Deepening India’s Engagement with African LDCs
A simulation analysis of alternative scenarios for an enhanced and expanded trade preference scheme
Rajesh ChadhaSenior Fellow
March 10, 2014
Outline of Presentation
Backdrop• Objectives• Present Scenario• Simulation Analysis• Concluding Remarks
Backdrop
• The Hong Kong WTO Ministerial (2005)• Developed countries to extend Duty-Free Quota-Free
(DFQF) to LDCs• Developing countries expected to do so according to
their capacity • India became the first developing country – Duty Free
Tariff Preference Scheme for LDCs (DFTPI-LDC) in 2008
• Expectation was to boost exports and GDP of LDCs • This study looks at African LDCs (AFLDCs)
Outline of Presentation
• BackdropObjectives• Present Scenario• Simulation Analysis• Concluding Remarks
Objective of the study
To analyse the potential and the actual impact of India’s preferential import regime on the exports and welfare of Africa’s Least Developed Countries (LDCs).
Approach:
• Study the structural change in AFLDCs’ exports to India since 2005
• Estimate the potential benefits for AFLDCs using a computable general equilibrium (CGE) model of the world economy.
Real GDP Growth (%)
Average2002-08 2009 2010 2011 2012
Average2009-2012
Forecast2013
LDCs 7.5 5.0 5.6 4.5 5.3 5.1 5.7
AFLDCs 7.5 4.2 4.9 4.4 4.8 4.6 5.6
Developing 7.6 2.7 7.6 6.4 5.1 5.5 5.3
Advanced 2.5 -3.5 3.0 1.6 1.2 0.6 1.2
WORLD 4.7 -0.6 5.2 4.0 3.2 3.0 3.3
Source: The LDCs Report 2013, UNCTAD
India's imports from AFLDCs (million USD)
Source: Calculations based on WITS online database.
Year Oil Non-oil Total
2007 1,696 805 2,501
2008 1,939 1,329 3,268
2009 3,660 1,262 4,922
2010 5,300 1,175 6,475
2011 5,989 1,979 7,969
2012 8,713 2,590 11,302
Share of imports from AFLDCs in imports from Africa (%)
Year Oil Non-oil Total
2007 16.4 10.4 13.8
2008 14.0 10.9 12.5
2009 30.2 14.6 23.7
2010 26.5 10.8 21.0
2011 25.5 12.5 20.3
2012 31.9 16.4 26.3
Share of imports from AFLDCs in imports from all LDCs (%)
Year Oil Non-oil Total
2007 54.0 29.1 42.3
2008 74.3 35.7 51.6
2009 77.5 36.7 60.3
2010 71.6 32.2 58.6
2011 89.4 40.4 68.7
2012 92.7 47.1 75.9
India’s import in major categories from AFLDCs (million USD)
Category 20082012
Petroleum Oils 1,939 8,713Vegetable Products 439 824Base Metals & Articles Thereof 182 555Mineral Products 292 465Chemical Products 175 346Textiles & Textile Articles 101 130Pearls, Precious Or Semi-Precious Stones, Metals 30 126Others 105 143Total Imports 3,264 11,302Source: Calculations based on WITS online database (6-digit tariff lines mapped to GTAP)
India’s DFTP Scheme for LDCs (2008-2012)
• Duty Free items: On about 85 per cent of India’s total tariff lines, applied customs duty have been removed over a period of 5 years with 20 per cent reduction each year.
• Positive List: In addition to the 85 per cent duty free tariff lines, preferential market access as per Margin of Preference (MOP) is available on about 9 per cent tariff lines (458 items). The MOP ranges from 10 per cent to 100 per cent on different items and is available on the applied rate of duty as on the date of imports.
• Exclusion List: contains only 6 per cent of total tariff lines (326 items) on which no tariff preference is available and imports are allowed at MFN rates.
Outline of Presentation
• Backdrop• ObjectivesPresent Scenario• Simulation Analysis• Concluding Remarks
Imports from Major AFLDCs (Average for 2009-2011, '000 USD)
Countries Oil Non-oil TotalAngola 4,718,380 27,673 4,746,053Senegal - 267,056 267,056Tanzania - 259,526 259,526Guinea 94,195 88,141 182,336Benin - 179,136 179,136Guinea-Bissau 38,474 133,400 171,874Zambia - 110,087 110,087Togo - 99,661 99,661Equatorial Guinea 89,104 294 89,398Mozambique - 84,284 84,284Congo, Dem. Rep. 42,905 8,985 51,890Total 4,983,058 1,467,049 6,450,108Source: Calculations based on WITS online database (total value in declining order)
Shares of preferences across countries, excluding oil (2009-2011, %)
Source: Calculations based on WITS online database.
Countries Excluded Positive Duty Free TotalSenegal 92.9 0.2 6.9 100.0Tanzania 9.3 38.7 52.0 100.0Benin 19.2 2.4 78.4 100.0Guinea-Bissau 1.9 0.1 98.1 100.0Zambia 13.5 0.4 86.1 100.0Togo 59.3 5.0 35.6 100.0Guinea 13.7 0.2 86.1 100.0Mozambique 6.2 48.8 45.0 100.0Malawi 3.2 95.8 1.0 100.0Madagascar 31.4 52.9 15.8 100.0Angola 95.9 0.0 4.1 100.0
Total (All AFLDCs) 32.5 15.9 51.7 100.06% lines 9% lines 85% lines 100.0
Outline of Presentation
• Backdrop• Objectives• Present ScenarioSimulation Analysis• Concluding Remarks
General Equilibrium Modelling Analysis
• The Global Trade Analysis Project (GTAP) model is
– Multi-region, multi-sector computable general equilibrium (CGE) mode
– Analyses the trade flows across countries/ regions of the world
– Each country/ region is divided into sectors of production – Inter-linkages across sectors captured through input-
output databases
GTAP Database
• GTAP version 8.1 database has 57 sectors of production• 14 agriculture etc.; 5 minerals; 24 manufacturing; 14
services• 134 countries / regions including 17 AFLDC countries /
regions
Policy Simulation
• Assess the potential gains to AFLDCs under two scenarios:
I. Partial Liberalisation: – India liberalising its applied tariffs on positive and duty
free lists products (excluding services).– Restricting Exclusion List products.
