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Abstract
Import tariffs are typically defined at a very detailed level, which is
then used in trade negotiations. The WTO Framework Agreement of July
2004 proposes the use of a “tiered” formula where tariff lines classified in
higher ‘bands’ are subject to proportionally higher cuts. Exceptions to the
general rule, like sensitive products, are also defined at the tariff line level.
Despite the relevance of tariff structure on trade liberalization, computable
partial or general equilibrium models usually represent more aggregated
products. In this respect, the literature suggests that market models can be
combined with detailed tariff modules. We propose a new methodology to more
accurately aggregate tariffs from the tariff line level to the one required by
computable equilibrium models. The Tariff Reduction Impact Model for
Agriculture (TRIMAG) uses the highest possible level of disaggregation
(8 digits) and allows implementing tariff cuts and deriving the domestic price
drops foreseen by alternative trade policy scenarios. Aggregated tariffs are
derived by considering the substitutability effects in consumption between the tariff lines corresponding to the same aggregate product. We incorporate the
tariff aggregates of TRIMAG resulting from a WTO agreement into
the Common Agricultural Policy Regionalized Impact (CAPRI) partial
equilibrium model. Differences between the standard tariff aggregation of
CAPRI and the newly implemented methodology are illustrated. Results show
that, when tariff cuts are applied at the 8 digit level, whether the substitution in
consumption between tariff lines will result in a lower or higher aggregate tariff
cut than the one that should directly be applied to the aggregate product is an
empirical question. The selection of a limited number of sensitive tariff lines, if
their share in the consumption bundle is high, might significantly raise the tariff
for the corresponding aggregated product.