Medium-run Consequences for Australia of an APEC Free-Trade Area: CGE Analyses using the GTAP and MONASH Models

The inauguration of APEC in October 1994 raises the prospect of large reductions to impediments to trade within the Asia-Pacific region. The global trade analysis model GTAP (see Hertel 161) is a research tool well suited to the analysis of such developments. Recent work with GTAP by Young and Huff explores the consequences for ten regions of the development of APEC in the post-NAFTA era. The present paper amplifies this GTAP work (by using a 37 rather than a 3 commodity disaggregation) and focuses it on Australia (by treating Australia as a separate region). The consequences for Australia of the development of APEC are explored in detail by feeding results from GTAP into a highly disaggregated (115 commodity) national model of Australia, MONASH. The latter is regularly used as the basis for medium and long range forecasts of the Australian economy (Adams, Dixon and McDonald [1]). APEC is good news for Australia, causing a 3 per cent improvement in its terms of trade, and allowing real expenditure to increase by about one half of one per cent at a fixed setting of the trade balance and with fixed total endowments of capital and labour. However some industries producing internationally traded goods run into major structural pressures: the black coal industry reduces output by almost 14 per cent relative to base case, while non-ferrous metals, some food products, and some suppliers to the textiles sector experience falls in output of about half this magnitude.