Prospects of the Food Processing Sector under Tariff and Non-Tariff Measures Liberalization in the Transatlantic Trade and Investment Partnership

Food processing firms differ in productivity, vary in size and engage in a monopolistic competition based on highly differential products. While trade in processed food is becoming more important, the processed food sector is still the most protected one in both the European Union (EU) and the United States (US). This study employs a Computable General Equilibrium model which incorporates a module for heterogeneous firms under monopolistic competition to quantify impacts of a potential Transatlantic Trade and Investment Partnership (TTIP) agreement. Specifically, we evaluate a full removal of bilateral tariff and export subsidies between the EU and the US, and an additional reduction of bi-lateral rents and trade costs related to Non-Tariff Measures (NTMs) in the food processing sector, drawing on cost estimates of existing empirical studies. Simulation results show quite small welfare impacts under both scenarios and limited impact on trade volumes as long as NTMs are not considered. Although transatlantic trade increases significantly in food processing sectors at the extensive margin of trade once changes in NTMs are accounted for, reduction in domestic sales leaves total industry output unchanged in both regions. Our model underlines the importance of considering NTMs and vertical differentiation, but is clearly limited by data availability especially on costs of existing NTMs and their composition.

Heckelei, Thomas
Issue Date:
Dec 01 2016
Publication Type:
Working or Discussion Paper
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PURL Identifier:
Total Pages:
JEL Codes:
F12; F14; F47
Series Statement:
Agricultural and Resource Economics, Discussion Paper

 Record created 2017-04-01, last modified 2018-01-23

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