GSTP Trade Current Trends and Implications of IntraGSTP Tariff Reductions

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GSTP TradeCurrent Trends and Implications of
Intra-GSTP Tariff Reductions

• UNCTAD/DITC
• Trade Analysis Branch

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Outline of this presentation

• Trends in trade of GSTP countries
• Patterns of protection
• Simulation of impacts of intra-GSTP tariff cuts
• Summary findings

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Total exports from GSTP US 1.8 trillion (2005)
Trends in GSTP trade

• Total GSTP exports to the world (2005)
• 17.5 of total world exports
• or 48.7 of total DC exports to the world.
• Total GSTP imports from the world
• US 1.6 trillion
• 16 of total world imports
• or 50 of total imports of DCs from the
  world.

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Total intra-GSTP trade US 813 billion (2005)
Trends in GSTP trade

• Intra-GSTP exports US 405.4 billion
• 22 of GSTP exports to the world.
• Intra-GSTP imports US 407.6 billion
• 25 of GSTP imports from the world.
• Regional breakdown

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Sectoral breakdown
Trends in GSTP trade

• Over 90 of intra-GSTP exports are in non-agri
  sector.
• Agricultural exports accounts for 8 of total
  intra-GSTP exports.
• Share of agriculture higher in Latin America
  (15) than in Africa (6.6) and Asia (4.8)
• In terms of the destination, non-agricultural
  exports tend to remain within the region than
  agricultural exports.
• For GSTP-Asia and GSTP-Latin America, around 90
  of non-agriculture exports are destined to GSTP
  countries in the same region.
• For GSTP-Africa, exports to other GSTP regions
  are significant.

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Intra-GSTP exports By regional destination
Trends in GSTP trade
(US billion)
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Trends in GSTP exports (Regional breakdown of
flows)
51
26
32
17
11
15
Agriculture
84
34
24
25
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NAMA
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There is a strong upward trend in intra-GSTP
exports.
Trends in GSTP trade

• Intra-GSTP exports are growing faster than GSTP
  countries exports to the rest of the world.
• Between 2000-2005, intra-GSTP exports increased
  by 50, while exports by GSTP to the rest of the
  world increased by 39.
• GSTP-Asia and Latin America showed particularly
  high growth.
• The growth for GSTP-Africa exports picked up
  during 2003-2005.

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There is an increasing level of export
complementarity among GSTP countries.
Trends in GSTP trade

• Both Asia and Latin America GSTP countries are
  increasing exports in transport machinery and
  manufactured goods two sectors that are more
  horizontally differentiated than others.
• Each region has its own specialized sector
  vis-à-vis other GSTP regions, for example
• Asia in textile and clothing, Latin America in
  food and live animals, and Africa in minerals.

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Trends in GSTP trade
Sectoral breakdown of GSTP exports (by region) to
the world
(US million)
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Trends in GSTP trade
Sectoral breakdown of GSTP exports (by region) to
the world
( of total exports)
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2. Patterns of tariff protection

• The sectors most protected by GSTP countries are
  those in agricultural sectors (e.g. food and
  beverages).
• But the averages tariffs are relatively high
  (14-18) in other traded sectors (e.g.
  manufactured goods and textile and clothing).
• Current applied tariff rates in GSTP countries
  are significantly lower than the WTO bound rates.
  
• They also show that tariff peaks are not
  pronounced in the applied rates compared to the
  bound rates.
• Tariff escalation is also mitigated to a
  considerable extent in the applied rates.

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Patterns of tariff protection
Tariff protection across sectors (SITC
Rev.3)GSTP Average
()
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Patterns of tariff protection
Tariff protection across sectors
(SITC.Rev3)Regional Average
()
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Comparison of applied and bound MFN tariffs
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Comparison of applied and bound MFN tariffs
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Comparison of applied and bound MFN tariffs
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3. Impact of intra-GSTP tariff cuts

• We estimated impacts of intra-GSTP tariff cuts,
  using SMART (static, partial equilibrium)
  simulation model.
• The scenario studied here is a linear cut across
  all products, by 20, 30 and 50.
• All GSTP members (excl. Romania) are included in
  the simulation, plus eight countries which
  applied to the GSTP Membership.
• This simulation is static, therefore does not
  take into account the dynamic impact of tariff
  liberalization, including that flowing from
  increased FDI, transfer of technology, better
  terms of trade, etc..

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Increase in intra-GSTP exports can be as much as
US 20 billion (50 cuts in intra-GSTP tariffs).
Intra-GSTP tariff cuts - Simulation

• Cuts in intra-GSTP tariffs by 20 (30) will
  generate export gains by US 7.7 billion (11.7
  billion).
• Intra-GSTP export increase can occur from
• Trade creation a genuine increase in exports
  (i.e. replacing domestic goods), and
• Trade diversion by replacing exports from
  non-GSTP countries.
• Around 55 of export increase is due to trade
  diversion effect.

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Increase in intra-GSTP exports
Intra-GSTP tariff cuts - Simulation
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Intra-GSTP tariff cuts will enhance
inter-regional GSTP trade as well as
intra-regional one.
Intra-GSTP tariff cuts - Simulation

• At this stage, many countries within the same
  regions do not have a bilateral or regional trade
  arrangement.
• Looking only at the trade creation effect, the
  simulation suggests that there will be a high
  rate of increase in trade within the same region,
  in addition to an increase in trade with GSTP
  countries in other regions.

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Increase in intra-GSTP exportsTrade Creation
Effect
Intra-GSTP tariff cuts - Simulation
(US million)
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Increase in intra-GSTP exportsTrade Creation -
Destination breakdown
Intra-GSTP tariff cuts SMART Simulation
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4. Summary Findings

• There has been a massive growth of intra-GSTP
  trade in the last 5 years (2000-2005).
• This reflects, inter alia, increased
  complementarity in trade among GSTP members.
• Intra-GSTP tariff cuts will enhance exports among
  GSTP members within each region, as well as
  inter-regionally.
• The actual increase is likely to exceed the
  simulated results, as the simulation model does
  not take into account the dynamic factors.
• Time is ripe for stimulus through liberalization
  because of buoyant upward trend in intra-GSTP
  exports.
• Whilst gains from optimum liberalization can be
  significant, adjustment costs to GSTP countries
  would be minimal particularly if some sensitive
  products are set aside.
• Since bulk of gains come from shifting demand to
  GSTP products from non-GSTP products, all GSTP
  countries will be net gainers in exports.
• The comparative advantage of GSTP liberalization
  arises from immediate cuts in applied rates, thus
  leading to immediate creation of trade flows.