Study: tariff reductions in the Doha Round will erode border protection for EU agricultural products

Agriculture is at the centre of the multilateral round of trade negotiations under the World Trade Organization (WTO), the so-called 'Doha Round'. The Global South wants both the United States and the European Union to decrease farm subsidies and abandon tariffs for agricultural products. The developing countries stand united in the G-20, but are confronted with an ongoing dispute between the EU and the US, which holds back progress (earlier post). Market access compared to export competition and domestic support is the most difficult of the three pillars to negotiate. The US is aggressively demanding for significant reductions in tariffs, but the EU is unable to do so because further tariff reductions will erode border protection for some of its important agricultural products.

MTT Agrifood Research Finland has completed an interesting study [*.pdf] to reveal the sensitive agricultural products in the EU due to further tariff reductions in the projected Doha Round. The EU agricultural products are examined by tariff lines at eight digit level. These products are butter, skim milk powder, beef meat, poultry meat, pig meat, white sugar, wheat, barley, and maize. The sensitivity of EU agricultural products to the fluctuation of exchange rates from USD 0.90 per Euro to USD 1.50 per Euro is analysed in conjunction with the different tariff reduction formulas according to the EU proposal, WTO draft proposal, and US proposal for tariff-cuts.

Out of the many proposals submitted to the WTO for the tariff reduction formula, the US proposal is the most extreme and the EU proposal is the most lenient with the G-20 proposal and the WTO draft proposal being in the middle. Naturally, the projected results show that the EU proposal will generate a lower number of sensitive products compared to the WTO draft proposal, and the US proposal will generate the highest number of sensitive products:
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The results reveal that poultry meat has the lowest border protection among the examined EU agricultural products, followed by butter. Poultry meat is sensitive to the tariff reduction formula under the WTO draft proposal in almost all the exchange rate scenarios, except when the Euro is very weak (USD 0.90 per Euro). Likewise, butter is sensitive to the tariff reduction formula under the US proposal in almost all the exchange rate scenarios with the exception of a very weak Euro – USD 0.90 per Euro.

On the other hand, EU cereals such as wheat, barley, and maize are the most resilient to the erosion of border protection due to further reduction in tariffs in the projected Doha Round, followed by skim milk powder in the EU dairy sector. Border protection for cereals remains intact even after implementing the tariff reduction formulas from all the three proposals. In addition, border protection for cereals is not affected by a variety of exchange rate scenarios.

As the second most resilient product, skim milk powder is only sensitive to the tariff reduction formula under the US proposal and when the Euro is very strong – USD 1.50 per Euro. The results also demonstrate that EU agricultural products are very sensitive to the fluctuations of exchange rate. There are no sensitive agricultural products under any of the tariff reduction proposals if the Euro is very weak – USD 0.90 per Euro. On the contrary, a very strong Euro (USD 1.50 per Euro) will create the highest number of sensitive products in the projected Doha Round.

WTO members are entitled to select and designate an appropriate number of sensitive products. Proposals have extended from as little as one percent to as much as fifteen percent of tariff lines. The WTO draft proposal estimated that the number of sensitive products may be between four to eight percent of all agricultural tariff lines. Therefore, the EU may be eligible to designate between 88 to 176 tariff lines as sensitive products. This study has analysed only nine tariff lines out of the 2200 tariff lines for EU agricultural products. The examined EU agricultural products may represent other tariff lines in the same product category, but potential sensitive products at eight digit level have to be analysed individually in order to choose the correct and exact number of sensitive products for the EU.

References:
Ellen Huan-Niemi, "Market access under the World Trade Organisation: Identifying sensitive products in the EU" [*.pdf], MTT Working Papers 146, 23 pages - October 2007

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