Economic growth and policy reform in the APEC region: Trade and welfare implications by 2005

Abstract

Numerous unilateral, regional and multilateral economic reforms in the Asia-Pacific and elsewhere are under way at present or are scheduled over the next decade or so. This paper examines the likely impacts of key trade reforms affecting the APEC region, and does so by taking an economy-wide perspective using projections to 2005, based on the global CGE model known as GTAP. The paper begins by showing that the empirical impact of implementing the Uruguay Round depends significantly on how China and Taiwan are treated. The global economic welfare benefits from the Uruguay Round are 28% greater if China and Taiwan are included through acceding to the World Trade Organisation (WTO). The paper then explores the market implications of increased total factor productivity growth in China's non-farm sectors. If that were to be a consequence of China's accession to the WTO and from greater export opportunities arising from MFA reform, the modelling results suggest this would be not only beneficial to China but also a considerable gain to its East Asian neighbours with which it trades intensely. As well, several policy shocks are examined. They include the failure to fully abolish the bilateral quotas on textiles and clothing trade as promised under the Uruguay Round, and further MFN trade liberalisation by APEC countries. Failure to honour Uruguay Round obligations to open textile and clothing markets in OECD countries is shown also to reduce East Asia's industrialisation and thereby slow its net imports of primary and other products. On the other hand, the trade reform that is likely to accompany China's WTO membership would greatly benefit the economies of China and the world. It would boost exports of manufactures and strengthen primary import demand by not only China but also its densely populated neighbours with whom its intra- and inter-industry trade in manufactures would intensify.