits and vegetables, oilseeds, sugar cane & beet, plant-based fibers, beverages and tobacco, other primary products, livestock, raw milk, vegetable oils, dairy products, processed rice, processed sugar, other food products, secondary sector products, and services.
Countries and country groups are designed to include the highest available number of those classified as Least Developed Countries and/or Low-Income-Food-Deficit Countries, given the composition of the GTAP database (i.e. China, India, Sri Lanka, Indonesia, the Philippines, Bangladesh, Malawi, Morocco, Mozambique, Tanzania, Uganda, and Zambia), and a groups of major agricultural exporters (i.e., Brazil, Chile, Argentina, the SACU, and Malaysia), plus the EU25, the US, Canada, Australia, New Zealand and a rest-of-the-world-region.
The policy strategies analyzed are two liberalization scenarios based on the proposals made in the present round of negotiations by the US and the EU, plus a free trade scenario to be used mainly as a benchmark. They are meant to illustrate the implications of alternative approaches to market access liberalization, and should be considered as stylized facts rather than as accurate representations of actual proposals:
Particularly, scenario 1 draws on the initial EU WTO Agriculture Proposal ("Uruguay Round bis"). Starting from the final bound tariffs in year 2001, each tariff line is reduced of the same percentage it was reduced due to the implementation of the Uruguay Round Agreement. This implies that each tariff line is reduced at least by 15% and a non-weighted average reduction around 36%. If the same formula had to be implemented again, we assume that the EU and the US would follow the same pattern of cut allocation as they did in the previous round.
Scenario 2, instead, is based on the initial US WTO Agriculture Proposal ("Swiss formula"). This would cut high tariffs more than low tariffs, ensuring no individual tariff exceeds 25% after a five-year-phase-in period. We apply the proposed formula to the bound tariffs in year 2001, assuming that specific tariffs were transformed into ad valorem ones
Scenario 3 consists in the elimination of all trade policy measures.
The main model results, particularly welfare, production and trade changes, are presented with attention to outcomes for both agricultural and non agricultural activities.
On the basis of the welfare results obtained for each scenario, we develop a pay-off matrix referred to a five-region world - consisting of the EU, the US, a group of low income food importers, a group of food exporters, plus a politically passive rest-of-the-world - following the idea put forward by Kennedy, Von Witzke and Roe (1996). This matrix is conceived as to describe a non co-operative game. We then search for agreements that are Pareto superior to the outcome of the non-cooperative game, incorporating the provision for inter-country group compensatory payments, in terms of improvements in the cumulative welfare of more than one group. This allows to draw consideration about the strategies that countries may consider in the remaining of the negotiation.

References
Kennedy P. L, Von Witzke H. and T. L. Roe “Multilateral agricultural trade negotiations: a non co-operative and cooperative game approach”, European Review of Agricultural Economics, vol 23, n. 4, 381-399, 1996
Hertel, T. W. (editor) Global Trade Analysis. Modeling and Applications, Cambridge University Press, 1997


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
Version:
Created: Conforti, P. (4/30/2004)
Updated: Conforti, P. (6/21/2004)
Visits: 3,567
- Agricultural policies
- Baseline development


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