GTAP. Small Group Project EU-South Africa FTA

GTAP Small Group Project EU-South Africa FTA

Outline Introduction EU-SA FTA: Main Simulation Scott McDonald and Terrie Walmsley, Bilateral Free Trade Agreements and Customs Unions: The Impact of the EU- Republic of South Africa Trade Agreement on Botswana Background & Results EU-SA FTA: Extensions Unskilled labor closure effect and fixed real wage Segregating agriculture and industry liberalization Partial agriculture liberalization and EU expansion EU-SADC FTA and fixed real wage NAFTA-SA FTA (post EU-SA FTA) Conclusion

EU-SA FTA: main simulation Motivation Model key aspects Version Regions by Traded Commodities 5 Endowment commodities Closure Standard neoclassical GE closure Integration of African and Botswana realities Shocks Asymmetrical

EU-SA FTA: main simulation EU-SA FTA: Full Liberalization 75 SA ENDOW EU TOT $US millions 25 SA ALLOC EU ALLOC -25 bwa xsc sad xaf eur naf mer xeu xam xwo -75-25 BWA TAXPOOL ROW ENDOW AllocEf TechEf PopEf TotEf IS EF PrefEf TaxpoolEf EndowEf

EU-SA FTA: main simulation Change in Commodity Exports ($Usm) bwa 2 xsc 3 sad 5 eur crops 28.6 7.5-9 2 aag.7 7.6.2 -.2 3 mine -49.5 8.8-24. 4 food -.7 24-29.7 458. 5 tex 2.7 76.8 -.5 32.7 6 hman -2.3 324.5-7.5 254.9 7 lman -35. 43.8-4.8 22.9 8 utils. -3.3. -2.8 9 cns.2.2.2-6 serv 5.9-9.8.5-5 Change in Commodity Imports ($Usm) bwa 2 xsc 3 sad 5 eur crops -3.2 6.3-2.5 65.9 2 aag -.5 2.5 -.4 7 3 mine -.4-2.7 -.8 5.2 4 food 3.9 64.7 -.8 85.9 5 tex.6 28.6 -.7 43 6 hman -3.2 56.3-5.8 284.5 7 lman. 343-6.4 545 8 utils -.2 -.9 5.4 9 cns -..5 -..5 serv -2.8.7-6.4 24.9 Percent change in endowment price in S.A. pfe[**xsc] crops aag mine food tex hman lman utils cns serv Land 29.6 27.23 SkLab.33.33.33.33.33.33.33.33.33.33 Capital.94.94.94.94.94.94.94.94.94.94 NatRes 32.42 -.29 Percent change in endowment price in bwa pfe[**bwa] crops aag mine food tex hman lman utils cns serv Land -4.55-8.8 SkLab -.98 -.98 -.98 - - -.98 - - - - Capital -.7 -.7 -.7 -.2 -.2 -.7 -.2 -.2 -.2 -.2 NatRes 2.43 6.88

Outline EU-SA FTA: Extensions Unskilled labor closure effect and fixed real wage Segregating agriculture and industry liberalization Partial agriculture liberalization and EU enlargement EU-SADC FTA and fixed real wage NAFTA-SA FTA (post EU-SA FTA)

5 EU-SA FTA: Fixed nominal wage vs Full employment 5 $US millions -5 bwa xsc sad xaf eur naf mer xeu xam xwo - -5 AllocEf TechEf PopEf TotEf IS EF PrefEf TaxpoolEf EndowEf

EU-SA FTA: Fixed nominal wage vs Full employment 8 $US millions 6 4 2-2 bwa bwa xsc 2 xsc AllocEf TechEf PopEf TotEf IS EF PrefEf TaxpoolEf EndowEf

2 EU-SA FTA: Fixed nominal wage vs fixed real wage 5 $US millions 5-5 bwa xsc sad xaf eur naf mer xeu xam xwo - -5 AllocEf TechEf PopEf TotEf IS EF PrefEf TaxpoolEf EndowEf

