Study on the Impacts of China–ASEAN Free Trade Area ——Based on the Simulation of GTAP Model (1) Shudong ZHOU College of Economics and Management, Nanjing Agricultural University, China (2) Qifeng CUI Institute of Agricultural Economics and Development, China Academy of Agricultural Science, China (3) Bingchuan HU Institute of Rural Development, China Academy of Social Science, China (4)Qiang WU Financial Office of Jiangsu, China Abstract： This study applied GTAP model, upgraded database to 2010 with dynamic recursive approach, designed baseline projection and scenario analysis to simulate the long term impacts of China– ASEAN Free Trade Area on trade, import and export price, GDP, and resident’s income. Compared with baseline projection, implementation of CAFTA would bring significant impacts on trade, production, GDP and resident’s income to CAFTA members, bilateral trading partners and other countries. As the distortion of tariff on trade was removed, import prices of products with tariff reduction could decrease in China and most ASEAN members. CAFTA could promote internal trade in the free trade area, the domestic production structure of China and ASEAN members could be adjusted. Under the policy framework of CAFTA, China could give priority to increase products with comparative advantages. ASEAN members could shift resources from agricultural sector to industrial sector. CAFTA could bring positive impacts on GDP and resident’s income level in China and ASEAN members. But Korea, Japan, India, Hong Kong could receive some negative impacts on trade with CAFTA members, but there are less impacts on GDP and resident’s income.

Key words: China, ASEAN, CAFTA, GTAP, trade

1 Introduction 1.1

Problem statement

The Economic Ministers of ASEAN (Association of Southeast Asian Nations) and China signed the Agreement on Trade in Goods (TIG) under the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China in November 2004. This indicated that construction of China –ASEAN Free Trade Area (CAFTA) came into practice, it could be an important milestone of economic integration of east Asia. Economic cooperation between China and ASEAN became closer and closer, bilateral trade increased steady. China and ASEAN bilateral trade volume reached average increase rate of 22.50% since 1997 to 2007. Especially, the bilateral trade volume between China and ASEAN reached 202,432.55 million US dollars in 2007. Such a rapid growth is rare in current global trade. ASEAN became China's fourth largest trading partner in 2007. During this dynamic process of CAFTA, internal trade, domestic production structure, and GDP could be greatly affected by the Agreement. Based on the trade policy changes of CAFTA, A GTAP (Global Trade Analysis Project) model was applied to simulate the positive and negative impacts of tariff reduction under the agreement.

1.2

Literature review

Since 1950, many economists have devoted themselves to theoretical research of regional economic integration (REI), especially in tariff union—a typical form of REI. Their research mainly focused on the welfare effects of union members and the rest of the world in two aspects: static effects and dynamic effects. In terms of static effects, Viner (1950) first developed “trade creating effects” and “trade diverting effects”, he pointed out that tariff union or free trade area promoted internal trade among union members, whereas they restrained international trade to the outside. Trade creating effects could increase the welfare of member countries, whereas trade diverting effects could reduce welfare of non-member countries and distort resource allocation. Several empirical studies have been made on static welfare of FTA on its member. In an empirical study, Albert (1992) showed that establishment of NAFTA increased trade between Mexico and NAFTA members, realized trade creation within NAFTA, but caused trade and investment diversion in non-member countries. Berkelmans et al. （2001）employed a G-Cubed model to simulate the economic effect of trade liberalization between Australia and USA. They showed that Australia-USA trade

