At the Agricultural Council meeting of 15 November 2016, Vice-President Katainen and Commissioner Hogan presented the results of a study on the cumulative economic effects of ongoing and upcoming trade negotiations on the EU agricultural sector. The study is available online, as is a press release. The study is a theoretical modelling exercise on the potential economic effects on the agri-food sector, including specific results for some agriculture products after the conclusion of 12 trade agreements by 2025.
There are caveats and limitations of the models used, notably the fact that the analysis considers tariff cuts instead of tariff rate quotas (TRQs) for sensitive products which is standard EU practice when negotiating trade agreements.
Due to the limitations of the available methodologies, the study leaves out certain key agricultural products from the more detailed analysis. Possible gains for important products like fruit and vegetables, wine, olive oil and processed foods in general (accounting for 70% of EU agri-food export value) could not be quantified in detail nor the gains from improved protection for Geographical Indications in trade agreements.
As such, it is not a prediction or forecast of the likely outcome of the successful conclusion of those 12 agreements – the majority of which are still under negotiation, or for which negotiations have not yet begun. It does however help to inform the negotiating position of the Commission at the appropriate time.
Why a study on the cumulative impact on agriculture of trade agreements?
The European Union has already concluded and is currently negotiating a large number of bilateral and regional trade agreements. Other negotiations are expected to be launched in the near future.
Once implemented, the various trade agreements will open up new opportunities for exporting EU agri-food products, but will also allow for more imports and increasing competition on domestic agri-food markets.
The objective of this study is therefore to provide a better understanding of the potential economic impact of all these agreements on the EU agricultural sector, with a particular focus on key commodities.
Which agreements are covered in the study?
The study focuses on 12 yet to be implemented trade agreements, ranging from some that have already been negotiated (Canada, Vietnam), to some at various stages of negotiation (USA, Mercosur, Japan, Thailand, Indonesia, Philippines), while including two that are still to be negotiated (Australia, New Zealand) and two that involve the modernisation of existing agreements (Turkey, Mexico).
What about trade agreements already in force, e.g. with South Korea or with Ukraine?
The effects of those trade agreements in force are already visible in EU agri-food trade. They are included in the reference scenario (baseline) for the analysis. The study has a focus on additional agreements not yet in force. It compares the situation of having these additional agreements to the reference situation (current situation, without those agreements).
What is the methodology of the study?
Given that most of the agreements analysed in this study are still under negotiation, the study cannot assess a concrete and precise outcome of each agreement.
The study is therefore based on scenario simulations run by means of economic models. One provides more detailed results, while its focus is limited to some key sectors (meats, dairy, cereals, sugar, rice and vegetable oils) and it operates on an assumption that these goods are sold as commodities.
Possible gains for important products (accounting for 70% of EU agri-food export value) could not be quantified in detail nor the gains of improved protection for Geographical Indications.
The assessment focuses solely on the effects produced by reciprocal liberalisation of import tariffs between the EU and the relevant trade partners, not taking into account other provisions with an economic impact (e.g. the reduction of non-tariff measures, in particular sanitary and phytosanitary measures). The impact of measures used by the EU to protect vulnerable sectors in trade deals, such as the systematic use of limited tariff rate quotas (TRQ) is also out of the scope of this assessment.
The impact of the consequences of the UK referendum on EU membership is not taken into account.
The conclusions of the study therefore provide an indication about the likely potential direction and the magnitude of certain liberalisation scenarios, and are not a forecast of the outcome of future agreements.
Which scenarios are analysed?
For the purposes of the study, two theoretical trade scenarios were used, labelled as "ambitious" (zero tariffs for 98.5% of all products, including industrial products and a partial tariff cut of 50%for remaining products) or "conservative", (zero duties for only 97 % of all products and a partial tariff cut of 25% for remaining products).
These are merely modelling exercises and should not in any way be seen as prejudging the potential outcome of the ongoing negotiations.
Neither scenario takes into account the effect of imposing tariff rate quotas (TRQs) for sensitive products, which is common practice in EU trade agreements, where TRQs are always included for a number of sensitive products. This important aspect was omitted to allow necessary theoretical simplification.
Why does the study not provide the same level of detailed results for all agricultural products?
The study is bound by the product coverage and disaggregation available in models used for the study. The partial equilibrium model – providing most detailed product-specific results – does not cover the following main sectors: fruit and vegetables, wine, olive oil, specialised crops, and all other beverages and processed agricultural products.
