General Equilibrium Modelling of Trade Negotiations Outcomes

General Equilibrium Modelling of Trade Negotiations Outcomes

Stephen N. Karingi, Trade and International Negotiations Section, UNECA

IntroductionIntroduction

Policy makers need options in order to be able to make decisions.

These options must be derived in an objective manner, in order to give decision makers confidence.

If options are not derived in an objective and consistent way, technicians easily lose credibility.

Policy makers need options in order to be able to make decisions.

These options must be derived in an objective manner, in order to give decision makers confidence.

If options are not derived in an objective and consistent way, technicians easily lose credibility.

IntroductionIntroduction

Policy makers get comfort if they know: That the methodology used to draw policy options is

theoretically sound.

That the data used in generating the empirical results is verifiable.

That the assumptions used are realistic.

Different scenarios are offered.

Policy makers get comfort if they know: That the methodology used to draw policy options is

theoretically sound.

That the data used in generating the empirical results is verifiable.

That the assumptions used are realistic.

Different scenarios are offered.

Why are economic models needed?

Why are economic models needed?

Why are economic models needed?Why are economic models needed?

Different policy questions:1. What are prospective export markets?2. What sectors are sensitive in a liberalisation scheme/schedule?3. Is a country better off with a REC remaining as an FTA rather

than customs union? 4. Has regional integration realised expected trade growth?5. What are the potential benefits/costs from the EPAs and/or

Doha Round for a country or sector?6. How long will it take for incomes in a given REC to converge?7. Does trade liberalisation help reduce poverty – MDG target?8. Are trade policy options gender neutral?9. What is the optimal point for trade and environment policies?

Different policy questions:1. What are prospective export markets?2. What sectors are sensitive in a liberalisation scheme/schedule?3. Is a country better off with a REC remaining as an FTA rather

than customs union? 4. Has regional integration realised expected trade growth?5. What are the potential benefits/costs from the EPAs and/or

Doha Round for a country or sector?6. How long will it take for incomes in a given REC to converge?7. Does trade liberalisation help reduce poverty – MDG target?8. Are trade policy options gender neutral?9. What is the optimal point for trade and environment policies?

Why are economic models needed?Why are economic models needed?

“Without theory, practice is but routine born out of habit.” Louise Pasteur.

“(S)He who loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may cast.” Leonardo da Vinci.

“Being denied a sufficiently secure experimental base, economic theory has to adhere to the rules of logical discourse and must renounce the facility of internal inconsistency. A deductive structure that tolerates a contradiction, does so under the penalty of being useless, since any statement can be derived flawlessly and immediately from that contraction. In its mathematical form, economic theory is open to an efficient scrutiny of logical errors.” Gerard Debreu, Nobel Prize Winner, 1983.

“Without theory, practice is but routine born out of habit.” Louise Pasteur.

“(S)He who loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may cast.” Leonardo da Vinci.

“Being denied a sufficiently secure experimental base, economic theory has to adhere to the rules of logical discourse and must renounce the facility of internal inconsistency. A deductive structure that tolerates a contradiction, does so under the penalty of being useless, since any statement can be derived flawlessly and immediately from that contraction. In its mathematical form, economic theory is open to an efficient scrutiny of logical errors.” Gerard Debreu, Nobel Prize Winner, 1983.

How do economic models help improve policymaking?

How do economic models help improve policymaking?

They provide a theoretically consistent framework for analyzing trade policy questions.

They provide a handle on complicated questions.

They help give greater intellectual support for a chosen trade policy.

The use of models can provide a common “language” for policy discourse or debate.

But models should complement rather than substitute for policy making.

They provide a theoretically consistent framework for analyzing trade policy questions.

They provide a handle on complicated questions.

They help give greater intellectual support for a chosen trade policy.

The use of models can provide a common “language” for policy discourse or debate.

But models should complement rather than substitute for policy making.

Models commonly used for trade policy analysis

Models commonly used for trade policy analysis

Models used for trade policy analysis

Models used for trade policy analysis

Trade flow analysis at HS-6 or more tariff line analysis.

Econometrics methods e.g. gravity modeling. Partial equilibrium modeling e.g. WITS-SMART;

ATPSM. Computable general equilibrium model (single

country). CGE model (global) e.g. GTAP. CGE models combined with micro-simulation

model.