liberalization could increase GDP and trade volume, and that trade creating effects could be greater than trade diverting effects. Theoretical and empirical studies have been made on dynamic welfare in bilateral and multilateral trade. Lindert and Kindleberger (1985) concluded that tariff union would affect trade and welfare in two ways: welfare gain associated with trade creating effects and welfare loss associated with trade diverting effects. Dynamic gains of integration, however, would include economics of scale, greater competition, and stimulation of investment. Walmsley, Dimaranan, McDougall (2000) employed GTAP model to estimate the dynamic effect of Japan - Singapore FTA. Model results showed that the long-term return of the FTA could be higher for Japan and Singapore than for other regions in the world. Adams et al.(2000) employed GTAP_3 to simulate terms of trade effects of full APEC liberalisation. They pointed out that China could have a large decrease in output of transport equipment, but have a large increase in output of clothing; APEC had a positive welfare effect on China. Feng and Huang (1997) simulated a unilateral 33% tariff reduction and 43% reduction in APEC member tariffs using GTAP_3, they found a positive welfare effect on China and on Rest of World. Li and Lejour(2000) made baseline growth scenarios for 50% tariff reduction, cuts in Non Tariff Barrier with China SAM(base=1997). They found that China could expect not only a large increase in agricultural import volumes, but also increases in exports of textiles and wearing apparel. Mai et al.(1998) simulated unilateral tariff reduction (33% cuts) of APEC with GTAP_3, their research showed that China could benefit from all forms of trade liberalisation. Yang and Huang (1999) also simulated full APEC liberalisation with GTAP_3, they found that there was welfare effect on China, concerted liberalisation in APEC region could offset terms of trade declines, APEC and WTO would mutually reinforce. Gilbert and Wahl (2002) applied GTAP model to estimate welfare effects and output effects of trade liberalization among Bangkok agreement members. Their research pointed out that China and India could suffer declines in the terms-of-trade in the static state but offset the declines in the dynamic effects.

2 The framework of agricultural trade in ASEAN–China FTA 2.1

Early Harvest Program

Early Harvest Program was the first tariff reduction program under the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China，which has been implemented by January 2004. The products included live animals, meat and edible meat offal, fish, dairy products, other animal products, live trees, edible vegetables, edible fruits and nuts. On the one hand, some countries had

difficulty to remove or reduce tariff of some products, which were defined as Excluded Products. On the other hand, some countries suggested to add some non-agricultural products, which were defined as Specific Products.

2.2

Agreement on Trade in Goods

The agreement on comprehensive economic co-operation between ASEAN and China aimed to: minimize barriers and deepen economic linkages between the Parties, lower costs, increase intra-regional trade and investment, increase economic efficiency, and create a larger market with greater opportunities and larger economies of scale for the businesses of the Parties; and enhance the attractiveness of the Parties to capital and talent. ① Under the Agreement on Trade in Goods (TIG), the tariff reduction or elimination programme of the parties shall require tariffs on listed products to be gradually reduced and eliminated. Products shall be categorized into two tracks: the Normal Track and the Sensitive Track. The tariff reduction program under the Normal Track would be implemented by 2010 for ASEAN 6 (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) and China, and by 2015 for the newer ASEAN Member States (Cambodia, Laos, Myanmar and Viet Nam). Table 1 Products

Weighted average tariff levels for key products by countries (%) China

Indonesia

Malaysia

Philippines

Singapore

Thailand

Viet Nam

rice

0.99

25.35

0

49.97

0

0.61

14.18

other grains

1.02

0.03

0

20.79

0

56.29

4.61

23.12

4.90

2.95

13.08

0

34.51

29.55

oil seeds

11.86

1.75

2.54

8.69

0

46.92

6.66

sugar

18.38

20.13

0.00

38.25

0

34.27

23.00

12.52

0.82

0.29

5.72

0

20.42

24.00

20.89

5.36

3.98

5.12

0

43.89

26.81

47.73

10.08

229.06

5.09

0.57

59.92

83.75

vegetables and fruit

vegetable oil and fats Other food products beverages and tobacco

Source: Author’s calculation based on GTAP 6 database

①

Framework agreement on comprehensive economic co-operation between the Association of

South East Asian Nations and the people’s republic of China. http://www.aseansec.org/13196.htm

