1. Deepening India’s Engagement with African LDCs A simulation analysis of alternative scenarios for an enhanced and expanded trade preference scheme Rajesh Chadha Senior Fellow March 10, 2014

2. Outline of Presentation Backdrop Objectives Present Scenario Simulation Analysis Concluding Remarks

3. Backdrop The Hong Kong WTO Ministerial (2005) Developed countries to extend Duty-Free Quota-Free (DFQF) to LDCs Developing countries expected to do so according to their capacity India became the first developing country – Duty Free Tariff Preference Scheme for LDCs (DFTPI-LDC) in 2008 Expectation was to boost exports and GDP of LDCs This study looks at African LDCs (AFLDCs)

4. Outline of Presentation Backdrop Objectives Present Scenario Simulation Analysis Concluding Remarks

5. Objective of the study To analyse the potential and the actual impact of India’s preferential import regime on the exports and welfare of Africa’s Least Developed Countries (LDCs). Approach: Study the structural change in AFLDCs’ exports to India since 2005 Estimate the potential benefits for AFLDCs using a computable general equilibrium (CGE) model of the world economy.

6. Real GDP Growth (%) Average 2002-08 2009201020112012 Average 2009-2012 Forecast 2013 LDCs7.55.05.64.55.35.15.7 AFLDCs7.54.24.94.44.84.65.6 Developing7.62.77.66.45.15.55.3 Advanced2.5-3.53.01.61.20.61.2 WORLD4.7-0.65.24.03.23.03.3 Source: The LDCs Report 2013, UNCTAD

7. India's imports from AFLDCs (million USD) Source: Calculations based on WITS online database. YearOilNon-oilTotal 20071,6968052,501 20081,9391,3293,268 20093,6601,2624,922 20105,3001,1756,475 20115,9891,9797,969 20128,7132,59011,302

8. Share of imports from AFLDCs in imports from Africa (%) YearOilNon-oilTotal 200716.410.413.8 200814.010.912.5 200930.214.623.7 201026.510.821.0 201125.512.520.3 201231.916.426.3

9. Share of imports from AFLDCs in imports from all LDCs (%) YearOilNon-oilTotal 200754.029.142.3 200874.335.751.6 200977.536.760.3 201071.632.258.6 201189.440.468.7 201292.747.175.9

10. India’s import in major categories from AFLDCs (million USD) Category 20082012 Petroleum Oils1,9398,713 Vegetable Products439824 Base Metals & Articles Thereof182555 Mineral Products292465 Chemical Products175346 Textiles & Textile Articles101130 Pearls, Precious Or Semi-Precious Stones, Metals 30126 Others105143 Total Imports3,26411,302 Source: Calculations based on WITS online database (6-digit tariff lines mapped to GTAP)

11. India’s DFTP Scheme for LDCs (2008-2012) Duty Free items: On about 85 per cent of India’s total tariff lines, applied customs duty have been removed over a period of 5 years with 20 per cent reduction each year. Positive List: In addition to the 85 per cent duty free tariff lines, preferential market access as per Margin of Preference (MOP) is available on about 9 per cent tariff lines (458 items). The MOP ranges from 10 per cent to 100 per cent on different items and is available on the applied rate of duty as on the date of imports. Exclusion List: contains only 6 per cent of total tariff lines (326 items) on which no tariff preference is available and imports are allowed at MFN rates.

12. Outline of Presentation Backdrop Objectives Present Scenario Simulation Analysis Concluding Remarks

13. Imports from Major AFLDCs (Average for 2009-2011, '000 USD) CountriesOilNon-oilTotal Angola4,718,38027,6734,746,053 Senegal-267,056 Tanzania-259,526 Guinea94,19588,141182,336 Benin-179,136 Guinea-Bissau38,474133,400171,874 Zambia-110,087 Togo-99,661 Equatorial Guinea89,10429489,398 Mozambique-84,284 Congo, Dem. Rep.42,9058,98551,890 Total4,983,0581,467,0496,450,108 Source: Calculations based on WITS online database (total value in declining order)

14. Shares of preferences across countries, excluding oil (2009-2011, %) Source: Calculations based on WITS online database. CountriesExcludedPositiveDuty FreeTotal Senegal92.90.26.9100.0 Tanzania9.338.752.0100.0 Benin19.22.478.4100.0 Guinea-Bissau1.90.198.1100.0 Zambia13.50.486.1100.0 Togo59.35.035.6100.0 Guinea13.70.286.1100.0 Mozambique6.248.845.0100.0 Malawi3.295.81.0100.0 Madagascar31.452.915.8100.0 Angola95.90.04.1100.0 Total (All AFLDCs)32.515.951.7100.0 6% lines9% lines85% lines100.0

15. Outline of Presentation Backdrop Objectives Present Scenario Simulation Analysis Concluding Remarks

16. General Equilibrium Modelling Analysis The Global Trade Analysis Project (GTAP) model is –Multi-region, multi-sector computable general equilibrium (CGE) mode –Analyses the trade flows across countries/ regions of the world –Each country/ region is divided into sectors of production –Inter-linkages across sectors captured through input- output databases

17. GTAP Database GTAP version 8.1 database has 57 sectors of production 14 agriculture etc.; 5 minerals; 24 manufacturing; 14 services 134 countries / regions including 17 AFLDC countries / regions

18. Policy Simulation Assess the potential gains to AFLDCs under two scenarios: I.Partial Liberalisation: –India liberalising its applied tariffs on positive and duty free lists products (excluding services). –Restricting Exclusion List products. II.Complete Liberalisation: –India liberalising its applied tariffs for all categories of imports (excluding services).

