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The impact of trade liberalisation and CAP reform Adrian Cooper Oxford Economic Forecasting October 2005 Tel: (44) 1865 268902 Email: [email protected] Trade liberalisation and CAP reform 1 Oxford Economic Forecasting Five key findings of the research 1. The potential benefits are significant - around £1,500 a year for household of four. 2. EU could benefit most by reducing its trade barriers bilaterally. This could help it catch up with the US. 3. Core continental economies could gain more than the UK from CAP reform. 4. There are larger gains for developing countries. 5. Poorest tenth in UK gain proportionately much more than top tenth. Trade liberalisation and CAP reform 2 Oxford Economic Forecasting Europe’s under-performance Eurozone productivity falling behind US % Productivity (GDP/employee) - Eurozone as % of US 80 EU unemployment higher % 12 80 12 EU15 10 75 10 75 70 70 8 8 6 6 4 65 4 US 65 2 60 1991 1993 1995 1997 1999 2001 2003 0 1980 60 2005 0 1984 1988 1992 1996 2000 2004 Source: European Commision, Ameco database Source: OECD Trade liberalisation and CAP reform 2 3 Oxford Economic Forecasting EU trade barriers are higher than US Applied tariff rate % 5.0 Applied tariff rate % 5.0 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 Switzerland Taiwan Philippines EU15 New Zealand Botswana US Canada Singapore Hong Kong Source: GTAP/OEF Trade liberalisation and CAP reform 4 Oxford Economic Forecasting ‘Core’ continental economies have as much to gain as Britain % increase in GDP from global trade liberalisation and CAP reform 4 4 3 3 2 2 1 1 0 0 EU15 Sweden Denmark Spain Portugal Netherlands 5 Ireland Trade liberalisation and CAP reform Greece Finland Belgium Austria Italy France Germany UK Source: GTAP/OEF Oxford Economic Forecasting Bilateral trade reform brings biggest gains for the EU and UK % increase in GDP from trade liberalisation and CAP reform 2.5 2.5 EU 2.0 EU UK 2.0 EU UK 1.5 1.5 UK UK UK 1.0 0.5 EU 1.0 0.5 EU 0.0 0.0 Global EU Bilateral EU UK Bilateral UK Unilateral Unilateral Source: GTAP/OEF Trade liberalisation and CAP reform 6 Oxford Economic Forecasting Liberalising first could help EU catch up with US % increase in GDP from EU bilateral liberalisation and CAP reform 2.5 2.5 2.0 2.0 Eurozone 1.5 1.5 UK 1.0 1.0 0.5 US 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0.5 0.0 Source: GTAP/OEF Trade liberalisation and CAP reform 7 Oxford Economic Forecasting Gains from CAP reform % increase in GDP from CAP reform 1.6 1.6 1.4 1.4 1.2 1.2 1.0 1.0 0.8 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0.0 0.0 EU15 Sweden Denmark Spain Portugal 8 Netherlands Trade liberalisation and CAP reform Ireland Greece Finland Belgium Austria Italy France Germany UK Source: GTAP/OEF Oxford Economic Forecasting Poor countries are hit hardest… Applied tariff rate % 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Poor countries income under £5000 per capita Source: GTAP/OEF Trade liberalisation and CAP reform Medium income £5000 - 15000 9 Applied tariff rate % 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 High income over £15000 Oxford Economic Forecasting … and so benefit more % increase in GDP from trade liberalisation and CAP reform 6.0 6.0 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 Africa ex S. Africa Africa 10 Asia-Pacific Trade liberalisation and CAP reform Latin America NAFTA Eastern Europe EU15 UK Global Source: GTAP/OEF Oxford Economic Forecasting In the UK the poor benefit most % increase in income 5.0 % increase in income 5.0 CAP reform Trade liberalisation 4.0 4.0 3.0 3.0 2.0 2.0 1.0 1.0 0.0 0.0 Lowest Source: OEF Trade liberalisation and CAP reform Highest Income decile 11 Average Oxford Economic Forecasting Five key findings of the research 1. The potential benefits are significant - around £1,500 a year for household of four. 2. EU could benefit most by reducing its trade barriers bilaterally. This could help it catch up with the US. 3. Core continental economies could gain more than the UK from CAP reform. 4. There are larger gains for developing countries. 5. Poorest tenth in UK gain proportionately much more than top tenth. Trade liberalisation and CAP reform 12 Oxford Economic Forecasting