general equilibrium modelling of trade negotiations outcomes
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General Equilibrium Modelling of Trade Negotiations Outcomes. Stephen N. Karingi, Trade and International Negotiations Section, UNECA. Introduction. Policy makers need options in order to be able to make decisions. - PowerPoint PPT PresentationTRANSCRIPT
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.
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