Silviase/jgov_v1.4_full_ann huggingface dataset:
Table 1: Regional and Commodity Aggregation

Countries and Regions	Commodities/Industries
JPN	Japan	AFF	Agriculture, Forestry and Fisheries
CHN	China	MNG	Mining
KOR	Korea	PFD	Processed foods
HKG	Hong Kong, China	TXL	Textiles and Apparel
TWN	Chinese Taipei	CHM	Chemical products
SGP	Singapore	MTL	Metals and metal products
IDN	Indonesia	TRN	Transport equipment
MYS	Malaysia	ELE	Electronic equipment
PHL	the Philippines	OME	Other machinery and equipment
THA	Thailand	OMF	Other manufacturing
VNM	Viet Nam	CNS	Construction
LAO	Lao	EGW	Electricity, Gas and Water
KHM	Cambodia	T_T	Transport
MMR	Myanmar	OSP	Other private services
IND	India	OSG	Public services
AUS	Australia
NZL	New Zealand
OAO	Other Asia and Oceania
USA	USA
CAN	Canada
MEX	Mexico
CHL	Chile
PER	Peru
OAM	Other America
RUS	Russia
EUM	European Union
ROW	Rest of the World

accounts (SNA). $ ^{11} $

### I II. Impacts of Trade Liberalization and Facilitation in Asia-Pacific

### 1. Magnitudes of Trade Protection and Cost

The impact of trade liberalization and facilitation can more or less be determined by actual trade structures and the degree of import liberalization and facilitation, in addition to the comparative advantage of the sectors among regions,
Table 2: Trade Protection and Cost

Protection	Costs	(%)
Administrative	Labor and Capital	Total
Japan	4.0	0.2	1.1	1.4
China	6.2	0.5	1.9	2.3
Korea	6.3	0.3	2.0	2.3
Hong Kong, China	0.0	0.2	1.8	2.0
Chinese Taipei	4.2	0.3	1.8	2.0
Singapore	0.0	0.3	1.8	2.1
Indonesia	4.3	0.3	0.8	1.1
Malaysia	5.9	0.4	1.6	2.0
the Philippines	3.5	0.7	2.0	2.6
Thailand	9.1	0.3	1.2	1.4
Viet Nam	12.9	0.3	3.0	3.3
Lao	10.8	n.a	n.a	n.a
Cambodia	14.9	n.a	n.a	n.a
Myanmar	4.0	n.a	n.a	n.a
India	15.1	0.3	1.3	1.6
Australia	3.9	0.4	2.0	2.4
New Zealand	3.1	0.3	2.1	2.4
USA	1.7	0.2	1.4	1.6
Canada	1.5	0.1	0.9	1.0
Mexico	3.0	0.4	0.9	1.3
Chile	1.9	0.2	1.3	1.4
Peru	8.7	0.3	1.6	2.0
Russia	9.8	0.4	1.0	1.4
APEC	3.6	0.3	1.5	1.8
World	3.3	n.a	n.a	n.a

Source: GTAP database 7 and ESRI (2010)

which is suggested to be a key factor in standard trade theory. The magnitudes of trade protection and cost assumed in this study are shown in Table 2.

Trade liberalization measures are to remove trade protection such as import tariffs and quotas. Trade protection data in this paper are derived from the current GTAP database as they are, without any modification. They are expressed in the form of ad valorem equivalent, tariff barriers, and non-tariff barriers. The best-quality data are those relating to tariffs. Non-tariff information is most complete for agriculture and textiles and apparel. Data for subsidies are also available, distinguishing those for factor-based, intermediates, and ordinary output, but are not comprehensive. Protection of the service sector is especially difficult to quantify, and is mostly neglected in the current database.
Trade liberalization has widely been promoted in the world economy during the last several decades. However, according to the most updated version of the GTAP database, an import protection of around 3.3 percent remained in world trade on average in 2004 and 3.6 percent in APEC economies, respectively. $ ^{12} $ By region, trade barriers are lower in North America and the EU, and free trade is mostly realized in Hong Kong, China; and Singapore. However, higher trade protection is still observed, mainly in developing economies. By commodities and industries, although variations are smaller compared with regional differences, trade protection is higher in primary products and food, followed by textiles and apparel. Detailed data are available in Annex Table 2.