However, the general equilibrium model additionally provides overall trade impacts for fruit and vegetables (as one single sector) and wine and spirits (within the category "beverages and tobacco") – whereas olive oil, ethanol and other products are included in larger categories, with specific results difficult to be disentangled.
Does the study provide operational indications on how the EU should approach trade agreements (e.g. regarding the possible size of TRQ concessions)?
No. There is no economic study that could provide such operational indications. The aim of any economic study (including this one) is to provide direction and broad magnitude of expected impacts of a trade agreement, subject to scenario assumptions and limitations of the exercise. This said, it is clear that the results confirm that the EU's current approach of limiting the liberalisation of imports of sensitive agricultural products in all trade negotiations is the right one.
Why are trade scenarios in the study not based on so-called tariff-rate quotas (TRQ) volumes?
Since most agreements are still under negotiation and with undetermined outcome (or even still to be launched), there is no way to identify a realistic scenario with precise TRQ volumes. The only exceptions in the study are Canada and Vietnam. For these countries the TRQs agreed in the negotiations are taken into account.
Partial tariff cuts for sensitive products is a more theoretical approach, but allows to keep a consistent approach for all trade agreements, and symmetry between the EU and trade partners.
Most importantly, it is inaccurate, at best, to draw comparisons between actual import figures and TRQ volumes, as the latter indicate an export opportunity and do not translate automatically into actual imports. For instance, Canada has had access since 2011 to an EU duty free-quota on high quality beef – 48,200 t product weight – but it never managed to export significant quantities. US exports under the same TRQ have also been very short (always less than 40%) of the available quantities at their disposal.
What about results at Member State or regional level?
Due to constraints linked to the choice of the models, results are only available for the EU as a whole.
Why are sanitary and phytosanitary barriers (SPS) not being modelled? If they were modelled, should we expect larger gains for EU exports, or further challenges for EU imports?
Currently we are not able to consider SPS barriers in contemporary economic models with a robust methodology. The fact that it is difficult to quantify the gains for the EU stemming from improved SPS conditions negotiated in our trade agreements should not undermine those negotiating objectives as several trade partners subject EU exporters to unjustified and cumbersome SPS procedures. When it comes to EU imports, the EU has never compromised on its high standards of consumer protection in any trade agreement. For example, it has never authorised so-called growth promoters or modified its science-based GMO approval process. These legal requirements for EU imports remain in place (e.g. CETA), even when tariffs are removed or reduced, and such approach is part of the EU negotiation position in all agreements.
How can trade agreements help reduce SPS barriers?
Modern bilateral trade agreements effectively tackle SPS barriers, which are often technically complex, costly and have been present for a long time. There are successful stories recently on removing SPS barriers and facilitating EU exports.
The EU has a harmonised SPS framework for trade between EU Member States which is not always recognised by trading partners, as they often look at the animal and plant health status of each individual Member State. Through the EU trade agreements, agreed or being negotiated, the Commission pursues the recognition by third countries of the EU's harmonised SPS framework through EU trade agreements. This should ultimately lead to simplified and faster approval procedures for interested Member States or groups of Member States and the setting of non-discriminatory, common exports conditions for all Member States.
What does the study tell us about the future development of EU agriculture?
The study is a tool to inform future negotiating strategy by considering theoretical scenarios that include tariff cuts of 50% and 25% and no quantitative restrictions (TRQs). The study scenarios do not prejudge or reflect future negotiation outcomes for specific negotiations which will most likely provide for tariff rate quotas for sensitive products.
However, the study results confirm the existing approach taken by the Commission for the agricultural chapters in trade negotiations so far by EU negotiators. For dairy and pig meat sectors there seem to be massive export opportunities, and the EU will negotiate with determination to remove tariffs and barriers. EU agriculture has a clear interest in maintaining an ambitious international trade agenda so as not to lose existing market shares to our trading competitors. Major additional benefits are expected fromincreased export opportunities for processed food, enhanced protection of Geographical Indications, and the tackling of SPS barriers for EU exports.
The study also confirms that the EU approach to keep a firm line on limited access for sensitive products, such as beef and rice, is justified. EU negotiators need to manage the expectations of their partners in third countries and are determined to secure adequate protection for those sensitive products, which are of very considerable economic and social value to various Member States.
Finally, the study provides a very strong argument for a powerful and well-resourced EU Common Agricultural Policy (CAP) for the future. A strong CAP is essential for those who want to export and for those who produce for local markets. It also ensures that we produce in a sustainable way that protects the environment and contributes to tackling the considerable climate change challenge.
