Deepening Indias Engagement with African LDCs A simulation

Deepening India’s Engagement with African LDCs A simulation analysis of alternative scenarios for an enhanced and expanded trade preference scheme Rajesh Chadha Senior Fellow March 10, 2014

Outline of Presentation üBackdrop • 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 • Backdrop üObjectives • 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 (%) Average 2002 -08 2009 2010 2011 2012 2009 -2012 Forecast 2013 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) 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 Source: Calculations based on WITS online database.

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 Petroleum Oils Vegetable Products Base Metals & Articles Thereof Mineral Products Chemical Products Textiles & Textile Articles Pearls, Precious Or Semi-Precious Stones, Metals Others Total Imports 2008 1, 939 439 182 292 175 101 2012 8, 713 824 555 465 346 130 30 105 3, 264 126 143 11, 302 Source: 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 • Objectives üPresent Scenario • Simulation Analysis • Concluding Remarks

Imports from Major AFLDCs (Average for 2009 -2011, '000 USD) Countries Angola Senegal Tanzania Guinea Benin Guinea-Bissau Zambia Togo Equatorial Guinea Mozambique Congo, Dem. Rep. Total Oil 4, 718, 380 94, 195 38, 474 89, 104 42, 905 4, 983, 058 Non-oil 27, 673 267, 056 259, 526 88, 141 179, 136 133, 400 110, 087 99, 661 294 84, 284 8, 985 1, 467, 049 Source: Calculations based on WITS online database (total value in declining order) Total 4, 746, 053 267, 056 259, 526 182, 336 179, 136 171, 874 110, 087 99, 661 89, 398 84, 284 51, 890 6, 450, 108

Shares of preferences across countries, excluding oil (2009 -2011, %) Countries Excluded Positive Duty Free Total Senegal 92. 9 0. 2 6. 9 100. 0 Tanzania 9. 3 38. 7 52. 0 100. 0 Benin 19. 2 2. 4 78. 4 100. 0 Guinea-Bissau 1. 9 0. 1 98. 1 100. 0 Zambia 13. 5 0. 4 86. 1 100. 0 Togo 59. 3 5. 0 35. 6 100. 0 Guinea 13. 7 0. 2 86. 1 100. 0 Mozambique 6. 2 48. 8 45. 0 100. 0 Malawi 3. 2 95. 8 1. 0 100. 0 Madagascar 31. 4 52. 9 15. 8 100. 0 Angola 95. 9 0. 0 4. 1 100. 0 Total (All AFLDCs) 32. 5 15. 9 51. 7 100. 0 6% lines 9% lines 85% lines 100. 0 Source: Calculations based on WITS online database.

Outline of Presentation • Backdrop • Objectives • Present Scenario üSimulation 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 inputoutput 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 Analysis üConcluding 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 India Rest of West Africa Benin Burkina Faso Guinea Togo Central Africa South Central Africa Senegal Ethiopia Madagascar Malawi Mozambique Tanzania Uganda Zambia Rwanda Rest of East Africa Code India RWAfrica BEN BFA GIN Togo Cent. Africa SCAFRICA SEN ETH MDG MWI MOZ TZA UGD ZAM RWA Rest. EAfrica GTAP Sectors India Rest of West Africa (XWF) Benin Burkina Faso Guinea Togo Central Africa (XCF) South Central Africa (XAC) Senegal Ethiopia Madagascar Malawi Mozambique Tanzania Uganda Zambia Rwanda Rest of Eastern Africa(XEC)

List of AFLDCs exporting top 50 HS 6 -digit products to India 6 Digit HS Code Description Countries 280920 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