On the other hand, trade facilitation measures are to reduce non-tariff barriers, lowering the costs of administration, standardization, technology, information, transaction, labor, communication, insurance, and financing. Trade cost data in this paper are estimated from such cost for trading across borders in terms of US dollars shown in Doing Business, published by the World Bank. Doing Business compiles procedural requirements for exporting and importing a standardized cargo of goods by ocean transport. For importing goods, those included procedures range from the vessel's arrival at the port of entry to the cargo's delivery at the warehouse. Trade cost measures all the fees associated with completing the procedures to export or import the goods. These include costs for 1) document preparation, 2) customs clearance and technical control, 3) ports and terminal handling, and 4) inland transportation and handling. However, the cost measure does not include tariffs or trade taxes.

Those four costs are further broken down between administrative cost and production factor cost in light of the model structure. Administrative cost is not necessarily tariffs or taxes; it's composed of procedural and administrative fees those are decided by laws, rules, and others and paid more or less compulsorily. The remaining costs are attributed to production factors such as labor and capital of transportation industries. Detailed background data and the methodology of estimating trade cost are discussed in Annex 2.

Estimated trade cost is 1.8 percent in the APEC economies on average, ranging from one to three percent, which accounts for half of trade protection in the APEC economies. This is not so much different from those in the past studies. $ ^{13} $ In trade cost,
administrative cost is a relatively smaller portion in most economies, but it is not negligible. The difference in trade cost among the economies is much smaller than that of trade protection, which ranges between zero to double digits. Strong correlation is not found between trade cost and degree of economic development. In other words, trade protection is relatively higher than trade cost in developing economies, while trade cost is still sizable in developed economies, where trade protection is relatively lower.

### 2. Methodology for Model Simulations

In addition to the quantification of trade liberalization and facilitation measures, the methodology of incorporating those measures in simulation studies putting exogenous shocks into model structure must carefully be designed. In the case of trade liberalization measures, import tax in the following equation (a) is removed for the import of good (i) from exporting region (r) to importing region (s).

$$ \mathrm{(a)~pms(i,r,s)=tms(i,r,s)+pcif(i,r,s)} $$

pms: Import prices

tms: Import tax

pcif: CIF prices

As for trade facilitation measures, import-augmenting technological improvements $ ^{14} $ have frequently been used to incorporate exogenous shocks in the recent GTAP model simulations. However, as shown before, administrative costs are not negligible, which cannot entirely be attributed to productivity and technology, and whose key feature is much closer to a tax. Therefore, in this paper, import tax is reduced $ ^{15} $ to evaluate the impacts, removing the administrative part of trade cost. Moreover, other trade costs are likely generated by the transportation sector but not by the other individual industries. Therefore, labor and capital production cost of the global transportation sector is assumed to be cut in half of measured cost by technological improvements in the transportation sector in the following equation (b) rather than by import-augmented technology of individual goods producing industries.

$$ \begin{aligned}(b)pcif(i,r,s)&=FOBSHR(i,r,s)*pfob(i,r,s)+TRNSHR(i,r,s)*[pt-atr(i,r,s)]\\ pfob&:FOB prices\end{aligned} $$
Table 3: Real GDP Gains from an FTAAP

(%)

Liberalitaion	Facilitation	Total
Japan	0.9	0.2	1.1
China	6.5	1.0	7.5
Korea	7.5	1.0	8.5
Hong Kong, China	2.8	1.0	3.8
Chinese Taipei	7.3	1.5	8.7
Singapore	2.8	1.9	4.7
Indonesia	3.7	0.7	4.4
Malaysia	12.6	1.9	14.5
the Philippines	6.8	2.3	9.1
Thailand	25.1	1.9	27.0
Viet Nam	37.3	2.8	40.1
Lao	2.0	0.2	2.1
Cambodia	3.6	0.5	4.1
Myanmar	1.5	0.3	1.8
India	-0.3	0.1	-0.2
Australia	2.4	0.6	3.0
New Zealand	3.4	1.1	4.5
USA	0.3	0.2	0.5
Canada	0.6	0.4	1.1
Mexico	4.5	0.7	5.2
Chile	1.5	0.6	2.0
Peru	1.9	0.3	2.2
Russia	4.9	0.4	5.3
EU	0.2	0.0	0.2
APEC	1.9	0.4	2.3

Source: Author's simulations

pt: Price of global shipping services

atr: Technology change in global shipping services

FOBSHR: FOB share in import values

TRANSHR: Transportation cost shares in import values

### 3. Simulation Outcomes

Real GDP gains from trade liberalization and facilitation in Asia-Pacific is shown in Table 3. Real GDP of the APEC economies on average will be boosted by 1.9 percent by trade liberalization measures. It is further stimulated by 0.4 percent by trade facilitation measures.
According to conventional simulations by a CGE model of global trade, trade liberalization measures, including tariff reductions, will stimulate trade by lowering the prices of tradable goods. This will result in increases in the national output of exporting countries while increasing access to the market of trading partners. Meanwhile, domestic production resources-land, capital, labor, and intermediate inputs-will be used more efficiently in importing countries, in particular, when domestic distortions, including those due to trade barriers, are reduced. These combined effects-one from foreign markets and the other from the domestic market-are expected to result in the expansion of production and an increase in income and welfare. In addition, economic benefits would be expanded by dynamic impacts through capital formation mechanisms and productivity improvements. Although negative impacts due to trade diversion effects and the terms of trade effects are suggested by theoretical studies, empirical analyses, including model simulations, have generally indicated macroeconomic benefits from trade liberalization.