19. Closure Rule Modifications in the standard GTAP book closure to capture the issue of employment in AFLDCs: –Underemployment of unskilled labour in AFLDCs. –Dropped the full-employment assumption for unskilled labour. –The real wage is fixed exogenously. –Supply of unskilled labor is determined endogenously.

20. Outline of Presentation Backdrop Objectives Present Scenario Simulation Analysis Concluding Remarks

21. Results The welfare change is positive for all AFLDCs under partial liberalisation, increases further under complete liberalisation. –The major gaining countries/ regions: Benin, Rest of West Africa and South Central Africa. –The extent of increase in welfare gain under complete liberalisation scenario may relate to how much share of imports was under excluded list.

22. Results Important examples: Senegal: 10% partial; 63% complete –Additional 53%: phosphoric and polyphosphoric acid which fell under the excluded list gets opened up for duty free market access Madagascar: 51% partial; 99% complete –Additional 48%: ferrous waste and scrap; refined copper wire which fell under the excluded list gets opened up for duty free market access

23. Results The total welfare of AFLDCs increase by: –$1,008 million under partial liberalisation –$1,201 million under complete liberalisation India loses welfare worth: –$144 million under partial liberalisation –$171 million under complete liberalisation World gains welfare worth: –$469 million under partial liberalisation –$561 million under complete liberalisation

24. Results The real GDP increases for all AFLDCs –The major gainers under complete liberalisation: Benin, Togo, Rest of West Africa followed by Guinea, Madagascar and Uganda The exports to the world increase for all AFLDCs except for Benin AFLDCs gain in terms of trade

25. Results The factors of production also gain. –The returns to land increases in all AFLDCs. –The returns to capital and skilled labour also increase except for Madagascar, Mozambique, Rwanda and Tanzania - production structure moves in favour of land intensive goods.

26. Results India’s sectors of production get affected due to its DFTP Scheme –The output declines: paddy and rice; vegetables, fruits and nuts; other crops; cattle, sheep and horses; forestry; and crude oil. India’s exports of all sectors increase expect for gas.

27. Results Exports of major commodities increase when India provides DFQF market access to AFLDCs. Exports of all the AFLDCs except Rwanda increase. The gains are expected to be higher if commodities under the excluded list are also made duty free.

28. Mapping of Model Regions with GTAP Region Country/RegionCodeGTAP Sectors India Rest of West AfricaRWAfricaRest of West Africa (XWF) BeninBENBenin Burkina FasoBFABurkina Faso GuineaGINGuinea Togo Central AfricaCentAfricaCentral Africa (XCF) South Central AfricaSCAFRICASouth Central Africa (XAC) SenegalSENSenegal EthiopiaETHEthiopia MadagascarMDGMadagascar MalawiMWIMalawi MozambiqueMOZMozambique TanzaniaTZATanzania UgandaUGDUganda ZambiaZAMZambia RwandaRWARwanda Rest of East AfricaRestEAfricaRest of Eastern Africa(XEC)

29. List of AFLDCs exporting top 50 HS 6-digit products to India 6 Digit HS CodeDescriptionCountries 280920Phosphoric acid and polyphosphoric acidsSenegal 720449Ferrous waste and scrap nesiAngola, Senegal, Guinea, Madagascar, Benin 251020Natural calcium phosphatesTogo 760200Aluminium, waste and scrapBenin, Senegal, Angola, Tanzania, Togo 740400Copper spent anodes; copper waste & scrapBenin, Zambia, Angola, Tanzania, Liberia 740311Refined copper cathodes and sections of cathodesZambia, Tanzania 090111CoffeeUganda, Guinea 720410Cast iron waste and scrapTanzania, Benin, Angola, Mozambique 271019Distillate and residual fuel oil (including blends)Tanzania, Liberia, Mali 120740Sesame seedsSomalia, Ethiopia, Tanzania, Burkina Faso 271011Light oil motor fuelLiberia, Tanzania 120799Oil seeds and oleaginous fruitsBenin, Ethiopia, Burkina Faso, Burundi 720429Alloy steel (o/than stainless) waste and scrapTogo, Benin, Sierra Leone, Senegal, Liberia 090240Black teaMalawi, Tanzania, Mozambique, Senegal 080132Cashew nutsTanzania, Mozambique 720421Stainless steel waste and scrapAngola, Benin, Eritrea, Tanzania, Togo 130120Gum ArabicEthiopia. Tanzania, Guinea, Mali, Togo 740811Refined copper, wireZambia, Malawi, Tanzania, Madagascar 720441Ferrous turnings, shavings, chipsBenin, Senegal, Togo 720430Tinned iron or steel waste and scrapMadagascar, Angola, Senegal, Guinea, Eq. Guinea

30. Thank You

31. Outline of Presentation Backdrop Objectives Present Scenario Simulation Analysis Concluding Remarks

32. Outline of Presentation Backdrop Objectives Present Scenario Simulation Analysis Concluding Remarks