New Tools for the CGE Analysis of PTAs in the era of Non-Tariff Barriers and Global Value Chains: The Case of Mercosur and China

This article explores new tools for the ex-ante analysis of PTAs using large scale CGE models. The traditional impact analysis based on tariff cuts and gross trade performance is then extended to incorporate new features of the ongoing globalization process, such as non-tariff barriers (NTBs) and the so-called trade in valueadded. Several methodological as well as conceptual issues are then readdressed, including the proper use of estimated ad-valorem equivalents of NTBs as inputs in perfect competition CGE models as well as the very concept of a “preferential trade partner” in a world where nearly 65% of global exports correspond to trade in intermediates. The article concentrates its impact analysis on the Brazilian economy-providing an overview of its trade policy over the last decades-and the likely consequences of a hypothetical PTA involving Mercosur and China.

Keywords:
Non-tariff barriers; Global Value Chains; Preferential Trade Agreements

Authorship

Lucas P. do C. Ferraz lucas.ferraz@fgv.br

Escola de Economia de São Paulo, Fundação Getúlio Vargas (EESP/FGV). Rua Itapeva, 474, Bela Vista, São Paulo, SP, Brasil.Fundação Getúlio VargasBrazilSão Paulo, SP, BrazilEscola de Economia de São Paulo, Fundação Getúlio Vargas (EESP/FGV). Rua Itapeva, 474, Bela Vista, São Paulo, SP, Brasil.

Marcel B. Ribeiro marcel.ribeiro@fgv.br

lucas.ferraz@fgv.br

marcel.ribeiro@fgv.br

SCIMAGO INSTITUTIONS RANKINGS

Figures | Tables | Formulas

Figures (9)
Tables (11)
Formulas (6)

Country	Manufactures GVC workers as (%) shareofall workers in the economy		Manufacturers GVC workers in 2008 by sector			Change in Manufacturers GVC workers 1995-2008 (%)
Country	1995 (1)	2008 (2)	Agriculture (% of the total) (3)	Manufacturing (% of the total) (4)	Services (% ofthe total) (5)	Agriculture (6)	Manufacturing (7)	Services (8)	Total (10)
West. Europe	24.40	20.40	5.60	49.90	44.50	-35.30	-12.90	21.40	-2.50
East. Europe	31.20	28.20	17.30	53.80	28.90	-34.30	-3.50	18.70	-6.10
USA	16.04	11.12	6.77	52.38	40.85	-22.43	-26.24	-14.17	-21.47
Japan	22.55	19.36	10.64	53.18	36.19	-37.96	-25.53	3.47	-19.04
Canada	20.76	16.02	5.64	41.00	53.36	-39.52	-10.69	15.00	-1.60
South Korea	29.69	22.83	12.18	49.20	38.62	-41.67	-21.74	33.77	-11.20
Taiwan	30.95	29.23	3.73	62.48	33.79	-64.31	9.12	22.25	4.89
Mexico	30.26	24.45	23.18	50.43	26.38	-12.42	29.70	53.76	21.19
China	31.73	33.35	46.96	33.89	19.15	8.95	30.58	31.90	19.65
India	27.92	27.27	45.85	33.19	20.96	3.80	35.10	36.10	18.85
Brazil	29.60	28.70	30.18	34.31	35.51	-7.79	34.81	72.19	26.90

	Dependent variable: y_ijst
	Probit	OLS	Heckman Selection	Firm Heterogeneity
GDP importer	0.398^* ***** Significant at 1%.	0.461 ^ Significant at 5%;	0.972 ^* ***** Significant at 1%.	0.539 ^* ***** Significant at 1%.
	(0.0594)	(0.178)	(0.170)	(0.196)
GDP exporter	-0.0503	0.0604	-0.0838	0.0425
	(0.0339)	(0.0993)	(0.1030)	(0.1000)
Distance	-0.400 ^* ***** Significant at 1%.	-0.704 ^* ***** Significant at 1%.	-1.125 ^* ***** Significant at 1%.	-0.811 ^* ***** Significant at 1%.
	(0.0296)	(0.0963)	(0.0963)	(0.106)
Colonial Ties	0.361 ^* ***** Significant at 1%.	0.312	0.981 ^* ***** Significant at 1%.	0.410 ^* * Significant at 10%;
	(0.115)	(0.210)	(0.250)	(0.235)
Language	0.354 ^* ***** Significant at 1%.	0.628^* ***** Significant at 1%.	1.045 ^* ***** Significant at 1%.	0.725 ^* ***** Significant at 1%.
	(0.0491)	(0.124)	(0.119)	(0.123)
Land border	0.247 ^* ***** Significant at 1%.	0.443 ^* ***** Significant at 1%.	0.646 ^* ***** Significant at 1%.	0.501 ^* ***** Significant at 1%.
	(0.0708)	(0.136)	(0.150)	(0.155)
Import Documents	-0.402 ^* ***** Significant at 1%.	0.411 ^* * Significant at 10%;
	(0.0877)	(0.219)
Inverse Mills ratio			3.579 ^* ***** Significant at 1%.
			(0.294)
Firm heterogeneity				-0.272
				(0.225)
Observations	323,015	83,635	83,635	83,635
Adjusted R²	0.580	0.501	0.535	0.501

