1. José E. Durán Lima Carlos de Miguel Mauricio Pereira Gonzalo Veliz This work was supported by the MERCOSUR Network (Red MERCOSUR). Views expressed are the authors’ alone and not necessarily those of ECLAC. Project details will be at http://www.redmercosur.org/ III Encuentro Regional de Equilibrio General Buenos Aires, 2-3 de Septiembre de 2010

2. 1. Motivation 2. Model  Databases  CGE Assumptions  Products and countries  Technical details (Equivalent ad valorem calculation)  Scenarios and Shocks 3. Measures applied by Argentina Ecuador and Venezuela 4. Results 5. Conclusions

3.  Background: The Global Financial Crisis ◦ Real side of the crisis through trade ◦ Price decline in commodities ◦ Trade policy changes in LAC countries ◦ Non-Tariffs Barriers (NTBs)  A tariff proxy approach  Focus on the impacts over intraregional trade  Especially in the cases of Argentina Ecuador and Venezuela

4. 4  GTAP database, version 7.0.  Global Trade Alert Project (until April 2010)  Latin American Integration Association (LAIA) trade database ◦ Import trade values ◦ Quantity trade flows  COMTRADE trade database  LAIA protection database, complemented by TRAINS database (to double check)  Official documentation from governments (National Decree or regulations regard to changes in trade policy)

5. 5  GTAP basic model, multicounty and multiproduct.  Using regional home, enterprise and government in an open environmental to international trade;  Productive Factors: land, labor, capital and natural resources;  Trade: exports by destination and imports by origin, according to the Armington structure;  Modification to standard closure (to capture crisis and price declining)  It’s a short term simulation, based on a static model;  The baseline was updated to 2008, with the necessary adjustments in tariffs to capture the DR-CAFTA agreement; the expansion of the European Union from 15 to 27 members, and the intrarregional trade preferences in LAC countries.

6.  Three Main closures: 1.Unemployment of capital to capture the capacity excess and unemployment of labor (skilled and unskilled) 2.Allow introduction of changes to the volume of gross domestic product in the U.S. European Union, China, and the rest of Asia 3.Allow the variation of capital endowments in the same regions mentioned above.

7. Closures used Main changes on the Standard GTAP Model Shock descriptions Closure A ALTER TAX (Standard Aplicación) Changes in the levels of protection (TMS) to bring 2004 to 2008 levels Closure B a) Capital Unemployment qo ("capital", REG) = pfactreal ("capital", REG) b) Unemployment of labor qo ("SklLab", REG) = pfactreal (SklLab ", REG) qo ("UnsklLab", REG) = pfactreal (UnsklLab ", REG) c) GDP growth exogenus qgdp (REG); afereg (REG) d1) competitive allocation of savings (RORDELTA = 1) d2) allocation of a fix basis (RORDELTA = 0) Changes in the volume of GDP (qgdp) USA (-2.5%); EU 27 (-4.0%); Asia (-0.036%); and China (+8.7%) And trade policy changes Closure C a) Capital Unemployment qo ("capital", REG) = pfactreal ("capital", REG) b) Unemployment of labor qo ("SklLab", REG) = pfactreal (SklLab ", REG) qo ("UnsklLab", REG) = pfactreal (UnsklLab ", REG) c) Capital allocation at the beginning of the period, exogenus qgdp (REG); afereg (REG) d1) competitive allocation of savings (RORDELTA = 1) d2) allocation of a fix basis (RORDELTA = 0) Changes in the initial capital stock (Kb) USA (-3.0%), EU-27 (-4.0%); Asia (-2) and China (+9.0%) And trade policy changes

8.  21regions ◦ Mexico (1) ◦ Central America (4) ◦ Andean countries (5) ◦ MERCOSUR (4) ◦ Chile (1) ◦ China ◦ Rest of Asia ◦ EU 27 ◦ USA ◦ Rest of the world  32 Sectors 15 countries

9. 9 Aggregated GTAP sectors as use in the paper

10. Base line 2008 tariffs 1 Policy measures during the crisis 2 Retaliation 3 Policies for third party regions 4 Full liberalization (in a crisis environment) 5 Full liberalization 6 Commercial war

11. Base line 2008 tariffs 1 Policy measures during the crisis 2 Retaliation 3 Policies for third party regions 4 Full liberalization (in a crisis environment) 5 Full liberalization 6 Commercial war Without Crisis With Crisis

12. Global Trade Alert database and Official information LAIA trade and tariff database Quantification of NTBs Trade Policy Measures Licenses Quotas Minimum ref. prices Antidumping Others Result: Change in price as tariff proxy Price Index Value Index Quantity index If Change in prices >0 And there are a policy measure in GTA database we have a proxy measure for and EAV Set of dummies k =1 for Each bilateral trade with some barrier

13. Quantity Indices Volume Indices Where  QM: imported volume by country i from j, in the k product;  IQM: imported volume Index  IVM: the import value index. The value of 2008 indices, by construction, is equal to 100.

