A Comparative Analysis of the EUMorocco FTA vs. Multilateral Liberalization

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A Comparative Analysis of the EU-Morocco FTA vs.
Multilateral Liberalization Imperfect Competition
Group
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Imperfect Competition Small Group No. 1

• John Helming
• and
• Kenneth Baltzer

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A Comparative Analysis of the EU-Morocco FTA vs.
Multilateral Liberalization

• GTAP Working paper No. 31
• by
• Aziz Elbehri and Thomas W. Hertel
• Outline of this presentation
• Introduction
• Selected Results
• Extensions

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Introduction

• FTA EU and Morocco versus Multilateral
  Liberalization
• GTAP application with imperfect competition
• Scale economy
• Entry/exit firms
• Playing around with GTAP closures
• FTA / ML
• Entry / exit firms
• Full employment / Unemployment
• Tax replacement / no tax replacement

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Selected results
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Extensions

• What are the differences of the results between
  GTAP with imperfect competition and without
  imperfect competition?
• FTA and effects of different assumptions
  concerning the labour markets
• Unilateral liberalisation accompanied by
  competition policy
• FTA, technology income transfer from EU to
  Morocco
• ML accompanied by compensation for preference
  erosion.

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Extension Perfect competition

• Characteristics of imperfect competition
• Increasing returns to scale
• Positive profits (with no entry)
• How to remove imperfect competition
• Switching off the scale effects
• OSCALE(i,r) SCALE(i,r) qva(i,r) -
  firms(i,r) - ao(i,r)
• Zero profit condition
• p_MC_MARKUP(i,r) - FCOSTSHR(i,r)/1-PROFITSHR(
  i,r) qof(i,r) entryslack(i,r)

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Results Welfare effects
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Results Profit shifting
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Conclusion

• Scale effects may be important
• Profit shifting Cutting losses
• Zero-profit condition fixed profit condition
• Extra data demand

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Imperfect Competition Small Group No. 2
EFFECTS OF LIBERALIZATION UNDER A EU FTA ON LABOR

• Eddy Bekkers
• and
• Jean-Christophe Maur

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APPROACH

• Comparing 4 scenarios of FTA liberalization with
  free entry
• Full employment
• Unemployment
• Full employment with sluggish unskilled labor
• Unemployment with sluggish unskilled labor

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WELFARE EFFECTS
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LABOR DEMAND UNDER ENTRY
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Imperfect Competition Small Group No. 3
Unilateral liberalisation accompanied by
competition policyBeverages and Tobacco (BVT)

• George Serletis
• and
• George Rapsomanakis

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Beverages and Tobacco (BTP) Firm
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Disciplinary Effect of FTA on BTP

• Tariff on EU eliminated, introduces more
  competition in domestic market
• Number Firms held constant
• Morocco BTP market share falls
• Demand elasticity rises with competition and
  market shares change

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Markup

• Power of the mark-up fall as e ?
• Markup falls by 4.7 percent

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Result on BTP

• ps ? -7.5
• qo and qof ? 2.9
• Welfare Impacts
• Positive change of 3.7
• Distortion 37.4
• Liberalization results in distortion declining
  to 33.7

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Competition policy

• Watchdog for competition issues
• Beverages and tobacco products 1/n0.79
• Simulation
• (P-MC)/P 1/n? with conjectural variation 1/n
• Exog. CV_RATE no entry and exit
• Impose 1/n0.4
• Leave border measures unchanged

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Competition policy

• Mark-up over AC ? 22 stimulates expansion qo ?
• PM ? 24 and AC ? 2
• qva ?, scaling effect ? in line with mark up
• Welfare
• Positive change 33.4
• Mkt structure distortion tax rate 36.4
• Competition policy results to a tax rate 18.1

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Imperfect Competition Small Group No.
4Technology Transfer Extension

• Walid Hassan
• and
• Nassim Oulmane

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• Introduction
• FTAs between industrial and developing countries
  are expected to have much deeper economic effect
  on the latter.
• This is because developing countries typically
  rely on trade and have smaller and more poorly
  functioning industries and hence more sensitive
  to international competition than industrialized
  countries.
• This was typically the case of Morocco. The GTAP
  paper on FTA concluded negative effect on
  Moroccos welfare, advising to invest more in the
  multilateral negotiation.
• The following presentations will explore
  different compensation mechanisms that might be
  available to alleviate negative consequences of
  the liberalizations. .