Trade flow analysis at HS-6 or more tariff line analysis.

Econometrics methods e.g. gravity modeling. Partial equilibrium modeling e.g. WITS-SMART;

ATPSM. Computable general equilibrium model (single

country). CGE model (global) e.g. GTAP. CGE models combined with micro-simulation

model.

Models used for trade policy analysis

Models used for trade policy analysis

Simulation models: they help answer “What if” types of questions (+ projections): Partial Equilibrium Models e.g. WITS-SMART; ATPSM; TASTE. General Equilibrium models e.g. GTAP; MIRAGE; LINKAGE.

Econometric Models : gravity models (reduced form): can be used to establish

whether certain economic variables have an effect on a variable of interest (Do RTAs or GSP increase trade?)

Macro-econometric models: tools for projections of aggregates but no information on the industrial structure of the economy + may lack micro-foundations.

Combination of simulation and econometric models. Simulation (econometric) models are deterministic

(stochastic)

Simulation models: they help answer “What if” types of questions (+ projections): Partial Equilibrium Models e.g. WITS-SMART; ATPSM; TASTE. General Equilibrium models e.g. GTAP; MIRAGE; LINKAGE.

Econometric Models : gravity models (reduced form): can be used to establish

whether certain economic variables have an effect on a variable of interest (Do RTAs or GSP increase trade?)

Macro-econometric models: tools for projections of aggregates but no information on the industrial structure of the economy + may lack micro-foundations.

Combination of simulation and econometric models. Simulation (econometric) models are deterministic

(stochastic)

Partial equilibrium frameworkPartial equilibrium framework

Price

Commodity x

Pw

Pw(1+t)

Impact of commodity x market on rest of the economy can be neglected

DD

DS

A General Equilibrium Analysis

A General Equilibrium Analysis

Households Firms

Factor services of production

Factor incomes

InvestmentsSavings

spending on goods and services

goods and services

REST OF THE WORLD

impo

rts

expo

rts

FDI

Nature of policy change Does it cut across many markets or sectors?

Potential impact of change Are there economy-wide impacts?

Constraints imposed by availability of data and resources: PE data and models: free CGE data: single country (SAM) could be free, multiple

country (GTAP: from $ 360 to $ 4600) CGE models: free (GTAP) but may need software for

mathematical programming to run (LINKAGE, MIRAGE)

Nature of policy change Does it cut across many markets or sectors?

Potential impact of change Are there economy-wide impacts?

Constraints imposed by availability of data and resources: PE data and models: free CGE data: single country (SAM) could be free, multiple

country (GTAP: from $ 360 to $ 4600) CGE models: free (GTAP) but may need software for

mathematical programming to run (LINKAGE, MIRAGE)

When is GE or PE analysis appropriate?

When is GE or PE analysis appropriate?

A note about CGE and micro-simulation models

A note about CGE and micro-simulation models

Top-down CGE models linked to micro-simulation. The micro-simulation component based on household survey data. The micro-simulation component tends to focus on

some of the following issues: Poverty incidence (headcount ratios; poverty depth etc.); Inequality measures (Lorenz curves on whose basis Gini

coefficients are derived). The micro-simulation allows the endogenous results of

the CGE model to be fed exogenously to poverty and inequality equations.

Top-down CGE models linked to micro-simulation. The micro-simulation component based on household survey data. The micro-simulation component tends to focus on

some of the following issues: Poverty incidence (headcount ratios; poverty depth etc.); Inequality measures (Lorenz curves on whose basis Gini

coefficients are derived). The micro-simulation allows the endogenous results of

the CGE model to be fed exogenously to poverty and inequality equations.

Basics of CGE Modelling

Basics of CGE Modelling

Typologies of CGE ModelingTypologies of CGE Modeling

Static: regions, sectors, factors, economic agents + set of economic behaviors & relationships

Dynamic=Static features+ explicit inter-temporal features

Micro-Simulation Models: representativeagents hypothesis “removed”

The circular flow model of economic activityThe circular flow model of economic activity

CGE models: basicsCGE models: basics

Computable numerical solution (empirical data)

General description of the whole economy full economic cycle all markets

Equilibrium demand equals supply prices are adjusted to achieve market

equilibrium general: on all markets simultaneously!

