28 the existence of differential rates before the liberalization or from liberalization which is not equal for all trading partners.

Trade creation and trade diversion effects are summed to calculate the total effect.

The model has been designed to estimate the effects of trade liberalization scenarios in which ad valorem rates are modified. Data on ad valorem tariffs are taken from the GATT Tariff Study. However, as we have seen, the EC applies NTBs in many sectors and any realistic attempt at modeling trade liberalization needs to take these into account. The approach we have used to handle NTBs is to use data compiled from prior micro-economic studies on the ad valorem equivalent of non-tariff barriers. This was taken from a survey by Laird and Yeats (1990a).

Some comments need to be made on the studies surveyed by Laird and Yeats. Typically, these studies identify the price disadvantage of domestically produced goods relative to the goods' international prices. The ad valorem equivalent of an NTB is assumed to equal the percentage price disadvantage lees the tariff rate. Of course, this method at best gives a rough order of magnitude for the trade effects of NTBs, for several reasons. The NTBs themselves have changed (generally increased) since these studies were carried out. In addition, ad valorem "tariff equivalents" vary according to international prices. Also, NTBs - have effects that are not fu ly captured by the idea of "tariff equivalents" some NTBs operate on demand J. g., quotas) while others operate on supply (e.g., voluntary export restraints).

While international prices were used to compute price disadvantages in some of these studies, an alternative approach was used for products affected by variable levies in the EC -- mainly agricultural products. For such products, data are available on these levies over time and were used to compute average price disadvantages over a three to five year period (wit-hin the period 1975-83).

One problem needs a special mention. The NTB studies surveyed do not allow the computation of tariff equivalents of NTBs separately for each trading partner. The prices disadvantages are against the international price. Thus, we cannot say, for example, that Hungary is more or less penalized by EC NTBs on the basis of these data. The only exception to this is that we know that the MFA applies only to the main textile and clothing exporters and the "socialist" countries were similarly affected by the EC textile r6gime. Accordingly, for all products in these categories we have assumed that the ad valorem equivalent of the NTBs does not apply to OECD countries. In all other cases we have assumed that EC NTBs are equally applied to all non-EC countries.

A number of possible scenarios were modelled. First, we examined the idea of the EC granting Hungary better treatment in its trade regime than at present. Secondly, we considered possible results from the Uruguay Round and how these might affect Hungary, including in the context of possible improved treatment not associated with the Uruguay Round. Finally, we considered how Hungary might be affected within the concept of a wider European economic "space".

These scenarios need some further explanation, but first a qualification about the data. For all the scenarios we have modified the base data - which - relates to the trade r6gime of the EC-10 as it existed in 1983 to include Spain and Portugal within the EC. However, we did not have data on Spain's or Portugal's imports and, therefore, were not able to alter the base to include them. Thus, we look at the scenarios modifying the behavior of the EC-10, but with Spain and Portugal getting EC treatment. In fact, as we shall see, this scenario provides an opportunity to see the diversion of trade from within the EC to other trading partners as the external barriers are removed -- and to understand the political sensitivities of Southern European countries, now in the EC, to any further opening of the market to possible compe_itors.