Cumulative economic impact of future trade agreements on EU agriculture

As announced by Commissioner Hogan at the Agriculture Council meeting of 15 February 2016, the European Commission (Joint Research Centre, working together with DG AGRI) has carried out an analysis of the potential cumulative impact of ongoing and upcoming trade negotiations on the EU agricultural sector.

The report was presented to the Agriculture Council on the day it was published (15 November 2016).

This interactive infographic complements the homonym scientific report with tools to freely dig in data visualizations and to discover facts within the model results.

Background information about the study (methodology, limits, cautions) are organized in few expandible frames, above the interactive visualizations.

© theaphotography / Fotolia.com

This study analyses the cumulative economic impact on the EU agricultural sector of potential ongoing and upcoming Free Trade Agreements between the EU and 12 trade partners (countries or macro-regions): USA, Canada, Mercado Común el Sur (Mercosur), Australia, New Zealand, Japan, Vietnam, Thailand, Turkey, Mexico, Philippines and Indonesia.

At time the study is carried out (February-November 2016) negotiations were concluded for the EU trade agreements with Canada and with Vietnam, although these agreements are not into application yet. Several other prominent trade dossiers are under negotiation, including the Transatlantic Trade and Investment Partnership (TTIP), the agreements with Japan or the one with the Mercosur, and just launched the one with Indonesia. Finally, some new negotiations are likely to be launched in the near future (e.g., Australia, New Zealand), and other agreements are going to be modernised (e.g., Mexico, Turkey).

The economic assessment is based on a two-tier modelling approach:

1. An overall analysis of the impacts of FTAs on EU agri-food trade flows, performed by means of simulations with the MAGNET model, a computable general equilibrium model (CGE).

2. A detailed analysis of the impacts on EU agriculture at product-specific level, run by means of the partial equilibrium model (PE) AGLINK-COSIMO.

The two simulations are interlinked, i.e. the PE model builds on the results of the CGE simulation and provides more details and higher product disaggregation, the consistency between the two different modelling approaches being maintained.

You can find deep details about the adopted methodology in the scientific report , and a resume of the salient aspects within these Frequently Asked Questions.

The models base their calculations by considering the overall World economy.

Besides the 18 regions (11 FTA countries and 7 countries in Mercosur) that are the subject of the study (labelled as "FTA), the rest of the world (EU-28 itself and "NON FTA" regions) is considered in the model's computations and organized in macro regions.

In this map you can see in yellow the FTA partners and in red the non FTA partners. European Union is in blue. The 18 regions are separated by borders. If you leave the mouse over a region, the region name appears. If you zoom the map (i.e.: with the mouse wheel) you can see what are the countries included in the regions in the background.

Computed general equilibrium (CGE) models considers the whole economy.

The MAGNET model has a comprehensive coverage of the economy, and thus of the agri-food sector among all the rest.

However, the level of product disaggregation is quite limited as well as its capacity to model sectorial specificities and policy constraints.

The partial equilibrium model AGLINK-COSIMO, which is used to overcome these shortcomings, provides much more detailed and comprehensive results at agricultural commodity level, although it can't either provide results for specific dynamics relating to certain product segments. Furthermore, the product-coverage of AGLINK-COSIMO is not exhaustive, as it does not model some important agricultural products such as fruit and vegetables, wine, olive oil and processed agricultural products in general. Given the very high value of processed products, the AGLINK-COSIMO model does not represent a significant share of total EU agri-food export value (70%).

In this table you have a resume of the economic sectors processed in one or both of the models, and what is ultimately present in the results, which focus on agriculture and food commodities.

The results presented here, are the projections of the EU import and exports of agriculture and food products to worldwide partners (countries or macro-regions) and the expected level of the EU production.

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.

Instead three hypothetical scenarios reflecting different degrees of trade liberalisation are simulated:

1) Baseline: "status quo", what would happen if nothing changes. in trade policy. Only main trends for GDP and population growth and energy prices are introduced.

2) Conservative: An intermediate level of trade liberalisation is introduced on top of the baseline assumptions. - Tariffs for 97% of HS 6-digit lines are removed and tariffs for remaining 3% (i.e. sensitive products) are cut by 25%

3) Ambitious: A high level of trade liberalisation is introduced on top of the baseline. - Tariffs for 98.5% of HS 6-digit lines are removed, and tariffs for remaining 1.5% (i.e. sensitive products) are cut by 50%

These are mere modelling exercises and should not in any way be seen as prejudging the potential outcome of the ongoing negotiations.

The 3 scenarios are simulated twice, with and without the Trans-Pacific Partnership (TPP) Agreement being in effect to see if the results are sensitive to the agreements done by the third parties.

Although economic models used in this study can be used to project individual values of particular variables, it must be stressed that they are not forecasting models and users should be aware that the particular values projected for, say, 2025 may be unreliable as to what will happen in that year.

However, the simulated impact of a particular policy change in 2025, relative to the 'no change' situation, or relative to another year, is more likely to be reliable since the influences of any imperfections in the model and of unforeseen external shocks may be cancelled out across the two scenarios (or years) being compared, leaving a deviation between the two that has a lower component of error.

That is why the below visualizations allow you to study differences:

1) Assesing the impact of the free trade agreement in 2025by comparing the two scenarios (conservative and ambitious), against the 'no change situation' (baseline).