Model solvable set of equations

Computable numerical solution (empirical data)

General description of the whole economy full economic cycle all markets

Equilibrium demand equals supply prices are adjusted to achieve market

equilibrium general: on all markets simultaneously!

Model solvable set of equations

Partial equilibrium: an examplePartial equilibrium: an example

i iY Ci iY C 1,2i market clearance:

objective:

1 i i

i i i iY AL K

,

max

production:

resource constraints: 1 2

1 2

L L L

K K K

11 2 U C C

i iY Ci iY C 1,2i

11 2 U C C

market clearance:

objective:

1 i i

i i i iY AL K

,

max

production:

resource constraints: 1 2

1 2

L L L

K K K

General equilibrium: an exampleGeneral equilibrium: an example

income balance: 1 1 2 2p C p C wL rK

Empirical calibrationEmpirical calibration

Spend time on finding and organising your data:

The quality of the results depend on the quality of the data

Different sources can not always be quickly combined

Always carry out the benchmark check!Much data available on internet, e.g. Statistical

Offices;search and you will find

Spend time on finding and organising your data:

The quality of the results depend on the quality of the data

Different sources can not always be quickly combined

Always carry out the benchmark check!Much data available on internet, e.g. Statistical

Offices;search and you will find

CGE models: data (I)CGE models: data (I)

Benchmark data base year (Social) Accounting Matrix, based on IO-table often: values in the IO-table interpreted as quantities

all benchmark prices are 1 Essentials of IO-table:

value of output equals total value of all inputs for each good value of supply equals value of total demand for each good total value of endowments equals total value of final

expenditures (consumption) row total equals column total

Benchmark data base year (Social) Accounting Matrix, based on IO-table often: values in the IO-table interpreted as quantities

all benchmark prices are 1 Essentials of IO-table:

value of output equals total value of all inputs for each good value of supply equals value of total demand for each good total value of endowments equals total value of final

expenditures (consumption) row total equals column total

A basic input-output tableA basic input-output table

Agr. Indus. Serv. Cons. Inv. Gov. Exp Total

Agr. 10 30 40 100 0 40 180 400

Indus. 20 60 50 300 200 30 340 1000Serv. 40 60 10 200 0 20 170 500Imp 60 120 20 400 100 100 800

Dep. 10 20 10 40Wages 200 600 300 1100Profits 60 110 70 240

Total 400 1000 500 1000 300 190 690

CGE models: data (II)CGE models: data (II)

Data describing the reactions of agents often described in terms of CES

functions:substitution elasticities income elasticitiesoutput elasticities Cobb-Douglas, linear and Leontief

functions are special cases of a CES function

Data describing the reactions of agents often described in terms of CES

functions:substitution elasticities income elasticitiesoutput elasticities Cobb-Douglas, linear and Leontief

functions are special cases of a CES function

Elasticities, benchmark quantities and prices determine the CES functions (technologies or preferences)(i) benchmark demand quantities

provide an anchor point for isoquants / indifference curves(ii) benchmark relative prices

fix the slope of the curve at that point(iii) elasticity of substitution

describes the curvature of the indifference curve

Data and CES function calibration

K0

C

K

L

0

L0

CES function calibration

Whether neoclassical, structuralist, neo-Keynesian, or Monetarist, a CGE modeler must respect accounting identities and equilibrium conditions. Hence, most applied work is based on a social accounting matrix to benchmark (calibrate) a model and to represent relevant accounting identities.

SAMs capture equilibrium conditions

Walras’ law applies

Whether neoclassical, structuralist, neo-Keynesian, or Monetarist, a CGE modeler must respect accounting identities and equilibrium conditions. Hence, most applied work is based on a social accounting matrix to benchmark (calibrate) a model and to represent relevant accounting identities.