2 EU-SA FTA: Fixed nominal wage vs fixed real wage 5 $US millions 5-5 bwa bwa xsc 2 xsc AllocEf TechEf PopEf TotEf IS EF PrefEf TaxpoolEf EndowEf

EU-SA FTA: Fixed nominal wage ppriv (Sim) bwa -.9 xsc -.94 sad -.3 xaf -.2 eur.2 naf -. mer -.7 xeu xam -.2 xwo -. share of private consumption b bwa 2 xsc crops.5.2 2 aag.2 3 mine.2.4 4 food.3.9 5 tex.4.5 6 hman.6.8 7 lman.3.7 8 utils.2.3 9 cns serv.38.5 change in composit import pric bwa 2 xsc crops 2.27 -.8 2 aag.2 -.64 3 mine -.27 -.7 4 food -2.22-2.63 5 tex -3.5-4.43 6 hman -.72-3.35 7 lman -.62-3.95 8 utils.8.2 9 cns. serv.

EU-SA FTA What is the experiment? - Liberalization of Industry btw. EU and South Africa - Comparison of welfare btw. full lib. and lib. of industry How? Making subsets and subtotals - ind (tex, hman, lman) - nind (crops, aag, food, mine, utils, cns, ser)

Wel. effect from full & ind. Lib. 5 full lib ind lib -5 - -5 bwa xsc sad xaf eur naf mer xeu xam xwo

Welfare decomposition 6 5 4 3 2 SA EU - -2-3 alleffr cgdsr endwr totr taxpool

Lib. of Industry btw. EU & SA Substantial welfare gain in EU - terms of trade effect: substantial component - reason: increase export price Welfare loss in SA - endowment effect - high unemployment

Lib. of Industry btw. EU & SA Edw. effect full lib. ind. lib. Tot effect full lib. ind. lib. SA 5.23-226.35 SA -23.5-25.72 EU EU 455.2 52.23

Welfare impacts with Full Liberalization and 25% Ag 2 8 4-4 bwa bwa-25 xsc xsc-25 sad sad-25 xaf xaf-25 eur eur-25 xwo xwo-25 taxpool pref_g IS_F tot_e endw_b alloc_a -8-2

Changes in Export Volumes 27. 22.9 (25.) 43.8.6 (35.) lman 25.4 254.9 (65.9) 324.5. (2.3) hman 4.6 32.7 (3.8) 76.8. 2.7 tex 5.4 458. 226. 24. (.9) (.7) food. (.2) 4.4 7.6..7 aag (9.2) (9.) 6.8 28.6.. crops ag-25 full ag-25 full ag-25 full Commodity EUR XSC BWA

Subtotal - EU+XEU(Switzerland, rest of the EFTA, CEFTA) -Subtotal 2 full liberalization + 25% liberalization EU-XSC AG trade -Subtotal 3 full liberalization + 25% liberalization XEU-XSC AG trade TOTAL EV_ALT EU-XSC 25% EU enl + 25% Subtotal Subtotal 2 Subtotal 3 bwa -3-2.46.85-2.97 -.34 xsc 25 79.7-2. 246.56 32.63 sad -6-3.29-25. -5.75 -.53 xaf - -8.73-79.24 -.28 -.2 eur 69 4899.94 4834.86 7.52-5.44 naf - -535.49-534.2 -.37. mer -2-737.46-724.65 -.89 -.9 xeu 6346.64 632.6 -.89 35.92 xam -3-226.89-223.9-3.35 -.35 xwo -5-67.48-65.7-4.68 2.94 total 278-2727.5-364.83 274.9 62.8