2) By comparing the changes between 2025 and 2016 by scenario.

3) By visualizing the results of the 3 scenarios side-by-side.

This study is subject to several "caveats", deeply detailed in the scientific report . You find also a resume in this online FAQ page.

Some essentials points are:

Study results are provided only for the EU as a whole. This simplification was necessary given the complexity of the analysis and the limited reliability of the modelling tools at sub-EU level.

The study was unable to take into account the possible impact of future developments related to the UK.

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.

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.

Due to theoretical character of the scenarios, possible trade concessions for sensitive products are implemented as tariff cuts (of 50% or 25%) rather than TRQs - as it is commonly the case in global trade analysis.

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.

The prominence of Mercosur exports, in particular in the beef sector, raises the issue related to the capacity of the region to fulfil the increasing export quantity estimated by the model. Bottlenecks in Mercosur supply and export infrastructures, as well as environmental constraints, could reducethe imports from this region.

The considered trade scenarios only investigate the effects of tariff liberalisation, but do not factor in the analysis the possible reduction of non-tariff measures (NTMs). In fact, since there are currently no reliable estimates of NTMs for the agricultural sector at disaggregated level, and given the limited time to complete the exercise, it was decided to omit them from the study.

Currently we are not able to consider phytosanitary barriers (SPS) 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 the 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.

The study clearly illustrates the potential for European agricultural products on the world market. The potential gains for the dairy and the pigmeat sector are particularly sizeable, but a number of other products benefit from trade opening, ranging from commodities like wheat to more high value/processed products of the agri-food industry, such as alcoholic beverages (notably wine and spirits). The additional exports due to trade agreements could translate into an important source of growth, jobs and income for the European agricultural and food sectors.

On the other hand, the study shows the vulnerability of specific agricultural sectors towards growing imports following trade agreements. This is, in particular, the case for beef, rice and to a lesser extent for poultry and sugar. This confirms the EU concerns regarding the sensitive character of these products in a number of trade negotiations. The results for these sectors represent the impact of theoretical scenarios (tariff cuts of 50% and 25%) rather than the introduction of TRQs, which are commonly included in trade agreements for these sectors. The study should therefore be interpreted as a reminder that these sectors need specific attention during the ongoing and future negotiation process.

In any event, the successful conclusion of trade agreements, for both parties, will have to strike a balance between the protection of sensitive products and the achieved market access for offensive agricultural products. The overall result of trade negotiations should remain acceptable, economically and socially for EU agriculture.

This infographic is a complement of a Science for Policy report by the Joint Research Centre (JRC), the European Commission's science and knowledge service.

It aims to provide evidence-based scientific support to the European policy-making process. The scientific output expressed does not imply a policy position of the European Commission.

Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of this infographic and underlying data.

ASEAN - Association of South-East Asian Nations
AVE - Ad Valorem Equivalent
BTRQ - Bilateral Tariff Rate Quota
CAP - Common Agricultural Policy
ChAFTA - China-Australia Free Trade Agreement
CETA - Comprehensive Economic and Trade Agreement
CGE - Computable General Equilibrium
DDA - Doha Development Agenda
DG - AGRI Directorate-General for Agriculture and Rural Development
DG - TRADE Directorate-General for Trade
EC - European Commission
EU - European Union
FAO - Food and Agriculture Organization of the United Nations
FTA - Free Trade Agreement
F&V - Fruits and Vegetables
GDP - Gross Domestic Product
GTAP - Global Trade Analysis Project
HS - Harmonised System (tariff nomenclature)
iMAP - integrated Modelling Platform for Agro-economic Commodity and Policy Analysis
JRC - Joint Research Centre
MAGNET - Modular Applied GeNeral Equilibrium Tool
MERCOSUR - Mercado Común del Sur
NTM - Non-Tariff Measure
OECD - Organisation for Economic Co-operation and Development
TBT - Technical Barriers to Trade
PE - Partial Equilibrium
SADC - South African Development Community
SIA - Sustainability Impact Assessment
SMP - Skimmed Milk Powder
SPS - Sanitary and Phytosanitary Measures
TASTE - Tariff Analytical and Simulation Tool for Economists
TPP - Trans-Pacific Partnership
TRQ - Tariff Rate Quota
TTIP - Transatlantic Trade and Investment Partnership
USA - United States of America
WMP - Whole Milk Powder
WTO - World Trade Organisation

FTA impact 2025

Scenario:
Considering the Trans-Pacific Partnership:

2025 vs 2016

In this section you can analyze the trade changes between 2016, the year in which the study was performed, and 2025.

Indicator:
Scenario:
Considering the Trans-Pacific Partnership:
Ball size: production value.
■ EU remains net exporter
■ EU remains net importer
■ EU becomes net exporter
■ EU becomes net importer

Scenarios side by side

Indicator:
Considering the Trans-Pacific Partnership:

In this frame you can vizualize side-by-side the projected value for 2025 of the trade flows between EU and the 18 countries/regions subject of on-going or concluded negotiations of free trade agreement.

These visualizations show absolute projected values: please remind that the focus should be put in the differences among the scenarios. Reliability of absolute values is declaredly unpredicatable. (see above panel "Focus on differences").

Import:What EU would import in 2025.

Export:What EU would export in 2025.

Trade Balance:EU exports - EU imports in 2025.

All figures are values in Million Euros.

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