Using simulation models to support policy makers: The TRIMAG tariff aggregation tool in combination with the CAPRI model

Abstract
Import tariffs are typically defined at a very detailed level, which is then the one relevant for trade negotiations. However, due to data availability and computational problems, ex-ante economic analyses done by computable partial or general equilibrium models often use an aggregate tariff structure. In this respect, the literature suggests that market models can be combined with detailed tariff modules, and also provides examples showing the impact of different weighting schemes on tariff aggregation. We propose a new empirical methodology to aggregate tariffs from the tariff line level to the one required by equilibrium models. The proposed methodology makes use of data on tariffs and domestic and international prices at the highest possible level of disaggregation (for Switzerland, 8-digits in the Harmonized System). First, the impact of tariff dismantling on domestic prices is calculated. Then, this information on domestic price drops is used in order to account for the substitutability effects in consumption while calculating the aggregation weights. This approach is implemented in the so-called Tariff Reduction Impact Model for Agriculture (TRIMAG), currently in use at the International Trade Policy Unit of the Swiss Federal Office for Agriculture. TRIMAG allows various market access negotiating options to be tested with high accuracy and can be used in combination with simulations models that operate at a higher level of aggregation. Indeed, the tariff aggregates obtained by TRIMAG are currently used to define the policy scenarios for Switzerland within the Common Agricultural Policy Regionalized Impact (CAPRI) partial equilibrium model (www.capri-model.org), a spatial, partial equilibrium model for global agricultural markets designed to analyse agricultural and trade policies.
Our results show that due to the high variability of tariffs and of their relevance in the consumption bundle, aggregated tariff cuts can be higher or lower than those that would be obtained by applying tariff reduction formulas directly on the product aggregate. The joint use of various modelling tools assures a high level of accuracy in applying tariff reduction formulas (as needed by policy makers in trade negotiations) while assessing the impact of trade liberalisation on agricultural markets.

Biography of the Speaker
Giulia Listorti is currently scientific advisor in the International Trade Policy Unit of the Swiss Federal Office for Agriculture (FOAG). Her main duties include economic analysis supporting bilateral and multilateral trade negotiations, including the development of new analytical tools in collaboration with national and international research institutes, and management of policy evaluation projects. She is the contact person for the federal research institute AGROSCOPE concerning market-modelling issues and participates in various international research networks. In spring 2013, she was invited researcher at the Institute for Prospective Technological Studies (IPTS) of the Joint Research Centre (JRC) of the European Commission under the scientific collaboration agreement between the JRC and the FOAG on economic modelling and international trade analysis. Giulia holds a PhD in Political Economy from the Università Politecnica delle Marche (Ancona, Italy), with a thesis on international price transmission under policy intervention. Her main specialties include agricultural economics and policy; international trade; simulation models; and econometrics.

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