- welfare bwa 2 xsc alloc_a.77 77.38 2 endw_b -.84 3.68 5 tot_e -.94-4.8 6 IS_F.34.6 8 taxpool -.77.75 Total -2.45 79.6 3 sad -7.82-79.66-35.2.35. -3.29 4 xaf -6.75-62.49-28.73-9.55. -8.73 5 eur 48.43. 3458.75-4.23. 4899.94 6 naf -3.3. -324.82-7.37. -535.49 7 mer -266.87. -359.88 -.7. -737.46 8 xeu 6346.7. -8.7 8.. 6346.64 9 xam -58.6. -29.48-39.25. -226.89 xwo -693.56-7744.2-474.97 296.8. -67.48 Total 575.82-8423.5-8.6 -.9 -.2-2727.4 CNTendwr (Sim) Subtotal Subtotal 2 Subtotal 3 bwa -.84 -.4 -.67 -.2 xsc 3.68-34.45 8.47 9.66 sad -79.66-77.9-2.49 -.9 xaf -62.49-594.33-7.2 -.96 xwo -7744.2-7746.66.4 2.43 CNTendwir bwa xsc sad xaf xwo UnSkLab -,84 3,68-79,66-62,49-7744,2

ALLOCAT CHANGE CNTalleffir bwa xsc eur xeu crops,4,37 42, 34,77 aag,, 83,58 287,58 food,66 75,29 3,77 4865,5 food tms txs EU BWA -,43 XSC -,43 -,82 XEU -49,66-5,6 XEU BWA -8,85 XSC -8,85 -,76 EU -25,4-7,46 XSC EU -7,27 -,53 XEU -5,65 -,77 FOOD ps[food*] (Sim) Subtotal Subtotal 2 Subtotal 3 xeu -6,63-6,6 -, MSHRS(food, EU, XEU)=.66

Summarized welfare report EU SADC FTA alloc_ A 2 endw _B 3 tech_ C 4 pop_ D 5 tot_e 6 IS_F 7 pref_ G 8 taxpo ol Total bwa -5-7 37 7-8 -47 xsc 222 8-3 38-7 8 42 sad 78 934 667 9-39 2749 eur 937 4-3 964 Land 2 UnSkLab 3 SkLab 4 Capital 5 NatRes Total Endowment effect bwa xsc -7 8-7 8 sad 934 934 eur SAD: Demand for unskilled labor increases particularly in crops, food, services

Terms of Trade decomposition EU SADC pworld 2 pexport 3 pimport Total pworld 2 pexport 3 pimport Total crops 2 aag -7-58 -7-3 2-78 -4 crops 52-2 4 3 mine -23 2-9 -3 2 aag 3 3 4 food - -85-74 3 mine 84 85 5 tex 2-2 -42-42 4 food 98-48 52 6 hman -5 55-87 63 5 tex 7 7 7 lman -2 296-73 6 hman 55 56 8 utils 7 lman 22 4 27 9 cns 4 5 8 utils 8 8 serv 25 4 29 9 cns Total -44 426-34 4 serv Total 4 22 77-54 23 667 TOT effect reduced dramatically compared to original experiment (455.2); Positive TOT effect (was negative in original experiment); Export contribution has increased (was negative on aggregate in original experiment) Rise in import contribution food, textiles, lman; Fall in total export contribution of food (was positive in original experiment): from CNTtot(r), export contribution positive for BWA, XSC, SADC, but negative elsewhere; Sharp reduction in intra EU trade substitution effect

Change in commodity exports (US$m) Change in commodity imports (US$m) -45.5-424.43 28.6 2.8 Services -4.47-5.2.3.3 Construction 3.84-43.74 4.2.4 Utilities 33.8-86.38.94-57.9 LM 374.56-236.3 328.27-5.5 HM 426.33 292.89 92.75 6.78 Textiles -24.7 388.6 265.94-9.23 Food 83.96-376.39-5.63 Mining 9.5-7.99 22.5 2.9 Animal agriculture -67.95-428.9 299.84 Crop agriculture EU SADC XSC BWA 223.88 394.4-3.73 -.67 Services.56 6.8.3 -.3 Construction.79 37.5 -.5 -. Utilities 957.38 8.49 2.74 5.77 LM 545.3 87.69 477.3-8.42 HM 35.72 246.79 7..5 Textiles 322.78 497. 44.69 -.2 Food 7.4 59.34-8.3.24 Mining -29.8 2.89 2.83 -.45 Animal agriculture -54.7 43.22 53.35-3.6 Crop agriculture EU SADC XSC BWA