SAMs capture equilibrium conditions

Walras’ law applies

Input-Output economics & SAMs

Input-Output economics & SAMs

Decision Making and Institutions

Decision Making and Institutions

Linkages in SAMs are accounted for by modelling the decision-making process of the firm, the consumer, as well as other economic agents and institutions: production and demand structure

Trade results from that decision-making processes and their interaction with institutions:

Production- Exports + Imports=Consumption

Linkages in SAMs are accounted for by modelling the decision-making process of the firm, the consumer, as well as other economic agents and institutions: production and demand structure

Trade results from that decision-making processes and their interaction with institutions:

Production- Exports + Imports=Consumption

Closing the ModelClosing the Model

Need to define a numéraire (Walras law allows to “drop” one market)

Assumption about the adjustment mechanism in factor and commodity markets

Macro closure Macro accounting balance (govt expenditure

and deficit; aggregate saving and investment; balance of trade and -real- exchange rate)

Macro adjustment mechanism (exogenously determined)

Need to define a numéraire (Walras law allows to “drop” one market)

Assumption about the adjustment mechanism in factor and commodity markets

Macro closure Macro accounting balance (govt expenditure

and deficit; aggregate saving and investment; balance of trade and -real- exchange rate)

Macro adjustment mechanism (exogenously determined)

Johansen closure: investment is exogenous and consumption is the adjustment variable

Keynesian closure: nominal wage is fixed and employment is the adjustment variable (unemployment)

Kaldorian closure: wages could be less or equal to the marginal product of labor (exploitation of labor model)

Classical closure: prices and wages are the adjustment variables (constant employment) and investment becomes endogenous and adjusts to total savings available

Foreign borrowing (Robinson): trade balance is endogenous, current account and hence net capital inflows are the adjustment variable

Johansen closure: investment is exogenous and consumption is the adjustment variable

Keynesian closure: nominal wage is fixed and employment is the adjustment variable (unemployment)

Kaldorian closure: wages could be less or equal to the marginal product of labor (exploitation of labor model)

Classical closure: prices and wages are the adjustment variables (constant employment) and investment becomes endogenous and adjusts to total savings available

Foreign borrowing (Robinson): trade balance is endogenous, current account and hence net capital inflows are the adjustment variable

Closing the ModelClosing the Model

Beyond the Standard ModelBeyond the Standard Model

Economies of scale, monopolistic competition and differentiated products

Institutional features of a particular economy (e.g. tax collection costs)

Specific features of a policy instrument Increase effort on estimation of substitution

elasticities Dynamics to account for dynamic aspects (policy

credibility; capital accumulation; FDI; knowledge accumulation and spillovers) and adjustment

Account for the extensive margin of trade (the “small-shares” issue)

Economies of scale, monopolistic competition and differentiated products

Institutional features of a particular economy (e.g. tax collection costs)

Specific features of a policy instrument Increase effort on estimation of substitution

elasticities Dynamics to account for dynamic aspects (policy

credibility; capital accumulation; FDI; knowledge accumulation and spillovers) and adjustment

Account for the extensive margin of trade (the “small-shares” issue)

CGE Dynamic ModelsCGE Dynamic Models

Recursive: solves annually Current economic conditions (e.g. the

availability of capital) are dependent on past outcomes but are unaffected by forward looking expectations

Linked with a macro econometric to include exogenously projected changes in demographic trends or in technology: baseline scenario

Impact of policy change is given with respect to the baseline scenario (sector specific TFP and real GDP growth are solved endogenously)

Recursive: solves annually Current economic conditions (e.g. the

availability of capital) are dependent on past outcomes but are unaffected by forward looking expectations

Linked with a macro econometric to include exogenously projected changes in demographic trends or in technology: baseline scenario

Impact of policy change is given with respect to the baseline scenario (sector specific TFP and real GDP growth are solved endogenously)

Forward looking: Infinite lived consumer with financial

market No extensive baseline scenario: trade

performance-productivity linkage + gvt investment on infrastructure and TFP linkage + investment in education and labor productivity linkage

Could account for transitionary disequilibrium states (true adjustment process?)

Forward looking: Infinite lived consumer with financial

market No extensive baseline scenario: trade

performance-productivity linkage + gvt investment on infrastructure and TFP linkage + investment in education and labor productivity linkage

Could account for transitionary disequilibrium states (true adjustment process?)

