Measuring the Benefits of Improved Market Access
Irina Orlova
CASE Ukraine
January 2008
Contents
•
•
•
•
•
Introduction
Research structure
Quantifying NTBs
CGE modeling
Economy-wide impacts of improved market access
Introduction
• The aim of this study is (through modeling exercise)
to identify economic impacts of institutional
harmonization between ENP5 countries and the EU.
• CGE model is used; reduction of NTBs to trade is the
key assumption in institutional harmonization
scenarios.
• ENP5 (European Neighborhood Policy) include
countries: Armenia, Azerbaijan, Georgia, Russia, and
Ukraine.
Structure of research
(1) Quantifying current level of NTBs to trade in
goods and services for a benchmark country
(2) Adjusting benchmark assumptions for other
countries of our interest
(3) Simulating economy-wide impacts
Assumptions on NTBs (1)
In the context of institutional harmonization
removal of NTBs is the key element to the
improved market access.
Therefore, quantifying the magnitude of NTBs is
very important in estimating the effects of
improved market access.
We estimate the level of NTBs based on previous
business surveys, conducted for Ukraine.
Assumptions on NTBs (2)
• Ukraine: a benchmark.
• We base our assumptions on two studies
done for Ukraine and three for Russia:
(1) Business survey of Ukrainian exporters to the EU,
conducted by CASE and CASE UA in 2006.
(2) Project “Analysis of the economic impacts of Ukraine’s
accession to the WTO”, done by Copenhagen Economics,
Institute for Economic Research and Policy Consulting,
and Institute for East European Studies Munich (2005).
(3) Three WB background papers by Kimura et al (2004)
estimating the ad valorem equivalent of barriers to FDI.
Assumptions on NTBs (3)
• Types of NTBs included in our modeling:
– Standards and technical regulations (product
certification requirements, testing procedures,
labeling standards, etc.)
– Border costs (customs and administrative
procedures)
– Barriers to trade in services (discriminatory
measures faced by foreign service providers with
regard to their statutory funds, supply of
particular services, establishing branches, etc.)
Assumptions on NTBs.
Standard costs (1)
•
To develop assumptions on the current level of
standard costs in ENP5 we take Ukrainian
estimations as a benchmark and adjust them for
other ENP in line with:
–
–
–
–
Level of harmonization of national legislation, technical
regulations and standards with the EU
Status of WTO accession/membership (level of
implementation of WTO commitments)
Availability of quality assurance infrastructure
(certification bodies, etc.)
Formal EU policy towards particular products from CIS
Assumptions on NTBs. Standard costs (2)
Assumptions on standard costs as percentage of annual production
costs spent by exporters to the EU to comply with the EU norms, 2006
Nace
Industry
UA Survey
Russia
Georgia
Armenia
Azerbaijan
adjustment of benchmark
benchmark
+ 20%
+ 30%
+ 40%
+ 50%
14
16.8
18.2
19.6
21
7
8.4
9.1
9.8
10.5
10.4
12.5
13.5
14.6
15.6
2.3
2.8
3
3.2
3.5
01
Agriculture, hunting
02
Forestry
15
Food products/beverages
17
Textiles
18
Wearing apparel
34.4
41.3
44.7
48.2
51.6
19
Leather, footwear
5.3
6.4
6.9
7.4
8
20
Wood and wood products
20.9
25.12
27.2
29.3
31.4
21
Pulp, paper, and products
15
18
19.5
21
22.5
23
Refined petroleum
products, nuclear fuel
10
12
13
14
15
24
Chemicals
5.5
6.6
7.2
7.7
8.3
25
Rubber, plastic products
5.6
6.7
7.3
7.8
8.4
26
Other mineral products
29.3
35.2
38.1
41
44
Assumptions on NTBs. Standard costs (3)
Percentage of annual production costs spent by exporters to the
EU to comply with the EU norms, 2006
Nace
Industry
UA Survey
Russia
Georgia
Armenia
Azerbaijan
5
6
6.5
7
7.5
27
Basic metals
28
Fabricated metal products
6.4
7.7
8.3
9
9.6
29
Machinery and equipment
4.4
5.3
5.7
6.2
6.6
31
Electrical machinery and
apparatus
11
13.2
14.3
15.4
16.5
32
Radio, tv, communication
equipment and apparatus
10
12
13
14
15
33
Medical, optical
instruments, watches
20
24
26
28
30
34
Motor vehicles
12.3
14.8
16
17.2
18.5
35
Other transport
equipment
4
4.8
5.2
5.6
6
36
Furniture
15.3
18.4
19.9
21.4
23
37
Recycling
5.5
6.6
7.2
7.7
8.3
13.9
16.7
18.1
19.5
20.9
Total/average
Source: own assumptions based on business survey , conducted in 2006
Assumptions on NTBs.
Border costs (1)
•
•
Assumptions on level of border costs are also based on CASE
business survey (2006), which provides the costs of customs
clearance faced by Ukrainian exporters to the EU
To develop assumptions for other ENP countries we use The
Doing Business WB reports, which allow for comparison of
border costs across countries and over time.
Assumptions on border costs in 2006 as percentage of export value
Ukraine
Georgia
Armenia
Russia
Azerbaijan
adjustment of benchmark
benchmark
+ 10%
+ 25%
+ 90%
+ 160%
Share of border
costs in export value
7%
7.7%
8.8%
13.3%
18.2%
Source: own assumptions based on business survey , conducted in 2006 and Doing Business World Bank reports
Assumptions on NTBs.
Barriers to trade in services (1)
Barriers to trade in services for Russia were most recently estimated by Kimura
et al (2004) and for Ukraine - by Copenhagen Economics, IER, IEESM (2005)
To develop assumptions on barriers to FDI in services for Georgia, Armenia, and
Azerbaijan we use Ukraine’s estimates from the above-mentioned study.
Ukraine’s estimates are adjusted for each country taking into account:
(1) WTO accession/membership status;
(2) Heritage Foundation economic freedom indices (global economic
freedom covers 10 freedoms including investment freedom index and
financial freedom index)
Assumptions on NTBs.
Barriers to trade in services (2)
Assumptions on barriers to trade in services (ad-valorem tariff equivalents), 2006
Adjustments (off Railway
Ukraine’s estim.) transportation
Telecommunication
Financial
services
Ukraine
16%
6%
24%
Russia
24%
10%
41%
Georgia
- 35%
10.4%
3.9%
15.6%
Armenia
- 25%
12%
4.5%
18%
Azerbaijan
+ 30%
20.8%
7.8%
31.2%
Source: Kimura et al (2004), Copenhagen Economics (2005), own assumptions
Modeling
•
•
•
•
We employ a standard static computable general
equilibrium model
Main data originates from GTAP7 prelease 3
database
Three simulation scenarios: trade liberalization
(2004-2006), Simple FTA, and Deep FTA
Focus on Deep FTA – assumption of 50% reduction
for all NTBs
Results of Deep FTA simulations
All ENP5 will benefit:
–
Welfare gains: Ukraine (5.8%), Armenia (3.1%), Azerbaijan
(2.9%), Russia (2.8%), Georgia (1.7%)
–
Impact on wages of skilled workers: Ukraine (4.7%), Azerbaijan
(3.8%), Russia (2.5%), Armenia (2.4%), Georgia (1.5%)
–
Impact on wages of unskilled workers: Ukraine (6.4%),
Azerbaijan (4.9%), Armenia (3.7%), Russia (3.1%), Georgia (2.0%)
–
Total exports: Georgia (22.9%), Armenia (21.2%), Russia (20.0%),
Ukraine (13.7%), Azerbaijan (13.3%)