Reduced tariffs on agricultural goods would increase trade and boost the economies of the European Union (EU) and United States, according to a report by the United States Department of Agriculture.
The removal of trade barriers would nearly eliminate the US agricultural trade deficit with Europe while increasing real gross domestic product (GDP) for both parties, the report said. Because EU tariffs on US agricultural imports greatly outweigh US tariffs on EU goods, the most dramatic impact would be on US exports. Elimination of tariffs on both sides of the Atlantic would bring the US agricultural trade deficit down to $3.6 billion from $7.3 billion, the federal agency found. Elimination of non-tariff measures would reduce it to just $100 million.
There are benefits for the EU, too: the study found that real GDP for the EU would increase by 0.29 percent under an agreement, compared to just 0.1 percent for the US. The boost in EU GDP would be largely due to reduced food prices and non-agricultural export gains. Increased exports, meanwhile, would drive up the price of agricultural goods in the US.
The forecasted stronger impact on the EU economy is because the US plays a huge role in its agricultural sector. The US is the top destination for EU agricultural exports and ranks second as a source of agricultural imports, according to the European Commission. Major imports from the US include fruit, nuts, soybeans and spirits. However, these goods already enjoy relatively low tariffs and would benefit little from tariff reduction. Instead, the report named beef, pork and dairy as US export goods most likely to benefit from reduced trade barriers. Top EU exports to the US include alcoholic beverages, cheese, vinegar and soft drinks, and the report found cheese and vegetable oil exports would benefit most from elimination of trade barriers.
The study comes in the context of negotiations between the US and EU over a sweeping trade agreement known as the Transatlantic Trade and Investment Partnership (TTIP).
According to the report, agriculture is one of the few areas that would see an impact from potential tariff reduction or elimination through the agreement, because tariffs on other parts of North Atlantic trade are already generally low. Tariffs on US agricultural exports to the EU average 13.7 percent compared to just 5.5 percent for other goods.
When taking into account the effect of tariff-rate quotas and mixed or compound tariffs, the added cost to US exports to the EU reach as high as 61 percent for beef, and nearly 70 percent for butter, according to USDA data. Non-tariff measures (NTMs) added costs of as much as 120 percent of the value to some EU agricultural imports.
While elimination of tariffs and quotas would appear beneficial for both parties, NTMs, which include sanitary restrictions and technical barriers to business, are a more contentious topic. Fears of loosened consumer control of food safety under TTIP have prompted protests across the EU.
The USDA’s Economic Research Service examined the potential effects of removing both tariff and non-tariff restrictions to agricultural trade between the US and EU and that removal of tariffs would grow US exports to the EU by $5.5 billion. Removing NTMs brought that number up to $9.6 billion. EU exports to the US would grow by $0.8 billion if tariffs were eliminated and $3 billion with the removal of NTMs.