CGE Dynamic ModelsCGE Dynamic Models

Micro-Macro ModelsMicro-Macro Models

Combination of a Micro Simulation model (based on Household surveys: fiscal and labor) and a CGE model

Ideal to assess the impact of macroeconomic (trade) policies and shocks on poverty/ inequality: MAMS (maquette for MDG simulation)

Two types of combination: Fully-integrated: the household model built

directly into the CGE : CGE model with heterogeneous agents (high complexity)

Sequential (top-down): CGE simulation results are passed on to an household model (macro and micro need not to be reconciled but possible lack of coherence)

Combination of a Micro Simulation model (based on Household surveys: fiscal and labor) and a CGE model

Ideal to assess the impact of macroeconomic (trade) policies and shocks on poverty/ inequality: MAMS (maquette for MDG simulation)

Two types of combination: Fully-integrated: the household model built

directly into the CGE : CGE model with heterogeneous agents (high complexity)

Sequential (top-down): CGE simulation results are passed on to an household model (macro and micro need not to be reconciled but possible lack of coherence)

What is involved in a policy

simulation?

What is involved in a policy

simulation?

What is involved in a policy simulation?

What is involved in a policy simulation?

Economy before

trade policy change

Economy after

trade policy change

Difference between the two is attributed to policy change

Policy change

What is needed for a policy simulation?

What is needed for a policy simulation?

Inputs OutputsMODEL / Closure

What are the inputs?What are the inputs?

Baseline data: trade flows levels of protection input-output structure: national income

aggregates Measure of responsiveness of economic

agents to price changes (i.e. elasticities) Policy - negotiating scenario

Sectors (Agriculture, NAMA, etc.) Depth of liberalization

Baseline data: trade flows levels of protection input-output structure: national income

aggregates Measure of responsiveness of economic

agents to price changes (i.e. elasticities) Policy - negotiating scenario

Sectors (Agriculture, NAMA, etc.) Depth of liberalization

What are the Outputs?What are the Outputs?

Configuration of the economy after policy change

Overall income gains/losses from policy change Sources of income gain

Sectoral (agriculture vs. NAMA) Policy instrument (market access or domestic

support) Winners or losers (at the country level) Changes in pattern and volume of trade and

income “Story” to explain how inputs and model

combine to determine the output/outcome

Configuration of the economy after policy change

Overall income gains/losses from policy change Sources of income gain

Sectoral (agriculture vs. NAMA) Policy instrument (market access or domestic

support) Winners or losers (at the country level) Changes in pattern and volume of trade and

income “Story” to explain how inputs and model

combine to determine the output/outcome

Tracing Differences in Results

Tracing Differences in Results

Deterministic – outcome is completely determined by choice of inputs and model (no “residuals”)

Deterministic – outcome is completely determined by choice of inputs and model (no “residuals”)

Inputs + MODEL Outputs

Differences in simulation results = differences in choice of inputs and model/closure

“Story” must explain why the choice of inputs and model is appropriate/optimal for the policy question of interest

Towards an “objective” look at

trade liberalization CGE

simulations

Towards an “objective” look at

trade liberalization CGE

simulations

Case 1: Global CGE Application on the likely development impacts of EPAs

Case 1: Global CGE Application on the likely development impacts of EPAs

What to expect given the provisions on market access in the interim EPAs

What to expect given the provisions on market access in the interim EPAs

Possible result in SSA incomes for lack of sufficient asymmetry

Possible result in SSA incomes for lack of sufficient asymmetry

GDP Volume (% change)

-0.12 -0.1 -0.08 -0.06 -0.04 -0.02 0 0.02 0.04 0.06

Asymmetry (20%)

Asymmetry (40%)

% change from baseline

GDP Volume (% change)

-0.12 -0.1 -0.08 -0.06 -0.04 -0.02 0 0.02 0.04 0.06

Asymmetry (20%)

Asymmetry (40%)

% change from baseline

Due to focus on trade-rules, welfare gains for Africa limited

Due to focus on trade-rules, welfare gains for Africa limited

Welfare (million US$)

Asymmetry (20%)

Asymmetry (40%)

0

100

200

300

400

500

600

700

800

Welfare (million US$)

Asymmetry (20%)

Asymmetry (40%)

0

100

200

300

400

500

600

700

800

Africa to specialise in primary products, hindering diversification

Africa to specialise in primary products, hindering diversification

SSA to specialise in primary commodities

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Cereals Vegetables Oilseeds Sugar Cotton oCrops Livestock

% c

hange in

valu

e a

dded fro

m b

ase

line

Asymmetry (20%) Asymmetry (40%)

SSA to specialise in primary commodities

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Cereals Vegetables Oilseeds Sugar Cotton oCrops Livestock

