Transcript Impact on production level (annual average pp

Moldova Trade Study:
IS THE DCFTA GOOD FOR MOLDOVA?
Note 2
Valeriu Prohnitchi
Adrian Lupusor
Chisinau, Moldova
February, 29th 2016
Key aspects of the research
1. Use of a Dynamic Computable General Equilibrium Model of
the Moldovan economy
2. The Model shares and elasticity coefficients estimated using
the most recent data available
3. Emphasis on trade facilitation and transaction costs
4. Trade data distortions partially removed
5. Effective provisions of the DCFTA used for modelling scenarios
and transition periods
6. Comparison of strategic trade options
Very briefly about the CGE models
1. Rigorous quantitative method to evaluate the net
and systemic impact of various shocks
2. Reproduce structure and nature of transactions
among agents (activities, markets, institutions,
production factors, etc.)
3. Especially useful when the expected effects of
shocks are complex and spread through many
channels
CGE – practical implementation of the college-taught
scheme of the economic system
0. Baseline scenario
• No changes in Moldova trade conditions up to 2024
• EU maintains Autonomous Trade Preferences
• Real GDP growths 4.7 percent on annual average
• Labor continues to shrink due to migration and
natural decline
• Growth in the stock of productive capital determined
by capital investment and depreciation
• Impact of other scenarios assessed against the
baseline
1-2. DCFTA and DCFTA + FDI
1. DCFTA
• Moldova reduces import tariff for EU according to transition
schedule
• EU reduces import tariff for Moldova
• Moldova liberalizes trade in services with EU
• EU liberalizes trade in services with Moldova
• Implementation of the EU recognized standards (SPS)
• Trade facilitation measures (reduction in exports and import
transaction costs and of customs procedures fee)
• Implementation of Moldova – Turkey FTA
• Russian embargo.
2. DCFTA + FDI (10% growth per year)
3. Joining the Customs Union
1. Moldova
• Raises customs duties for the non-CU countries to the MFN level of the CU
• Reduces customs duties to zero for the CU members
2. Russia
• Does not impose a trade embargo
• Offers Moldova a 30 percent reduction in natural gas prices
3. EU
• Abolishes the ATP
• Raises duties on imports from Moldova up to the EU MFN rate
4. Rest of the World
• Increases tariffs on imports from Moldova by a rate equal to the difference
between Moldova’s final bound rate and the CU applied MFN rate
4. Adoption of the MFN rate
1. Moldova
• Denounces the FTAs
• Imposes MFN duty rates against all trading partners but respects its WTO
bound rate
2.
Russia and other CIS countries
• Impose MFN duty rates against imports from Moldova
3. EU
• Abolishes the ATP
• Raises duties on imports from Moldova up to the EU MFN rate
4. Rest of the World
