MULTICRITERION DECISION MODELS MCDM

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Chapter 17
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MCDM Approach to Regional Tariff Arrangement

• To attain and sustain rapid economic growth, it
  is widely believed that LCDs should
• Reduce reliance on highly developed countries
• Increase self-reliance on a regional basis
• Regional economic blocks ASEAN, EEC, APEC, etc.
• Take ASEAN case cooperation strategies
• Selective trade liberalization
• Complementarily agreements
• Package deal agreements

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• Preferential Tariff Arrangements (PTA)
  instrument for strategies (a) and (b). PTA
  provides for
• Voluntary giving off tariff preferences
• Negotiations on preferences
• Questions
• Trade how much ? Where (to/from)?
• Tariff how much? For whom?
• Model formulation take a region and a commodity

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Non-regional countries n surplus countries q
deficit countries
Regional countries m surplus countries p
deficit countries

• Cij unit c.i.f price of purchases by country j
  from country i
• fij unit f.o.b. price charged by country i to
  country j
• dj demand for imports of country j
• si supply available for export in country i
• xij units of commodity transferred from country
  i to country j

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• Criteria/objectives
• Deficit countries

Surplus countries
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• Use utility function method to combine
  objectives

Expanding UF
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• (a) ? revenue inflow to the region
• (b) ? revenue in intra-regional transfer
• (c) ? outflow of money from region
• Constraints
• Free trade (unconstrained)

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• Preferential trade
• For the case of regional surplus, constraint (1)
  is changed to (all others unaltered)
• In case of regional shortage, constraint (3) is
  changed to (all others unaltered)

Preferential tariff take dual formulation. Let
uj, vj, ri and ti be the dual variables uj, vj
shadow prices in market j ri, ti shadow values
in supplier market i Dual (free trade
case) S.t.
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• Under free trade, an extra-regional supplier may
  be supplying intra-regional demand (eq. 7). Under
  preferential trade, this extra-supplier will be
  replaced by a regional supplier (eq. 6 with prime
  symbol), assuming a surplus
• Subtracting, (7) (8)
• When shortage prevails (), regional countries
  with excess
• supply ship only to countries in the region

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• Under free trade, these supplies may have been
  shipped to non-regional buyers
• Subtracting, (10) (11)
• Case Study
• Region ASEAN
• Commodity sugar
• Surplus Philippines, Thailand
• Deficit Indonesia, Malaysia, Singapore
• Not covered Brunei, Vietnam, Laos, Cambodia,
  Myanmar

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Dual Variables
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