Agricultural Market Access: Striking the Balance between Formulas and Water in the Tariffs

In the current round of negotiations by members of the World Trade Organisation (WTO), member countries committed themselves to substantially improving market access and reducing export subsidies and trade-distorting domestic support. The Doha Work Programme adopted by the WTO in 2004 defines the modalities for the negotiations, but there are still many open questions: What will be the magnitude of the tariff cuts? Which products will be defined as ‘sensitive’? In addition, the difference between bound and applied tariff rates could be a criterion for defining sensitive products. Does the ‘water in the tariffs’ – which some define as any gap between the applied rate and the actual rate of protection, where the actual rate is lower – lead to an implicit preferential treatment for developing countries? How will sectors with different gaps between applied and bound rates be affected? This paper seeks to discuss and answer these questions. It analyses the effects of market access taking applied and bound rates into account. An extended version of the Global Trade Analysis Project model is used to first project a base run including the Agenda 2000, EU enlargement, the Everything but Arms agreement and the EU’s Mid-Term Review along with the WTO negotiations. Here, a differentiation is made between two experiments, both of which implement a more rigorous version of the Harbinson 1½ proposal. The difference between the experiments shows the effects of water in the tariffs, which are summarised in the conclusions.