• Takes no retaliatory actions
Snapshot view: Projected Evolution of GDP Under Simulated
Scenarios, 2004=100%
Impact of the DCFTA components on GDP aggregates:
annual average percentage points against the baseline
MD_
GDS
EU_
GDS
MD_
SERV
EU_
SERV
SPS
0.0
0.9
0.4
0.3
0.1
2.2
1.7
0.0
0.2
0.0
0.0
0.8
0.4
0.3
0.1
2.0
1.9
0.0
0.2
0.0
1.0
0.5
0.3
0.1
2.3
1.8
0.0
Exports
0.1
1.2
0.7
0.4
0.2
3.7
3.0
Imports
0.1
1.0
0.5
0.3
0.1
2.6
GDP
0.0
1.0
0.5
0.3
0.1
2.7
Private
consumption
Fixed capital
investment
Government
consumption
EXP_ IMP_ MD_
FACIL FACIL TRK
TRK_
MD
FDI
DCFTA
+FDI
6.8
3.5
9.3
0.0
6.4
3.9
8.9
0.2
0.0
7.3
3.8
9.9
0.0
0.2
-0.1
9.9
2.8
11.7
2.1
0.0
0.2
0.0
7.7
3.5
10.0
2.2
0.0
0.2
0.0
7.9
3.3
10.0
EMB DCFTA
Strategic trade policy options: impact on GDP
components (annual average p.p. against the
baseline)
CU
MFN
6.8
6.8
6.4
7.3
9.9
7.7
7.9
DCFTA
+FDI
9.3
9.3
8.9
9.9
11.7
10.0
10.0
-1.4
-1.4
-1.6
-1.7
-3.2
-2.0
-1.9
-2.8
-2.8
-2.7
-3.0
-5.6
-3.7
-3.5
10.8
12.9
-2.7
-3.6
7.2
9.4
-1.7
-3.4
DCFTA
Absorption
Private consumption
Fixed capital investment
Government consumption
Exports
Imports
GDP
Net taxes on imports and
production
Value added
Impact on key macroeconomic indicators
REER
Export price index
Import price index
Terms-of-Trade
Investment / GDP, %
Private savings / GDP, %
Foreign savings GDP, %
Trade deficit/ GDP, %
Transfers surplus / GDP, %
Current account deficit / GDP, %
Government deficit / GDP, %
Import taxes / GDP, %
Baseline
DCFTA
109.2
100
100
100
21
12.8
7.3
28.9
11
17.9
1.6
2.5
97.3
104.3
100.0
104.3
-2.8
2.2
-3.8
-14.4
-5.7
-8.8
-0.9
-0.8
DCFTA + FDI
95.8
104.3
100.0
104.3
-2.0
-2.6
1.9
-10.6
-6.6
-4.0
-1.0
-1.1
CU
MFN
101.6
96.9
99.0
97.8
1.2
-8.6
1.7
7.1
2.6
4.6
0.3
1.0
99.4
94.6
100.0
94.6
2.0
-1.9
3.2
14.6
4.8
9.9
0.7
3.1
Impact on Moldovan trade by regions (annual
average p.p. against the baseline)
Russia
DCFTA
DCFTA + FDI
CU
MFN
8.1
9.7
-2.1
-5.5
Russia
DCFTA
DCFTA + FDI
CU
MFN
7.3
9.5
1.0
-3.9
Belarus and
Kazakhstan
8.7
9.6
-1.7
-7.4
Exports to …
Other CIS
EU27
countries
9.2
9.5
10.6
11.4
-2.1
-3.1
-5.7
-5.0
Belarus and
Kazakhstan
7.6
9.8
-2.5
-3.7
Imports from …
Other CIS
EU27
countries
7.2
7.7
9.4
10.1
-1.9
-2.6
-3.9
-3.5
Turkey
10.9
12.9
-3.1
-3.7
Turkey
7.8
10.0
-2.4
-3.8
Rest of the
World
7.8
10.1
-2.5
-3.5
Rest of the
World
7.2
9.4
-2.4
-3.7
Impact on total-factor productivity (annual
average p.p. against the baseline)
Corporate agriculture
Small agriculture
SPS sensitive food industry
Non SPS-sensitive food industry
Non-food manufacture
Energy sector
Construction
Trade, HORECA, repair services
Transport and storage
Communications
Financial sector
Real estate
Computer services, R&D
Other commercial services to businesses
Public services
Other private services
DCFTA+FDI
0.8
0.5
1.2
1.9
1.5
2.1
1.7
3.8
4.2
3.0
3.3
3.1
3.4
3.6
1.6
2.3
CU
