The Impact of EU-Accession on the Estonian Trade with Food Products - Partial Equilibrium Approach

Abstract

The purpose of the paper is to analyse the impact of EU-accession on the Estonian food sector from the point of view of potential changes in foreign trade. Estonia has followed radical macroeconomic reforms in the 1990's and is well known by its extremely liberal trade policy including the complete absence of tariffs and quantitative restrictions. Therefore the accession to the EU means for Estonia radical change in the trade policy regime. The most affected will be trade with food products and eventually this will cause deep changes in the Estonian agriculture. Estonia has to implement EU common external tariffs against third countries and on the other hand EU food market will be opened to Estonian exporters. In addition Estonia has to implement against third countries the whole system of non-tariff trade barriers required by EU (export subsidies, tariff quotas, sanitary requirements and etc). In general the analysis presented in this paper tries to quantify the effects of trade liberalisation from EU side and growing protectionism against third countries on the Estonian trade with food products. Due to a low prices and protection level at present, many food prices are expected to rise. However, this rise in prices and the consequent increase in production and export depend on the competitiveness of in Estonian products on the markets in the present EU member states. Since January 2000 Estonia already implemented limited tariffs on food products against third countries. Implementation of partial equilibrium analyses allowed to show that trade diversion has taken place as a result of it - the import from third countries has been partly driven out by the import from the European Union and the countries Estonia has free trade agreements with. In the case of some agricultural products it can be supposed that the price increase in imports has also influenced Estonian producer and retail prices. In using of partial equilibrium model the agricultural sector is disaggregated into the dairy, meat and cereals markets. This allows incorporate into the analysis the specific characteristics of different products.