PREFERENTIAL TRADE AGREEMENT: CANADA'S PAST EXPERIENCE WITH CHILE. Nisha Malhotra Andrey Stoyanov University of British Columbia We would like to thank Canadian Agricultural Trade Policy Research Network (CATPRN) for funding this project - PowerPoint PPT Presentation
1 PREFERENTIAL TRADE AGREEMENT: PREFERENTIAL TRADE AGREEMENT: CANADA'S PAST EXPERIENCE WITH CANADA'S PAST EXPERIENCE WITH CHILE CHILE Nisha Malhotra Nisha Malhotra Andrey Stoyanov Andrey Stoyanov University of British Columbia University of British Columbia We would like to thank Canadian Agricultural Trade Policy We would like to thank Canadian Agricultural Trade Policy Research Network (CATPRN) for funding this project Research Network (CATPRN) for funding this project CATPRN is funded by Agriculture and Agri-Food Canada but the views expressed in this CATPRN is funded by Agriculture and Agri-Food Canada but the views expressed in this paper are those of the authors and should not be attributed to the funding agency. paper are those of the authors and should not be attributed to the funding agency.
Transcript
11
PREFERENTIAL TRADE PREFERENTIAL TRADE AGREEMENT: CANADA'S PAST AGREEMENT: CANADA'S PAST
University of British ColumbiaUniversity of British Columbia
We would like to thank Canadian Agricultural Trade Policy Research Network We would like to thank Canadian Agricultural Trade Policy Research Network (CATPRN) for funding this project(CATPRN) for funding this project
CATPRN is funded by Agriculture and Agri-Food Canada but the views expressed in this paper are those of the CATPRN is funded by Agriculture and Agri-Food Canada but the views expressed in this paper are those of the authors and should not be attributed to the funding agency. authors and should not be attributed to the funding agency.
22
ObjectiveObjective
To Analyze the impacts of Canada-Chile To Analyze the impacts of Canada-Chile Free Trade Agreement (CCFTA) on Free Trade Agreement (CCFTA) on bilateral trade of agricultural commodities, bilateral trade of agricultural commodities, with specific aim of determining whether with specific aim of determining whether the agreement resulted in trade creation or the agreement resulted in trade creation or trade diversion. trade diversion.
33
CCFTA - HighlightsCCFTA - Highlights
CCFTA was signed in Santiago on December 5 CCFTA was signed in Santiago on December 5 1996 and came into force on July 5, 19971996 and came into force on July 5, 1997
It immediately eliminated 75% of bilateral tariffs, It immediately eliminated 75% of bilateral tariffs, with the rest of the tariffs being gradually phased with the rest of the tariffs being gradually phased out.out.
The agreement largely follows the NAFTA The agreement largely follows the NAFTA example, - contains parallel provisions on example, - contains parallel provisions on investment protection, and on labor and investment protection, and on labor and environmental standards.environmental standards.
44
Agriculture - HighlightsAgriculture - Highlights
Provides the immediate or gradual elimination of tariffs for Provides the immediate or gradual elimination of tariffs for most products. most products.
tariffs for durum wheat, which represents 35 per cent of tariffs for durum wheat, which represents 35 per cent of Canadian exports to Chile, eliminated immediately.Canadian exports to Chile, eliminated immediately.
