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Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA- Theo Jonker & Minoru Ono

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.

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Scenario for Free Trade in APEC -From the viewpoint of Japan & NAFTA- Theo Jonker & Minoru Ono

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  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 $334 bln. Base data $278 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 ???? With special help from: 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

  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-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!

  17. Results of the Simulations

  18. 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%

  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.

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