The size of macroeconomic benefits from trade liberalization depends to a large extent on the degree of liberalization, i.e., the degree of protection prior to trade liberalization. As already discussed, there tends to be more scope to liberalize trade in developing economies; as shown in Table 3, they would benefit more from trade liberalization. In terms of changes in real GDP, several ASEAN countries such as Malaysia, Thailand, and Viet Nam are suggested to enjoy relatively larger gains $ ^{16} $ , while developed APEC economies such as Japan and the United States are not likely to experience significantly larger gains. Trade liberalization is expected to correct income differentials among the economies.

On the other hand, the macroeconomic benefits from trade facilitation measures are relatively significant in such developed economies, though it is less important in many developing economies. This is primarily because of the relative degree of trade liberalization and facilitation measures discussed above.

Moreover, breaking down the welfare gains of the APEC economies as a whole from trade liberalization and facilitation, as shown in Chart 1, sources of those macroeconomic benefits are shown to be somewhat different between the two measures. In the case of trade liberalization, the welfare gains measured in terms of changes in
Chart 1: Compositions of Welfare Gains

Source: Author's Simulations

Equivalent Variation (EV) are primarily given by more efficient resource allocation, while technological improvements are expected to be key drivers of those macroeconomic gains in the case of trade facilitation.

### I V. Relative Significance of Regional Trade Agreements

In addition to the movements of global trade liberalization, regional efforts have been made through Regional Trade Agreements (RTAs) and bilateral Free Trade Agreements (FTAs). There are several regional agreements existing in the APEC economies, which include following:

- North American Free Trade Agreement (NAFTA) came into force in 1994

- China - ASEAN Free Trade Agreement came into effect in 2005 on goods and 2007 on services respectively

- Japan ASEAN Comprehensive Economic Partnership Agreement came into force in 2008

- Korea-ASEAN Free Trade Agreement completed in 2009

- ASEAN - Australia - New Zealand Free Trade Agreement (AANZFTA) signed in 2009

- Trans-Pacific Strategic Economic Partnership Agreement (P4 Agreement) between New Zealand, Brunei, Chile and Singapore concluded in 2005
Moreover, other regional agreements are suggested or proposed. Those include:

- East Asia Free Trade Agreement between ASEAN - China, Japan and Korea (EAFTA)

- Comprehensive Economic Partnership in East Asia (CEPEA) covering ASEAN, Australia, China, India, Japan, Korea, and New Zealand

- Expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPP) that the United States, Australia, Peru, and Viet Nam joining the P4 Agreement

It has generally been suggested by model simulation studies that wider trade liberalization in terms of the coverage of economies would generate larger macroeconomic benefits. However, considering the differences in trade structure of the economies, relative benefits of the economies from several regional agreements may well differ significantly. From the point of view of prioritization and choice of such regional agreements, it is worth looking at such differences in macroeconomic benefits.

Real GDP gains from trade liberalization in three regional agreements of 1) EAFTA, 2) CEPEA and 3) Free Trade Area of the Asia-Pacific (FTAAP) $ ^{17} $ are compared in Chart 2 with those of trade liberalization in the world without any regional exceptions.

For Japan, trade liberalization in EAFTA and CEPEA would be enough to achieve sizable benefits in comparison with that in FTAAP and the world. This is because China is the most important trading partner for Japan. By contrast, it is estimated that Korea and, especially, China would have to extend trade liberalization to a larger FTAAP. For China, the United States is far more important than other economies. Meanwhile, Australia may maximize its benefits from trade liberalization in CEPEA rather than expanding to FTAAP. For Australia, the United States and Canada are more likely competitors in particular agricultural sectors.
Chart 2: Real GDP Changes in Regional Trade Agreements (Percent)

Source: Author's Simulation
Chart 2: Real GDP Changes in Regional Trade Agreements (Percent, Cont.)

