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The Multifiber Agreement Phase Out and the EU-China Agreement of self-limitation of exports: impact on the Tunisian econ

The Multifiber Agreement Phase Out and the EU-China Agreement of self-limitation of exports: impact on the Tunisian economy International workshop, “Bridging the gap: the role of trade and FDI in the Mediterranean”, Naples 8-9 Mohamed Ali MAROUANI Université Paris1-Sorbonne/IEDES, DIAL and ERF

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The Multifiber Agreement Phase Out and the EU-China Agreement of self-limitation of exports: impact on the Tunisian econ

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  1. The Multifiber Agreement Phase Out and the EU-China Agreement of self-limitation of exports: impact on the Tunisian economy International workshop, “Bridging the gap: the role of trade and FDI in the Mediterranean”, Naples 8-9 Mohamed Ali MAROUANI Université Paris1-Sorbonne/IEDES, DIAL and ERF marouani@univ-paris1.fr

  2. Presentation outline • Introduction • What happened since the 1st January 2005? • The ex ante quantitative assessment framework • Simulations and results • Conclusion

  3. Introduction • The MFA dismantling : a demand of developing countries • The Agreement on Textile and Clothing (ATC) : 1995-2005 • The accession of China to WTO in December 2001 • Erosion of preferences for countries indirectly protected by developed countries quotas : competition between D.C. • Observed outcome : negative for MENA except Turkey • Better than expected : EU-China agreement June 2005

  4. After January 2009 • Developing an ex ante quantitative assessment framework • Taking into account the dynamic dimension of the shock, • and labor market imperfections

  5. What happened since the 1st January 2005 ? • China increased its market share by 145% in volume and 95% in value for products which quotas have been removed in 2005 Table 1: Changes in the Value of Exports of textile and clothing to the EU Source: The World Bank (2006)

  6. The EU-China agreement of June 2005 • Many complaints from the European T&C Industry • Inside the EU, heterogenous position • Producing countries vs importing • Industry vs distributors • China is a significant trading partner • Agreement imposed on ten categories of products (among 35 liberalized): fixes the rates of growth of Chinese exports between 8 and 12.5% • Higher than the 7.5% which the special safeguard clause would have allowed the EU to impose

  7. The ex ante quantitative assessment framework • An intertemporal GE model • Households smooth their consumption (intertemporal utility function) • Firms maximize their discounted value under the capital accumulation constraint • A quadratic adjustment cost function • The advantages of a dynamic setting • Take into account the gradual dimension of the shock • The expectations of agents, adjustments costs and demographics • The evolution of public and external debt • The dynamic calibration: the economy is not on its steady state growth path

  8. Structure of the intra-period model • The production block (nested function) • Labor market: HT, efficiency wages and public employment • The income and expenditures block (including financial) • The foreign trade block (export demand function) • Equilibrium conditions and model closure: Macro, Government, Foreign Trade, Labor Market.

  9. Imperfect labor markets and efficiency wages • Labor market segmentation • Efficiency wage theories • The imperfect monitoring model • Implementation in a multisectoral framework

  10. The multisectoral efficiency wages model i,j : sectors f : skill b : turn over rate q : probability of being detected shirking e : disutility of effort r : discount rate U : unemployment rate

  11. The database • The SAM • Data manipulation: employment, wages, demographic hypothesis, structure of the labor force, etc. • Reference scenario includes the FTA between Tunisia and the EU • Determination of the tariff dismantling schedule in each industrial sector depending on the weight of each product in the four lists of the Euro-Tunisian Agreement.

  12. The dynamic calibration procedure • The economy is not on its steady-state growth path • Calibration of the macro parameters (depr, elasth, prt) • Calibration of the sectoral parameters (adjustment cost function share parameter) • Second calibration of the macro parameters • Until we approximately attain the observed growth path of the main macro and sectoral variables

  13. The simulations • First scenario: a gradual decrease of export demand from 2002 to 2004 (10% in three years), than a decrease by 10% in 2005 and a decrease by 20% in 2009. • Second scenario: adds to the first a decrease of world prices of apparel products by 10% in 2009.

  14. Evolution of the main variables characterizing the apparel sector in Tunisia, 2006-2020 (change in % of the reference scenario level)

  15. Impact on the apparel sector • The textile-clothing sector is very negatively affected by the shock • Investment is the variable that reacts the most (due to firms expectations) • The impact of the combined shocks of export demand and prices decreases is much stronger • Propagation to the rest of the economy?

  16. Effects on unemployment SIM1

  17. Effects on unemployment, SIM2

  18. Evolution of wage inequality sk/unsk

  19. Evolution of wage inequality hsk/sk

  20. Evolution of total investment

  21. Evolution of investment of the main sectors

  22. Evolution of total household consumption

  23. Comments • Investment increases in the exporting sectors due to the Dinar Depreciation • Consumption decreases due to higher unemployment • No effects on GDP

  24. Conclusion • The MFA dismantling has negative effects on T&C industry in Tunisia • It raises unemployment and wage inequality • The degree of substitutability between Tunisian products and those of its competitors is one of the main driving variables • The effects on prices could be lower than expected

  25. Directions for future research • Using more disaggregated data • Studying the effects of the shock on female labor • Linking this model to a global CGE to assess the decrease of world textile products • Introducing heterogeneity (firm and household level) by linking this model to a microsimulation model

  26. Limits • The perfect foresight hypothesis • The absence of credit constraints • The representative agent hypothesis

  27. Policy implications • Monitoring the evolution of Tunisia’s competitors exports in the European market (degree of similarity) • Focus on the medium/high segment of the clothing market: incentives for products with higher value-added • Promote the development of substituting activities targeted on female labor • Take into account the MFA phase out in regional development policies • Incentives for foreign investors who are ready to reallocate their investments in other sectors

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