New Regional Mega Deals Effects on the BRICS and South ... · I am looking forward to your...

New Regional Mega Deals –Effects on the BRICS and South African Trade

Policy:Insights from New Quantitative Trade Theory

Dr. Benedikt Heid1

1University of Bayreuth, Germany

Economic Policy Forum RoundtableDrivers of Regional Integration

November 25-26, 2014

Benedikt Heid (University of Bayreuth): New Regional Mega Deals 1

TTIP, TPP, RCEP, AFTZ,. . . —How should BRICSreact?

EU and US are negotiating TTIP.RCEP and TPP are potentially changing Asian and trans-pacifictrade.Africa is heading towards a AFTZ /Tripartite Free Trade Area.Topic of this talk:

• What are the implications for South African and BRICS+ tradepolicy?

• Put some numbers on Kornegay (2014) and Sandrey (2014),SAIIAOccasional Papers 191, 195

Note: Detailed results for all countries in the final paper!


Stylized facts: South African exports

0 10 20 30 40 50

CanadaRussian Federation

MexicoKenya

NigeriaSingapore

BrazilAustraliaMalaysiaTanzania

FranceSwitzerland

SpainAngolaTurkey

NetherlandsThailand

MozambiqueKorea, Rep.

ItalyBelgiumZambia

ZimbabweNamibia

BotswanaHong Kong SAR, China

GermanyJapanIndia

United StatesUnited Kingdom

China

Source: author's calculations using UNCOMTRADE data

top export destinations, billion US-$, 2012

0 10 20 30

CanadaRussian Federation

MexicoKenya

NigeriaSingapore

BrazilAustraliaMalaysiaTanzania

FranceSwitzerland

SpainAngolaTurkey

NetherlandsThailand

MozambiqueKorea, Rep.

ItalyBelgiumZambia

ZimbabweNamibia

BotswanaHong Kong SAR, China

GermanyJapanIndia

United StatesUnited Kingdom

China


top export destinations, share of total, 2012


Stylized facts: South African imports

0 5 10 15

PolandFinland

VietnamIreland

CanadaAustriaMexico

IndonesiaSwitzerland

ArgentinaSpain

BelgiumSingapore

MozambiqueMalaysiaAustraliaSweden

BrazilNetherlandsKorea, Rep.

FranceItaly

ThailandAngola

United KingdomNigeria

IndiaJapan

United StatesSaudi Arabia

GermanyChina


top import destinations, billion US-$, 2012

0 5 10 15

PolandFinland

VietnamIreland

CanadaAustriaMexico

IndonesiaSwitzerland

ArgentinaSpain

BelgiumSingapore

MozambiqueMalaysiaAustraliaSweden

BrazilNetherlandsKorea, Rep.

FranceItaly

ThailandAngola

United KingdomNigeria

IndiaJapan

United StatesSaudi Arabia

GermanyChina


top import destinations, share of total, 2012


Stylized facts: trade shares, percent of world trade

0 5 10 15share of world trade in percent

South AfricaNorway

Czech RepublicAustria

SwedenTurkeyPoland

IndonesiaThailandMalaysia

BrazilAustralia

SwitzerlandSaudi Arabia

SpainSingapore

Hong Kong SAR, ChinaIndia

MexicoBelgium

Russian FederationCanada

ItalyNetherlandsKorea, Rep.

United KingdomFranceJapan

GermanyUnited States

China


share of world trade (imports + exports), 2012


Stylized facts: trade shares, percent of world trade

0 10 20 30 40share of world trade in percent

TurkeyPoland

IndonesiaThailandMalaysia

BrazilAustralia

SwitzerlandSaudi Arabia

AFTZSpain

SingaporeHong Kong SAR, China

IndiaMexico

BelgiumRussian Federation

CanadaItaly

NetherlandsKorea, Rep.

United KingdomFranceJapan

GermanyUnited States

ChinaTPP

RCEPEU

TTIP


share of world trade (imports + exports), 2012


Frameworknew quantitative trade models: state of the art to evaluatepreferential trade agreements, see Egger, Staub, Larch,Winkelmann, 2011, Costinot and Rodríguez-Clare (2014)

• . . . take into account trade creation and diversion effects• . . . have a sound theoretical underpinning• . . . focus on key determinants of trade: market size and geography• . . . in addition, cultural factors (language, colonial history etc.)• . . . allow to quantify non-tariff barriers• . . . allow to quantify preferential trade agreements• . . . fit the data very well (>75% of the variation in the data explained)

model with extensive country margin from Egger and Larch(2011), EERhas recently been used to evaluate TTIP and other new regionalmega deals in Felbermayr, Heid, Larch, Yalcin (2014), CESifo WP5019I use their baseline results as a starting point.


Real income per capita effects of TTIP (percent)

source: Felbermayr, Heid, Larch, Yalcin (2014)


Other regional mega deals I: Regional ComprehensiveEconomic Partnership Agreement (RCEP)

consolidation of already existing PTAscurrently discussed between

• ASEAN: Brunei, Cambodia, Indonesia, Lao PDR, Malaysia,Myanmar, the Philippines, Singapore, Thailand, Vietnam

• ASEAN free trade partners: Australia, China, India, Japan, Korea,New Zealand


Real income per capita effects of RCEP (percent)

source: map based on results from Felbermayr, Heid, Larch, Yalcin (2014)


Other regional mega deals II: Transpacific Partnership(TPP)

also consolidation/extension of already existing PTAscurrently discussed between

• TPSEP: Brunei, Chile, New Zealand, Singapore• want to join: Australia, Canada, Japan, Malaysia, Mexico, Peru,

United States, Vietnam.