According to the Agreement on Trade in Goods, except products listed in the Early Harvest Programme and products listed in Sensitive Track, goods listed in Normal Track would be subject to tariff reduction based on the tariff rate of 2003. Table 1 lists the weighted average tariff levels of some key products. The tariff rate distribution of China and ASEAN in 2003 is listed in Table 2. Except for Brunei and Singapore, the rest of ASEAN members and China should reduce their tariff rates of products in normal track to 0 according to the timeframes. Table 2 Tariff

The tariff rate distribution of China and ASEAN in 2003 (%) China

Brunei

Myanmar

Cambodia

Indonesia

Laos

X ≥ 20 15 ≤ X < 20 10 ≤ X < 15 5 < X < 10 X ≤5 X =0

36.6

0

3.8

39.9

4.3

49.9

16.2

0

37.5

20.1

1

0

23.6

0

1.8

0

3.1

18.9

9.8

0

0

36.7

0

0

6.3

0

50

0

77.3

30.8

7.5

100

6.9

3.3

13.7

0

Average tariff

16.8

0

8.30

20.7

9

18.7

Malaysia

Philippines

Singapore

Thailand

Viet Nam

X ≥ 20 15 ≤ X < 20 10 ≤ X < 15 5 < X < 10 X ≤5 X =0

10.7

19.0

0

67.6

47.6

2.5

0

0

0

0

6.6

12.9

0

7.3

13.9

0

22.4

0

3.7

0

10.4

45.5

0

12.0

16.3

63.7

0

100

2.9

13.3

Average tariff

4.1

13.1

0

30.6

21.9

rate X (%)

Tariff rate X (%)

Source: http://www.caexpo.org/gb/news/special/nchp/table/t20050908_49036.html

Because of the fundamental status of agriculture, some important agricultural products were listed as “sensitive products” or even “high sensitive products” in some countries, so as to protect them. According to Agreement of TIG, China and ASEAN members can list into the “sensitive track” about 400 products (tariff item of HS 6), whose import volume should not exceed 10 % of the total import volume in 2001. Under the tariff reduction program, tariff rates of sensitive products should be reduced to 20% and below by 2012, the tariff rates of high sensitive products should be reduced to 0%~5% by 2018. The high sensitive products in China’s list include rice, wheat, corn, soybean oil, palm oil, cotton, sugar, and tobacco. The sensitive products in Indonesian list include rice, soybean oil, sugar, alcohol, and tobacco. The sensitive products in Thailand’s list

include cream, potato, onion, coffee, tea, silk, dried vegetables and fruits. The sensitive products in Malaysian list include rice, poultry, poultry egg, cream, tobacco. The sensitive products in Philippine’s list include rice, poultry, pork, sugar, canned meat. The sensitive products in Viet Nam’s list include rice, vegetables, fruits, soybean oil, tea, sugar, alcohol, tobacco, textiles, and etc.

3 Methodological approach 3.1

Data base

GTAP_6 Data base was used for baseline projection for this study. GTAP_6 Database updated I-O table, general economic statistics (World Bank), bilateral trade volume (ERS/USDA), service trade (Balance of Payments database of IMF), domestic support (OECD, FOI), agricultural export subsidy (ERS/USDA), energy (International Energy Agency) to the base year of 2001.

3.2

Dynamic recursive approach

This study tried to simulate the impact of ASEAN – China Free Trade Area. It was necessary to make projections for population, labor, and other exogenous variables. Walmsley et al.(2000) estimated population, skilled and unskilled labor, GDP and GDI, and other exogenous variables with a dynamic recursive approach to upgrade GTAP_5 Database to year 2010, based on real statistics from 1992 to 1997. With the same approach, the authors estimated population, skilled and unskilled labor, GDP and GDI, and other exogenous variables, and upgraded GTAP_6 Database to year 2010 for policy simulation.

