Sustainable use of water resources in East Asia
Kiyoshi Fujikawa1, Hector Pollitt2,Zuoyi Ye3 and 〇Soocheol Lee4

1. Introduction

In recent decades, globalization has led to trade volumes of goods expanding at a faster rate
than GDP. The trade volume of ‘virtual water’ (water embedded in traded goods) has also
increased; in some regions globalization may be exacerbating water shortages.
In this study we explore the most recent data on the issue. We find that China's water trade
surplus expanded between 1995 and 2009, while the water trade deficit in the US and EU widened
sharply. It could therefore be said that the EU and the US have contributed to water shortages inChina. To improve the sustainability of water use, this study uses the E3ME model to assess theeffects of a tax on water consumption. We apply a 40% tax on water consumption from the public
supply, which is levied on all industrial sectors that use water. The water tax is imposed for eight
years starting in 2020. We find that water demand could be reduced by about 10%, with minimal
economic loss.

2. Scenarios and methodology
There is ample literature related to Global Value Changes. Some research has
analyzed structural changes of vertical divisions of labor using input-output tables (e.g.
Hummels et al., 2001; Koopman et al., 2008; Ye and Fujikawa, 2011). The common key
word in these articles is ‘Trade in Value Added’ , which is embodied in traded goods.
Value added is created by primary inputs that include labor and natural resources.
Natural resources comprise energy, land, water and air. CO2 emissions can be considered
as a proxy variable for energy inputs, but also as use – or exploitation– of air since they
are the main factor of global warming. Those value-added elements are tradedinternationally together with goods and services, such as embodied labor, CO2, water,and land; our research in this chapter focuses on the change in water use.
We outlines the trend of international trade in water by using international inputoutput

tables(WIOD).

We

alsouseinput-output

tablesthatinclude

tencountries/regions; i.e. China, Japan, Korea, Taiwan, Indonesia, India, US, Russia, theNagoya University, Nagoya City, JapanCambridge Econometrics, Cambridge UK
3 Cambridge Econometrics, Cambridge UK
4 Faculty of Economics, Meijo University12

European Union (EU) and the Rest of the World (RoW). And we use the E3ME model tosimulate the change of water consumption in Asian countries when water is taxed.

3. Expected results and Analysis
The research discussed in this study draws on data from the WIOD database, and welink this to previous modelling carried out with E3ME. First, however, we focus on thestructural change of water trade on an international level. Water trade is measured byvirtual water embodied in trade of goods and services. The results obtained aresummarized as follows.
1) In 1995, The water trade balance showed a surplus in China and India but a deficit
in the US, EU and Asian countries Japan, Korea and Taiwan with that of Japan being
particularly large.
2) Total global water use increased by 37% from 1995 to 2009. In this period, China's
water trade surplus expanded, even though its water use increased remarkably. The
water trade deficit of the US and the EU widened sharply and EU, Japan and the US
have contributed to the overconsumption of water in China.
These findings stress the need to consider ways in which water consumption can be
reduced in East Asia. We, therefore, tested the impacts of a tax on water consumption ineach country. The model results should be considered as indicative because of limitationsin the available data but it seems possible that a modest reduction in water consumption
could be obtained by increasing prices. Furthermore, this could come at a very limited
cost to the economy and, if revenues are recycled from this tax, potentially deliver somesmall economic benefits.
It may be possible to further reduce water consumption through levying a larger tax,
but the range of uncertainty in the model results increases with an increase of the tax
rates. Other regulatory policies (e.g. restriction of any production of biofuels) could play
an important role and, as we found in other chapters, policy interaction is likely to beimportant.

4. Conclusion
In summary, there are many complexities when modelling the demand for water, andfurther data and analyses at both micro- and macroeconomic level are required. Ouranalysis shows that the issue of fresh-water resources in parts of East Asia is alreadybecoming a priority and likely to become even more important in the future.