-0.1
-0.1
-0.2
-0.3
-0.3
-0.4
-0.3
-0.8
-0.9
-0.6
-0.7
-0.6
-0.7
-0.8
-0.3
-0.4
MFN
-0.2
-0.1
-0.3
-0.5
-0.4
-0.6
-0.4
-1.2
-1.3
-0.8
-1.0
-0.8
-1.1
-1.1
-0.5
-0.6
Impact on production level (annual average
p.p. against the baseline)
Corporate agriculture
Small agriculture
SPS sensitive food industry
Non SPS-sensitive food industry
Non-food manufacture
Energy sector
Construction
Trade, HORECA, repair services
Transport and storage
Communications
Financial sector
Real estate
Computer services, R&D
Other commercial services to businesses
Public services
Other private services
DCFTA+FDI
14.2
3.5
6.2
9.0
10.5
10.7
8.9
7.7
10.4
9.0
9.5
8.2
11.4
10.1
9.7
9.3
CU
-3.2
-0.5
-2.0
-1.5
-2.9
-1.9
-1.7
-2.7
-2.2
-1.2
-1.7
-1.8
-1.9
-2.2
-1.7
-1.6
MFN
-5.2
-1.2
-3.4
-4.7
-5.2
-3.4
-2.9
-4.6
-3.9
-2.1
-3.5
-3.0
-3.4
-3.7
-3.1
-2.9
Impact on production factors income (annual
average p.p. against the baseline)
DCFTA
DCFTA+FDI
CU
MFN
Labor
8.4
10.6
-2.4
-4.4
Capital
Self-employment in
agriculture
Self-employment in other
sectors
8.0
10.0
-5.0
-4.2
9.5
11.8
-1.8
-4.2
8.1
10.3
-2.4
-4.2
Impact on enterprises and households income
(annual average p.p. against the baseline)
Enterprises
Urban Q1
Urban Q2
Urban Q3
Urban Q4
Urban Q5
Rural Q1
Rural Q2
Rural Q3
Rural Q4
Rural Q5
DCFTA
8.4
6.4
6.5
6.5
6.7
6.9
6.5
6.0
6.2
6.1
6.0
DCFTA+FDI
10.4
8.6
8.5
8.5
8.7
8.9
8.4
7.9
8.0
8.0
7.9
CU
-4.7
-1.6
-1.8
-1.6
-1.7
-1.9
-1.4
-1.3
-1.4
-1.4
-1.4
MFN
-4.5
-3.0
-3.0
-3.0
-3.1
-3.3
-2.8
-2.6
-2.6
-2.6
-2.7
Evolution of income inequality
Baseline
DCFTA
DCFTA + FDI
CU
MFN
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
Urban
Rural
2014
3.45
3.41
3.45
3.41
3.45
3.41
3.45
3.41
3.45
3.41
2015
3.46
3.41
3.5
3.4
3.49
3.39
3.45
3.43
3.41
3.45
2018
3.51
3.41
3.58
3.35
3.55
3.34
3.48
3.43
3.43
3.44
2021
3.55
3.4
3.65
3.3
3.61
3.29
3.51
3.43
3.46
3.44
2024
3.58
3.4
3.71
3.26
3.66
3.24
3.47
3.41
3.48
3.44
Impact on shared prosperity (annual average
p.p. against the baseline)
DCFTA
DCFTA + FDI
CU
MFN
bottom 40
6.48
8.54
-1.69
-2.99
average
6.58
8.62
-1.72
-3.07
bottom 40
6.27
8.15
-1.38
-2.68
average
6.16
8.04
-1.38
-2.66
Urban, bottom 40 / average
0.98
0.99
0.98
0.97
Rural, bottom 40 / average
1.02
1.01
1.00
1.01
urban
rural
Key conclusions
• DCFTA - part of the most credible development strategy
• invest its efforts and resources in alleviating the behind-the-border
trade barriers
• Liberalization of the services trade is another important source of
economic gains
• Elimination by the EU of the remaining barriers against trade in goods
is also another important source of economic gains for Moldova
• Adopting the SPS standards should be seen as priority in long-term
• DCFTA with the EU is fully compatible with the multilateral FTA with
the CIS countries
• DCFTA: “DC” (much) more important than the “FTA” part