EU Trade Policies: Benchmarking Protection in a General Equilibrium Framework

This paper deals with the EU’s trade policy with two objectives: on the one hand, we study the performance of EU's preferential agreements in granting their partners improved market access; on the other hand, we assess the extent to which domestic sectors are effectively protected. As far as the first objective is concerned, we construct bilateral indicators of protection based on the applied tariffs faced by each exporter. In order to do this, an index of trade policy restrictiveness is computed, using the Mercantilistic Trade Restrictiveness Index as the tariff aggregator. We also analyze the protection granted to each sector by the existing tariff structure. In this respect, we compute effective rates of protection that overcome the well-known theoretical shortcomings of the traditional definition (Output Effective Rate of Protection). The analysis is based on a comparative static applied general equilibrium model (Global Trade Analysis Project) and on the most recent version (release 6) of the related database. Results are obtained with reference to the situation existing in 2001, but the assessment of protection is carried out for the enlarged EU. Overall, it appears that notwithstanding the rhetoric about preferential access, several developing countries are the ones facing the highest hurdles in getting into the EU markets. Both bilateral protection and effective protection rates are broadly consistent with the evolution of the WTO negotiations: the strongest demands from developing countries in terms of market access in the EU have less to do with the overall applied MFN tariffs on industrial products than the reduction of distortions affecting trade in agriculture.