Implicit policy preferences and trade reform by tariff aggregates
Abstract
Pressure from negotiators on agricultural tariff reform in the Doha Round is favouring commitments to reduce “average” tariffs over a range of commodities. This stems from the perceived need for “flexibility” in protection levels, particularly for some highly protected product groups like sugar, dairy products and rice. Yet reforms that reduce the average tariff across agricultural products but raise tariff dispersion may well reduce welfare and therefore defy the spirit of the negotiations. This paper develops a practical approach to identifying the policy preferences implicit in existing tariff patterns and employs these preferences in formulating mathematical programs that represent the primary policy formation process. These are solved and the effects explored of reform by reductions in either the arithmetic or the trade value weighted average of tariffs. In applications to the EU and Japan, tariff dispersion is found to increase with either averaging formula but by more in the trade value weighted case.