Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA- Theo Jonker & Minoru Ono
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Transcript of Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA- Theo Jonker & Minoru Ono
![Page 1: Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA- Theo Jonker & Minoru Ono](https://reader035.fdocuments.us/reader035/viewer/2022062516/56812b1e550346895d8f167b/html5/thumbnails/1.jpg)
Global Trade Analysis Project
Scenario for Free Trade in APEC-From the viewpoint of Japan & NAFTA-
Theo Jonker & Minoru Ono
Aug. 1, 1998
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Global Trade Analysis Project
Goal in APEC
• In 1994, APEC members agreed Free Trade
by 2010 for industrialized countries
by 2020 for developing countries
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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
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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
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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
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Global Trade Analysis Project
GDP Quantity Index (change)
-0.1
0
0.1
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0.8
% change
Japan Nafta ROW
APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
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Global Trade Analysis Project
Quantity of output (change)
-20
-15
-10
-5
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% change
Jap
an
- F
oo
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Jap
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Man
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erv
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APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
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Global Trade Analysis Project
Quantity of import (change)
-20
0
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% change
Jap
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Man
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ices
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W -
Fo
od
RO
W -
Man
ufa
ctu
rin
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RO
W -
Serv
ices
APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
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Global Trade Analysis Project
Market price (change)
-8
-6
-4
-2
0
2
4
6
% change
Jap
an
- F
oo
d
Jap
an
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Man
ufa
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rin
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Jap
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- S
erv
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Naft
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APEC manuf.
APEC manuf. & ASEAN food
APEC FTA
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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.
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Global Trade Analysis Project
Demand of labor in Japan
-25
-20
-15
-10
-5
0
5
% change
APEC Manuf. APEC FTA
food
manuf.
services
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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.
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Global Trade Analysis Project
Free Trade in the Pacific Rim
Chapter 9
GTAP Short Course 1998
Extensions
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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
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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
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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!
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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
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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%
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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
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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
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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%
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Global Trade Analysis Project
Sumio Ishikawa and Jianbang Gan
Impact of Asian Financial Crisis
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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.
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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
![Page 25: Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA- Theo Jonker & Minoru Ono](https://reader035.fdocuments.us/reader035/viewer/2022062516/56812b1e550346895d8f167b/html5/thumbnails/25.jpg)
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
![Page 26: Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA- Theo Jonker & Minoru Ono](https://reader035.fdocuments.us/reader035/viewer/2022062516/56812b1e550346895d8f167b/html5/thumbnails/26.jpg)
Global Trade Analysis Project
SCENARIOS
• Risk
• Risk + Free Trade Agreement (FTA)
• Risk + Capital Outflow
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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
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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
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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
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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
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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
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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
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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
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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
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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.