Starting from the GTAP-7 base data, the world economy is projected according to regional growth rates between 2004 and 2008. Growth rates for this projection (GDP and population) are obtained from the World Bank **.** The result is baseline data that approximates the size of the world economy in 2009. Into this baseline we also incorporate updated applied tariffs<sup>4</sup> and trade flows to reflect changes that have taken place in Ukraine and elsewhere since 2004. This **baseline** thus constitutes an updated database that reflects the economic situation in Ukraine and the rest of the world as they would likely be at the time of expected accession in 2009.

# **_V.2.2. Policy scenarios_**

Altogether, four WTO accession scenarios are compared with the baseline described above. These scenarios are labeled 1a and 1b, and 2a and 2b. Table 5-1 summarizes the experimental setting and these scenarios.

- Scenario 1a – Immediate accession commitments (IAC): In this scenario, applied tariffs are reduced for all products to the bound rates specified in Ukraine’s initial WTO accession commitments that would presumably take effect in 2009.

- Scenario 1b – IAC plus technical change: This scenario is identical to Scenario 1a except that it also assumes (similar to the simulations presented in chapter V) a 5% improvement in technical efficiency in Ukrainian primary agriculture.

- Scenario 2a – Final accession commitments (FAC): This scenario takes the results of scenario 1a as a baseline and simulates the additional impact of the full implementation of all of Ukraine’s WTO accession commitments that are scheduled to occur by 2013.

- Scenario 2b – FAC plus technical change: Analogous to Scenario 1b, this scenario is identical to Scenario 2a except for the assumption of an additional 2% improvement in technical efficiency in Ukrainian primary agriculture relative to the IAC scenario 1b. Thus, results from this scenario 2b include in total a simulated technical efficiency change of 5% + 2% = 7% relative to the baseline 2009.

Scenarios 1a and 2a therefore model the impact of the commitments that Ukraine has made in order to join the WTO in two steps, while 1b and 2b are corresponding stylized attempts to address the fact that Ukrainian agriculture is known to have a large potential for improvements in efficiency and productivity. As discussed in chapter V, the scenarios with technical change assumptions provide an indirect means of analyzing other measures that policy makers in Ukraine can use, along with trade policy, to influence the development of domestic agriculture. Trade liberalization will increase the exposure of Ukrainian farmers to international competition, and will therefore increase the importance of measures to enhance their productivity. Important domestic measures that could contribute to an (modest) increase in technical efficiency of 5% + 2% = 7% by the time that all WTO commitments have been implemented after 2013 include increased investments in agricultural research and education, improved extension services, investments in storage and transport facilities for agricultural products, etc.

> 4 Updating tariffs is a complex process that involves taking information on tariffs at the HS10 level and aggregating it to match the 56 products groups that are defined in GTAP. More information on this process is presented in Appendix A.

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