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The Multifiber Agreement Phase Out and the EU-China Agreement of self-limitation of exports: impact on the Tunisian economy
International workshop, “Bridging the gap: the role of trade and FDI in the Mediterranean”, Naples 8-9
Mohamed Ali MAROUANIUniversité Paris1-Sorbonne/IEDES, DIAL and ERF
Presentation outline
Introduction
What happened since the 1st January 2005?
The ex ante quantitative assessment framework
Simulations and results
Conclusion
Introduction
The MFA dismantling : a demand of developing countries The Agreement on Textile and Clothing (ATC) : 1995-2005
The accession of China to WTO in December 2001
Erosion of preferences for countries indirectly protected by developed countries quotas : competition between D.C.
Observed outcome : negative for MENA except Turkey
Better than expected : EU-China agreement June 2005
After January 2009
Developing an ex ante quantitative assessment framework
Taking into account the dynamic dimension of the shock,
and labor market imperfections
What happened since the 1st January 2005 ? China increased its market share by 145% in
volume and 95% in value for products which quotas have been removed in 2005
Table 1: Changes in the Value of Exports of textile and clothing to the EU
CountryChina India Turkey Tunisia Morocco Egypt Jordan
% change in year-to-date Jan-Sept 2004/2005
45.0 16.0 3.3 -5.6 -9.1 -4.2 -11.4
Source: The World Bank (2006)
The EU-China agreement of June 2005 Many complaints from the European T&C Industry Inside the EU, heterogenous position
Producing countries vs importing Industry vs distributors China is a significant trading partner
Agreement imposed on ten categories of products (among 35 liberalized): fixes the rates of growth of Chinese exports between 8 and 12.5% Higher than the 7.5% which the special safeguard clause
would have allowed the EU to impose
The ex ante quantitative assessment framework
An intertemporal GE model Households smooth their consumption (intertemporal utility
function) Firms maximize their discounted value under the capital
accumulation constraint A quadratic adjustment cost function
The advantages of a dynamic setting Take into account the gradual dimension of the shock
The expectations of agents, adjustments costs and demographics
The evolution of public and external debt
The dynamic calibration: the economy is not on its steady state growth path
Structure of the intra-period model
The production block (nested function)
Labor market: HT, efficiency wages and public employment
The income and expenditures block (including financial)
The foreign trade block (export demand function)
Equilibrium conditions and model closure: Macro, Government, Foreign Trade, Labor Market.
Imperfect labor markets and efficiency wages
Labor market segmentation
Efficiency wage theories
The imperfect monitoring model
Implementation in a multisectoral framework
The multisectoral efficiency wages model
i,j : sectors
f : skill
b : turn over rate
q : probability of being detected shirking
e : disutility of effort
r : discount rate
U : unemployment rate
jf
n
j fjf
jfjfjfif
if
ifif e
Uq
Lqbe
q
rbw
1
)()1(
The database The SAM
Data manipulation: employment, wages, demographic hypothesis, structure of the labor force, etc.
Reference scenario includes the FTA between Tunisia and the EU
Determination of the tariff dismantling schedule in each industrial sector depending on the weight of each product in the four lists of the Euro-Tunisian Agreement.
The dynamic calibration procedure The economy is not on its steady-state growth path
Calibration of the macro parameters (depr, elasth, prt)
Calibration of the sectoral parameters (adjustment cost function share parameter)
Second calibration of the macro parameters
Until we approximately attain the observed growth path of the main macro and sectoral variables
The simulations First scenario: a gradual decrease of
export demand from 2002 to 2004 (10% in three years), than a decrease by 10% in 2005 and a decrease by 20% in 2009.
Second scenario: adds to the first a decrease of world prices of apparel products by 10% in 2009.