3.3

Scenario design

According to the Early Harvest Programme and Agreement on Trade in Goods (TIG), we identified products that might be influenced, then assorted and aggregated sector/products using GTAPAgg6. The aggregated sectors included: rice, wheat, cereal grains nec, vegetables & fruit, oil seeds, sugar cane & sugar beet, crops nec, raw milk, wool & silk-worm cocoons, meat products, dairy products, sugar, food products nec, food, coal, oil, gas, textiles, petroleum, coal products，chemical, rubber, plastic products, manufactures nec, motor vehicles and parts, transport equipment, electronic equipment, machinery and equipment, trade, communication, financial services, insurance, and other services. The aggregated regions included: China, Thailand, Singapore, Philippines, Malaysia, Indonesia, Viet Nam, rest of southeast Asia, Korea, Japan, India, Hong Kong,

NAFTA, EU, Rest Of World. Baseline projection: (1) 2001—2005: population, labor, and natural resource changes were considered; GDP was exogenous variable, and technological improvement was endogenous variable. (2) 2001—2005: according to Early Harvest Programme the tariff rates of agricultural products were reduced for China and ASEAN members. The tariff reduction under liberalization schedules of other WTO members was also considered. (3) 2005－2010: population, labor, and natural resource changes were considered; GDP was endogenous variable, and technological improvement was endogenous variable. Scenario: On the basis of the above baseline projection, tariff rates were reduced to 0 by 2010 according to the tariff reduction timeframe for normal products in the Agreement on Trade in Goods (TIG). Some sensitive products were under tariff item HS 6, so it was not possible to separate them from the GTAP database. Instead, we treated them as normal products and reduced tariffs to assess the need of setting them as sensitive products.

4 Simulation Results 4.1

Impact on import prices of products

After the establishment of CAFTA by 2010, import prices would be influenced by the tariff reduction. There were different situations related to the import prices in China and ASEAN members. 4.1.1 Products with tariff reduction When a country reduces tariffs, import prices of products with high tariff could decrease. Table 3 showed that import prices of most agricultural and industrial products decreased at different levels in China, Viet Nam, Thailand and Philippines, Malaysia and Indonesia. Tariff constitutes an important part of cost, tariff reduction would therefore reduce the cost and price. 4.1.2

Products with no tariff reduction

Some countries do not need to reduce tariff rates, because their tariffs were already zero. Under such a situation, import prices should be determined by world prices theoretically. Because of geographical and transport reasons, however, most agricultural imports were from ASEAN and China Free Trade Area, therefore import prices should be the regional trade prices within CAFTA. The simulation showed that prices of some products could increase, whereas others may decrease. For example in

Singapore, the import price of rice, cereal grains , vegetables & fruit, oil seeds, sugar, textiles, chemical, rubber, plastic products, electronic equipment, machinery and equipment could increase, however, the import price of wheat, Food, motor vehicles and parts, transport equipment could decreases. Table 3 Pim

Change in import prices for some key products (%)

China

Indonesia Malaysia Philippines Singapore Thailand Viet Nam

Rice

-0.15

1.04

0.41

0.17

0.17

0.39

-14.43

wheat

-0.04

-0.03

-0.03

-0.1

-0.04

-0.03

-0.03

cereal grains

-0.03

0.29

0.23

-3.86

0.47

-11.37

-3.47

vegetables & fruit

-9.47

-1.47

-0.09

-4.86

0.62

-3.39

-14.71

oil seeds

-0.03

0.03

-0.04

-1.76

0.42

-0.15

-2.88

Meat products

-4.84

-0.61

-0.28

-8.04

0.11

-0.6

-0.24

sugar

-5.49

0.29

0.28

-1.95

0.24

-1.57

0.96

Food

-4.22

-0.2

-22.78

0.16

-0.12

-0.71

-0.36

textiles

-0.92

-1.45

-1.84

-1.01

0.04

-4.12

-2.9

-3.1

-0.23

-0.01

-0.22

0.11

-0.5

-0.16

-0.42

-0.25

-0.22

-0.14

-0.04

-0.11

-3.09

-0.16

-2.22

-0.31

-1.39

-0.04

-0.15

-37.05

-2.14

-0.87

-0.06

-0.04

0.14

-0.58

-0.67

-0.84

-0.42

-0.22

-0.18

0.04

-0.63

-0.75

chemical, rubber, plastic products motor vehicles and parts transport equipment electronic equipment machinery equipment

and

Source: Author’s GTAP model simulation results.