Exception: beef, sugar and Milling wheat – tariffs meant to Exception: beef, sugar and Milling wheat – tariffs meant to be phased out in 15 to 17 years be phased out in 15 to 17 years
Exception: For dairy, poultry and egg products Canada Exception: For dairy, poultry and egg products Canada maintains its over-quota tariffs and Chile retains its simple maintains its over-quota tariffs and Chile retains its simple tariffs tariffs
Detail: See Agriculture and Agri-food Canada website: Detail: See Agriculture and Agri-food Canada website: http://www.agr.gc.ca/misb/itpd/english/trade\_agr/ccfta.htmhttp://www.agr.gc.ca/misb/itpd/english/trade\_agr/ccfta.htm
55
Current FTA’s for the Two Current FTA’s for the Two CountriesCountries
Canada currently has free trade agreements in place with the following countries: Canada currently has free trade agreements in place with the following countries: ChileChile - 1997 - 1997 Costa RicaCosta Rica - 2002 - 2002 IsraelIsrael - 1997 - 1997 United StatesUnited States - 1989 - 1989 United States and Mexico (NAFTA)United States and Mexico (NAFTA) -1994 -1994
Chile currently has free trade agreements in place with the following countries: Chile currently has free trade agreements in place with the following countries:
Mexico 1999 Mexico 1999 United States 2004United States 2004 EU 2003 EU 2003 China 2005 China 2005 EFTA 2004EFTA 2004 Korea 2004 Korea 2004 Costa Rica – 2002Costa Rica – 2002 Central America - 1999Central America - 1999
Canadian imports from Chile have been Canadian imports from Chile have been increasing since the FTA was signed. increasing since the FTA was signed. Imports grew by 86% between 1996 and 2004 Imports grew by 86% between 1996 and 2004
and doubled by 2005 and doubled by 2005 Chilean market share of Canadian imports Chilean market share of Canadian imports
has also been growing over the past 11 has also been growing over the past 11 years, years, up by 33% from 15% in 1996up by 33% from 15% in 1996
1010
Table 2Table 2: : Trade Patterns in Agriculture: Comparing Chile with other Latin American Trade Patterns in Agriculture: Comparing Chile with other Latin American Countries (,000 Canadian Dollars)Countries (,000 Canadian Dollars)
(need to compare Chilean Imports from Canada with other countries it imports from)(need to compare Chilean Imports from Canada with other countries it imports from)
Canadian Exports Venezuela Colombia Chile Brazil Argentina Latin
Growth in Share 0.159 -0.086 -0.522 -0.823 -0.321 0
* Excluding Mexico
1111
Canadian Exports Canadian Exports The total value of Canadian exports to Chile decreased by 60% The total value of Canadian exports to Chile decreased by 60%
until 2004 and by almost 66% by 2006, until 2004 and by almost 66% by 2006, from around $165 million to just over $55 million from around $165 million to just over $55 million dramatic decreases in Canadian exports to Chile post 1996 were dramatic decreases in Canadian exports to Chile post 1996 were
recorded with respect to exports of cereals, from around $150 million to recorded with respect to exports of cereals, from around $150 million to less than $34 million. less than $34 million.
cereals account for over 90% in total Canadian agricultural exports to cereals account for over 90% in total Canadian agricultural exports to Chile, with the proportion decreasing to just over 60% in 2006. Chile, with the proportion decreasing to just over 60% in 2006.
Many other product categories have been areas of growth for Many other product categories have been areas of growth for Canadian exporters Canadian exporters such as oil seeds, medicinal plants (HS12), preparations of cereals, such as oil seeds, medicinal plants (HS12), preparations of cereals,
bread and pastry (HS19) and products of the milling industry (HS11) bread and pastry (HS19) and products of the milling industry (HS11) could not compensate for the overall decline. could not compensate for the overall decline.
Canadian exports uniformly declined with respect to most Latin Canadian exports uniformly declined with respect to most Latin American partners, while the growth with the rest of the world was American partners, while the growth with the rest of the world was strong.strong.
1212
Characteristics of the StudyCharacteristics of the Study It covers bilateral industry-level trade data between Chile It covers bilateral industry-level trade data between Chile
and 150 other countries including Canada. The data is and 150 other countries including Canada. The data is collected at 6-digit Harmonized System (HS6) industry collected at 6-digit Harmonized System (HS6) industry classification.classification.
The analysis uses data for agricultural industries (HS1-The analysis uses data for agricultural industries (HS1-HS24) and covers 714 commodity categories for the HS24) and covers 714 commodity categories for the period from 1988 to 2005.period from 1988 to 2005.
Uses Gravity Model: Uses Gravity Model: Carries out regressions both using a dummy for the CCFTA as Carries out regressions both using a dummy for the CCFTA as
well as using tariff datawell as using tariff data Log Values and growthLog Values and growth
1313
LiteratureLiterature Viner (1950) distinguished between trade creation and trade Viner (1950) distinguished between trade creation and trade
diversion effects of preferential trade liberalizationdiversion effects of preferential trade liberalization Empirical research analyzing trade effects of PTAs using the gravity Empirical research analyzing trade effects of PTAs using the gravity
model.model. Cernat (2001) considered many PTAs (TC & TD)Cernat (2001) considered many PTAs (TC & TD) Frankel and Wei (1993, 1995) – EU (15% TC)Frankel and Wei (1993, 1995) – EU (15% TC) Tumbarello (2006) and Hirantha (2004) -SAPTA (net TC)Tumbarello (2006) and Hirantha (2004) -SAPTA (net TC) Bayoumi and Eichengreen (1995) ; Frankel, Stein and Wei (1995); Bayoumi and Eichengreen (1995) ; Frankel, Stein and Wei (1995);
Freund (2000)Freund (2000) Gravity Model in AG:Gravity Model in AG:
Furtan and van Melle (2004) estimate the border effects of trade in Furtan and van Melle (2004) estimate the border effects of trade in agricultural products between Canada and its NAFTA partners.agricultural products between Canada and its NAFTA partners.
