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Economic Effects of Trade Facilitation in APEC: Policy Implications by Scenarios

Economic Effects of Trade Facilitation in APEC: Policy Implications by Scenarios. 2006. 3. 14 APEC International Symposium Organized and Sponsored by APEC Chiba University, Japan Sangkyom Kim Senior Research Fellow, KIEP University of Michigan skkim@kiep.go.kr.

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Economic Effects of Trade Facilitation in APEC: Policy Implications by Scenarios

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  1. Economic Effects of Trade Facilitation in APEC:Policy Implications by Scenarios 2006. 3. 14 APEC International Symposium Organized and Sponsored by APEC Chiba University, Japan Sangkyom Kim Senior Research Fellow, KIEP University of Michigan skkim@kiep.go.kr

  2. Busan Roadmap and Bogor Goal • Evolving International Trade Environment • Globalization accelerates the movement of goods, services and capital flows in the region • Deepening of trade and investment integration and rapid spread of FTAs/RTAs require more focus on behind the border issues • Additional challenges posed by changing international security environment • Wide spread of ICT

  3. Busan Roadmap and Bogor Goal • Dynamic Nature of Bogor Goals • APEC does not interpret the Bogor Goal in a finite and static manner • Behind the border issues, including customs procedures, standard and conformance, business mobility and ecommerce have become an important agenda • APEC should recognize the evolving nature of trade environment • While recognizing that the Bogor Goals are dynamic, our Leader’s commitment in 1994 must be maintained

  4. Busan Roadmap and Bogor Goal • Trade Facilitation: Main Vehicle to Bogor • Busan Business Agenda • Build on the 2001 Shanghai target which is currently on track to be met by 2006, by further cutting transaction costs by another five percent by 2010 and identifying a list of collective actions that all 21 APEC economies will take to facilitate trade

  5. Gains From Trade Facilitation • Overall Gains from Trade Facilitation • Supplement tariff reduction and results in increase in world trade volume • Reduce the opportunity cost of international specialization • Improve administrative efficiency and enhance transparency • Reduce transaction cost by automation and paperless trading and etc.

  6. Trade Facilitation: Korean Case • Overview of Selected Achievement • Customs Procedures • Reduced clearance time 9.6 to 5.5 days • Standard and Conformance • 99.6% of Korean Industrial Standards are harmonized with ISO or IEC standards • Business Mobility • API became effective in 2005 • Active participants of ABTC • Trade Facilitation Action Plan • Among 85 items committed, 39 measures under customs procedures have been reported to be complemented

  7. Economic Effects : Modalities • Modalities • Trade Facilitation Index • APEC wide survey conducted in 2002 is utilized • Trade facilitation index is constructed based on survey • Scenarios • Realistic and feasible scenarios are suggested • CGE Analysis • CGE model analysis, by scenario, is conducted to seek most effective ways to achieving the Bogor Goal

  8. Economic Effects: Scenario by Trade Facilitation • Scenario Number 1: Trade Facilitation • 50 percent increase in trade facilitation in the following four areas; • Customs procedures • Standard and conformity • Business mobility • E-commerce • Target date: developed (2010)/developing (2020)

  9. Economic Effects: Scenarios by Tariff Reduction • Scenario Number 2: Tariff Reduction • 85.2 percent tariff reduction producing same amount of transaction cost reduction generated by 50 percent increase in trade facilitation • Target date: developed (2010)/developing (2020)

  10. Economic Effects: Scenarios by Tariff Reduction • Scenario Number 3: Tariff Reduction by Linear • 30 percent tariff reduction by linear cut • Target date: developed (2010)/developing (2020) • Scenario Number 4: Tariff Reduction by Linear • 50 percent tariff reduction by linear cut for developed • 25 percent tariff reduction by linear cut for developing • Target date: developed (2010)/developing (2010)

  11. Economic Effects: Scenarios by Tariff Reduction • Scenario Number 5: Tariff Reduction by Swiss • a=16 for both developed and developing economies • Target date: developed (2010)/developing (2020) • Scenario Number 6: Tariff Reduction by Swiss • a=16 for developed economies • a= 35 for developing economies • Target date: developed (2010)/developing (2010)

  12. Economic Effects: Scenarios by Trade Facilitation and Swiss Formula • Scenario Number 7: Scenario 1 and 5 • 50 percent increase in trade facilitation in the four priority areas • Tariff Reduction by Swiss Formula • a=16 for both developed and developing economies • Target date: developed (2010)/developing (2020)

  13. Economic Effects: Scenarios by Trade Facilitation and Swiss Formula • Scenario Number 8: Scenario 1 and 6 • 50 percent increase in trade facilitation in the four priority areas • Tariff Reduction by Swiss Formula • a=16 for developed economies • A=35 for developing economies • Target date: developed (2010)/developing (2010)

  14. Scenarios: Types and Specific Measures

  15. Economic Impacts by Scenarios:Methodology • Model • “ComputableGeneral Equilibrium (CGE) model was employed to measure each strategy quantitatively • Gravity model to construct “Trade Facilitation Index” • Data Set • GTAB (Global Analysis Trade Project) Version 6 • Survey Data (APEC 2001)

  16. Forecasting Outcome:Economic Impacts by Scenarios • Major Outcome of Simulation • First, more than 85% of tariffs need to be reduced in order to achieve a transaction cost reduction equivalent to a 50% increase in trade facilitation. • Second, trade liberalization through both trade facilitation and the Swiss Formula will result in the greatest increases in GDP overall in the APEC economies. • Third, trade liberalization through the Swiss Formula surpassed the one through a linear cut in terms of potential GDP increases. • Fourth, all of our strategies indicate that developing economies, especially those in Northeast Asia, will gain more profits through promoting trade liberalization and trade facilitation than industrialized economies.

  17. Policy Implications • Policy Implication Number 1 • In terms of GDP and welfare growth, our quantitative measurements suggest that trade facilitation based on open regionalism and deeper integration principles will result in more positive effects in the APEC economies than tariff reduction. .

  18. Policy Implications • Policy Implications Number 2 • Provided that APEC member economies come to an agreement on tariff reduction, concrete action plans should include trade liberalization through the Swiss Formula, which will bring greater economic benefits than the one through a linear cut.

  19. Policy Implications • Policy Implications Number 3 • Our research outcome well supports the current agreed timetable to achieving free trade and investment in the APEC region, with the industrialized economies by 2010, and the developing economies by 2020.

  20. Policy Implications • Policy Implications Number 4 • As suggested before, trade liberalization and facilitation efforts should be simultaneously applied in order to effectively reach the Bogor Goals.

  21. Policy Implications • Policy Implications Number 5 • Our research outcome demonstrates that if developing economy, i.e. Korea achieves free trade and investment by 2010, the economy will experience greater GDP increases

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