4.2

Impact on export prices of products

In contradiction to import price, after tariffs were reduced, export prices of some agricultural and industrial products could increase. Agreement of TIG would reduce the tariff rates not only on agricultural products, but also on industrial goods. Agricultural products between China and ASEAN members are mostly complementary, but the industrial goods between China and ASEAN members are competitive. Some ASEAN members possess stronger comparative advantage in manufacture. These countries could adjust their production structure, by shifting

resources from agricultural sectors to industrial sectors, which could result in a decrease of output and increase of export prices of agricultural products. Change in export prices for some key products is listed in Table 4. Table 4 Change in export prices for some key products (%) Pxw

China

Indonesia

Malaysia Philippines Singapore

Thailand Viet Nam

Rice

0.37

0.83

1.76

1.09

0.33

1.43

1.61

wheat

0.24

0.18

-1.29

0.58

0.24

1.03

-7.9

cereal grains

0.31

0.71

1.19

0.95

0.43

1.21

1.52

vegetables & fruit

0.38

0.86

1.9

1.22

0.39

3.22

2.86

oil seeds

0.36

0.74

1.82

0.21

0.26

2.95

1.02

Meat products

0.32

0.99

-0.88

0.76

0.76

1.51

2.37

sugar

0.17

0.95

-0.03

0.77

0.79

1.9

2.22

Food

0.35

0.94

-0.5

0.79

0.84

1.37

2.18

textiles

0.11

0.43

0.03

0.15

0.66

0.75

-0.08

0.14

0.26

0.3

0.1

0.17

0.24

2.55

-0.05

0.56

0.77

0.37

0.79

1.21

0.88

0.17

0.65

0.68

0.21

0.76

0.76

0.78

0.18

-0.08

0.77

0.35

0.83

0.37

-11.79

-0.61

0.57

0.67

0.15

0.34

0.33

0.84

0.11

0.23

0.55

0.22

0.61

0.48

1.14

petroleum,

coal

products chemical, rubber, plastic products motor vehicles and parts transport equipment electronic equipment machinery equipment

and

Source: Author’s GTAP model simulation results.

4.3

Impact on internal trade among member countries

Simulation showed that CAFTA could promote internal trade. Compared with baseline projection, China would get the biggest increase in import volume (3.356 % by 2010), Viet Nam, Thailand, Indonesia, Singapore, Malaysia and Philippines and Rest of southeast Asia countries would also increase their imports. After the establishment of CAFTA by 2010, export volume of China could increase by 2.13%, export of Singapore could increase by 1.134%, that of Viet Nam increases by 1.024%, Thailand , Indonesia, Philippines and Malaysia would also increase their exports.

While CAFTA promotes internal trade, China and ASEAN members would shift their imports and export from outside countries to their members, Korea, Japan, Hong Kong and India could get negative impacts on import and export with China and ASEAN members. Table 5

Comparative changes in volume of import and export

Region

Total import change (%)

Total exports change (%)

China

3.356

2.13

Indonesia

2.122

0.849

Malaysia

1.275

0.537

Philippines

1.131

0.547

Singapore

1.797

1.134

Thailand

2.735

0.884

Viet Nam

2.954

1.024

2.148

1.627

Rest of southeast Asia

Source: Author’s GTAP model simulation results.