Evolution of the main variables characterizing the apparel sector in Tunisia, 2006-2020 (change in % of the reference scenario level)
2006 2009 2015 2020
SIM1 SIM2 SIM1 SIM2 SIM1 SIM2 SIM1 SIM2
Production -11.3 -14.9 -17.3 -32.4 -19.5 -36.7 -20.4 -38.3
Exports -12.2 -15.8 -19.0 -35.6 -21.3 -39.9 -22.2 -41.5
Investment -26.7 -47.6 -29.5 -57.8 -26.2 -49.6 -24.2 -45.2
Unskilled labor -11.7 -13.7 -19.0 -36.5 -19.9 -38.1 -20.1 -38.4
Skilled labor -12.0 -13.9 -19.5 -37.3 -20.5 -39.0 -20.8 -39.4
Highly skilled labor -11.4 -16.0 -16.7 -30.2 -19.8 -36.6 -21.0 -38.9
The textile-clothing sector is very negatively affected by the shock
Investment is the variable that reacts the most (due to firms expectations)
The impact of the combined shocks of export demand and prices decreases is much stronger
Propagation to the rest of the economy?
Impact on the apparel sector
Effects on unemployment SIM1
0.99
1
1.01
1.02
1.03
1.04
1.05
1.06
1.07
2006 2008 2010 2012 2014 2016 2018 2020
Years
Re
fere
nc
e s
ce
na
rio
= 1
.00
Total
Unskilled
Skilled
Highly skilled
Effects on unemployment, SIM2
0.991
1.011.021.031.041.051.061.071.081.091.1
1.111.121.131.14
2006 2008 2010 2012 2014 2016 2018 2020
Years
Re
fere
nc
e s
ce
na
rio
= 1
.00
Total
Unskilled
Skilled
Highly skilled
Evolution of wage inequality sk/unsk
1
1.005
1.01
1.015
1.02
1.025
2006 2008 2010 2012 2014 2016 2018 2020
Years
Re
fere
nc
e s
ce
na
rio
= 1
.00
SIM1
SIM2
Evolution of wage inequality hsk/sk
1
1.005
1.01
1.015
1.02
1.025
2006 2008 2010 2012 2014 2016 2018 2020
Years
Re
fere
nc
e s
ce
na
rio
= 1
.00
SIM1
SIM2
Evolution of total investment
0.99
1
1.01
1.02
1.03
1.04
2006 2008 2010 2012 2014 2016 2018 2020
Years
Re
fere
nc
e s
ce
na
rio
= 1
.00
SIM1
SIM2
Evolution of investment of the main sectors
0.930.950.970.991.011.031.051.071.091.111.131.151.171.19
2006 2008 2010 2012 2014 2016 2018 2020
Years
Ref
eren
ce s
cen
ario
= 1
.00
Tourism
MEI
Chim
Constr
Evolution of total household consumption
0.985
0.995
2006 2008 2010 2012 2014 2016 2018 2020
Years
Re
fere
nc
e s
ce
na
rio
= 1
.00
SIM1
SIM2
Comments Investment increases in the exporting
sectors due to the Dinar Depreciation
Consumption decreases due to higher unemployment
No effects on GDP
Conclusion The MFA dismantling has negative effects on T&C
industry in Tunisia
It raises unemployment and wage inequality
The degree of substitutability between Tunisian products and those of its competitors is one of the main driving variables
The effects on prices could be lower than expected
Directions for future research
Using more disaggregated data
Studying the effects of the shock on female labor
Linking this model to a global CGE to assess the decrease of world textile products
Introducing heterogeneity (firm and household level) by linking this model to a microsimulation model
Limits The perfect foresight hypothesis
The absence of credit constraints
The representative agent hypothesis
Policy implications Monitoring the evolution of Tunisia’s competitors exports in
the European market (degree of similarity)
Focus on the medium/high segment of the clothing market: incentives for products with higher value-added
Promote the development of substituting activities targeted on female labor
Take into account the MFA phase out in regional development policies
Incentives for foreign investors who are ready to reallocate their investments in other sectors