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GSTP Trade Current Trends and Implications of Intra-GSTP Tariff Reductions

UNCTAD. GSTP Trade Current Trends and Implications of Intra-GSTP Tariff Reductions. UNCTAD/DITC Trade Analysis Branch. Outline of this presentation. Trends in trade of GSTP countries Patterns of protection Simulation of impacts of intra-GSTP tariff cuts Summary findings.

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GSTP Trade Current Trends and Implications of Intra-GSTP Tariff Reductions

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  1. UNCTAD GSTP TradeCurrent Trends and Implications of Intra-GSTP Tariff Reductions UNCTAD/DITC Trade Analysis Branch

  2. Outline of this presentation • Trends in trade of GSTP countries • Patterns of protection • Simulation of impacts of intra-GSTP tariff cuts • Summary findings

  3. Trends in GSTP trade Total exports from GSTP = US$ 1.8 trillion (2005) Total GSTP exports to the world (2005) = 17.5% of total world exports or = 48.7% of total DC exports to the world. Total GSTP imports from the world = US$ 1.6 trillion = 16% of total world imports or = 50% of total imports of DCs from the world.

  4. Trends in GSTP trade Total intra-GSTP trade = US$ 813 billion (2005) Intra-GSTP exports = US$ 405.4 billion = 22% of GSTP exports to the world. Intra-GSTP imports = US$ 407.6 billion = 25% of GSTP imports from the world. Regional breakdown:

  5. Trends in GSTP trade Sectoral breakdown • Over 90% of intra-GSTP exports are in non-agri sector. • Agricultural exports accounts for 8% of total intra-GSTP exports. • Share of agriculture – higher in Latin America (15%) than in Africa (6.6%) and Asia (4.8%) • In terms of the destination, non-agricultural exports tend to remain within the region than agricultural exports. • For GSTP-Asia and GSTP-Latin America, around 90% of non-agriculture exports are destined to GSTP countries in the same region. • For GSTP-Africa, exports to other GSTP regions are significant.

  6. Trends in GSTP trade Intra-GSTP exports: By regional destination (US$ billion)

  7. Trends in GSTP exports (Regional breakdown of flows) 51% 26% 32% 17% 11% 15% Agriculture 84% 34% 24% 25% 7% NAMA

  8. Trends in GSTP trade There is a strong upward trend in intra-GSTP exports. • Intra-GSTP exports are growing faster than GSTP countries’ exports to the rest of the world. • Between 2000-2005, intra-GSTP exports increased by 50%, while exports by GSTP to the rest of the world increased by 39%. • GSTP-Asia and Latin America showed particularly high growth. • The growth for GSTP-Africa exports picked up during 2003-2005.

  9. Trends in GSTP trade There is an increasing level of export complementarity among GSTP countries. • Both Asia and Latin America GSTP countries are increasing exports in transport machinery and manufactured goods – two sectors that are more horizontally differentiated than others. • Each region has its own “specialized” sector vis-à-vis other GSTP regions, for example: • Asia in textile and clothing, Latin America in food and live animals, and Africa in minerals.

  10. Trends in GSTP trade Sectoral breakdown of GSTP exports (by region) to the world (US$ million)

  11. Trends in GSTP trade Sectoral breakdown of GSTP exports (by region) to the world (% of total exports)

  12. 2. Patterns of tariff protection • The sectors most protected by GSTP countries are those in agricultural sectors (e.g. food and beverages). • But the averages tariffs are relatively high (14-18%) in other traded sectors (e.g. manufactured goods and textile and clothing). • Current applied tariff rates in GSTP countries are significantly lower than the WTO bound rates. • They also show that tariff peaks are not pronounced in the applied rates compared to the bound rates. • Tariff escalation is also mitigated to a considerable extent in the applied rates.

  13. Patterns of tariff protection Tariff protection across sectors (SITC Rev.3)GSTP Average (%)

  14. Patterns of tariff protection Tariff protection across sectors (SITC.Rev3)Regional Average (%)

  15. Comparison of applied and bound MFN tariffs

  16. Comparison of applied and bound MFN tariffs

  17. Comparison of applied and bound MFN tariffs

  18. 3. Impact of intra-GSTP tariff cuts • We estimated impacts of intra-GSTP tariff cuts, using SMART (static, partial equilibrium) simulation model. • The scenario studied here is a linear cut across all products, by 20%, 30% and 50%. • All GSTP members (excl. Romania) are included in the simulation, plus eight countries which applied to the GSTP Membership. • This simulation is static, therefore does not take into account the dynamic impact of tariff liberalization, including that flowing from increased FDI, transfer of technology, better terms of trade, etc..

  19. Intra-GSTP tariff cuts - Simulation Increase in intra-GSTP exports can be as much as US$ 20 billion (50% cuts in intra-GSTP tariffs). • Cuts in intra-GSTP tariffs by 20% (30%) will generate export gains by US$ 7.7 billion (11.7 billion). • Intra-GSTP export increase can occur from: • Trade creation – a genuine increase in exports (i.e. replacing domestic goods), and • Trade diversion – by replacing exports from non-GSTP countries. • Around 55% of export increase is due to trade diversion effect.

  20. Intra-GSTP tariff cuts - Simulation Increase in intra-GSTP exports

  21. Intra-GSTP tariff cuts - Simulation Intra-GSTP tariff cuts will enhance inter-regional GSTP trade as well as intra-regional one. • At this stage, many countries within the same regions do not have a bilateral or regional trade arrangement. • Looking only at the trade creation effect, the simulation suggests that there will be a high rate of increase in trade within the same region, in addition to an increase in trade with GSTP countries in other regions.

  22. Intra-GSTP tariff cuts - Simulation Increase in intra-GSTP exportsTrade Creation Effect (US$ million)

  23. Intra-GSTP tariff cuts: SMART Simulation Increase in intra-GSTP exportsTrade Creation - Destination breakdown

  24. 4. Summary Findings • There has been a massive growth of intra-GSTP trade in the last 5 years (2000-2005). • This reflects, inter alia, increased complementarity in trade among GSTP members. • Intra-GSTP tariff cuts will enhance exports among GSTP members within each region, as well as inter-regionally. • The actual increase is likely to exceed the simulated results, as the simulation model does not take into account the dynamic factors. • Time is ripe for stimulus through liberalization because of buoyant upward trend in intra-GSTP exports. • Whilst gains from optimum liberalization can be significant, adjustment costs to GSTP countries would be minimal particularly if some sensitive products are set aside. • Since bulk of gains come from shifting demand to GSTP products from non-GSTP products, all GSTP countries will be net gainers in exports. • The comparative advantage of GSTP liberalization arises from immediate cuts in applied rates, thus leading to immediate creation of trade flows.

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