Vollrath and co-authors (2006) adopt a gravity approach when they Vollrath and co-authors (2006) adopt a gravity approach when they analyze trade in processed and staple agri-food productsanalyze trade in processed and staple agri-food products
Prentice et al (1998) - study focusing on Canadian pork exports to the Prentice et al (1998) - study focusing on Canadian pork exports to the US market, US market,
1414
Data SourcesData Sources Trade data for this study comes from the Statistics Canada Trade data for this study comes from the Statistics Canada
database. database. It covers bilateral industry-level trade data between Chile and 150 other It covers bilateral industry-level trade data between Chile and 150 other
countries including Canada. The data is collected at 6-digit Harmonized countries including Canada. The data is collected at 6-digit Harmonized System (HS6) industry classification.System (HS6) industry classification.
The analysis uses data for agricultural industries (HS1-HS24) and The analysis uses data for agricultural industries (HS1-HS24) and covers 714 commodity categories for the period from 1988 to 2005.covers 714 commodity categories for the period from 1988 to 2005.
The data on country-level macroeconomic variables \ such as GDP, The data on country-level macroeconomic variables \ such as GDP, exchange rate, interest rate and price levels, is taken from the exchange rate, interest rate and price levels, is taken from the International Financial Statistics datadase maintained by the International Financial Statistics datadase maintained by the
International Monetary Fund. International Monetary Fund. Geographical variables have been obtained from the World Bank Geographical variables have been obtained from the World Bank
COMTRADE database.COMTRADE database. Agriculture land holdings etc. from WDIAgriculture land holdings etc. from WDI
1515
Gravity ModelGravity Model
1616
ESTIMATIONESTIMATION
Panel Data - Fixed Effects modelPanel Data - Fixed Effects model To account for heterogeneity in commodity groups, such as different To account for heterogeneity in commodity groups, such as different
response due to expected reductions in tariff rates and response due to expected reductions in tariff rates and unobservable individual characteristics. unobservable individual characteristics.
Year Effects – Year Effects – account for global business cycles, effects of multilateral trade liberalization, oil account for global business cycles, effects of multilateral trade liberalization, oil
shocks, etc.shocks, etc.
Stata/SASStata/SAS
1717
InterpretationInterpretation
Coefficient Beta 2 measures the trade Coefficient Beta 2 measures the trade effect of the Canada-Chile FTA on the effect of the Canada-Chile FTA on the (log) level of Canadian exports to and (log) level of Canadian exports to and imports from Chile. imports from Chile.
Positive and significant value indicates Positive and significant value indicates trade-creating effect of the FTA for trade-creating effect of the FTA for Canadian agricultural sectorCanadian agricultural sector
1818
Dependent variable: log imports value (annual)OLS ind FE OLS ind FE
Dependent variable: log imports value (annual)OLS ind FE OLS ind FE
FTA -0.1493 0.1250 -0.1015 0.1584
(0.1882) (0.1680) (0.1641) (0.1349)
PC 0.1330 -0.2482* -0.1090 -0.1604
(0.1583) (0.1415) (0.1361) (0.1120)
Log GDP 0.0254*** 0.0423***
(0.0050) (0.0042)
AL 0.0000*** 0.0000***
(0.0000) (0.0000)
Alshare 0.0058*** -0.0002
(0.0006) (0.0005)
ComLang -0.0156 -0.0039
(0.0310) (0.0259)
Llocked -0.5225*** -0.7633***
(0.0608) (0.0503)
Island -0.8705*** -0.4725***
(0.0302) (0.0255)
Distance 0.3433*** 0.2442***
(0.0233) (0.0199)
_cons 10.7359*** 10.7044*** 6.8776*** 7.9169***
(0.0386) (0.0346) (0.2401) (0.1855)
r2 0.0369 0.0278 0.0890 0.0649
N 126955.0000126955.000047190.000047190.0000
Canadian ExportsCanadian Exports
2020
ResultsResults
the coefficient Beta 2=.32 implies that exports of the coefficient Beta 2=.32 implies that exports of the average Chilean agricultural sector to the average Chilean agricultural sector to Canada increased by 37% as a result of the Canada increased by 37% as a result of the agreement. Adding other country-specific agreement. Adding other country-specific controls to the estimation equation reduces the controls to the estimation equation reduces the effect that can be attributed to the trade effect that can be attributed to the trade agreement down to 25%.agreement down to 25%.