14. Quantity Indices Value Indices

15. Hence it is that dividing the index value for the quantity index, we obtain the price of imports index at item level. Then, the change between 2009 and 2008 is obtained directly as follows: Where IPM: imports price index at i country, from j, in the k product; : price change

16. Distinction of 3 cases based on:  Sign of the price change  Presence of a barrier Only the first case allows the calculation of an EAV, because of: NTB is present and hypothetically has raised the price of the item, constraining the trade.

17.  We use the approach of an estimated benchmark of domestic price. Mathematically: Where:  pd: domestic sales price of product k in country i;  Pm: is the price of imported product k in country i imported from j  TI: Implicit Rate or equivalent tariff Approach with real data, unlike other similar works

18. Calculation of EAV for the case of the exchange rate control in the B.R. of Venezuela. is given by the following formula: Where:  : EAV for exchange rate  : Official exchange rate  Parallel market exchange rate

19.  Exceptions for basic products (medicines and basic foodstuff) that has better access to foreign exchange by the Foreign Exchange Administration Comission of the Bolivarian Republic of Venezuela.

21. Average prices and gap20082009 Oficial exchange rate (Central Bank of the R. B. of Venezuela) 2,15 Informal Bolivar exchange rate, unofficial market a 4,286,03 Spread (in percentage) EAV proxy99%180% EAV for LAIA partners (25% of the gap)45%

22. The final result for the tariff barriers applied was the result of a weighted average calculated as follows:  PM: grouping of products in the 32 categories defined in this study  tms is the new tariff increased by the corresponding EAV  p is the percentage of product k, four-digit HS 2007, as a proportion of total imports (MT):  i defines country that apply the tariff and j, the country of origin for imports subject to NTB measures.

23. Countries Type of measure Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Venezuela No. of Countries AntidumpingXXXX4 LicensesX1 Prices of referenceXX2 Fiscal DiscriminationX1 Antidumping investigations XXX3 Tariff increasingXXXXX5 SafeguardsX1 QuotesX1 Exchange controlX1 Total applied measures51211312119 Share in total imports by country 1516004062052

24. Countries Type of measure Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Paraguay Peru Venezuela No. of Countries AntidumpingXXXX4 LicensesXX1 Prices of referenceXX2 Fiscal DiscriminationX1 Antidumping investigationsXXX3 Tariff increasingXXXXX5 SafeguardsX1 QuotesX1 Exchange rate controlsX1 Total applied measures51211312129 Share in total imports by country (in percentage) 15 % 160040 % 62052 %

25. Source: IMF 2010

26. Sectors Type of measures Agriculture and Farming Mining and extraction Light manufactu res Heavy manufactu res Total Tariff increasing1% 75%22%100% Antidumping0% 46%54%100% Licenses0% 100% Minimum (reference) prices 0%1%29%69%100% Fiscal Discrimination 0%5%20%75%100% Safeguards21%0%47%32%100% Quotes5%0%29%66%100% Exchange rate controls 1%2%28%69%100% In total HS lines6%1%40%53%100%

29. Latin America and the Caribbean: Tariffs of the baseline for the simulated exercises, and changes used according to consolidated shock for the total imports.

33. Exports intraregional trade total changes under different scenarios (Changes with respect to the baseline = 2008)

34. Welfare changes under different scenarios (Changes in welfare as a proportion of total consumption)

35. Base line 2008 tariffs 1 Policy measures during the crisis 2 Retaliation 3 Policies for third party regions 4 Full liberalization (in a crisis environment) 5 Full liberalization 6 Commercial war Without Crisis With Crisis Bad for intraregional trade The worse case The worse case

36.  Crisis have incentives to raise levels of protections  Argentina, Ecuador and Venezuela, mainly  International crisis led some countries to apply restrictive measures on its imports  The estimation of this measures showed that non traded barrier were greater than tariff increases (6%) vis a vis 2%.  Intrarregional trade has been more affected than extrarregional trade

37.  The exercises simulated shed light over the lack of dynamism on intraregional trade channels,  Intraregional trade regions and their specific agreements should be preserved, especially in times of crisis.  From a trade policy standpoint, it seems that respecting international trade commitments and avoiding the implementation of trade barriers will result in the least detrimental effect to the domestic economy..  If restrictive measures are necessary to protect vulnerable sectors at the national level, it is recommended adopt such measures on a temporary basis.  Intraregional trade regions and their specific agreements should be preserved, especially in times of crisis.

38. José E. Durán Lima Jose.duran@eclac.org This work was supported by the MERCOSUR Network (Red MERCOSUR). Views expressed are the authors’ alone and not necessarily those of ECLAC. Project details will be at http://www.redmercosur.org/ Thanks you III Encuentro Regional de Equilibrio General Buenos Aires, 2-3 de Septiembre de 2010