Real income per capita effects of TPP (percent)

source: map based on results from Felbermayr, Heid, Larch, Yalcin (2014)


Other regional mega deals III: African Free Trade Zone(AFTZ)/ Tripartite Free Trade Area (TFTA)

also consolidation of already existing PTAsscheduled for 201826 countries:

• SADC: Angola, Botswana, DR Congo, Lesotho, Madagascar,Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa,Swaziland, Tanzania, Zambia, Zimbabwe

• EAC: Burundi, Kenya, Rwanda, Tanzania, Uganda• Comesa: Comoros, Burundi, Djibouti, DR Congo, Eritrea, Ethiopia,

Egypt, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda,Seychelles, South Sudan, Sudan, Swaziland, Uganda, Zambia,Zimbabwe


Real income per capita effects of AFTZ (percent)

source: own calculations


How does TTIP affect these negotiations?

Imagine a world where TTIP were already in place. How does thisaffect likely effects of other potential trade agreements?In other words: Does TTIP imply a need for reorienting SouthAfrica’s trade policy?


Real income per capita effects of AFTZ with TTIP inplace (percent)



AFTZ without TTIP

Real income per capita effects of AFTZ with TTIP inplace (percent)



AFTZ with TTIP already in place

South Africa, SACU, and the United States

Talks for a PTA between SACU and the US have failed.Now, (the shallow) Trade and Investment Framework Agreement(TIFA) between South Africa and the US has been signed.Reauthorization of (African Growth and Opportunity Act) AGOA inSeptember 2015 looms large: 86% of all South African productlines enter the US without any tariff, see Williams (2014).Should South Africa or SACU try another attempt at a preferentialtrade agreement with the US?


Real income per capita effects of South Africa-USFree Trade Agreement vs. SACU-USA FTA (percent)



PTA between South Africa and the US

Real income per capita effects of South Africa-USFree Trade Agreement vs. SACU-USA FTA (percent)



PTA between Southern African Customs Union and the US

Comparing South Africa’s options under differentscenarios

scenariosGDP p.c. change ZAF (%) GDP p.c.

change of majorpartner (%)alone after TTIP

TTIP -1.7 -1.7 -0.5 (China)RCEP -0.5 -0.6 4.9 (China)TPP -0.5 -0.4 -0.9 (China)AFTZ 0.4 0.4 -0.0 (China)ZAF - India 1.2 1.3 0.2 (India)ZAF - China 4.7 5.1 0.2 (China)ZAF - Russia 1.6 1.7 0.3 (Russia)ZAF - United States 10.0 9.1 0.1 (USA)

detailed results for PTAs between South Africa (ZAF) with China, India, Russia


Thank you very much for your attention!

I am looking forward to your questions andcomments.

Benedikt [email protected]


Real income per capita effects of ZAF-CHN with TTIPin place (percent)



FTA between ZAF-CHN without TTIP

Real income per capita effects of ZAF-CHN with TTIPin place (percent)



FTA between ZAF-CHN with TTIP already in place

Real income per capita effects of ZAF-IND with TTIPin place (percent)



FTA between ZAF-IND without TTIP

Real income per capita effects of ZAF-IND with TTIPin place (percent)



FTA between ZAF-IND with TTIP already in place

Real income per capita effects of ZAF-RUS with TTIPin place (percent)



FTA between ZAF-RUS without TTIP

Real income per capita effects of ZAF-RUS with TTIPin place (percent)



FTA between ZAF-RUS with TTIP already in place

Costinot, A. and Rodríguez-Clare, A. (2014). Trade Theory withNumbers: Quantifying the Consequences of Globalization. InGopinath, G., Helpman, E., and Rogoff, K., editors, Handbook ofInternational Economics Volume 4, pages 197–261. North-Holland,Amsterdam.

Egger, P. and Larch, M. (2011). An assessment of the Europeagreements’ effects on bilateral trade, GDP, and welfare. EuropeanEconomic Review, 55(2):263–279.

Egger, P., Larch, M., Staub, K. E., and Winkelmann, R. (2011). TheTrade Effects of Endogenous Preferential Trade Agreements.American Economic Journal: Economic Policy, 3(3):113–143.

Felbermayr, G., Heid, B., Larch, M., and Yalcin, E. (2014).Macroeconomic potentials of transatlantic free trade: A highresolution perspective for Europe and the world. CESifo WorkingPaper 5019.

Kornegay, F. A. J. (2014). BRICS, Mega-Regional FTAs and SouthAfrica’s Trade Strategy. SAIIA Occasional Paper Number 191.


Sandrey, R. (2014). Mega-regional Trade Agreements and SouthAfrica’s Trade Strategy: Implications for the Tripartite Free TradeArea Negotiations. SAIIA Occasional Paper Number 195.

Williams, B. R. (2014). African Growth and Opportunity Act (AGOA):Background and Reauthorization. Congressional Research ServiceReport R43173.


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