The coefficient Beta 2 is always highly The coefficient Beta 2 is always highly insignificant, meaning that Canadian exports to insignificant, meaning that Canadian exports to Chile was not affected by trade agreement. This Chile was not affected by trade agreement. This result is robust to the inclusion of other controlsresult is robust to the inclusion of other controls
2121
ComparisonComparison
Control Group Beta 2
Central and South America 0.515*
Asia-Pacific 0.346***
European Union 0.387***
West Africa -0.193
North Africa -0.291
East-South Africa 0.359
Middle East 0.269
High Income 0.574***
Mid-up Income 0.244*
Mid-low Income -0.024
Low Income -0.091
2222
ResultsResults CCFTA improved comparative advantage of Chilean CCFTA improved comparative advantage of Chilean
agriculture manufacturing relative to European, East agriculture manufacturing relative to European, East Asian, and, to some extent South American countries. Asian, and, to some extent South American countries.
At the same time, Chile gain no comparative advantage At the same time, Chile gain no comparative advantage in trade over countries with lower income level and in trade over countries with lower income level and African countries. African countries.
Results are consistent with the hypothesis that Results are consistent with the hypothesis that preferential trade agreement crowds out the least preferential trade agreement crowds out the least productive competing importers, which are presumable productive competing importers, which are presumable concentrated in high income countries with specialization concentrated in high income countries with specialization in manufacturing goods.in manufacturing goods.
r2 0.0071 0.0096 0.0332 0.0387N 2260.0000 2260.0000 640.0000 640.0000FE are industry FE, all variables are in log-dif (growth rates)These results are very robust to inclusion of time-country FE to proxy for agricultural GDP etc. All specifications include annual fixed effects
2525
ConclusionsConclusions
Agricultural imports have been responsive Agricultural imports have been responsive to tariff rate reductions / CCFTAto tariff rate reductions / CCFTA
Canadian Imports from Chile has Canadian Imports from Chile has significantly increasedsignificantly increased
Canadian Exports to Chile has not Canadian Exports to Chile has not responded positivelyresponded positively
Canada - Chile trade agreement has been Canada - Chile trade agreement has been trade creatingtrade creating
2626
ImplicationsImplications
The extent to which these results may be applicable to The extent to which these results may be applicable to other agreements, such as CAFTA/DR, is limited since other agreements, such as CAFTA/DR, is limited since each case must be empirically verified.each case must be empirically verified.
2727
Why didn’t the FTA with Chile Why didn’t the FTA with Chile create more export opportunities for create more export opportunities for
Canada? Canada?
Stronger Loonie – account for by ERStronger Loonie – account for by ERDownturn of the Chilean economy, in 1999Downturn of the Chilean economy, in 1999 Argentine currency crisis Argentine currency crisis Broad extension of trade privileges by Broad extension of trade privileges by
Chile to other countries (US, EU, Mexico) Chile to other countries (US, EU, Mexico) may have diluted to a certain extent the may have diluted to a certain extent the advantages that Canadian exporters were advantages that Canadian exporters were meant to enjoy on the Chilean marketmeant to enjoy on the Chilean market
2828
Quotes and ThoughtsQuotes and Thoughts In the absence of the agreement ?In the absence of the agreement ?
““Spokesperson [of the Canadian Wheat Board] Maureen Fitzhenry Spokesperson [of the Canadian Wheat Board] Maureen Fitzhenry says that Canada need only look at countries where it doesn’t have says that Canada need only look at countries where it doesn’t have agreements to grasp the CCFTA’s contributions. "Brazil signed a agreements to grasp the CCFTA’s contributions. "Brazil signed a free trade agreement with the U.S. in the late 1980s, and we’re free trade agreement with the U.S. in the late 1980s, and we’re almost right out of that market right now. [Not having a FTA] can kill almost right out of that market right now. [Not having a FTA] can kill you," she says.”you," she says.” “ “the board credits the agreement for Canada’s continued lock on the the board credits the agreement for Canada’s continued lock on the
““Berg Chilling Systems- company based in Toronto, ……. Though Berg Chilling Systems- company based in Toronto, ……. Though the company announced more than $500,000 worth of agreements the company announced more than $500,000 worth of agreements with Chilean fish processors in 1998, Berg president Don Bergren with Chilean fish processors in 1998, Berg president Don Bergren says that today his exports to Chile "hardly register." And then says that today his exports to Chile "hardly register." And then there’s Newfoundlandthere’s Newfoundland “ “