II. Complete Liberalisation: – India liberalising its applied tariffs for all categories of
imports (excluding services).
Closure Rule
Modifications in the standard GTAP book closure to capture the issue of employment in AFLDCs:
– Underemployment of unskilled labour in AFLDCs.– Dropped the full-employment assumption for unskilled
labour.– The real wage is fixed exogenously.– Supply of unskilled labor is determined endogenously.
Outline of Presentation
• Backdrop• Objectives• Present Scenario• Simulation AnalysisConcluding Remarks
Results
• The welfare change is positive for all AFLDCs under partial liberalisation, increases further under complete liberalisation.– The major gaining countries/ regions: Benin, Rest of
West Africa and South Central Africa. – The extent of increase in welfare gain under complete
liberalisation scenario may relate to how much share of imports was under excluded list.
Results
Important examples: • Senegal: 10% partial; 63% complete
– Additional 53%: phosphoric and polyphosphoric acid which fell under the excluded list gets opened up for duty free market access
• Madagascar: 51% partial; 99% complete– Additional 48%: ferrous waste and scrap; refined copper
wire which fell under the excluded list gets opened up for duty free market access
Results
• The total welfare of AFLDCs increase by:– $1,008 million under partial liberalisation– $1,201 million under complete liberalisation
• India loses welfare worth:– $144 million under partial liberalisation– $171 million under complete liberalisation
• World gains welfare worth:– $469 million under partial liberalisation– $561 million under complete liberalisation
Results
• The real GDP increases for all AFLDCs– The major gainers under complete liberalisation: Benin,
Togo, Rest of West Africa followed by Guinea, Madagascar and Uganda
• The exports to the world increase for all AFLDCs except for Benin
• AFLDCs gain in terms of trade
Results
• The factors of production also gain.– The returns to land increases in all AFLDCs.– The returns to capital and skilled labour also increase
except for Madagascar, Mozambique, Rwanda and Tanzania - production structure moves in favour of land intensive goods.
Results
• India’s sectors of production get affected due to its DFTP Scheme– The output declines: paddy and rice; vegetables, fruits
and nuts; other crops; cattle, sheep and horses; forestry; and crude oil.
• India’s exports of all sectors increase expect for gas.
Results
• Exports of major commodities increase when India provides DFQF market access to AFLDCs.
• Exports of all the AFLDCs except Rwanda increase.
• The gains are expected to be higher if commodities under the excluded list are also made duty free.
Mapping of Model Regions with GTAP Region
Country/Region Code GTAP SectorsIndia India IndiaRest of West Africa RWAfrica Rest of West Africa (XWF)Benin BEN BeninBurkina Faso BFA Burkina FasoGuinea GIN GuineaTogo Togo TogoCentral Africa CentAfrica Central Africa (XCF)South Central Africa SCAFRICA South Central Africa (XAC)Senegal SEN SenegalEthiopia ETH EthiopiaMadagascar MDG MadagascarMalawi MWI MalawiMozambique MOZ MozambiqueTanzania TZA TanzaniaUganda UGD UgandaZambia ZAM ZambiaRwanda RWA RwandaRest of East Africa RestEAfrica Rest of Eastern Africa(XEC)
List of AFLDCs exporting top 50 HS 6-digit products to India
6 Digit HS
Code Description Countries280920 Phosphoric acid and polyphosphoric acids Senegal
720449 Ferrous waste and scrap nesi Angola, Senegal, Guinea, Madagascar, Benin
251020 Natural calcium phosphates Togo
760200 Aluminium, waste and scrap Benin, Senegal, Angola, Tanzania, Togo
740400 Copper spent anodes; copper waste & scrap Benin, Zambia, Angola, Tanzania, Liberia
740311 Refined copper cathodes and sections of cathodes Zambia, Tanzania
090111 Coffee Uganda, Guinea
720410 Cast iron waste and scrap Tanzania, Benin, Angola, Mozambique
271019 Distillate and residual fuel oil (including blends) Tanzania, Liberia, Mali
120740 Sesame seeds Somalia, Ethiopia, Tanzania, Burkina Faso
271011 Light oil motor fuel Liberia, Tanzania
120799 Oil seeds and oleaginous fruits Benin, Ethiopia, Burkina Faso, Burundi
720429 Alloy steel (o/than stainless) waste and scrap Togo, Benin, Sierra Leone, Senegal, Liberia
090240 Black tea Malawi, Tanzania, Mozambique, Senegal
080132 Cashew nuts Tanzania, Mozambique
720421 Stainless steel waste and scrap Angola, Benin, Eritrea, Tanzania, Togo
130120 Gum Arabic Ethiopia. Tanzania, Guinea, Mali, Togo
740811 Refined copper, wire Zambia, Malawi, Tanzania, Madagascar
720441 Ferrous turnings, shavings, chips Benin, Senegal, Togo
720430 Tinned iron or steel waste and scrap Madagascar, Angola, Senegal, Guinea, Eq. Guinea
Thank You
Outline of Presentation
• Backdrop• Objectives• Present Scenario• Simulation Analysis• Concluding Remarks
Outline of Presentation
• Backdrop• Objectives• Present Scenario• Simulation Analysis• Concluding Remarks