The Impact of APEC's Free Trade Commitment

Industry Commission Staff Information Paper

The Impact of APEC's Free Trade Commitment, was released in February 1996.

The Industry Commission and its predecessor institutions have a long history of undertaking trade policy analysis. Under its tariff review function, the Commission has examined the implications for Australia of a number of unilateral tradereforms: at the individual tariff item level; sector-wide; or on a general, across-the-board basis. The Commission has developed and maintained tools to assist in such analysis, most notably measures of nominal and effective rates of protection indicating the level and dispersion of assistance across industries, and partial and general equilibrium models giving a broad indication of the likely effects of unilateral reforms.

Given the recent importance of multilateral trade policy initiatives, particularly through the Uruguay Round of GATT negotiations and the Asia Pacific Economic Cooperation (APEC) forum, the Commission has extended its analysis to multilateral trade policy issues. It has cooperated in producing a recent inventory of impediments to trade and investment in the APEC region (PECC 1995). It has also extended its modelling capability into the multiregional sphere. Initially, at the request of the Department of Foreign Affairs and Trade, it developed Salter, a multisectoral, multiregional model of world trade (Jomini et al. 1994). Commission staff have also undertaken a number of studies looking at the implications for Australia of economic growth and trade reform in a multilateral context (Dee, Jomini and McDougall 1992; Dee and Findlay 1995; Dee, Tormey and Welsh 1995; IC 1993; Dee 1994; and Dee and Welsh 1994).

With this background, the Commission was in 1995 approached by the Department of Prime Minister and Cabinet to assist in analysing the likely implications of APEC's commitment to free trade, as preparation for the APEC forum summit at Osaka.

This publication reports the results of that research effort. The analysis makes use of a multisector, multiregion model framework. Even with the best data and theory available, such frameworks inevitably are imperfect representations of reality. Because of this, considerable judgment is required in applying such frameworks. Judgment is also required in interpreting their results. When wisely used, such models can provide insights into some of the key mechanisms influencing the outcomes of policy initiatives such as those under APEC. They can also provide indicative orders of magnitude. Where differences of view persist, the modelling can hopefully provide a framework within which to identify more clearly the areas of disagreement.