China's imports from ASEAN members showed following characteristics, in agricultural sector, China would increase import of tropic vegetables & fruit, meat products, sugar cane, and crops. In industrial sector, China's imports would shift from natural resource-intensive primary products to manufactured products or semi-manufactured goods. Especially, from labor-intensive products to capital and technology-intensive products, such as chemical, rubber, plastic products (7.66%), electronic equipment (4.86%), machinery and equipment (3.37%). China would have bright prospects in the exports of sugar (43.8%), vegetables & fruit (2.91%), transport equipment (19.66%), electronic equipment(6.61%), petroleum, coal products (6.47%), textiles (4.39%), motor vehicles and parts (4.4%) to ASEAN members. Most of the exported products would shift to capital and technology-intensive products. China would strengthen comparative advantage in transport equipments and electronic equipments. ASEAN members would have good export performance based on their comparative advantage. By 2010, CAFTA could promote the exports of meat products, chemicals, rubber and plastic products, textiles in Indonesia; CAFTA could promote the exports of meat products, sugar, textiles, chemicals, rubber and plastic products, machinery and equipment in Malaysia; exports of vegetables & fruit, coal, rubber,

machinery and equipment in Philippines; exports of Petroleum, coal products, chemical, rubber and plastic products, machinery and equipment in Singapore; exports of sugar, vegetables & fruit, chemicals, rubber and plastic products, textile in Thailand; exports of vegetables & fruit, textiles, chemicals, rubber and plastic products, transportation equipment in Vietnam.

4.4

Impact on production structure and output

Simulation showed an obvious change in the domestic production structure of China and ASEAN members after the tariff reduction. As the distortion of tariff on trade was removed, resources would be reallocated according to the comparative advantage of each member; the domestic production structure of China and ASEAN members would be adjusted. Some members have low labor cost and possess a comparative advantage in industrial sectors, their resources could shift from agricultural sector to industrial sector. National industrial structure would be changed, following the strategy of divergently development of products and complementary advantages. Some products or sectors which could increase or decrease as the result of production structure adjustment. Simulation results showed that the output of capital-and technology-intensive products such as electronic equipment and transportation equipment increased obviously in China, which meant China would possess opportunities. Under the policy framework of CAFTA, China could give priority to develop products with comparative advantages: rice, textiles, motor vehicles and parts, transport equipment, electronic equipment. Simulation results also showed that the output of products without comparative advantages such like vegetables & fruit, oil seeds, sugar, meat products, chemical, rubber, plastic products, machinery and equipment decreased compared with baseline projection, which meant China could face adjustments in these sectors and products. (see table 6) Simulation results showed that ASEAN member countries would also improve industrial structure. Indonesia would give priority to develop meat products, food products, textiles, chemical, rubber, plastic products, electronic equipment. Malaysia would give priority to develop rice, wheat, oil seeds, sugar, meat products, other food products, food products, textiles, chemical, rubber, plastic products, machinery and equipment. The Philippines would give priority to develop machinery and equipment, vegetables & fruit, rice, chemical, rubber, plastic products. Singapore would give priority to develop sugar cane, food products, petroleum, coal products, chemical, rubber, plastic products, electronic equipment. Thailand would give priority to

develop vegetables & fruit, oil seeds, sugar cane, sugar, chemical, rubber, plastic products, electronic equipment. Vietnam would give priority to develop wheat, vegetables & fruit, chemical, rubber, plastic products. Other ASEAN members will give priority to the development of wheat, vegetables & fruit, sugar, dairy products, chemical, rubber and plastic products. Table 6 Country

China

Indonesia

Malaysia

Philippines

Singapore

Thailand

Products or sectors which may increase or decrease

Products or sectors may increase rice, other crops, food products, textiles, transport equipment, electronic equipment, motor vehicles and parts meat products, food products, textiles, chemical, rubber, plastic products, electronic equipment rice, wheat, oil seeds, sugar, meat products, other food products, food products, textiles ,chemical, rubber, plastic products, machinery and equipment machinery and equipment, vegetables & fruit, rice, chemical, rubber, plastic products sugar cane, food products, petroleum, coal products, chemical, rubber, plastic products, electronic equipment vegetables & fruit, oil seeds , sugar cane, sugar, chemical, rubber, plastic products, electronic equipment wheat, vegetables & fruit, chemical, rubber, plastic products

Viet Nam

Source: Author’s GTAP model simulation results.