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Article 47Scientific, technical and
technological cooperation

• The aim of cooperation shall be to
• (a) Encourage the establishment of permanent
  links between the Parties' scientific
  communities, notably by means of
• Providing Morocco with access to Community
  research and technological development programmes
  in accordance with Community rules governing
  non-Community countries' involvement in such
  programmes,
• Moroccan participation in networks of
  decentralised cooperation,
• Promoting synergy in training and research
• b) Improve Morocco's research capabilities
• c) Stimulate technological innovation and the
  transfer of new technology and know-how
• d) Encourage all activities aimed at establishing
  synergy at regional level.
• e) Back the effort to modernise and restructure
  Morocco's public and private sector industry
  (including the agri-food industry)
• (f) Foster an environment which favours private
  initiative, with the aim of stimulating and
  diversifying output for the domestic and export
  markets

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Technology Transfer

• Methodology
• Choice of the variable to shock
• We started to shock aoall variable on the
  manufacturing sector , but that was not feasible
  because the variable was endogenous and could not
  be shocked.
• Equation AVAWORLDregion specific average rate of
  value added augmenting tech change
  (all,j,PROD_COMM)(all,r,REG) ava(j,r)
  avasec(j) avareg(r) avaall(j,r)
• As result we used the avareg variable which is
  the value add technology change in Morocco(
  increase the productivity of the primary factors)
  , by 10 within a period of 12 years.

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Technology Transfer

• Main Results
• There was an overall improvement in the welfare.
  On decomposing the allocative eff. we found that
  the profit has increased , input has decreased,
  export and import tax has increased.
• There is also a huge increase welfare in
  consumption tax
• The mark up has increased (by 1-2 in each sec)
• The real GDP has achieved a growth rate of 11.
• Demand for inputs has decreased due to increased
  productivity.
• Income of the primary factor has increased due to
  increased productivity.

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Consumption tax
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Sectoral Analysis
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Sectoral Analysis
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Imperfect Competition Small Group No. 5
Multilateral Liberalisation and Preference
Erosion with Output-based Compensation

• Angus Charteris
• and
• Roger Martini

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Multilateral Liberalisation Simulation

• 30 multilateral cut in import tariffs
• But some sectors in MOR enjoy substantial
  preference margins into EU
• Compensate those sectors by
• 1/ assuming a trade augmenting technical
  change (ams)
• 2/ output support based compensation
• Need to hold qo(i,r) fixed swap ams(i,r,s)
  with qo(i,r)
• Assume ICRTS, unemployment and tax replacement

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Welfare Effects

• Dairy, sugar and textiles do better by holding
  output constant (i.e. output falls under base
  scenario). BUT growth is being constrained in
  the other preference sectors.
  
• This limits the import efficiency effect and has
  a smaller impact on employment.
• Smaller output growth leads to smaller benefits
  from economies of scale through IRTS
  SMALLER OVERALL INCREASE IN
  WELFARE
• LESSON Shouldnt assume ex-ante fears will
  translate to a ex-post welfare decline!
  

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Preference erosion with output-based compensation

• We identify the value of the rents lost to
  preference erosion, and give this back to the
  sectors as a payment based on output

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Results

• General welfare is increased relative to the
  non-compensating scenario
• Allocative efficiency effects are driving this
  motor vehicles may be part of the story.
• Output does indeed (relatively) increase for most
  of the goods, but falls for vegetables and fruit,
  dairy products, and sugar products.
• These three receive relatively smaller shocks,
  and compete for inputs with other products
  receiving higher support rates (meat products).
• Use shares are highly similar (and maybe a bit
  dodgy)

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Different output support rates cause re-allocation

• Many of these sectors use agricultural products
  as inputs competition for land as well as
  agricultural intermediates is important

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Shares in intermediate use tell an interesting
story