Modeling the EU s Everything But Arms Initiative for the Least Developed Countries

Transcription

1 Modeling the EU s Everything But Arms Initiative for the Least Developed Countries Michael Trueblood and Agapi Somwaru U.S. Dept. of Agriculture Economic Research Service Markets and Trade Analysis Division Global Economic Analysis Conference Taipei, Taiwan June 5-7, 2002

2 Presentation Order Background Modeling Unilateral Trade Liberalization with the LDCs Database Results Discussion Conclusions

3 Background

4 Trade Between Developed and Developing Countries Pressure has been building for developed countries to extend greater trade benefits to the least developed countries In January 2001, the EU announced the Everything But Arms trade proposal Approved by Commission in February 2001

5 EU s Everything But Arms Initiative Reduces all tariffs to zero for the UN Least Developed Countries (LDCs) All products except armaments Three sensitive agriculture products phased in Rice: 20 pct by 2002, 50 pct by 2006, 80 pct by 2007, 100 pct by 2009 Sugar: 20 pct by 2006, 50 pct by 2007, 80 pct by 2008, 100 pct by 2009 Bananas: 20 pct by 2002, 100 pct by 2006

6 Who are the Least Developed Countries (LDCs)? United Nations classification based upon socioeconomic indicators Countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde, Central African Republic, Chad, Comoros, Dem. Rep. Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, The Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lao PDR, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Sierra Leone, Solomon Islands, Somalia, Sudan, Tanzania, Togo, Tuvalu, Uganda, Vanuatu Yemen, Rep. Zambia

7 Selected Indicators of Least 48 Indicator Units GNP per capita ($1995) 280 Illiteracy rate, adults (percent) 49 Life expectancy at birth (age) 51 Population growth rate (percent) 2.33 Infant mortality rates (per 1,000 live births) 94 Rural population (percent) 75 Source: World Bank, World Development Indicators 2001

8 Least 48 Trade Partners, 1997 Base Period ($Million), Selected Products Least 48 Exports to: Least 48 imports from: Gommodities EU US Other World EU US Other World Rice Fruit / veg , Sugar Other misc. foods 5, ,842 9,036 2, ,636 4,140 Total agriculture 8, ,525 15,199 7,192 1,275 6,760 15,227 Energy and products 6,877 11,388 9,223 27,487 7, ,946 17,903 Minerals and metals 2, ,004 5,751 4, ,441 10,431 Textile and apparel 3,440 1,539 1,307 6,286 2, ,155 7,809 Electronics 3, ,243 5,236 4, ,821 7,772 Services 6,733 4,888 9,144 20,765 7,682 5,708 18,953 32,343 Total non-agriculture 26,442 19,189 29,379 75,010 43,744 10,355 57, ,676 Grand total 35,163 20,143 34,904 90,209 50,936 11,630 64, ,903 Source: McDougall (2002).

9 Least 48 Share of World Exports:* LDCs: $billion 45 Exports, 1999 World: $billion 7,007 ==> 0.6 percent Compared with 1999 population:* LDCs (634 million) World (5.978 billion) ==> 11 percent Combined with development indicators, there is a moral imperative argument to try to raise incomes with increased trade * Source: WB, World Development Indicators 2001

10 Key Questions What will be the likely impact of the EU s Everything But Arms (EBA) proposal? What would be the impact if the United States also were to implement a similar proposal?

11 Modeling Unilateral Trade Liberalization with the LDCs

12 GTAP Model is Used Computable general equilibrium model with 14 regions, 22 commodity groups Key structural features: Assumes perfect competition and constant returns to scale technology Consumer demands are represented by a constant difference of elasticities functional form Resources are assumed to be fully employed in production Products are allowed to be differentiated between production and imports, and between regions, to allow two-way trade, depending on the ease of substitution At a global level, savings must equal investment, which is allocated across regions to equalize expected return rates

13 Scenarios EU unilaterally cuts all commodity tariffs 100 percent to the LDCs US unilaterally cuts all commodity tariffs 100 percent to the LDCs Both EU and U.S. cut all commodity tariffs 100 percent Both EU and U.S. cut all commodity tariffs 100 percent, but LDCs have low response

14 Database

15 14 Regions Australia / NZ China E. Asia South Asia Canada United States Mexico South America EU 15 Other Europe E.Europe / FSU N. Africa / Mid East SSA (developed) LDCs (proxy)* * Bangladesh, Malawi, Mozambique, Tanzania, Uganda, Zambia, Rest of SSA, Rest of World

16 22 Commodity Groups Wheat Rice Coarse grains Vegetables, fruits, nuts Diary Meats Oilseed & products Sugar Wool and fiber Other misc. foods Beverages and tobacco Live animals Animal products Forestry and fishery Energy and products Minerals and metals Textiles and apparels Wood and paper Transportation & mach. Construction Electronics, other man. Services

17 Protection levels in US and EU, 1997 base period, percent (import taxes/ total imports), selected goods * EU imports US imports Goods Least 48 World Least 48 World Rice Wheat Other grains Dairy products Meats Sugar Live animals Total Source: McDougall (2002). * Total reflects several other goods not shown here.

