India-EU trade reforms: Comments on modelling and policy analysis

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India-EU trade reforms Comments on modelling and
policy analysis
Agricultural Trade Policies and Development

• R. Jongeneel (LEI-WU)
• Agricultural Trade Project
• 25 April 2008 LEI Seminar

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Contents

• Introduction
• Some experiences lessons
• Reasons for scrutiny post-model analyses
• Specific issues India application
• Concluding remarks

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Introduction
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Science/models Looking for an appropriate map
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Why use models ?

• Need for systematics in the analysis
• Need for quantification
• Need for explicitizing assumptions
• Need for framework to discuss disagreements
• Need to clarify costs and benefits (welfare
  impacts) from policy changes
• Need to explore policy options

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Why use models ?

• Check for alternative policy scenarios
• Check for all kind of impacts (income, welfare,
  markets, budget, environment,
• Do sensitivity analysis about uncertainties and
  show impacts

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Qualifications (i)

• Models simplify reality
• Models often hide uncertainties
• Models use a lot of basic assumptions and
  supplementary assumptions
• Models are weak in accounting for changes in
  behavior
• Models are often too restrictive wrt market
  structure (e.g. deviations from full competition
  such as monopolistic comp., etc)

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Qualifications

• Model closure (and non-considered feedback links)
  are important
• Models dont prescribe policy, but can be easily
  abused for this
• Institutional issues are often downplayed or
  presumed
• It is difficult to include the full real world
  dynamics (expectations, non-linearities,
  comparative static)

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Some experiences and lessons
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Some examples

• Use models for their strengths not their
  weaknesses
• Power of GTAP and its family-members lies in
  world-wide impact analysis of trade policy
  changes
• See overview partial (Harbinson) (slide 1) and
  full trade liberalisation analysis (slide 2)
  (source J-C. Bureau)

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Model use and WTO /TrLib (i)
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Models and WTO/TrLib (ii)
Even with same model and same scenario different
researchers come up with different results
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Lessons from modelling WTO/TrLib (i)

• Only a few model families are used
• Caution needed for artifical consensus
• More liberalisation leads to larger gains
  already by assumption
• Gains are actually quite small (0.x of GDP)
• In particular developing countries gain
  relatively little (although they did in older
  studies).

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Lessons from modelling WTO/TrLib (ii)

• More recent model version show smaller impacts
  due to better data (applied tariffs,
  TRQ-treatment, other NTBs)
• Better desaggregation of DC (still weak on
  impacts of binding overhang, tariff data
  precision, somtimes simplistic assumptions wrt
  consumer surplus changes offsetting producer
  surplus changes)
• Few models still take the relationship between
  intervention prices, tariffs and export subsidies
  properly into account (EU)

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Post-modeling analysis
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Model use matters

• Model have limited direct impact, but large and
  increasing indirect impact
• Models are (more) used in trade panels (with
  country focus!)
• Need for good quality management accountability
  about performance and limitations
• When focus on specific country-market-impacts
  post-model analysis is required

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Post-modeling analysis

• Models are calibrated lack empirical testing
• Specification errors (aggregation, heterogeneity,
  down-scaling, macro-micro, lacking detail in
  policy implementation)
• No market power
• Instantaneous adjustments (signal transmission,
  responsiveness)
• Dynamics structural change not well-captured
• Balance of trade-closure

Also plea for pre-modeling analysis
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Specific issues wrt India
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Comments/questions on analysis

• Modeling assumptions
• BoP closure rule gt dX dM
• Factor mobility assumption
• Meat import fixation

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Comments/questions on analysis

• Context quantitative assessment of India-EU FTA
• Q1 PTA or FTA?
• Q2 external tariff assumption?
• Q3 TC and TD (how to explain)
• Q4 TRQ treatment
• Scenario design

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Comments/questions on analysis

• Post-modeling analysis (fed/state level desagr?)
• Check for main affected products
• Padi rice
• Processed rice
• Sugar cane, sugar beet?
• Textiles and leather?
• Wool, silkworm cocoons?
• (Manufactures)
• Analyse in detail
• Policy representation
• Price transmission

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Concluding remarks
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Some conclusions

• GTAP contains lot and still increasing amount of
  expertise on modeling, trade volume, price and
  policy data
• CGE is encompassing but captures not everything
  properly and with proper detail
• Plea for (pre-) and post-modeling analysis
• (scenario design)
• (scenario implementation policy transl.)
• interpretation and modification of results
• derived impact analysis