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Analysis of Free Trade Areas (FTAs) in Southern Africa PowerPoint Presentation
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Analysis of Free Trade Areas (FTAs) in Southern Africa - PowerPoint PPT Presentation


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Analysis of Free Trade Areas (FTAs) in Southern Africa. Overview of Basic Application. Analysis of FTAs for South Africa Non-Reciprocal Tariff Removal - Non Agricultural and Food Imports - All Imports Reciprocal Tariff Removal - Non Agricultural and Food Imports - All Imports

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Presentation Transcript
overview of basic application
Overview of Basic Application
  • Analysis of FTAs for South Africa
  • Non-ReciprocalTariff Removal - Non Agricultural and Food Imports- All Imports
  • Reciprocal Tariff Removal - Non Agricultural and Food Imports- All Imports
  • Regional FTA
summary of basic application results
Summary of Basic Application Results
  • Simulation of Non-Reciprocal Tariff Removal - Non Ag./Food Imports- All sectors affected- Importance of trade diversion
  • Simulation of Non-Reciprocal Tariff Removal - All Imports - Extent of welfare gain for South Africa- Strength of trade creation effect
  • Simulation of Reciprocal Tariff Removal - Non Ag./Food Imports - Importance of trade diversion cost on SA- Importance of trade creating benefit to EU
summary of basic application results4
Summary of Basic Application Results
  • Simulation of Reciprocal Tariff Removal - All Imports Effect on Rest of Southern Africa- Importance of trade diversion
  • Simulation of Southern African FTA- Gain to both partners- Little trade diversion
extensions to the basic model
Extensions to the Basic Model
  • Wage Indexation - Shows effects of wage rigidity on trade liberalisation impacts - Price unskilled labour indexed to consumer price index
  • Unilateral Liberalisation by SA-What kind of trade policy should South Africa be pursuing?- Examination of a range of alternatives
  • Partial vs. Total Elimination of Tariffs in FTA between SA and EU - Unrealistic to consider total elimination of tariffs in one step. - Two-step approach to elimination of tariffs used.
background to wage indexation extension
Background to wage indexation extension
  • Developments in the labour market constitute some of the most striking results of all trade liberalisation simulations between the EU and South Africa
  • Increase in labour cost may be overestimated in both regions due to high levels of unemployment and subsequent wage rigidities
  • Examination of the impact of wage indexation on the allocation of inputs between sectors and the development in output and changes in welfare
closure definition labour market
Closure definition & labour market
  • Shock: indexation of wages to inflation, maintaining the ratio (wage/inflation constant)
  • The variable wage/inflation (pfactreal in the model) becomes exogenous in the EU, South Africa and Rest of Southern Africa
  • Labour supply becomes endogenous
  • Any increase in labour demand is assumed to be covered by unemployed
  • Other endowments become exogenous in these 3 regions + all endowments in other regions

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Reference simulation: non-reciprocal removal of all import duties on imports from South Africa into the European Union
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Change in welfare under trade liberalisation with wage indexation, relative to the reference case$US million
change in regional employment values under trade liberalisation with wage indexation usmillion
Change in regional employment values under trade liberalisation with wage indexation, $USmillion
conclusion
Conclusion
  • A partial free trade agreement between South Africa and the EU will be more beneficial to South Africa than immediate and absolute free trade agreement. Why?
  • Total allocative efficiency is greater in Stage 1 (65.4) than in both the Immediate Stage (-63.7) and Stage 2 (-129.9). This could be the result of trade diversion.