TRADE LIBERALIZATION IN THE PRESENCE OF DOMESTIC REGULATIONS: IMPACTS OF THE PROPOSED EU-U.S. FREE TRADE AGREEMENT ON WINE MARKETS

The United States and the European Union (EU) have embarked on ambitious negotiations to create a comprehensive free trade agreement known as the Transatlantic Trade and Investment Partnership (TTIP). Agricultural markets receive relatively high levels of support and protection in both regions, and therefore are sensitive to the discussions surrounding the TTIP. Wine is the highest valued agricultural product traded between the United States and the EU, and any reduction in trade barriers resulting from the TTIP has the capacity to generate additional trade in this sector. We carefully develop parameters to characterize the effects of tariffs and domestic regulations that affect production and consumption of wine in these two regions. Results show that reductions in tariffs would have relatively small effects in these wine markets, whereas reductions in EU domestic policies that affect wine grape production would have much larger trade and welfare implications