ACDE Trade & Development Seminars
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Trade policy modelling typically focuses on effects of tariff changes on product markets. Yet in practice those are small relative to effects of changes in real incomes and real exchange rates as a consequence of a trade agreement. And the effects on bilateral trade are sensitive to follow-on bilateral FTAs, each of which generates winners and losers. The trade and welfare benefits of even cumulative FTAs are typically very small compared with those from global reform. This paper illustrates these points as they apply to the breakdown of a trade agreement (the UK’s withdrawal from the EU, or Brexit) and expected bilateral FTAs to follow. It does so for a single product, using a partial equilibrium model of the world’s wine markets. Wine provides a good case study because Britain accounts for a major share of the world’s wine imports, and EU member countries include the world’s major wine exporters.