This thesis analyzes the impact of the Agreement on Textiles and Clothing (ATC) and the accession of China and Taiwan to the World Trade Organization (WTO) by means of a computable general equilibrium model of world trade and production. The model modifies the Global Trade Analysis Project (GTAP) model to explicitly take into account re-export trade flows and the production of services by local and foreign firms in China. The model segregates all bilateral trade flows into direct trade and indirect trade (re-exports) as the latter plays an important role in the foreign trade of the China, Taiwan and Hong Kong. A re-export markup, representing the cost of trade services provided by the Hong Kong economy, is added to the price of re-exports. The supply of these services by the trade and t...[ Read more ]

This thesis analyzes the impact of the Agreement on Textiles and Clothing (ATC) and the accession of China and Taiwan to the World Trade Organization (WTO) by means of a computable general equilibrium model of world trade and production. The model modifies the Global Trade Analysis Project (GTAP) model to explicitly take into account re-export trade flows and the production of services by local and foreign firms in China. The model segregates all bilateral trade flows into direct trade and indirect trade (re-exports) as the latter plays an important role in the foreign trade of the China, Taiwan and Hong Kong. A re-export markup, representing the cost of trade services provided by the Hong Kong economy, is added to the price of re-exports. The supply of these services by the trade and transport sector in Hong Kong is also explicitly modeled.

The division of the services sectors in China into local versus foreign production is another innovation in the thesis. This facilitates the analysis of China's commitments to open its services sectors to foreign investment. Local and foreign services providers are modeled as direct competitors, each producing services that are substitutable for one another. The two groups also compete for factors of production.

The results show that the ATC together with the accession of China and Taiwan to the WTO will bring enormous gains to the world economy and alter the pattern of trade and specialization. The world, as a whole, stands to benefit from an increase in total welfare in year 2005 valued at US$35.6 billion when all of these agreements are fully implemented. The welfare gains, however, is uneven. The greater China area consisting of Mainland China, Taiwan and Hong Kong will get the largest share of the gains, amounting to $24.3 billion, while the rest of the world will gain $11.3 billion.

China has the most to gain from the WTO. Its welfare gains may potentially reach $19.5 billion or 3.5% of its GDP. China and Taiwan will succeed in procuring larger export markets through the WTO although the latter loses slightly from the ATC. China will strengthen its exports of labor-intensive goods while Taiwan will export more capital-intensive and knowledge-intensive goods. China will also gain substantially from a more liberal investment environment in services, which will create greater output and higher quality services in China. Hong Kong will benefit by facilitating a larger amount of trade between China, Taiwan and the rest of the world and by supplying China with intermediate goods necessary for production. These activities will bring Hong Kong a total gain of $2.7 billion despite the detrimental effects of the ATC.

Among the major trading partners of the Greater China Area, Japan will enjoy substantial gains from being the area's largest trading partner. It will take advantage of lower trade barriers to export capital and knowledge-intensive goods to the area.

The U.S. and EU will benefit mostly from the removal of MFA quotas and only slightly from China's and Taiwan's accession to the WTO due to the small expansion of their overall exports. Both regions will focus more on capital and knowledge-intensive goods with a corresponding shift out of labor-intensive goods.

The Southeast Asian Countries and the South Asian Sub-Continent will obtain moderate gains from the ATC and China and Taiwan's entry into the WTO. The elimination of the MFA quotas will exert the greatest influence on their exports, causing these countries to produce more textiles and clothing and less of all other products.

Overall the ATC and the accession of China and Taiwan to the WTO are expected to contribute significantly to world welfare and trade.