A computable general equilibrium analysis of the expansion of the closer economic relations preferential trading agreement : economic implications for New Zealand : a thesis presented in partial fulfilment of the requirements for the degree of Master of Applied Economics at the Department of Applied and International Economics, Massey University
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Date
2000
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Massey University
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Abstract
In recent years, many nations have shifted their trade policy focus away from multilateral efforts to reduce trade barriers, and have instead moved towards regional preferential trading arrangements. New Zealand is one such nation. As well as pursuing trade liberalisation on a global basis via the World Trade Organisation and its predecessor the General Agreement on Tariffs and Trade, New Zealand entered a bilateral arrangement with Australia - the Closer Economic Relations (CER) trade agreement - and has recently looked to expand this agreement. Singapore, Chile and the United States have all been suggested as potential members of an expanded CER. This study provides a quantitative economic analysis of the expansion of the CER, focusing on the implications for New Zealand. The GTAP computable general equilibrium model, using the GTAP version 4 database, is employed. After aggregating the database to seventeen sectors and fourteen regions, policy shocks representing the removal of tariffs between the potential members of the expanded CER preferential trading agreement are carried out. Four possible scenarios of potential members of the preferential trading arrangement are examined. Two liberalisation strategies are considered. First, tariffs are completely removed on all sectors except for six agricultural sectors. Second, tariffs are removed in all sectors, and export subsidies in the agricultural sectors are also eliminated. The results show that an expanded CER agreement would increase global welfare by up to US$432 million. These welfare gains accrue mainly to the United States and Singapore. New Zealand, Australia, and Chile all suffer non-trivial welfare losses. New Zealand's loss is attributable largely to a deterioration in its terms of trade, caused by falling export prices, particularly in the agricultural sectors. New Zealand also suffers decreased economic growth and a worsening trade balance. This clearly indicates that New Zealand should be careful when considering its future trade policy direction, and that it may need to re-evaluate its attitude towards regional trade agreements.
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New Zealand, Economic equilibrium, Commerce, Econometric models