scenario for free trade in apec -from the viewpoint of japan & nafta- theo jonker & minoru...

Global Trade Analysis Project

Scenario for Free Trade in APEC-From the viewpoint of Japan & NAFTA-

Theo Jonker & Minoru Ono

Aug. 1, 1998


Goal in APEC

• In 1994, APEC members agreed Free Trade

by 2010 for industrialized countries

by 2020 for developing countries


Problem

• In Chapter 9 of GTAP BOOK……..

Free Trade in all sectors

• But………

Tough trade negotiation in food sector

Easier in manufacturing sector


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


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


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


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 FTA


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 FTA


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 FTA


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.


Demand of labor in Japan

-25

-20

-15

-10

-5

0

5

% change

APEC Manuf. APEC FTA

food

manuf.

services


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.


Free Trade in the Pacific Rim

Chapter 9

GTAP Short Course 1998

Extensions


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


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


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!


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


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%


Closure Rules

CGDS(“JAP”) CGDS(“ROW”)

SAVE(“JAP”) SAVE(“ROW”)

Global Bank

psave(“JAP”)

pcgds(“JAP”) pcgds(“ROW”)

psave(“ROW”)

pcgdswld


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


Old versus new closure

Old closure

Change in pcgds: ~ +5% Change in Psave: 0%

New closure

Change in pcgds: ~ +5% Change in Psave: ~ +5%


Sumio Ishikawa and Jianbang Gan

Impact of Asian Financial Crisis


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.


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


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


SCENARIOS

• Risk

• Risk + Free Trade Agreement (FTA)

• Risk + Capital Outflow


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


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


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


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


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


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


Impact on Structural Change due to Risk & FTA (% change in output)


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


Impact on Structural Change due to Risk & Capital (% change in output)


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


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.

scenario for free trade in apec -from the viewpoint of japan & nafta- theo jonker & minoru...

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