Deepening India’s Engagement with African LDCs

A simulation analysis of alternative scenarios for an enhanced and expanded trade preference scheme

 

Rajesh ChadhaSenior Fellow

March 10, 2014

Outline of Presentation

Backdrop• Objectives• Present Scenario• Simulation Analysis• Concluding Remarks

Backdrop

• The Hong Kong WTO Ministerial (2005)• Developed countries to extend Duty-Free Quota-Free

(DFQF) to LDCs• Developing countries expected to do so according to

their capacity • India became the first developing country – Duty Free

Tariff Preference Scheme for LDCs (DFTPI-LDC) in 2008

• Expectation was to boost exports and GDP of LDCs • This study looks at African LDCs (AFLDCs)

Outline of Presentation

• BackdropObjectives• Present Scenario• Simulation Analysis• Concluding Remarks

Objective of the study

To analyse the potential and the actual impact of India’s preferential import regime on the exports and welfare of Africa’s Least Developed Countries (LDCs).

Approach:

• Study the structural change in AFLDCs’ exports to India since 2005

• Estimate the potential benefits for AFLDCs using a computable general equilibrium (CGE) model of the world economy.

Real GDP Growth (%)

Average2002-08 2009 2010 2011 2012

Average2009-2012

Forecast2013

LDCs 7.5 5.0 5.6 4.5 5.3 5.1 5.7

AFLDCs 7.5 4.2 4.9 4.4 4.8 4.6 5.6

Developing 7.6 2.7 7.6 6.4 5.1 5.5 5.3

Advanced 2.5 -3.5 3.0 1.6 1.2 0.6 1.2

WORLD 4.7 -0.6 5.2 4.0 3.2 3.0 3.3

Source: The LDCs Report 2013, UNCTAD

India's imports from AFLDCs (million USD)

Source: Calculations based on WITS online database.

Year Oil Non-oil Total

2007 1,696 805 2,501

2008 1,939 1,329 3,268

2009 3,660 1,262 4,922

2010 5,300 1,175 6,475

2011 5,989 1,979 7,969

2012 8,713 2,590 11,302

Share of imports from AFLDCs in imports from Africa (%)

Year Oil Non-oil Total

2007 16.4 10.4 13.8

2008 14.0 10.9 12.5

2009 30.2 14.6 23.7

2010 26.5 10.8 21.0

2011 25.5 12.5 20.3

2012 31.9 16.4 26.3

Share of imports from AFLDCs in imports from all LDCs (%)

Year Oil Non-oil Total

2007 54.0 29.1 42.3

2008 74.3 35.7 51.6

2009 77.5 36.7 60.3

2010 71.6 32.2 58.6

2011 89.4 40.4 68.7

2012 92.7 47.1 75.9

India’s import in major categories from AFLDCs (million USD)

Category 20082012

Petroleum Oils 1,939 8,713Vegetable Products 439 824Base Metals & Articles Thereof 182 555Mineral Products 292 465Chemical Products 175 346Textiles & Textile Articles 101 130Pearls, Precious Or Semi-Precious Stones, Metals 30 126Others 105 143Total Imports 3,264 11,302Source: Calculations based on WITS online database (6-digit tariff lines mapped to GTAP)

India’s DFTP Scheme for LDCs (2008-2012)

• Duty Free items: On about 85 per cent of India’s total tariff lines, applied customs duty have been removed over a period of 5 years with 20 per cent reduction each year.

• Positive List: In addition to the 85 per cent duty free tariff lines, preferential market access as per Margin of Preference (MOP) is available on about 9 per cent tariff lines (458 items). The MOP ranges from 10 per cent to 100 per cent on different items and is available on the applied rate of duty as on the date of imports.

• Exclusion List: contains only 6 per cent of total tariff lines (326 items) on which no tariff preference is available and imports are allowed at MFN rates.

Outline of Presentation

• Backdrop• ObjectivesPresent Scenario• Simulation Analysis• Concluding Remarks

Imports from Major AFLDCs (Average for 2009-2011, '000 USD)

Countries Oil Non-oil TotalAngola 4,718,380 27,673 4,746,053Senegal - 267,056 267,056Tanzania - 259,526 259,526Guinea 94,195 88,141 182,336Benin - 179,136 179,136Guinea-Bissau 38,474 133,400 171,874Zambia - 110,087 110,087Togo - 99,661 99,661Equatorial Guinea 89,104 294 89,398Mozambique - 84,284 84,284Congo, Dem. Rep. 42,905 8,985 51,890Total 4,983,058 1,467,049 6,450,108Source: Calculations based on WITS online database (total value in declining order)

Shares of preferences across countries, excluding oil (2009-2011, %)

Source: Calculations based on WITS online database.

Countries Excluded Positive Duty Free TotalSenegal 92.9 0.2 6.9 100.0Tanzania 9.3 38.7 52.0 100.0Benin 19.2 2.4 78.4 100.0Guinea-Bissau 1.9 0.1 98.1 100.0Zambia 13.5 0.4 86.1 100.0Togo 59.3 5.0 35.6 100.0Guinea 13.7 0.2 86.1 100.0Mozambique 6.2 48.8 45.0 100.0Malawi 3.2 95.8 1.0 100.0Madagascar 31.4 52.9 15.8 100.0Angola 95.9 0.0 4.1 100.0

Total (All AFLDCs) 32.5 15.9 51.7 100.06% lines 9% lines 85% lines 100.0

Outline of Presentation

• Backdrop• Objectives• Present ScenarioSimulation Analysis• Concluding Remarks

General Equilibrium Modelling Analysis

• The Global Trade Analysis Project (GTAP) model is

– Multi-region, multi-sector computable general equilibrium (CGE) mode

– Analyses the trade flows across countries/ regions of the world

– Each country/ region is divided into sectors of production – Inter-linkages across sectors captured through input-

output databases

GTAP Database

• GTAP version 8.1 database has 57 sectors of production• 14 agriculture etc.; 5 minerals; 24 manufacturing; 14

services• 134 countries / regions including 17 AFLDC countries /

regions

Policy Simulation

• Assess the potential gains to AFLDCs under two scenarios:

I. Partial Liberalisation: – India liberalising its applied tariffs on positive and duty

free lists products (excluding services).– Restricting Exclusion List products.

