EU positions in WTO : impact on the EU, New Zealand and Australian livestock sectors

Abstract

This report reviews the European Union (EU) position on the World Trade Organisation (WTO) for the market access pillar of the Doha round agricultural negotiations, and its implications in the EU, NZ and Australia. Initially, the report reviews the developments in the WTO and the EU on market access. The report also reviews various studies that evaluated agriculture market liberalisation in the EU. The report then describes the LTEM (Lincoln Trade and Environment Model), a multi-commodity and country, partial equilibrium model. The basic framework of the LTEM trade model is described especially the modification of the model to include market protection through import tariffs. The model is then used to estimate the impact of different levels and forms of tariff cuts. Three tariff reduction alternatives are considered. The first applies a linear tariff cut of 39 per cent, the second a tiered formula with cuts ranging from 60, 50, and 45 to 35 per cent. The highest cuts are applied to the sectors with highest tariffs, such as beef, sheep and some of the dairy products. The third applies a 100 per cent tariff removal. The results are consistent with theory, other studies and expectations. Producer returns decrease for the EU in proportion to the level of tariff cut. The decreases are larger for beef and sheep. In dairy, the reductions in producer returns are lesser due to the small decrease in EU milk production. EU dairy production remains at its quota level in the first two scenarios. NZ and Australia benefit in all scenarios. The application of a tiered formula for tariff cuts in the second scenario leads to deeper reductions in the commodities where NZ and Australia are net exporters and therefore leads to higher returns than the linear reduction. Regarding commodities, the gains in producer returns for NZ and Australia are bigger for beef and sheep. In the case of the dairy sector, the gains for NZ and Australia are much more moderate. This is expected the cuts in import tariffs in the EU dairy sector are offset by other mechanisms in place.