Events | European Course

1
Scenario for Free Trade in APEC -From the
viewpoint of Japan NAFTA- Theo Jonker
Minoru Ono Aug. 1, 1998
2
Goal in APEC

• In 1994, APEC members agreed Free Trade
• by 2010 for industrialized countries
• by 2020 for developing countries

3
Problem

• In Chapter 9 of GTAP BOOK..
• Free Trade in all sectors
• But
• Tough trade negotiation in food sector
• Easier in manufacturing sector

4
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

5
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

6
GDP Quantity Index (change)
7
Quantity of output (change)
8
Quantity of import (change)
9
Market price (change)
10
Composition of Japanese private households
consumption
Food
Manufacturing
APEC FTA 316 bln.
APEC FTA 294 bln.
Base data 278 bln.
Base data 334 bln.
11
Demand of labor in Japan
12
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.

13
GTAP Short Course 1998
Free Trade in the Pacific Rim Chapter 9
Extensions
14
Overview of the Talk
????
The Origins
The Extensions
Old versus new Closing Rule
Impact of APEC food tariff elimination on Japan
Christian and Rob
PE versus GE
Melting down Asia

• With special help from

15
Model structure and model
Oooppss!!!
GTAP
GAMS/MPSGE
Countries APEC (all Asean Countries, Australia,
NZ, NAFTA, Chile) and ROW
Sectors Food, Manuf. and services
3 Scenarios APEC Preferential Free Trade
Area APEC Trade Reform on a MFN basis, ROW does
not reciprocates APEC Trade Reform on an MFN
basis, ROW reciprocates
16
Results

• Overall welfare effects as expected
  MFN-RegtMFNgtPR
• 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!

17
Results of the Simulations
18
Tracing Back Japans 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

19
Closure Rules
SAVE(JAP)
SAVE(ROW)
psave(ROW)
psave(JAP)
Global Bank
pcgdswld
pcgds(JAP)
pcgds(ROW)
CGDS(JAP)
CGDS(ROW)
20
Results under both closures
21
Old versus new closure
Old closure Change in pcgds 5 Change in
Psave 0
New closure Change in pcgds 5 Change in
Psave 5
22
Impact of Asian Financial Crisis
Sumio Ishikawa and Jianbang Gan
23
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.

24
Nominal Exchange Rate
25
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
26
SCENARIOS

• Risk
• Risk Free Trade Agreement (FTA)
• Risk Capital Outflow

27
SHOCKS
28
Impact on Welfare (US billion)
29
Impact on Trade Balance (US billion)
30
Impact on GDP ( change)
31
Impact on Investment (US billion)
32
Impact on Structural Change due to Risk ( change
in output)
33
Impact on Structural Change due to Risk FTA (
change in output)
34
Impact on Structural Change due to Risk Capital
( change in output)
35
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.