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

3. Global Trade Analysis Project Goal in APEC In 1994, APEC members agreed Free Trade by 2010 for industrialized countries by 2020 for developing countries

4. Global Trade Analysis Project Problem In Chapter 9 of GTAP BOOK…….. Free Trade in all sectors But……… Tough trade negotiation in food sector Easier in manufacturing sector

5. Global Trade Analysis Project 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

6. Global Trade Analysis Project 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

7. Global Trade Analysis Project GDP Quantity Index (change)

8. Global Trade Analysis Project Quantity of output (change)

9. Global Trade Analysis Project Quantity of import (change)

10. Global Trade Analysis Project Market price (change)

11. Global Trade Analysis Project Composition of Japanese private households’ consumption Base data $278 bln. APEC FTA $294 bln. FoodManufacturing Base data $334 bln. APEC FTA $316 bln.

12. Global Trade Analysis Project Demand of labor in Japan

13. Global Trade Analysis Project 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.

14. Global Trade Analysis Project Free Trade in the Pacific Rim Chapter 9 GTAP Short Course 1998 Extensions

15. Global Trade Analysis Project Overview of the Talk With special help from: The Extensions: Old versus new Closing Rule PE versus GE Impact of APEC food tariff elimination on Japan Melting down Asia Christian and Rob ???? The Origins

16. Global Trade Analysis Project Model structure and model 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 Oooppss!!! GTAP

17. Global Trade Analysis Project 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!

18. Global Trade Analysis Project Results of the Simulations

19. Global Trade Analysis Project Tracing Back Japan’s CGDS Utility Increase in GTAP VariableChangeRemark CGDS$US34,155 MilIncrease in Utility from sale of capital goods pcgds 5.4% Increase in price of capital sold pgdp4.86%Increase in general price level qxs25.65%Increase total exports - especially e.g. nam - 70%exports of manufacuters where row - 37%Japan accounts for 14% of world exports of manufactures tmsfall due to liberalizationdrop in import tariffs on Japanese e.g. nam - 17.5%goods row - 14%

20. Global Trade Analysis Project Closure Rules CGDS(“JAP”)CGDS(“ROW”) SAVE(“JAP”)SAVE(“ROW”) Global Bank psave(“JAP”) pcgds(“JAP”)pcgds(“ROW”) psave(“ROW”) pcgdswld

21. Global Trade Analysis Project Results under both closures

22. Global Trade Analysis Project Old versus new closure Old closure Change in pcgds:~ +5%Change in Psave: 0% New closure Change in pcgds:~ +5%Change in Psave: ~ +5%

23. Global Trade Analysis Project Sumio Ishikawa and Jianbang Gan Impact of Asian Financial Crisis

24. Global Trade Analysis Project 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.

25. Global Trade Analysis Project Nominal Exchange Rate

26. Global Trade Analysis Project 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

27. Global Trade Analysis Project SCENARIOS Risk Risk + Free Trade Agreement (FTA) Risk + Capital Outflow

28. Global Trade Analysis Project SHOCKS

29. Global Trade Analysis Project Impact on Welfare (US$ billion)

30. Global Trade Analysis Project Impact on Trade Balance (US$ billion)

31. Global Trade Analysis Project Impact on GDP (% change)

32. Global Trade Analysis Project Impact on Investment (US$ billion)

33. Global Trade Analysis Project Impact on Structural Change due to Risk (% change in output)

34. Global Trade Analysis Project Impact on Structural Change due to Risk & FTA (% change in output)

35. Global Trade Analysis Project Impact on Structural Change due to Risk & Capital (% change in output)

36. Global Trade Analysis Project 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.