Products or sectors may decrease vegetables & fruit, oil seeds, sugar, meat products, chemical, rubber, plastic products, machinery and equipment cereal grains , oil seeds, sugar, dairy products, coal, oil, transport equipment, motor vehicles and parts cereal grains, other crops, transport equipment, dairy products

wheat, oil seeds , meat products, textiles, transport equipment rice, wheat, oil seeds, dairy products, transport equipment, motor vehicles and parts rice, wheat, cereal grains, dairy products, meat products, textiles, transport equipment oil seeds, other crops, meat products, sugar, petroleum, coal products, transport equipment, machinery and equipment , motor vehicles and parts, electronic equipment

4.5

Impacts on GDP and resident’s income

Our simulation showed that CAFTA could have a positive impact on GDP and resident’s income level in China and ASEAN members. By 2010, China’s GDP could increase by 0.18%, the resident’s income could increase by 0.2 %. As for ASEAN members, the GDP of Viet Nam, Malaysia, Thailand the Philippines, Indonesia, Singapore, and could increase by0.87%, 0.67%, 0.18%, 0.1%, 0.08%, 0% respectively. The resident’s income of these countries could increase by 1.71%, 1.58%, 0.82%,0.3%, 0.31%, 0.88% respectively.

4.6

The impact of CAFTA on other regions International trade theory indicated that regional integration could improve

welfares of their members, while it could bring loss in welfare other countries and regions in the world. Our scenario simulation results showed that Korea, Japan, India, Hong Kong could receive negative impacts on trade with CAFTA members, but there is few impact on GDP and residents’ income. For example, import and export could decrease by 0.497% and 0.179% in Korea, import and export could decrease by 0.473% and 0.067% in Japan, import and export could decrease by 0.144% and 0.039% in India, import and export could decrease by 0.155% and 0.134% in Hong Kong. Although NAFTA and EU are far away from Asia, they could also get sight influence from CAFTA on import and export. (see Table 8) Table 7 Country

The impacts of CAFTA on other regions

Total import change (%)

Hong Kong

Japan Korea India NAFTA EU

Total exports change (%)

-0.155 -0.473 -0.497 -0.144 -0.093 -0.068

-0.134 -0.067 -0.179 -0.039 -0.04 -0.027

GDP change (%)

0 0 -0.02 0 0 0

Source: Author’s GTAP model simulation results.

5 Conclusion Based on above analysis, following conclusions can be drawn: Compared with baseline projection, implementation of CAFTA would bring significant impacts on trade, production, GDP and resident’s income to CAFTA members, bilateral trading partners and other countries.

Simulation showed when a country reduces tariffs, import prices of products with high tariff could decrease. Import prices of most agricultural and industrial products decreased at different levels in China, Viet Nam, Thailand and Philippines, Malaysia and Indonesia. As Singapore does not need to reduce tariff rates, because its tariffs were already zero. Under such a situation, prices of some products could increase, whereas others may decrease. Simulation showed that CAFTA could promote internal trade. Compared with baseline projection, China and ASEAN members would get increase in import and export. China's imports from ASEAN members showed following characteristics, in agricultural sector, China would increase import of tropic vegetables & fruit, meat products, sugar cane, and crops. In industrial sector, China's imports would shift from natural

