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GTAP Resource #1523

"Market Access in Non-agricultural Goods: What is at stake in the Development Round"
by Bchir, Mohamed Hedi, Lionel Fontagné and Sébastien Jean

The Doha ministerial declaration concerning market access for non-agricultural products states that negotiations should aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks.
Accordingly, one of the key item of the agenda is to define a general formula reducing tariffs on a systematic basis, in particular tariff peaks, without excluding a special and differential treatment (SDT) for developing countries, namely less than reciprocal commitments. Such approach raises various issues. First, ad valorem equivalents of specific duties have to be calculated. Second, tariff reduction should be modeled at the detailed level in order to avoid aggregation bias. Third, formula authorizing developing countries to limit their commitments have to be envisaged.
Against this background, this paper aims at assessing the impact of various modalities of tariff cuts in non-agricultural products. The specific consequences of cutting tariff peaks are assessed and a SDT is considered. The impact of the use of non-linear formula is also assessed: we exemplify this using the formula contained in the Girard Proposal with three different values of the parameter B (1, 2 and 0.65),.
Based on the MAcMaps database, detailed information on applied tariffs and tariff equivalents for some 5,000 categories of products (taking exhaustively into account preferential arrangements) is mobilized. The scenarios are defined at this detailed level of aggregation for 137 importing countries, taking into account the calendar of the phasing in of the agreement. The scenarios are based on a systematic rule of evolution of tariffs, conditional to their initial level.
The impact of these scenarios is finally assessed using a static version of MIRAGE, a CGE model incorporating imperfect competition. Sensitivity analysis is carried out, with regard to the specification of product differentiation, to the value of elasticities of substitution, to the nature of competition (perfect vs. imperfect), and to the macroeconomic closure of the model. Original aggregation procedures towards the GTAP 5.3 sectoral classification allow introducing in the model the results of the detailed analysis on tariffs. Considering a realistic pace of ongoing negotiations, a large set of events will have taken place between the base year of our calibration and the sparking of trade barriers dismantling. This is why changes such as China and Russia entering the WTO, the phasing out of MFA, the implementation of the Uruguay Round agreement, the enforcement of EBA and AGOA are introduced in a pre-experiment simulation.
The results show that there is room for negotiation in non-agricultural market access. Full liberalization would lead to sizeable trade creation, with a raise in industrial exports in volume reaching 12% worldwide, and more than 30% for several large developing countries such as Argentina, Brazil, Maghreb countries, South Asian countries, or India. Broadly speaking, applying the Girard proposal leads to half as much trade creation as a full liberalization, and this does not vary much with regard to the chosen B coefficient.
Many developing countries suffer from a welfare loss as a result of such liberalization in non-agricultural market access, mainly because of deterioration in their terms of trade, and because of a decrease in the number of domestic varieties. However, the large binding overhang existing in most developing countries might change radically the outcome of the Round, since developing countries are likely to consolidate, rather than really lower the level of applied duties. If this is the case, our simulations show that the outcome in terms of welfare turns out to be positive for most developing countries, even though aggregate gains are significantly lower (due to the lowering of rich countries' gains). Finally, we note that tariff peaks elimination alone leads to welfare gains almost as important as a large-scale liberalization.

Resource Details (Export Citation) GTAP Keywords
Category: 2004 Conference Paper
Status: Published
By/In: Presented at the 7th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2004
Created: Jean, S. (5/4/2004)
Updated: Ahmed, S. (9/13/2004)
Visits: 1,706
No keywords have been specified.

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