Tariffication of European Community Corn Imports

In July 1989, U.S. negotiators presented a tariffication proposal at the General Agreement on Tariffs and Trade (GATT) meeting in Geneva. According to that proposal, all agricultural nontariff barriers (NTBs) such as quotas and variable import levies would be converted to equivalent ad valorem tariffs. The following formula, known as the price gap method, was proposed for converting the NTBs to tariffs: TE= [(PD - PW)/PW] · 100, where TE is the tariff equivalent, PD is domestic price and PW is world price. If an agreement on tariffication is reached, the next step will be to develop a schedule for a phased reduction of tariffs. The purpose of tariffication and phased reduction is to eliminate market access barriers and thus provide treatment of imports no less favorable than that accorded to domestic commodities and products. Advantages of tariffication are that (1) tariffs establish a direct link between domestic and world market prices and allow for the direct transmission of world market signals, (2) tariffs are transparent and thus help exporters to assess their impacts, and (3) fewer administrative costs are required to implement tariff policies. This analysis computed the tariff equivalent for the European Community (EC) variable levy for corn imports and evaluated the dynamic impacts of a phased reduction of tariff equivalents on U.S. corn exports, trade share, EC corn imports, and world trade and price.