% c

hange in

valu

e a

dded fro

m b

ase

line

Asymmetry (20%) Asymmetry (40%)

Case for industry modernisation under the circumstances

Case for industry modernisation under the circumstances

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

Natural resources

Agro-processing

Light manufacturing

Other manufacturing

Manufacturing sector a concern

FTA Asymmetry (20%) Asymmetry (40%)

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

Natural resources

Agro-processing

Light manufacturing

Other manufacturing

Manufacturing sector a concern

FTA Asymmetry (20%) Asymmetry (40%)

Regional integration as Africa’s development pillar under strainRegional integration as Africa’s development pillar under strain

Regional integration is to be a pillar of EPAs.

Intra-regional trade shrink significantly by as much as 18%.

Situation likely to be worsened by kind of specialization to occur.

Regional integration is to be a pillar of EPAs.

Intra-regional trade shrink significantly by as much as 18%.

Situation likely to be worsened by kind of specialization to occur.

Trade diversion (US$ million)

FTA -787 (-2619)

Asymmetry (20%)

-532 (-1752)

Asymmetry (40%)

-415 (-1043)

Social & economic expenditures strain likely due to fiscal loss

Social & economic expenditures strain likely due to fiscal loss

Fiscal losses due to EPAs (US$ million)

3,529

2,103

1,038

FTA Asymmetry (20%) Asymmetry (40%)

Fiscal losses due to EPAs (US$ million)

3,529

2,103

1,038

FTA Asymmetry (20%) Asymmetry (40%)

Case 2: Global CGE Application on the Doha RoundCase 2: Global CGE Application on the Doha Round

Potential implications for African countries of agriculture negotiations

Potential implications for African countries of agriculture negotiations

WTO: Positions and Prospects

Lamy’s Triangle

US moves on Ag. domestic support (12 – 18 billions US$ OTDS ?)

EU moves on ag. tariff cuts

(G20: 54% cuts)

Advanced DC move on NAMA

(Swiss 20 ?)

Focus on Domestic Support, Market Access and NAMA

The Market Access PillarThe Market Access Pillar

The negotiations here are about tariff reduction formula – how ambitious?

Tariff peaks dealt with if ambitious. Preference erosion occurs if too ambitious. Policy space for African countries could also be lost. A key issue is to find a balance between enhanced

market access; flexibilities and policy space. Sensitive and special products provide the flexibilities. Special safeguard mechanisms

The negotiations here are about tariff reduction formula – how ambitious?

Tariff peaks dealt with if ambitious. Preference erosion occurs if too ambitious. Policy space for African countries could also be lost. A key issue is to find a balance between enhanced

market access; flexibilities and policy space. Sensitive and special products provide the flexibilities. Special safeguard mechanisms

0%

50%

100%

150%

200%

250%

300%

01 02 02 02 02 04 04 04 06 07 07 08 08 10 11 12 12 15 15 16 18 19 20 20 20 20 20 22 22 22 23 24 35 52

HS TARIFF LINE

AV

E%

Bovine and Pork Meat

Dairies

Garlic

Bananas

Rice

Processed Cereal Grains

Sugar

Olive Oil

Mushrooms

Prepared Vegetables

Wine Starch

Source: Mario Jales, ICONE, Brazil

Tariff Structure of the European Union (AVE)

Agricultural Tariff Structure: Switzerland, 2001

0%

100%

200%

300%

400%

500%

600%

700%

800%

Bound Tariffs in % (AVE)

9081664

1465

Source, IFPRI

Tariff Structure of the United States (AVE)

50%

100%

150%

200%

250%

300%

350%

HS CHAPTERS

AV

E%

0%

01 02 02 04 04 04 04 04 06 07 07 07 08 08 09 10 12 12 15 16 17 18 18 19 20 20 20 20 21 21 22 23 24 41 51 52

Source: Mario Jales, ICONE, Brazil

Dairies

Grapes

Peanuts SugarPeanuts Products

Tobbaco

Market Access Pillar: Another DilemmaMarket Access Pillar: Another Dilemma

Market access versus the question of special products and sensitive products.

How far should Africa go? Propose specific numbers.

What combination of formula coefficients and precise percentages of special and sensitive products achieves Africa’s interests?

Market access versus the question of special products and sensitive products.

How far should Africa go? Propose specific numbers.