resource-intensive

primary

products

to

manufactured

products

or

semi-manufactured goods, especially, from labor-intensive products to capital and technology-intensive products, such as chemical, rubber, plastic products, electronic equipment, machinery and equipment. China would have bright prospects in the exports of sugar, vegetables & fruit, transport equipment, electronic equipment, petroleum, coal products, textiles, motor vehicles and parts to ASEAN members. Most of the exported products would shift to capital and technology-intensive products. By 2010, CAFTA could promote the exports of meat products, chemicals, rubber and plastic products, textiles in Indonesia; CAFTA could promote the exports of meat products, sugar, textiles, chemicals, rubber and plastic products, machinery and equipment in Malaysia; exports of vegetables & fruit, coal, rubber, machinery and equipment in Philippines; exports of Petroleum, coal products, chemical, rubber and plastic products, machinery and equipment in Singapore; exports of sugar, vegetables & fruit, chemicals, rubber and plastic products, textile in Thailand; exports of vegetables & fruit, textiles, chemicals, rubber and plastic products, transportation equipment in Vietnam. While CAFTA promotes internal trade, China and ASEAN members would shift their imports and export from outside countries to their members, Korea, Japan, Hong Kong and India could get negative impacts on import and export with China and ASEAN members. As the distortion of tariff on trade was removed, resources would be reallocated according to the comparative advantage of each member; the domestic production structure of China and ASEAN members would be adjusted.

Under the policy framework of CAFTA, China could give priority to develop products with comparative advantages: rice, textiles, motor vehicles and parts, transport equipment, electronic equipment, while the output of products without comparative advantages such like vegetables & fruit, oil seeds, sugar, meat products, chemical, rubber, plastic products, machinery and equipment could decrease in China compared with baseline projection. ASEAN member countries would also improve industrial structure. Indonesia would give priority to develop meat products, food products, textiles, chemical, rubber, plastic products, electronic equipment. Malaysia would give priority to develop rice, wheat, oil seeds, sugar, meat products, other food products, food products, textiles, chemical, rubber, plastic products, machinery and equipment. The Philippines would give priority to develop machinery and equipment, vegetables & fruit, rice, chemical, rubber, plastic products. Singapore would give priority to develop sugar cane, food products, petroleum, coal products, chemical, rubber, plastic products, electronic equipment. Thailand would give priority to develop vegetables & fruit, oil seeds, sugar cane, sugar, chemical, rubber, plastic products, electronic equipment. Vietnam would give priority to develop wheat, vegetables & fruit, chemical, rubber, plastic products. Other ASEAN members will give priority to the development of wheat, vegetables & fruit, sugar, dairy products, chemical, rubber and plastic products. Our simulation showed that CAFTA could have a positive impact on GDP and resident’s income level in China and ASEAN members. Korea, Japan, India, Hong Kong could receive negative impacts on trade with CAFTA members, but there is few impact on GDP and resident’s income. References [1] Adams, P.D., M. Horridge, B.R. Parmenter and X-G. Zhang, Long-run Effects on China of APEC Trade Liberalization. Pacific Economic Review,5.1,15-47. 2000 [2] Ahuja, V. and D. Filmer. Educational Attainment in Developing Countries: New Estimates and projections Disaggregated by Gender, World Bank Policy Research Working Paper 1489, Washington, DC, July. 1995 [3] Albert Carlos, Primo Braga, NAFTA and the Rest of the World , in Nora Lustig, Barry p. Bosworth, Robert Z. Law rence, eds. , North American Free Trade: Assessing the Impact, Washington, D. C. , Brookings Institution,1992 [4] Balassa, B., The Theory of Economic Integration, Homewood, II:Irwin.1961 [5] Berkelmans, L., Davis, L., Mckibbin, W., Stoeckel, A. Economic impacts of an Australia –

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New York. 1997

Acknowledgements The authors thank Terrie L. Walmsley at Center for Global Trade Analysis for guidance to dynamic recursive approach, Deon Filmer at the Development Research Group of World Bank for providing statistics and giving suggestion to the estimation on labor, Yang Jun at Chinese Academy of Science for help on GTAP modeling.

Corresponding author:

Prof. Dr. Shudong Zhou College of Economics and Management Nanjing Agricultural University Nanjing, 210095 China Email: [email protected] Tel. +86-25-84396289 Fax. +86-25-84395517