Bound Tariffs, Unused Protection, and Agricultural Trade Liberalisation

Many quantitative assessments of the effects of agricultural trade liberalisation have relied on the assumption that trade policy reforms directly reduce applied tariffs in WTO member countries. However, in this paper it is argued that consideration of policy reforms applying to tariffs bound in Uruguay Round schedules rather than to the often much lower applied rates can have important consequences for analytical results. Using information on bound and applied tariffs from the Agricultural Market Access Database, and the Global Trade Analysis Project computable general equilibrium model, the effects of tariff reforms under alternative policy and parameter constellations are evaluated. The findings suggest that simulating negotiated tariff cuts as reductions in applied rates rather than in conditional applied rates, which are obtained as the minimum of bound rates after a negotiated tariff cut and initial applied rates, overestimates the benefits from agricultural trade liberalisation. The distortion of estimates is particularly pronounced for simulations that assume modest tariff cuts, as well as for countries and commodities where the differences between bound and applied rates are substantial. Hence, quantitative policy analysts that aim to inform decision makers on the likely impacts of negotiated tariff cuts should consider the relationship between bound and applied tariff rates in their assessments in order to avoid biased advice.