# **Applying the GTAP model**

Version _5_ of the computable general equilibrium<sup>modelof the globaleconomyknownas GTAP</sup> is used here.<sup>4</sup> Being an economy-wide<sup>model, GTAPdescribesboththeverticalandhorizontal</sup> linkages between all product markets within<sup>the model's individualcountriesand regionsas well</sup> as between countries and regions via their<sup>bilateraltradeflows.For present purposesthe1997</sup> data base is aggregated to 25 sectors and<sup>20 regionsand projectedforward first to 2001and then</sup> to 2007, using World Bank projections of<sup>population,income,andfactorendowments(see</sup> Appendix Table A). The initial base case<sup>assumesChinaretainsits protection policiesasof 1995</sup> and Taiwan retains its protection as of 1997,<sup>butthatallothercountriesfullyimplement their</sup> Uruguay Round obligations on schedule<sup>before2005.China'stradepolicychanges between</sup> 1995 and 2001 are assumed to have been<sup>in anticipationof therequirementsof,andhencepart</sup> of, China's WTO accession. These<sup>areanalyzedindetailin lanchovichinaandMartin(2002),</sup> together with the effects of implementing<sup>overthenextfewyearstheremainderofChina's</sup> commitments as recorded in its WTO<sup>Protocolof Accession. 5Inthispaperwefocus on just the</sup> additional reform commitments to be implemented<sup>after 2001(relative tothe revisedbase case in</sup> which China's reforms only up to 2001 are<sup>inplace andtherearenofurther reformsto 2007).</sup> For key agricultural import policies these<sup>remaining reformcommitmentsareassumed to shift</sup> nominal rates of protection (NRPs) from<sup>column3 tocolumn6of Table6.Aswell,theexport</sup> subsidies in place in 2001 (34 per cent for<sup>maize,10 percent forcotton)are tobe eliminated,and</sup> we assume no new farm production subsidies<sup>areintroduced.6Thechoicesofnewagricultural</sup> NRPs fall into three categories: no change if<sup>they werenegativein2001(rice, meats, vegetables</sup> and fruits), a move to part-way between<sup>thein-quotaandout-of-quotatariffsif theTRQsbite</sup>

> 4 The GTAP (Global Trade Analysis Project) model is<sup>amulti-regional,static,appliedgeneralequilibriummodel</sup> based on neo-classical microeconomic theory<sup>includingfullemploymentofallfactorsofproduction,constant</sup> returns to scale and perfect competition.<sup>SeeHertel(1997)for comprehensivedocumentation. The Version5 data</sup> base is described at www.gtaP.ore. The model<sup>issolved withGEMPACKsoftware,describedinHarrisonand</sup> Pearson (1996).

**5** A particularly important feature of<sup>their analysisis theinclusion ofChina'sdutyexemptionsinthebasescenario,</sup> because otherwise the model would overstate<sup>the gainsfrom tariff reductions.Tariff cuts arefrom 2001appliedrates</sup> to post-accession bound rates (or zero if the<sup>latterexceedthe former).Inthisapplicationthe aggregate trade balance</sup> and government tax revenue are both assumed<sup>toremainafixedshareof GDP.The2001tradedataarefrom</sup> COMTRADE, and the 2001 applied tariffs<sup>for Chinaare fromCDS ConsultingCo.(2002).</sup>

6 Three non-farm reforms of importance<sup>areworthyofmention.The'voluntary' export restraintonChina'stextile</sup> and clothing exports to the U.S. and EU,<sup>expressedinthebase scenarioas taxesonthoseexports,areremoved;</sup> restructuring of the motor vehicles and<sup>partsindustry followingWTOaccessionismodelledasa20percent</sup> productivity boost to vehicle assembly, following<sup>Francois(2002);andliberalizationof China'sservicestradealso</sup> follows Francois (2002).

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