Global Trade Analysis Project Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA-...
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Global Trade Analysis Project
Scenario for Free Trade in APEC-From the viewpoint of Japan & NAFTA-
Theo Jonker & Minoru Ono
Aug. 1, 1998
Global Trade Analysis Project
Goal in APEC
• In 1994, APEC members agreed Free Trade
by 2010 for industrialized countries
by 2020 for developing countries
Global Trade Analysis Project
Problem
• In Chapter 9 of GTAP BOOK……..
Free Trade in all sectors
• But………
Tough trade negotiation in food sector
Easier in manufacturing sector
Global Trade Analysis Project
Possible scenarios
Step 1 Free Trade only in Manufacturing Sector in APEC
Step2 Free Trade in Manufacturing Sector in APEC & Free Trade in Food Sector in only ASEAN
Step3 Free Trade in Food & Manufacturing Sector
in APEC
Global Trade Analysis Project
Closure & Solution Method, etc.
• Closure - Standard Multi-regional GE closure (MRGE)• Solution Method - Gragg 2-4-6
• Aggregation - 10 Regions x 3 Sectors 1 NAFTA
2 Japan 1 Food
3 Australia-New Zealand 2 Manufacturing
4 China-Hong Kong 3 Services
5 South Korea
6 Taiwan
7 Malaysia-Singapore
8 Thailand-Philippines
9 Indonesia
10 Rest of the World
Global Trade Analysis Project
GDP Quantity Index (change)
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
% change
Japan Nafta ROW
APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
Global Trade Analysis Project
Quantity of output (change)
-20
-15
-10
-5
0
5
10
15
% change
Jap
an
- F
oo
d
Jap
an
-
Man
ufa
ctu
rin
g
Jap
an
- S
erv
ices
Naft
a -
Fo
od
Naft
a -
Man
ufa
ctu
rin
g
Naft
a -
Serv
ices
RO
W -
Fo
od
RO
W -
Man
ufa
ctu
rin
g
RO
W -
Serv
ices
APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
Global Trade Analysis Project
Quantity of import (change)
-20
0
20
40
60
80
100
120
140
160
% change
Jap
an
- F
oo
d
Jap
an
-
Man
ufa
ctu
rin
g
Jap
an
- S
erv
ices
Naft
a -
Fo
od
Naft
a -
Man
ufa
ctu
rin
g
Naft
a -
Serv
ices
RO
W -
Fo
od
RO
W -
Man
ufa
ctu
rin
g
RO
W -
Serv
ices
APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
Global Trade Analysis Project
Market price (change)
-8
-6
-4
-2
0
2
4
6
% change
Jap
an
- F
oo
d
Jap
an
-
Man
ufa
ctu
rin
g
Jap
an
- S
erv
ices
Naft
a -
Fo
od
Naft
a -
Man
ufa
ctu
rin
g
Naft
a -
Serv
ices
RO
W -
Fo
od
RO
W -
Man
ufa
ctu
rin
g
RO
W -
Serv
ices
APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
Global Trade Analysis Project
Composition of Japanese private households’ consumption
Domestic food96%
Imported food4%
Domestic food92%
Imported food8%
Domestic manuf.90%
Imported manuf.10%
Domestic manuf.89%
Imported manuf.11%
Base data $278 bln.
APEC FTA$294 bln.
Food Manufacturing
Base data $334 bln.
APEC FTA$316 bln.
Global Trade Analysis Project
Demand of labor in Japan
-25
-20
-15
-10
-5
0
5
% change
APEC Manuf. APEC FTA
food
manuf.
services
Global Trade Analysis Project
Conclusions
• APEC Free Trade Area for manufacturing products has positive effect to Japan and NAFTA. However, the impact is small.
• APEC Free Trade Area for manufacturing products has a negative effect to ROW.
• ASEAN Free Trade Area for food products has hardly any effect to Japan and NAFTA.
• APEC Free Trade Area has a big impact on the Japanese economy in the GTAP model,
but - politically - there is a very strong opposition to a tariff reduction in the food sector.
Global Trade Analysis Project
Free Trade in the Pacific Rim
Chapter 9
GTAP Short Course 1998
Extensions
Global Trade Analysis Project
Overview of the Talk
With special help from:
The Extensions:
Old versus new Closing Rule
PE versus GE
Impact of APEC food tariff elimination on Japan
Melting down Asia
Christianand Rob
????
The Origins
Global Trade Analysis Project
Model structure and model
GAMS/MPSGE
Countries: APEC (all Asean Countries, Australia, NZ, NAFTA, Chile) and ROW
Sectors: Food, Manuf. and services
3 ScenariosAPEC Preferential Free Trade AreaAPEC Trade Reform on a MFN basis, ROW does not reciprocatesAPEC Trade Reform on an MFN basis, ROW reciprocates
Oooppss!!!