Source: Author's simulations
### V. Impacts on Sensitive Sectors

The impact of structural reform measures, including trade liberalization, would be more widely observed at sectoral levels compared with those changes in income and production at the macro level. In particular, trade liberalization may result in a realignment of regional production. In principle, that would be in accordance with the comparative advantage of the regions. According to conventional simulations by a CGE model of global trade, developing and transition economies are expected to expand production of labor-intensive manufactured products as a result of broadly based trade liberalization measures. On the other hand, developed economies are expected to expand production in the capital- and technology-intensive manufacturing sectors, while in the geographically larger countries agricultural and food industries would expand production.

An estimated impact on the structure of sectoral production according to global trade liberalization is shown in Annex Table 5. As a result of global trade liberalization, output will increase in transport equipment in Japan, in textiles and apparel in ASEAN countries, China, and Asian NIEs, and in agriculture and food industries in Australia and North America.

It is indicated that not just “winners” but also “losers” may emerge from implementing trade liberalization measures. It should be noted that the reallocation of resources to more productive uses usually involves some adjustment costs, $ ^{18} $ including the displacement of employment across industries within the economies. To enjoy the macroeconomic benefits from trade liberalization, successful structural adjustments would be required.

Nonetheless, the negative impacts on sensitive sectors are worrisome. Among others, changes in the productions of primary industries, i.e., agriculture, fisheries and forestry, by trade liberalization in FTAAP are shown in Chart 3. Primary production will decrease the most in Japan, followed by Korea and Chinese Taipei. Actually Japanese policymakers and agricultural industries have worried about those possible damages and have expressed objections to trade liberalization in the sector.

The impact of partial and preferential trade liberalization has generally been shown to be limited compared with that of much wider trade liberalization without any discriminative treatment in earlier studies by CGE model simulations. However, in the
Chart 3: Changes in the Productions of Primary Industries

Source: Author's simulations

negotiation process for trade liberalization, it is possible that certain economies prefer trade liberalization in limited sectors to protect their less-competitive sectors. From the perspective of interests of domestic industries and policymakers, it is also worth looking at the relative significance of trade liberalization in such sensitive sectors, according to several scenarios of trade liberalization.

Therefore, the relative costs and benefits of Japan’s regional trade agreements are examined. They are compared in terms of reduction in primary production and real GDP gains. As discussed above, in terms of Japanese real GDP gains, China is ranked as the top trading partner of Japan. Japan's real GDP gains are estimated to be not so different among four cases of trade liberalization in EAFTA, CEPEA, FTAAP, and the world as a whole once China is included in regional and global trade agreements.

On the other hand, as shown in Chart 4-A, the Japanese loss in primary production is relatively larger in the case of trade liberalization in FTAAP and the world in comparison with EAETA and CEPEA. This is because Japan would lose more primary production from trade liberalization with the United States, Australia, and Canada. In fact, estimating the impacts of trade liberalization in non-primary sectors, as shown in Chart 4-B, reductions in primary production shouldn't be much different between CEPEA and FTAAP. However, it must be noted that less-competitive sectors may lose even when trade in such sectors is not liberalized. Meanwhile, macroeconomic impacts from trade liberalization in such sensitive sectors of primary industries may not necessarily be negative (Chart 4-C).
Chart 4-A: Impacts of Full Trade Liberalization (Japan)

Chart 4-B: Impacts of Non-Primary Trade Liberalization (Japan)

Chart 4-C: Impacts of Primary Trade Liberalization (Japan)

Source: Author's simulations
### V I. Summary and Conclusions

In this paper, the impacts of regional trade liberalization and facilitation measures were quantitatively analyzed using the CGE model of global trade. The dynamic aspects of capital formation and productivity improvements are incorporated into a standard static model based on the most updated version of a global trade database.

It is estimated that real GDP of the APEC economies on average will be boosted by 1.9 percent by trade liberalization measures and 0.4 percent by trade facilitation measures, respectively, in an FTAAP. Developing economies are suggested to enjoy relatively larger gains from trade liberalization in comparison with developed economies and, therefore, income differentials among the economies are expected to be corrected. On the other hand, the benefits of trade facilitation measures are relatively significant in developed economies.

Reflecting the difference in the trade structure of the economies, relative macroeconomic benefits of the economies from several regional trade agreements are shown to differ significantly. For Japan, China is the most important trade partner. But for China, the United States is far more important than other economies. For Australia, the United States and Canada are more likely competitors in agricultural sectors.

Moreover, the relative significance of negative impacts in sensitive sectors such as agriculture may also vary according to several scenarios of trade liberalization. Japan's real GDP gains are estimated to be not so different among four cases of trade liberalization in EAFTA, CEPEA, FTAAP and the world as a whole, but the Japanese loss in primary production is relatively larger in the case of trade liberalization in FTAAP and the world in comparison with EAFTA and CEPEA.
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