18 Results

19 Modeling Scenario 1 (EU Liberalization Only) Total welfare of which: Change Change (equiv. Allocative Terms of EV/ in in Region variation) Efficiency Trade GDP GDP Exports $ Million Percent Australia / NZ (1) 0 (1) China (82) (15) (67) East Asia (248) (41) (207) South Asia (100) (32) (69) United States (300) (13) (288) Canada 6 6 (0) Mexico (10) (2) (8) Latin America (149) (43) (106) European Union (276) 860 (1,135) Other Europe (4) 5 (9) Former Soviet Union (30) (5) (25) N. Africa / M. East 2 3 (1) Sub-Sahara Africa (6) (2) (5) Least 48 2, , World 1,298 1,

20 Modeling Scenario 2 (U.S. Liberalization Only) Total welfare of which: Change Change (equiv. Allocative Terms of EV/ in in Region variation) Efficiency Trade GDP GDP Exports $ Million Percent Australia / NZ (2) 0 (2) China (57) (33) (24) East Asia (99) (25) (74) South Asia (45) (20) (25) United States (21) 152 (173) Canada (16) (2) (14) Mexico (24) (2) (21) Latin America (73) (20) (53) European Union (95) (27) (68) Other Europe (3) 0 (3) Former Soviet Union (3) (2) (2) N. Africa / M. East Sub-Sahara Africa Least World

21 Modeling Scenario 3 (EU and U.S. Liberalization) Total welfare of which: Change Change (equiv. AllocativeTerms of EV/ in in Region variation) Efficiency Trade GDP GDP Exports $ Million Percent Australia / NZ (3) 0 (3) China (139) (47) (92) East Asia (347) (66) (281) South Asia (145) (51) (94) United States (321) 140 (461) Canada (10) 4 (14) Mexico (34) (4) (30) Latin America (222) (63) (159) European Union (370) 833 (1,203) Other Europe (7) 5 (12) Former Soviet Union (33) (7) (27) N. Africa / M. East Sub-Sahara Africa (5) (2) (3) Least 48 3, , World 1,486 1,

22 Modeling Scenario 4 (EU and U.S. Liberalization, Low Supply Response) Total welfare of which: Change Change (equiv. AllocativeTerms of EV/ in in Region variation) Efficiency Trade GDP GDP Exports $ Million Percent Australia / NZ (2) 1 (3) China (138) (47) (91) East Asia (323) (59) (264) South Asia (141) (50) (92) United States (283) 142 (426) Canada (9) 5 (14) Mexico (33) (4) (29) Latin America (214) (59) (154) European Union (326) 853 (1,178) Other Europe (7) 5 (12) Former Soviet Union (29) (5) (24) N. Africa / M. East Sub-Sahara Africa (5) (1) (4) Least , World (564) 1,

23 Discussion

24 Credibility Gains are greater with EU liberalization only than U.S.liberalization only, which makes sense since EU is a larger trade partner than U.S. for LDCs Liberalization effects are small as one might expect and still may be overstated since preferences are not fully incorporated

25 Comparison With Other Studies Ianchovichina et al. (2001) find similar results, but quantitatively smaller effects UNCTAD (2001) also finds similar results, although results harder to compare given its LDCs country disaggregation

26 Effects on Per Capita Incomes LDCs per capita incomes have grown by 0.66 percent per year over If this rate is projected over 20 years, p.c. incomes grow from $280 to $320 If additional trade boosts GDP by 2.85 percent, say over 20 years, and assuming population grows at 2.4 percent, then trajectory changes to $340

27 Conclusions

28 Key Findings These results are preliminary If only EU s EBA initiative is implemented: LDCs experience an increase in welfare of $2.5 billion (0.53 percent of their GDP) Exports grow by 3 percent Total GDP grows by 2.3 percent If both EU and US implement similar initiatives: LDCs would experience a $3.1 billion increase in welfare (0.66 percent of GDP) Exports would increase by 3.7 percent Total GDP would grow by 2.9 percent

29 Key Findings (Cont.) If both EU and US implement similar initiatives, but LDCs response slow Welfare improves by only $936 million (0.20 percent of GDP) GDP grows at 2.3 percent Both EU and U.S. experience allocative efficiency gains However, these gains are offset by losses in the terms of trade, which requires further investigation

30 The End

31 Appendix Table 1 - World Commodity Price Changes Commodities Scen. 1 Scen. 2 Scen. 3 Scen. 4 Rice Wheat Other grains Fruit / veg Dairy products Meats Oilseed and prod Sugar Wool and fiber Other misc. foods Beverages / tobacco Live animals Animal products Forestry and fishery Energy and products Minerals and metals Textile and apparel Wood and paper Transportation /mach Construction Electronics Services

32 Appendix Table 2 - Terms of Trade Decomposition for Commodities, $ Million Scenario 1 Scenario 2 Scenario 3 Scenario 4 Commodity U.S. EU LDCs U.S. EU LDCs U.S. EU LDCs U.S. EU LDCs Rice Wheat Other grains Fruit / veg Dairy products Meats Oilseed and prod Sugar Wool and fiber Other misc. foods Beverages / tobacco Live animals Animal products Forestry and fishery Energy and products Minerals and metals Textile and apparel Wood and paper Transportation /mach Construction Electronics Services Total ,106 1, ,163 1, ,132 1,884