Tariff line analysis of U.S. dairy protection

Trade policy is defined at the tariff line. Yet most analyses of trade liberalization are conducted at a much more aggregated level. Computable General Equilibrium (CGE) models are universally susceptible to the problem of policy aggregation. Moreover, these models become increasingly irrelevant as policy negotiations intensify into sensitive sectors. At this level of detail, countries employ a mix of standard and nonstandard policies at very disaggregate levels, which are not well represented in current CGE analyses. Further commitments to liberalize trade in the Doha Development Agenda (DDA) will be implemented at the tariff line. Hence, from a practical standpoint, it is important that future CGE-based analyses be able to accurately represent trade policy options at this level. The purpose of this thesis is to extend CGE analysis to the tariff line in selected sectors by developing a detailed, econometrically estimated, tariff line sub-sector model and embedding this in a global CGE framework. In doing so, this thesis will improve our understanding of the effects of agricultural border policies that are defined and negotiated at the tariff line. A case-study approach is adopted focusing on the heavily protected U.S. dairy sector which contains a number of tariff-rate quotas, complex administration methods, high Most Favored Nation (MFN) tariffs and preferentially applied tariff rates. A mixed-complementarity formulated sub-sector model calibrated to 2001 policy levels in U.S. dairy represents bilateral and multilateral trade policy at the tariff line. Equilibrium outcomes in the sub-sector model are iteratively introduced in a modified CGE model tracking liberalization results from dairy reforms. The analysis examines a comprehensive set of TRQ reform options viz á viz over-quota tariff reductions, quota expansion, simultaneous liberalization as well as competition for and expansion of the global, MFN quota. The results suggest that the path of dairy trade liberalization in the U.S. economy is quite different depending on the reform approach undertaken, particularly when both MFN and country-specific quotas are incorporated into the analysis. This study is the first of its kind to showcase this interaction between bilateral and MFN quota administration in a quantitative framework