Closure change Real wage of unskilled labor fixed in BWA, XSC, SAD, XAF, XWO welfare alloc_a 2 endw_b 3 tech_c 4 pop_d 5 tot_e 6 IS_F 7 pref_g 8 taxpool Total bwa -5 38 8-79 -39 xsc 32 5-73 44-9 79 395 sad 8 45 724 6-37 847 eur 924 37-5 946 pfactreal(i,s) = pm(i,s) - ppriv(s) Ppriv (xsc) = -.2; ppriv (sad) = 5.3 ppriv(r) = sum{i,trad_comm, CONSHR(i,r)*pp(i,r)} pp(i,s) = PMSHR(i,s) * ppm(i,s) + [ - PMSHR(i,s)] * ppd(i,s)

Potential impact of SA NAFTA FTA Impact on GDP limited Welfare gains also limited SA: $376m, NAFTA: $48m Decomposition: SA benefits largely in textile NAFTA crops Endowment effect 5% increase in unskilled jobs NAFTA: capital Positive price effect in textiles negative in crops Changes in Real GDP (%) Rest of world. Rest of Americas. Rest of EU. MERCOSUR. NAFTA. EU. Rest of Africa -.4 Rest of SADC -.47 South Africa.246 Botswana -.37 -. -.5..5..5.2.25.3

Impact on trade Minor changes for NAFTA except crops & food SA: impact in textiles crops and food Crop imports by SA lead to shift of endowments (land & capital) Imports into SA jump in crops & food & textiles NAFTA: mainly textiles 25 2 5 5-5 Change in commodity exports crops aag mine food tex hman lman utils cns serv SA NAFTA

IMPACT OF AGOA AND SA-NAFTA 3 main conclusions: Changes in real GDP (%) I) SA and NAFTA have very little to gain from a FTA xwo xam xeu mer naf eur xaf sad xsc bwa AGOA FTA -. -.5.5..5.2.25 Source: Model simulations

bwa SA sad II) A NAFTA-SA FTA would reduce EV (Mill. US$) EU-SA FTA -92.5 895.6-4.8 AGOA+ FTA -4.6 376.6-23.4 world welfare AGO A -.7 248.4 -. FTA -3.9 28. -22.3 alloc_a SA nafta NAFTA+SA All other Regions Total AGOA+FTA 89.7.6.3-5.7-4.5 AGOA 25.6-8.8 6.8-6..8 FTA 64. 2.4 84.5-89.8-5.2 xaf eur -8.4 78-5.2-3.9.2 7. -5.4-2. 2 endw_b SA AGOA+FTA 25.5 AGOA 84.6 FTA 66.9 NAFTA mer xeu xam -9.6-98.9-55.3-25.4 48.2-5.6 2.2 -.4-32.2 -.9 -.2-4. 8.3-4.7 2.3-6.4 nafta NAFTA+SA All other Regions Total 25.5-322.3-7.8 84.6-44.6 4. 66.9-277.7-2.8 xwo NAFTA+SA All other Regions -29.6-48.8 524.7-599.7-75.9 26.3-75.4-332.9 38.5-524.4 5 tot_e SA nafta NAFTA+SA AGOA+FTA 7.2 26.2 43.4 AGOA 39.9-2.9 324.7 FTA -22.7 48. -44. Total 4.2-75. 4.9-25.9 All other Regions Total -43.4. -8.. -25.4.

III) Structural adjustment is limited to SA DEMAND FOR ENDOWMENTS SA crops aag food tex Land -3.49 3.46 UnSkLab -4.39 6.56 25.9 78.88 SkLab -.2.8 4. 2.69 Capital -25.48 6.84 25.96 3.55 NatRes -.