GTAP
Global Trade Analysis Project
Results
• Overall welfare effects as expected: MFN-Re>MFN>PR
• Liwayway and Michael, “Playing Games with GTAP”, paper to published at the coming conference in Denmark (please do not quote)
• No incentive for ROW to reciprocate: MFN better
• MFN: but NAM and ANZ are the big loosers
• PR will be the solution
• Once again Nam is a big looser
• No Trade Reform!
Global Trade Analysis Project
Results of the Simulations
1 alloc_A1 5 tot_E 6 cgds_F Total Total-New Delta1 nam 5522 -4054 -3727 -2259 1654 39132 jpn 32879 28547 34155 95581 59666 -359153 anz 1164 228 -654 738 1708 9704 chn_hkg 4654 3005 -259 7400 7966 5665 twn 4987 1040 565 6592 5774 -8186 skor 13889 -2623 125 11391 11615 2247 mys_sgp 433 1978 438 2849 2501 -3488 tha_phl 4048 -1973 -3601 -1526 1736 32629 idn 1200 -57 -571 572 1439 86710 row 7417 -27059 -27439 -47081 -19151 27930Total 76192 -968 -968 74256 74909 0
Global Trade Analysis Project
Tracing Back Japan’s CGDS Utility Increase in GTAP
Variable Change Remark
•CGDS $US34,155 Mil Increase in Utility from sale of capital goods
•pcgds 5.4% Increase in price of capital sold•pgdp 4.86% Increase in general price level•qxs 25.65% Increase total exports - especially e.g. nam - 70% exports of manufacuters where row - 37% Japan accounts for 14% of world exports of manufactures
•tms fall due to liberalization drop in import tariffs on Japanese e.g. nam - 17.5%goods row - 14%
Global Trade Analysis Project
Closure Rules
CGDS(“JAP”) CGDS(“ROW”)
SAVE(“JAP”) SAVE(“ROW”)
Global Bank
psave(“JAP”)
pcgds(“JAP”) pcgds(“ROW”)
psave(“ROW”)
pcgdswld
Global Trade Analysis Project
Results under both closures
New Closure
1 alloc_A1 5 tot_E 6 cgds_F Total1 nam 5523 -4055 186 16542 jpn 32715 28385 -1434 596663 anz 1165 228 315 17084 chn_hkg 4657 3008 301 79665 twn 4979 1039 -244 57746 skor 13893 -2624 346 116157 mys_sgp 432 1975 94 25018 tha_phl 4086 -1996 -354 17369 idn 1203 -58 294 143910 row 7423 -27103 529 -19151Total 76076 -1201 34 74909
1 alloc_A1 5 tot_E 6 cgds_F Total1 nam 5522 -4054 -3727 -22592 jpn 32879 28547 34155 955813 anz 1164 228 -654 7384 chn_hkg 4654 3005 -259 74005 twn 4987 1040 565 65926 skor 13889 -2623 125 113917 mys_sgp 433 1978 438 28498 tha_phl 4048 -1973 -3601 -15269 idn 1200 -57 -571 57210 row 7417 -27059 -27439 -47081Total 76192 -968 -968 74256
Global Trade Analysis Project
Old versus new closure
Old closure
Change in pcgds: ~ +5% Change in Psave: 0%
New closure
Change in pcgds: ~ +5% Change in Psave: ~ +5%
Global Trade Analysis Project
Sumio Ishikawa and Jianbang Gan
Impact of Asian Financial Crisis
Global Trade Analysis Project
MOTIVATION
• To estimate the potential impact of increased risks in the Asian financial market; and
• To analyze the role of the regional free trade agreement in the economic recovery in Asia.
Global Trade Analysis Project
Nominal Exchange Rate
100
200
300
400
500Ju
ne
July
Au
g.
Sep
t.
Oct
.
Nov
.
Dec
.
Jan
.
Feb
.
