International Workshop on E3 Modeling for Sustainable Low Carbon East Asia
Date: 2014, September 21
Venue: Satellite office of Meijo UniversityChapter 22
An Economic and Environmental Assessmentof FTA in East Asian Region by CGE Approach

Kobe Gakuin University

Nagoya University

Hinari BAN

Kiyoshi FUJIKAWA

An Economic and Environmental Assessment ofFTA in East Asian Region by CGE Approach§1. Introduction§2. The GTAP-E model§3. Simulation database and scenario§4. Economic impact of FTA§5. Environmental impact of FTA§6. Concluding remarks2§1. Introduction
 An increase in the International argument for“trade and environment”
 1992, Earth Summit
 Environmental impact assessments of FTA and formulation ofguidelines by US, Canada, EU and international agency like OECD FTA schemes including East Asia
 Trans-Pacific Strategic Economic Partnership Agreement (TPP) Regional Comprehensive Economic Partnership (RCEP) Japan-Republic of Korea FTA, China-Japan-South Korea FTA etc.

 Strategic Environmental Assessment
3Effects of FTA on environment (CO2)
1. Output Effects
2. Changes in Industrial Structure
3. Changes in Input Structure
4. Spill Over Effects4§2. The GTAP-E model The GTAP-E model (version 6-pre2b)
 Energy-environmental version of the GTAP model which is acomputable general equilibrium (CGE) model Market equilibrium conditions for factors and goods, optimal
behavior, zero-profit conditions and an investment rule
 Two distinct global sector
 A global banking sector
 A global transportation sector
 Energy substitution, which plays an important role in linking
economic activity with energy and environment.

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Production structure in GTAP-E
OutputLeontief
Non-energy inputs

Value-added-energy composite

LandσVAE
Naturalresource

CES
Labor

Capital-energy
composite
σKECapital

CES

σDDomestic

Foreign

CES

σMRegion 1Energy composite
σENER
Electricity

CES・・・ Region r

CES

Non-electricity energy
σNELYCES

Non-coal energy

Coal

σNCOL
Gas

Oil

CES
Petroleum andcoal products

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Elasticity of substitution
Coal
σVAE

Oil

Gas

P_C

Ely

OthersValue-added-energy composite

Differ among industries and regions,ex. Japan, 0.00(gas)~4.00(coal)σKE

Capital-energy composite
0σENER

00.50

0.50

00001.00

000.500.50

001.001.00

Non-electricity composite
0σNCOL0Energy composite
0σNELY00

Non-coal composite00

Note: At the symposium in June, σENER for electricity sector = 1.00.
Here, σENER for electricity = 0.00.
7§3. Simulation data and scenarios
 GTAP 8.1 Data Base
 Global economy of 2007
 134 countries/regions, 57 industries
 Regional I-O tables, macro data, bilateral tradedata, and protection data
 Energy volume data and CO2 emission data Aggregation
 22 regions and 20 industries8Region and industry aggregation
 22 regions （The TPP members are underlined ）Australia, New Zealand, China, Japan, Korea, Taiwan, Rest ofASEAN, Malaysia, Singapore, Vietnam, South Asia, Canada, US,Mexico, Latin America, Chile, Peru, EU, Rest of East Europe andRussia, Middle East and North Africa, Sub-Sahara Africa, Rest of theworld

 24 industries
Paddy rice, Other agriculture, Livestock, Forestry, Fishing, Coalmining, Oil mining, Gas mining and products, Petro and coalproducts, Electricity, Other mining, Processed food, Textile andapparel, Paper products and publishing, Chemical products, Othermineral products, Ferrous metal, Motor vehicle and parts, Transequipment, Electric equipment, Machinery and equipment, Othermanufacture, Transport services, Other services
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Simulation scenarios
The JK scenario• Japan-Korea FTA ( the complete abolition of any ad valorem
import tariffs)
The CJK scenario• China-Japan-Korea FTA
The TPP scenario• FTA among the TPP members
The TPPJK scenario• FTA among the TPP members and Japan-Korea FTA
The TPPCJK scenario• FTA among the TPP members and China-Japan-Korea FTA

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Initial tariff rates
<Petroleum and coal products> remarkably high in Vietnam (18.5%), followed by Mexico, China, Chili, Korea (7.2% ~ 5.0%).

<Paper product and publishing> substantially high in Vietnam, Peru,Malaysia, and Mexico (17.7% ~ 9.8%). In New Zealand, Japan,Korea, Singapore, Canada, and US, tariff rates are near zero.

<Chemical products> significantly high in Vietnam, Mexico,Malaysia, Peru (11.6% ~ 7.9%).

<Non-metal mineral products> relatively high in Vietnam, Mexico,
China, Peru, Malaysia, and Korea (13.7% ~ 7.1%).

<Ferrous metal> the highest in Malaysia (33.7%) , zero in Singapore
and considerably low in Japan, Canada, and US, several percent inother FTA countries.
11§4. Economic impact of FTA
GDP growth rate for each scenario (%)

ROA: rest of ASEAN, SA: South Asia

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Nominal factor price change rates (%)

13

Change rates in output (%)

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Change rates in output (%)

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§5. Environmental impact of FTA
CO2 growth rates (%)

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CO2 Change (million tons)

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CO2 change by sector (million tons)

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Effects on CO2 emissions per output
 Replacement of factor with energy
Growth rates in input demand for electricity industry (%)

ely>vean → replacement of production factor with energy

 Energy substitution

Growth rates in total CO2 emissions by energy (%)

19§6. Concluding remarks
 Environmental effects differ across region and thereasons are diverse and region specific.
 Change in output and a share of energy intensive industries
 Energy substitution
 Trade of electricity (Vietnam and China, US and Canada) Political implication
 Environmental assessment is important for FTA including East
Asia which is incorporated into the global supply chain.
 Importance of a mutually supportive relationship between theenvironment and trade Japan’s responsibility and role20