The free trade agreements

Building on and updating a previous study published by the European Commission’s Joint Research Centre (JRC) in 2021, the present study analyses the ex ante cumulative economic impacts on the EU’s agri-food sector of 10 FTAs between the EU and trading partners that either have been recently concluded, but whose adoption or ratification is currently ongoing, or are under negotiation. The updated list of agreements accounts for progress in the EU trade agenda since the 2021 study and includes 10 upcoming agreements (with Australia, Chile, India, Indonesia, Malaysia, Mercosur (Argentina, Brazil, Paraguay and Uruguay), Mexico, New Zealand, the Philippines and Thailand).

At time the study is published (January 2024) negotiations were concluded for the EU trade agreements with Chile, Mercosur, Mexico and New Zealand while other trade dossiers are under negotiation.

The main differences between this report and the study published in 2021

In 2021, the JRC published the second study analysing the cumulative economic impact of ongoing and upcoming FTAs between the EU and 12 trading partners (Australia, Canada, Chile, Indonesia, Japan, Malaysia, Mercosur, Mexico, New Zealand, the Philippines, Thailand and Viet Nam) on the EU agricultural sector. The study analysed two theoretical trade scenarios, conservative and ambitious, depending on the extent of ambition of the negotiations. Overall, the results show balanced cumulative impacts, in terms of trade, production and producer prices, on the EU agricultural sector.

The present study, while building on that presented in 2021, differs from its predecessor in some crucial aspects, making a full comparison between the two difficult.

The main differences between the two studies are the following.

• The two studies consider two different sets of FTAs, reflecting the evolution of the EU trade agenda.
• The FTA with India is included in this study for the first time and modelled through theoretical scenarios.
• FTAs with Chile and New Zealand are added to the list of FTAs that have already been concluded (those with Mercosur and Mexico). Concluded FTAs are assessed not through theoretical scenarios, but by modelling the actual tariff cuts included in the agreements, as well as including TRQs for relevant products.
• The FTAs between the EU and Canada, Japan and Viet Nam are now integrated into the baseline; hence the impacts of these three FTAs are no longer added to the two scenarios (Box 5).
• The current study models the impact of the UK trade agenda on the EU agri-food sector as additional scenarios combined with the baseline, ambitious and conservative scenarios.
• The global CGE model MAGNET database has been extended to include a more refined agricultural sector disaggregation than that usually used, the Global Trade Analysis Project (GTAP) one. The current study includes a disaggregation of vegetables and fruit and nuts.
• The global CGE model MAGNET is calibrated to the EU medium-term agricultural outlook published in December 2022 (European Commission, 2022a).
• The time horizon of the latest study has been extended to 2032.

The models

The economic assessment is based on a two-step modelling approach: 1. an analysis of the impacts of the 10 FTAs on EU bilateral agri-food trade flows using the Modular Applied GeNeral Equilibrium Tool (MAGNET) model, a global computable general equilibrium (CGE) model, which considers the whole economy; 2. an analysis of the impacts of those changes in trade flow on EU production, consumption and prices at commodity level using the global partial equilibrium (PE) model Aglink-Cosimo.

The study integrated the two models to take advantage of the strengths of each. The MAGNET model was first calibrated to the 2022–2032 EU medium-term agricultural outlook projections and was then used to simulate bilateral trade flows in various scenarios accounting for the EU FTA agenda. The changes in trade identified by the MAGNET simulations were entered into the Aglink-Cosimo model to obtain a detailed analysis of the impacts of these changes on the EU agri-food sector.

The commodities

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, despite improved compared to the previous study, is quite limited as well as its capacity to model sectorial specificities and policy constraints.

The partial equilibrium model Aglink-Cosimo overcomes these shortcomings and provides more detailed and comprehensive results at agricultural commodity level, although it cannot 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 which represent a significant share of total EU agri-food export value.

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 study integrated the two models to take advantage of the strengths of each. The MAGNET model was first calibrated to the 2022–2032 EU medium-term agricultural outlook projections and was then used to simulate bilateral trade flows in various scenarios accounting for the EU FTA agenda. The changes in trade identified by the MAGNET simulations were entered into the Aglink-Cosimo model to obtain a detailed analysis of the impacts of these changes on the EU agri-food sector.

The three scenarios

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. The Baseline represents what would happen if nothing changes in terms of trade policy.

The study considers two scenarios, assuming different liberalisation patterns in 2032, and compares them with a baseline trade projection in the same year without the implementation of the selected FTAs. In the case of the FTAs with Chile, Mercosur, Mexico and New Zealand, which have been concluded, both scenarios consider actual outcomes in terms of tariff preferences and bilateral tariff rate quotas (TRQs). In contrast, in the case of the FTAs with Australia, India, Indonesia, Malaysia, the Philippines and Thailand, the scenarios consider theoretical tariff reductions, as these FTAs are still under negotiation. These theoretical tariff reductions are modelled according to two different degrees of liberalisation, similar to the approach followed in the previous studies: the conservative scenario assumes a full tariff liberalisation of 97 % of Harmonised System (HS) six-digit tariff lines and a 25 % tariff cut for the tariff lines considered sensitive while the ambitious scenario assumes a full tariff liberalisation of 98.5 % of HS six-digit tariff lines and a 50 % tariff cut for sensitive products. The same assumptions are applied to all trade agreements with countries in the second group, and symmetrically to both the EU and the relevant trading partners. The selection of sensitive lines, subject to partial tariff cuts, was based on expert judgement and a statistical assessment of the tariff revenues collected on each tariff line in the past and it includes both agricultural and non-agricultural goods.

This study also provides, for the first time, three additional scenarios looking at the impact on the EU agri-food sector of the trade agreements recently concluded by the United Kingdom with Australia, New Zealand and member countries of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The first of these scenarios calculates the impact of the UK trade agenda compared with the baseline scenario, without accounting for the counterbalancing effects of the EU trade agenda. The other two scenarios combine the conservative and ambitious scenarios with the effects of the UK trade agenda to compare the impact on EU–UK bilateral trade of further EU trade liberalisation and preference erosion.

Limitations

While the MAGNET model provides comprehensive coverage of the agri-food sector, its underpinning database is unable to disaggregate data at the level of individual agri-food commodities, such as olive oil, wine and orange juice. The Aglink-Cosimo model provides more detailed results at the agri-food commodity level, although its product coverage is also not exhaustive, as it does not include trade in some important products, such as fruit, vegetables, wine, olive oil and processed products.

In addition, given the complexity of the analysis, the models are able to provide results only at the aggregate EU level and not disaggregated at member state level. Furthermore, the considered scenarios investigate the effects of tariff liberalisation but do not consider any possible reduction in non-tariff measures (NTMs).

Finally, the impacts of the European Green Deal and other trade-relevant polices (e.g. the 2023 regulation on deforestation-free products) or other dimensions of the EU trade policy, such as environmental and social sustainability, are beyond the scope of this study.

Conclusions

The analysis confirms that the EU trade agenda has the potential to be beneficial for the EU agri-food sector. It also confirms the vulnerability of specific commodities such as beef, sheep meat, poultry, sugar and rice, with EU imports of these commodities growing in the trade liberalisation scenarios considered. This study confirms the finding of previous editions that TRQs are a highly effective policy tool to keep a balance between the preferential market access granted to trade partners and the objective of limiting disruption of the market for the EU’s sensitive products. This is essential to prevent possible adverse economic and social impacts to EU agricultural activity and rural areas.

Disclaimer

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.

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