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Trade Liberalisation Benefits to EU Member States. By Cordula Thum
Jul 20, 2002

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  • Comment Board
  • A 1999 STUDY OF THE EUROPEAN COMMISSION PREDICTS WELFARE GAINS THROUGH TRADE LIBERALIZATION

    A 1999 study published by the European Commission (EC) (Endnote ) comes to similar results.

    It looks at the potential impact of a new WTO trade round and concluded that an ambitious package of trade liberalization a 20% to 50% global cut in applied protection in agriculture, industrial products and services, plus trade facilitation agreement - would increase annual global welfare by nearly $220 billion to $400 billion.

    In the first instance, the study looked at across-the board cuts in trade protection across all agricultural, industrial, and services sectors by all countries. Two scenarios were considered a 20 percent cut and a 50 percent global cut in protection. Each of these scenarios was combined with a WTO agreement on trade facilitation, which it is assumed leads to a modest reduction (conservatively estimated at 1 percent) in the transactions costs associated with international trade. Their estimates indicate that the potential welfare gain for the EU from the market access plus trade facilitation could amount to an annual windfall of between $46 billion and $92 billion US Dollars which represents a 21 percent share of the global welfare gains.

    The Stern/Deardorff/Brown study comes to a similar conclusion in terms of the EU share of the global welfare gains from trade liberalization: The gains for the EU/EFTA countries would represent 28 percent of the global welfare gains.

    CONCLUDING REMARKS

    These studies point to the fact that there are potential gains of liberalizing trade further in particular for the EU Member Countries. Although protection and distortions have declined substantially over the past three decades, they remain significant. Trade distortions, such as tariffs and barriers, quotas, and subsidies result first and foremost in a cost to the country that imposes them. These distortions shift the economy to a less efficient mix of production, consumption, and investment. This proves significant in the case of the EU Member countries.

    Endnotes and Bibliography

    EU-US Summit, Washington, 2 May: trade aspects. Briefing, Brussels, 29 April 2002. http://europa.eu.int/comm/trade/bilateral/usa/br290402.htm The EC study uses, like Stern/Deardorff/Brown the computable general equilibrium (CGE) modeling to asses the potential impact of trade negotiations (For further explanation on the CGE modeling see: Mark Twain Institute Publication, Trade Liberalization Series, N1).

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