Sectors	Mercosur-Mercosur	Mercosur-China	China-Mercosur
Extractive
Fishing	0.71	-	-
Coal	-	-	-
Oil	1.45	1.2	0.29
Gas	1.46	-	-
Agribusiness
Bovine meat products	20.87	17.71	17.71
Vegetables, Oils and fats	10.18	-	-
Dairy products	17.9	18.9	19.18
Processed rice	-	19.57	18.23
Sugar	20.56	-	9.36
Food prod. nec.	9.58	8.87	4.68
Beverage/Tobacco	-	4.96	5.39
Manufacturing
Textiles	-	8.29	-
Wearing apparel	-	9.95	1.69
Leather products	-	8.92	-
Wood products	3.63	7.8	-
Paper products	6.28	-	-
Petroleum/coal prod.	-	7.25	-
Mineral products nec	3.39	-	-
Metals nec	-	8.35	-
Metal products	1.93	-	-
Motor vehicles/parts	-	11.41	2.27
Transport equipment	-	9.46	-
Electronic equipment	-	-	0.86
Manufactures nec.	4.96	-	-

	FTA: Only Brazil and China				FTA: Mercosurand China
	GDP	Exports	Imports	Investment	GDP	Exports	Imports	Investment
Brazil	0.56	5.4	6.86	2.5	0.56	5.47	7.01	2.5
Argentina	-0.07	-0.24	-0.18	-0.04	1.04	4.19	6.63	3.46
Venezuela	0.02	0	0.2	0.13	0.49	3.72	5.76	1.24
Paraguay	-0.16	-0.13	-0.3	-0.45	0.53	3.64	3.29	1.89
Uruguay	-0.13	-0.16	-0.3	-0.27	3.23	7.11	11.17	8.68
China	0.09	0.24	0.47	0.21	0.15	0.39	0.76	0.36

Destination	Exports			Inports
Destination	Gross	Value-added	Difference	Gross	Value-added	Difference
USA	3.46	3.14	0.32	-13.46	-12.08	-1.38
EU	2.62	2.51	0.11	-11.46	-9.73	-1.73
Argentina	-8.15	-10.17	2.02	-0.8	-1.85	1.05
China	7.69	7.51	0.18	69.02	57.61	11.41
Row	2.95	2.78	0.17	-7.26	-0.83	-6.43
Venezuela	55.23	52.54	2.69	4.57	3.15	1.42
Paraguay	-6.9	-8.59	1.69	2.17	1.19	0.98
Uruguay	11.02	-3.69	14.71	-3.25	-3.55	0.3
Total	4.56	4.07	0.49	5.34	4.85	0.49

Sector	Baseline	Policy	Impact (%)
Agriculture	0.999	1.01	1.12
Extractive	0.794	0.803	1.12
Manufacture	0.489	0.482	-1.56
Services	3.165	3.086	-2.49

Final destination	Brazil exports to China			China exports to Brazil
Final destination	Baseline	Policy	Impact	Baseline	Policy	Impact
USA	6.84	6.7	-2.05	1.55	1.66	7.1
Brazil	0.46	0.73	58.7	89.89	89.62	-0.3
EU	7.41	7.25	-2.16	1.74	1.77	1.72
Argentina	0.14	0.22	57.14	0.88	0.73	-17.05
China	65.88	66.22	0.52	1.47	1.52	3.4