II. Complete Liberalisation: – India liberalising its applied tariffs for all categories of

imports (excluding services).

Closure Rule

Modifications in the standard GTAP book closure to capture the issue of employment in AFLDCs:

– Underemployment of unskilled labour in AFLDCs.– Dropped the full-employment assumption for unskilled

labour.– The real wage is fixed exogenously.– Supply of unskilled labor is determined endogenously.

Outline of Presentation

• Backdrop• Objectives• Present Scenario• Simulation AnalysisConcluding Remarks

Results

• The welfare change is positive for all AFLDCs under partial liberalisation, increases further under complete liberalisation.– The major gaining countries/ regions: Benin, Rest of

West Africa and South Central Africa. – The extent of increase in welfare gain under complete

liberalisation scenario may relate to how much share of imports was under excluded list.

Results

Important examples: • Senegal: 10% partial; 63% complete

– Additional 53%: phosphoric and polyphosphoric acid which fell under the excluded list gets opened up for duty free market access

• Madagascar: 51% partial; 99% complete– Additional 48%: ferrous waste and scrap; refined copper

wire which fell under the excluded list gets opened up for duty free market access

Results

• The total welfare of AFLDCs increase by:– $1,008 million under partial liberalisation– $1,201 million under complete liberalisation

• India loses welfare worth:– $144 million under partial liberalisation– $171 million under complete liberalisation

• World gains welfare worth:– $469 million under partial liberalisation– $561 million under complete liberalisation

Results

• The real GDP increases for all AFLDCs– The major gainers under complete liberalisation: Benin,

Togo, Rest of West Africa followed by Guinea, Madagascar and Uganda

• The exports to the world increase for all AFLDCs except for Benin

• AFLDCs gain in terms of trade

Results

• The factors of production also gain.– The returns to land increases in all AFLDCs.– The returns to capital and skilled labour also increase

except for Madagascar, Mozambique, Rwanda and Tanzania - production structure moves in favour of land intensive goods.

Results

• India’s sectors of production get affected due to its DFTP Scheme– The output declines: paddy and rice; vegetables, fruits

and nuts; other crops; cattle, sheep and horses; forestry; and crude oil.

• India’s exports of all sectors increase expect for gas.

Results

• Exports of major commodities increase when India provides DFQF market access to AFLDCs.

• Exports of all the AFLDCs except Rwanda increase.

• The gains are expected to be higher if commodities under the excluded list are also made duty free.

Mapping of Model Regions with GTAP Region

Country/Region Code GTAP SectorsIndia India IndiaRest of West Africa RWAfrica Rest of West Africa (XWF)Benin BEN BeninBurkina Faso BFA Burkina FasoGuinea GIN GuineaTogo Togo TogoCentral Africa CentAfrica Central Africa (XCF)South Central Africa SCAFRICA South Central Africa (XAC)Senegal SEN SenegalEthiopia ETH EthiopiaMadagascar MDG MadagascarMalawi MWI MalawiMozambique MOZ MozambiqueTanzania TZA TanzaniaUganda UGD UgandaZambia ZAM ZambiaRwanda RWA RwandaRest of East Africa RestEAfrica Rest of Eastern Africa(XEC)

List of AFLDCs exporting top 50 HS 6-digit products to India

6 Digit HS

Code Description Countries280920 Phosphoric acid and polyphosphoric acids Senegal

720449 Ferrous waste and scrap nesi Angola, Senegal, Guinea, Madagascar, Benin

251020 Natural calcium phosphates Togo

760200 Aluminium, waste and scrap Benin, Senegal, Angola, Tanzania, Togo

740400 Copper spent anodes; copper waste & scrap Benin, Zambia, Angola, Tanzania, Liberia

740311 Refined copper cathodes and sections of cathodes Zambia, Tanzania

090111 Coffee Uganda, Guinea

720410 Cast iron waste and scrap Tanzania, Benin, Angola, Mozambique

271019 Distillate and residual fuel oil (including blends) Tanzania, Liberia, Mali

120740 Sesame seeds Somalia, Ethiopia, Tanzania, Burkina Faso

271011 Light oil motor fuel Liberia, Tanzania

120799 Oil seeds and oleaginous fruits Benin, Ethiopia, Burkina Faso, Burundi

720429 Alloy steel (o/than stainless) waste and scrap Togo, Benin, Sierra Leone, Senegal, Liberia

090240 Black tea Malawi, Tanzania, Mozambique, Senegal

080132 Cashew nuts Tanzania, Mozambique

720421 Stainless steel waste and scrap Angola, Benin, Eritrea, Tanzania, Togo

130120 Gum Arabic Ethiopia. Tanzania, Guinea, Mali, Togo

740811 Refined copper, wire Zambia, Malawi, Tanzania, Madagascar

720441 Ferrous turnings, shavings, chips Benin, Senegal, Togo

720430 Tinned iron or steel waste and scrap Madagascar, Angola, Senegal, Guinea, Eq. Guinea

Thank You

Outline of Presentation

• Backdrop• Objectives• Present Scenario• Simulation Analysis• Concluding Remarks

Outline of Presentation

• Backdrop• Objectives• Present Scenario• Simulation Analysis• Concluding Remarks