Mar
ch
Dev
alu
atio
n In
dex
SingporeTaiwanPhilippinesMalaysiaThailandS. KoreaIndonesia
Global Trade Analysis Project
METHODOLOGY
Modeling country risk and capital flows in GTAP (Gerard Malcolm, 1998):
RORE(r)/RSK(r) = RORG
rore(r) = rorg + risk(r)
rore(r) = rorg + cgdslack(r), when RORDELTA = 1
Global Trade Analysis Project
SCENARIOS
• Risk
• Risk + Free Trade Agreement (FTA)
• Risk + Capital Outflow
Global Trade Analysis Project
SHOCKS
Region Rore (r) (%) qo(C, r) (%)
Japan 17 - 5
China & H.K. 17 - 5
Taiwan 17 - 5
S. Korea 42 - 15
Mal. & Sgp. 33 - 10
Thai. & Phl. 42 - 15
Indonesia 58 - 20
Global Trade Analysis Project
Impact on Welfare (US$ billion)
Region Risk Risk + FTA Risk +
Capital
North America 39.2 22.4 31.4
Japan -68.2 20.4 -131.9
Australia & N.Z. 2.1 3.1 1.3
China & H.K. -1.2 6.5 - 11.2
Taiwan -0.1 5.1 -4.6
S. Korea -6.6 4.8 - 25.1
Mal. & Sgp. -0.4 1.4 -5.6
Thai. & Phl. -3.0 -4.1 -17.8
Indonesia -3.4 -2.9 -19.1
ROW 65.1 11.3 53
Total 23.4 67.4 -129.8
Global Trade Analysis Project
Impact on Trade Balance (US$ billion)
Region Risk Risk + FTA Risk + Capital
North America -101 -108 - 86
Japan 189 175 160
Australia & N.Z. -6 -13 -5
China & H.K. 23 8 20
Taiwan 6 4 5
S. Korea 26 16 23
Mal. & Sgp. 9 8 8
Thai. & Phl. 15 8 13
Indonesia 12 11 9
ROW -174 -109 -149
Global Trade Analysis Project
Impact on GDP (% change)
Region Risk Risk + FTA Risk +Capital
North America 0.21 0.19 0.17
Japan - 0.02 0.78 - 2.05
Australia & N.Z. 0.18 0.38 0.13
China & H.K. 0.20 0.58 -1.85
Taiwan - 0.04 1.74 - 2.05
S. Korea - 0.13 4.31 -7.17
Mal. & Sgp. 0.29 0.45 - 5.72
Thai. & Phl. - 0.49 1.33 - 10.57
Indonesia - 0.23 0.30 -13.50
ROW 0.11 0.02 0.09
Global Trade Analysis Project
Impact on Investment (US$ billion)
Region Risk Risk + FTA Risk + Capital
North America 129 116 110
Japan - 267 - 184 - 260
Australia & N.Z. 8 14 6
China & H.K. - 25 - 5 - 26
Taiwan - 7 - 4 - 8
S. Korea - 31 - 20 - 36
Mal. & Sgp. - 10 - 7 - 11
Thai. & Phl. - 17 - 12 - 20
Indonesia - 15 - 13 - 18
ROW 247 127 210
Total 13 12 - 52
Global Trade Analysis Project
Impact on Structural Change due to Risk (% change in output)
Region Food R-Mnfc Service
North America - 0.58 - 2.46 0.79
Japan 1.61 5.67 - 2.20
Australia & N.Z. - 0.96 - 3.38 0.89
China & H.K. 1.22 2.35 - 3.02
Taiwan 1.10 1.78 - 1.20
S. Korea 1.60 7.84 - 3.96
Mal. & Sgp. 2.75 4.54 - 3.75
Thai. & Phl. 4.94 7.76 - 4.98
Indonesia 3.65 12.66 - 9.61
ROW - 0.36 - 2.19 0.88
Global Trade Analysis Project
Impact on Structural Change due to Risk & FTA (% change in output)
Region Food R-Mnfc Service
North America 11.26 - 4.99 0.78
Japan - 16.81 8.63 - 1.77
Australia & N.Z. 5.15 - 9.62 1.54
China & H.K. 1.09 0.70 - 1.57
Taiwan - 18.59 7.58 - 1.55
S. Korea -19.64 16.40 - 3.13
Mal. & Sgp. - 2.86 7.61 - 4.72
Thai. & Phl. - 5.54 15.08 - 3.11
Indonesia - 1.43 14.96 - 8.49
ROW - 0.88 - 1.76 0.80
Global Trade Analysis Project
Impact on Structural Change due to Risk & Capital (% change in output)
Region Food R-Mnfc Service
North America - 0.65 - 1.99 0.65
Japan - 0.12 2.57 - 3.90
Australia & N.Z. - 0.91 - 2.50 0.68
China & H.K. 0.11 - 0.59 - 4.93
Taiwan - 0.08 - 0.55 - 3.21
S. Korea - 1.66 - 1.23 - 10.91
Mal. & Sgp. -2.24 - 3.20 - 8.67
Thai. & Phl. - 2.67 - 6.83 - 14.76
Indonesia - 3.99 - 7.07 - 21.87
ROW - 0.37 - 1.78 0.73
Global Trade Analysis Project
CONCLUSIONS
• Asian financial crisis has global impacts.
• Regional trade liberalization will help economic recovery in Asia.
• Additional capital outflows will intensify the impact of financial market risks.