What combination of formula coefficients and precise percentages of special and sensitive products achieves Africa’s interests?

Doha Round CGE Simulations Doha Round CGE Simulations

Common results: Multilateral liberalization is beneficial

at the global level There are potential gains for

developing countries Developing countries own

liberalization is an important source of their gains

Removing subsidies may damage net food importer countries

Common results: Multilateral liberalization is beneficial

at the global level There are potential gains for

developing countries Developing countries own

liberalization is an important source of their gains

Removing subsidies may damage net food importer countries

Doha Round CGE Simulations

Doha Round CGE Simulations

Results differ among studies on how gains are redistributed

1. What share of the benefits goes to developing countries?

2. What share comes from agriculture liberalization? From NAMA?

Results differ among studies on how gains are redistributed

1. What share of the benefits goes to developing countries?

2. What share comes from agriculture liberalization? From NAMA?

The Proposed Cuts in Agriculture Market Access

The Proposed Cuts in Agriculture Market Access

80

30

130

20

75

50Tar

iff

lines

(in

%)

Tariff lines

(in descending order)

Cut = 42.7%

Cut = 38%

Cut: 70%

Cut = 64%

Cut = 57%

Cut =50% Cut =33.3%

Cut = 46.7%

Tariff cap100

Tariff cap150

DEVELOPED COUNTRIES

DEVELOPING COUNTRIES

A Tiered Formula for reduction of OTDS subsidies

Country A Country B Country C

0

10

60

Amounts of subsidies

Overall Trade Distorting Support (OTDS): amber box + de minimis + blue box

Cut = 80%

Cut = 70%

Cut = 55%

Bands Thresholds (US$ billion)

Cuts

3 > 60EU

80%

2 10 – 60US + Japan

70%

1 0 – 10 +All DC

55%

Country A Country B Country C

0

15

40

Amounts of subsidies

Cut 3 = 70%

Cut 2 = 60%

Cut 1 = 45%

Final Bound Total AMS – Amber Box: A Tiered Formula

Bands Thresholds (US$ billion)

Cuts

3 > 40 EU

70%

2 15 – 40US + Japan

60%

1 0 – 15 +All DC

45 %

AMS (amber box)

MotivationMotivation

Not enough to look at the tariff structures outcome. Economic impacts results useful for following reasons:

For instance, what should be the view on sensitive products?

Are other groupings positions in Africa’s offensive interests?

What are the trade-offs with respect to the pillars and our coalitions?

Not enough to look at the tariff structures outcome. Economic impacts results useful for following reasons:

For instance, what should be the view on sensitive products?

Are other groupings positions in Africa’s offensive interests?

What are the trade-offs with respect to the pillars and our coalitions?

Scenario 1 (DV: 0% DVG: 0%)Scenario 1 (DV: 0% DVG: 0%)

Tariff band Developed countries

Developing countries

0-20% 65% 20%

20-40% 75% 25%

40-60% 85% 28%

Above 60% 90% 30%

Scenario 2 (DV: 2% DVG: 20%)Scenario 2 (DV: 2% DVG: 20%)

Tariff band Developed countries

Developing countries

0-20% 65% 20%

20-40% 75% 25%

40-60% 85% 28%

Above 60% 90% 30%

Scenario 3 (DV: 2% DVG: 20%)Scenario 3 (DV: 2% DVG: 20%)

Tariff band Developed countries

Developing countries

0-20% 20% 15%

20-40% 30% 20%

40-60% 35% 25%

Above 60% 42% 30%

Further AssumptionsFurther Assumptions

Sensitive products: defined on basis of highest MFN rates.

Domestic support pillar: Three bands which applied mainly to EU, US, Japan.

Export subsidies: Total elimination in our simulations.

The domestic support and export subsidies are same in each scenario.

Sensitive products: defined on basis of highest MFN rates.

Domestic support pillar: Three bands which applied mainly to EU, US, Japan.

Export subsidies: Total elimination in our simulations.

The domestic support and export subsidies are same in each scenario.

