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There is a mixture of views within East Asia about agricultural trade reform and hence about its inclusion in the Uruguay Round agreements and subsequent negotiations under the World Trade Organization (WTO). On the one hand, governments in the wealthier densely populated countries are under pressure to continue to protect their farmers from import competition and to be seen to be providing an adequate degree of food security. In the countries with a stronger comparative advantage in agricultural products, on the other hand, governments are keen to secure more access to markets for their farmers' exports. This difference of views within East Asia surfaces periodically in APEC as well as WTO fora. Since it is mirrored in other parts of the world too, agriculture is guaranteed to be a controversial part of the Doha round of multilateral trade negotiations, just as it was in the Uruguay Round.
Given the high degree of distortion in world food markets that existed in the 1980s (Tyers and Anderson 1992), every impartial observer agrees that one of the great achievements of the Uruguay Round (UR) was to start to bring agricultural policies under GATT discipline, and to agree to return to the negotiating table by the turn of the century. Following the signing of the UR accord in 1994, non-tariff barriers to agricultural imports have been tariffied and bound and the tariff bindings are scheduled for phased reductions.
The Global Trade Analysis Project (GTAP) model is a global computable general equilibrium (CGE) model which has its origins in the SALTER model (Jomini et al. 1991). Since its inception in 1993, GTAP has become widely used and respected by researchers and policy-makers around the world.
In this Appendix we introduce some of the key features of the GTAP database and model, applications of which are used in a number of chapters in this book. We then explain how results from the GTAP model can be analysed and we conclude with a summary of some of the main advantages and limitations of global CGE analysis.
The GTAP database
The GTAP model and database are publicly available and fully documented; these features enhance the credibility of modelling work and facilitate comparability of analysis. The global database is updated approximately every eighteen months, with contributions coming from throughout the GTAP network of international organisations and country experts. Version 3 of the database comprises 37 commodities and 30 countries (McDougall 1997), while Version 4 of the database comprises 50 commodities and 45 regions (McDougall et al. 1998). In both versions, Indonesia is one of the countries specified and there is a relatively heavy disaggregation for agricultural sectors. Table A1 details the countries and regions in recent versions of the GTAP database, while Table A2 shows the commodity breakdown. To aid computation and to highlight the implications for the regions and sectors of particular interest, the GTAP database is generally aggregated to a smaller number of regions and sectors when running simulations and interpreting results.
All of the forward-looking analyses of East Asia's economies of the decade or so to mid-1997 had been premised on the assumption that rapid national output and trade growth would continue. The dramatic withdrawal of financial capital from the region and the crash in the value of local currencies from late 1997 meant that such analyses needed to be revised. How much difference would a few years of GDP decline in Indonesia and other East Asian economies make to projections of structural change in Indonesia, for example? Might we even see a re-agriculturalisation of the economy? In particular, how will the crisis alter the expected effects on Indonesia of implementation of the Uruguay Round, and hence attitudes towards the efficacy of that and other economic policy reforms?
To help answer these questions, this chapter uses a global, economywide model known as GTAP (Hertel 1997). That model was used recently to project the implications of economic growth and Uruguay Round trade policy reform at home and abroad for the structure of Indonesia's economy over the period to 2005 (Anderson and Pangestu 1998). We extend that work to consider the impact of an interruption to growth due to the current economic and financial crisis. We begin by modelling the effect of the growth interruption on the economy in 2005 without and then with Uruguay Round implementation. We then simulate two alternative possible trade policy responses to the crisis: either that Indonesia chooses to slow its trade reform program, or that it chooses to liberalise its markets even further than it is currently committed to under the Uruguay Round.
Most-favoured-nation (MFN) trade liberalisations will always improve global economic welfare even in the presence of environmental externalities, provided optimal environmental policies are in place (Anderson and Blackhurst 1992; Corden 1997, Ch. 13). However, where national environmental standards differ markedly between countries and international environmental spillovers are significant, globally optimal environmental policies will differ from nationally optimal ones. That, plus the fact that in many (especially developing) countries the enforcement of environmental policies is often less than optimal even from a national viewpoint, raises in some people's minds (e.g., Chichilnisky 1994) the question of whether liberalising trade between rich and poor countries is desirable. To begin to assess whether the standard gains from trade are sufficient to outweigh any loss in welfare due to added environmental damage, and to foreshadow the need for environmental policy changes to accompany trade reforms, empirical studies of the resource depletion and environmental degradation effects of such reforms are needed.
This Chapter provides a methodology for doing that and illustrates it with a case study of Indonesia, a large newly industrialising country that is rich in natural resources and committed to taking part in major multilateral and regional trade liberalisations over the next two decades.
This chapter extends the Global Trade Analysis Project (GTAP) model to include the effects of land degradation for the Indonesian economy. For Indonesia, soil erosion appears to be one of the most significant environmental problems caused by agricultural production. We simulate the off-site environmental damage and onsite productivity impacts of erosion, along with the standard intersectoral and interregional economic effects of trade liberalisation. We then analyse the welfare implications of trade policy changes where soil erosion occurs and land productivity is reduced.
Land degradation may have significant adverse effects, particularly in developing countries (Scherr and Yadav 1996; Rosegrant and Ringler 1997). For example, in countries such as Costa Rica, Malawi, Mali and Mexico, soil erosion is estimated to cause national economic losses of between 0.5 and 1.5 percent of annual GDP (World Bank 1992a). Countries with fragile tropical land are particularly problematic, and rural poverty in developing countries may force people with no other options to exploit available resources beyond their sustainable capacity (Pinstrup-Anderson and Pandya-Lorch 1994).
Indonesia also appears to suffer significant negative effects from land degradation, with World Bank estimates suggesting that soil erosion on Java costs the economy US$340-406 million per year in 1989 dollars (Magrath and Arens 1989). Of this, nearly 80 percent is due to declines in the productivity of agricultural land. The other 20 percent or so is due to off-site costs such as siltation of irrigation systems and the loss of reservoir capacity.
Kym Anderson, Director Center for International Economic Studies, University of Adelaide,
Erwidodo, Senior Researcher Center for Agro Socioeconomic Research (CASER),
Tubagus Feridhanusetyawan, Head of the Economics Department Centre for Strategic and International Studies (CSIS), Jakarta; Research Associate Australian National University,
Anna Strutt, Economist University of Waikato, New Zealand
There is a mixture of views within East Asia about agricultural trade reform and hence about its inclusion in the Uruguay Round agreements. On the one hand, governments in the wealthier, densely populated countries are under pressure to continue to protect their farmers from import competition and to be seen to be providing an adequate degree of food security. In the countries with a stronger comparative advantage in agricultural products, on the other hand, governments are keen to secure more access to markets for their farmers' exports Sicular (1989; Anderson 1994). This difference of views within East Asia surfaces periodically in Asia-Pacific Economic Cooperation (APEC) as well as World Trade Organization (WTO) fora. Since it is mirrored in other regions of the world, too, agriculture is guaranteed to be a controversial part of the round of multilateral trade negotiations, launched in Doha in November 2001, just as it was in the Uruguay Round.
Given the high degree of distortion in world food markets that existed in the 1980s, every impartial observer agrees that one of the great achievements of the Uruguay Round was to start to bring agricultural policies under GATT discipline and to agree to return to the negotiating table by the turn of the century. Since the signing of the Uruguay Round accord in 1994, non-tariff barriers (NTBs) to agricultural imports have been tariffied and bound and the tariff bindings progressively reduced.
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