Final destination	Brazil exports to Argentina			Argentina exports to Brazil
Final destination	Baseline	Policy	Impact	Baseline	Policy	Impact
USA	1.73	1.87	8.09	2.17	2.26	4.15
Brazil	6	5.92	-1.33	84.99	84.07	-1.08
EU	2.61	2.78	6.51	2.5	2.59	3.6
Argentina	77.41	75.7	-2.21	1.81	1.7	-6.08
China	1.96	2.31	17.86	1.55	1.75	12.9

Final destination	China exports to Argentina			Argentina exports to China
Final destination	Baseline	Policy	Impact	Baseline	Policy	Impact
USA	1.35	1.43	5.93	5.28	5.36	1.52
Brazil	3.93	3.71	-5.6	0.37	0.6	62.16
EU	2.16	2.25	4.17	5.91	6.05	2.37
Argentina	82.42	81.67	-0.91	0.11	0.17	54.55
China	2.03	2.38	17.24	72.62	71.81	-1.12

	Exports			Inports
Sectors	Gross	Value-added	Difference	Gross	Value-added	Difference
Agriculture
Paddy rice	8.9	21.1	-12.1	32.1	67.4	-35.3
Wheat	4.7	32.1	-27.4	-5.5	72.3	-77.8
Cereal grains nec	3.4	31.6	-28.2	11.6	64.3	-52.7
Vegetables, fruit, nuts	61.7	29.9	31.8	55.5	63.1	-7.7
Oil seeds	4.5	4.9	-0.43	52.3	50.9	1.4
Sugar cane, sugarbeet	-	14.3	-14.3	-1.7	56	-57.6
Plant-based fibers	15.2	11.4	3.8	5.3	83.2	-77.9
Crops nec	45	37.5	7.5	67.8	49.8	18
Bovine cattle, sheep, goats, horses	17.7	33.2	-15.5	14.6	74.8	-60.2
Animal products nec	53	41.2	11.7	19.5	76.3	-56.8
Wool,silk-worm cocoons	49.4	1,531.5	-1,482.1	4.4	80.7	-76.2
Extractive
Forestry	20.5	11	9.5	35.2	54.7	-19.4
Fishing	-0.3	27.2	-27.5	14.9	55.5	-40.6
Coal	36.9	8.4	28.5	-0.6	42.8	-43.4
Oil	-0.3	2.5	-2.8	6.5	34.8	-28.3
Gas	-	5.5	-5.5	-	46.1	-46.1
Minerals nec	0.5	1.2	-0.6	5	60.2	-55.2

	Exports			Inports
Sectors	Gross	Value-added	Difference	Gross	Value-added	Difference
Agribusiness
Bovinemeat products	358.3	35.6	322.7	107.6	103.4	4.2
Meat products nec	52	42.3	9.6	223.9	103.2	120.7
Vegetable oils and fats	3.3	5.2	-1.9	69.3	52.9	16.4
Dairy products	331.8	20.2	311.5	276.5	91.7	184.8
Processed rice	50.6	12.6	38	170.2	61.1	109.1
Sugar	25.1	11.4	13.8	88.4	53.8	34.6
Food products nec	68.3	32.9	35.4	51.7	57.9	-6.2
Beverages and tobacco products	96.6	11.9	84.6	36.4	57.4	-21.1
Manufacturing
Textiles	121.9	8.1	113.7	99.3	82.5	16.7
Wearing apparel	238.7	30.7	208	125.2	98.9	26.3
Leather products	76.5	70.1	6.4	178.7	137.9	40.7
Wood products	9	8.4	0.6	142.7	62.9	79.8
Paper products, publishing	7.8	7.9	-0.1	81.1	57	24.2
Petroleum, coal products	34.3	6.7	27.6	11.1	34.9	-23.8
Chemical, rubber, plastics	68.6	13.3	55.2	45.7	48	-2.3
Mineral products nec	106.4	11.3	95.1	60.2	52.6	7.6
Ferrous metals	25.4	13.7	11.7	52.8	63.8	-11
Metals nec	53.7	15.8	38	115.4	65.2	50.1
Metal products	122.2	7.2	115.1	107	68.5	38.5
Motor vehicles and parts	81.4	33	48.4	171	95	76
Transport equipment nec	50.5	23.3	27.2	226.2	162.3	63.9
Electronic equipment	37.9	5.6	32.4	49.2	42.2	7
Machinery and equip. nec	102.9	21.3	81.5	87.4	72.2	15.2
Manufactures nec	252.1	13.9	238.2	75.9	65.2	10.6
Services	81	11.8	69.2	-2.3	49.9	-52.3