Welfare Impacts (US$ millions)Welfare Impacts (US$ millions)

Scenario I Scenario II Scenario III

SSA 118.59 97.19 88.85

North Africa 210.97 35.98 -152.36

EU-25 136.94 270.13 347.64

USA 1639.47 1310.39 927.59

Cairns 1502.17 1204.23 966.11

Japan 859.69 824.22 146.75

ROW 702.50 -93.03 -120.04

Impacts on the value of GDPImpacts on the value of GDP

Scenario I Scenario II Scenario III

SSA 0.29 0.26 0.26

North Africa 0.75 0.48 0.16

EU-25 -0.04 -0.03 0.02

USA 0.07 0.06 0.04

Cairns 0.23 0.19 0.18

Japan -0.13 -0.08 0.00

ROW 0.03 0.07 0.06

Trade balance (change $ mln)Trade balance (change $ mln)

Scenario I Scenario II Scenario III

SSA 106.54 82.69 68.44

North Africa -105.89 -58.45 -12.27

EU-25 -46.36 -393.44 -295.1

USA 573.36 326.08 182.79

Cairns 623.65 461.43 370.68

Japan -923.11 -870.51 -341.84

ROW -228.18 452.19 27.29

Value Added (% change)Value Added (% change)

Scenario I Scenario II Scenario III

SSA NAF SSA NAF SSA NAF

Cereals 1.98 1.79 1.88 2.04 2.05 1.95

Veget. 1.77 2.49 0.96 1.59 -0.01 0.37

Sugar -0.31 2.05 -0.25 1.13 -0.16 0.12

Cotton 6.37 2.3 6.07 2.40 4.94 2.50

Cattle -0.25 0.59 -0.21 0.26 -0.15 -0.05

Milk -0.16 1.61 -0.13 0.94 -0.09 0.25

Fishing 0.05 0.03 0.07 0.01 0.03 0.01

VegOil -1.12 245 -0.78 139 -0.22 26.96

Price index of global merchandise exports

0 0.5 1 1.5 2 2.5 3 3.5 4

Cereals

Vegetables

Sugar

Cotton

Cattle

Milk

Fishing

Veg_Oil

% change in price

Scenario III

Scenario II

Scenario I

Price index of global merchandise exports

0 0.5 1 1.5 2 2.5 3 3.5 4

Cereals

Vegetables

Sugar

Cotton

Cattle

Milk

Fishing

Veg_Oil

% change in price

Scenario III

Scenario II

Scenario I

Points on economic impactsPoints on economic impacts

Scenario I with no sensitive products and with deep cuts is the most ambitious.

Scenario III shows the actual impact of both the sensitive products and lower ambition in the market access.

Scenario III indicates the significance of trade-off between two important pillars.

Scenario I with no sensitive products and with deep cuts is the most ambitious.

Scenario III shows the actual impact of both the sensitive products and lower ambition in the market access.

Scenario III indicates the significance of trade-off between two important pillars.

Cost of sensitive products and lower ambition

Cost of sensitive products and lower ambition

-200.00

-150.00

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

SSA NAF EU25 USA Cairns Japan ROW

Perc

ent

chan

ge in

wel

fare

fro

m sc

enar

io I

Welfare implications of lower ambition

Impact of sensitive products

Impact of lower ambition

-200.00

-150.00

-100.00

-50.00

0.00

50.00

100.00

150.00

200.00

SSA NAF EU25 USA Cairns Japan ROW

Perc

ent

chan

ge in

wel

fare

fro

m sc

enar

io I

Welfare implications of lower ambition

Impact of sensitive products

Impact of lower ambition

Should market access be traded for domestic support?

Should market access be traded for domestic support?

SSA

NAF

EU25

USACairns

Japan

ROW

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

Approximate cost of lowering ambition in addition to sensitive products

SSA

NAF

EU25

USACairns

Japan

ROW

-100.00

-80.00

-60.00

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

Approximate cost of lowering ambition in addition to sensitive products

What it could mean for AfricaWhat it could mean for Africa

Ambitious coefficients in agriculture remain the best result for Africa.

Africa loses through sensitive products what it is supposed to gain from the ambitious tariffs cut.

A trade-off by the advanced developing countries on market access that would reduce ambition may not be in Africa’s interest.

Ambitious coefficients in agriculture remain the best result for Africa.

Africa loses through sensitive products what it is supposed to gain from the ambitious tariffs cut.

A trade-off by the advanced developing countries on market access that would reduce ambition may not be in Africa’s interest.

www.uneca.org/atpc www.uneca.org/atpc