Rationale for the Modelling Aggregation

This section discusses the precise reasons for each part of the modelling aggregation. It should of course be borne in mind that choosing an aggregation is largely a matter of trade-offs. For every commodity or region that is added to the model, the advantages of the inclusion of that commodity or region must be weighed against the

either in terms of the extra solution time (and sometimes the difficulty in reaching a solution) or in terms of the commodity or region that must be removed to keep the model size unchanged.

Agricultural Commodities

With the exception of wool, all GTAP agricultural commodities are included, and wool is excluded because of its low level of production and consumption not only in the EU but also globally. Australia (accounting for 68% of world wool exports) is the only country that is likely to be effected by the exclusion of wool from the model. The only country that applies high levels of protection to wool is the US.A, where a large production subsidy exists, but even there wool output is low compared to other sectors (see Table for details). Wool is therefore included in the livestock sector.' Paddy rice is included mainly because it is extremely important in East Asia, and much of the general equilibrium effects of the Uruguay Round may come from the interaction between textiles and clothing and agriculture in Asia.

Primary Products

The inclusion of other primary products in a single commodity is not but is

justified because these sectors are unlikely to play a large part in the outcome of the

Uruguay Round. Francois et al. include a separate simulation for the effects of

tariff reductions on non-agricultural primary products, and find that the effects are negligible.

Food Products

Meat and milk products are included separately, and this is considered to be essential

for modelling EU agriculture. Apart from the inclusion of processed for which

the same comments apply as for paddy rice, the only other food product is

agricultural products", which is a heterogeneous group containing other food,

beverages and and leather products. While 'leather is clearly not a

food and is not subject to under the CAP, it is a relatively small

sector (value added in the EU for this group is composed of 65% other food products, 26% beverages and tobacco, and 9% leather products) and predominantly uses intermediate inputs from the livestock sector. Thus "other agricultural products" is best thought of as processed products that primarily use agricultural products".

Textiles and Clothing, Manufacturing and Services

There is a large degree of aggregation in the manufacturing and service sectors, but this is acceptable in an agriculture-focused model. Textiles and clothing are included as separate cominodities, and those manufactured products that are mainly used as

intermediate products or as capital are The definition of the energy

commodity uses a manufactured good (petroleum and coal) and a service (electricity, water and gas): ideally these would be defined separately, but in the context of the trade-offs associated with choosing aggregations, the inclusion of these commodities together is preferable to defining either as part of one of the larger aggregates.

OECD Regions

Each GTAP OECD region is included separately, with the exception of Australia and New Zealand which, mainly because of the size of New Zealand, are aggregated together. It should also be noted that the GTAP "Rest of the World" region includes non-EU Western Europe. Whether this region should be treated as an OECD region or

not is debatable; et al. (1995) treat it as a developing country, Francois et al.

use additional data to split the region into EFTA countries and a developing country ROW group, while Harrison et al. (1995) simply rename the region EFTA and treat it as a developed region. Here it is treated as a middle-income developing region.

Middle-Income LDCs

The four East Asian newly industrialised countries are treated differently by different modellers. The importance of the MFA to some of these countries is paramount, but the aggregation here is primarily defined by agricultural considerations; Hong Kong and Singapore are both free-trade food importers with little or no agricultural production, while Taiwan and Korea are high-protection countries with large agricultural sectors. Evidently combining these countries in any other way would mix the opposite extremes of agricultural protectionism and entirely different agricultural structures. Separating all four countries is deemed unnecessary because the pairings do lead to a matching of similarities.

The other middle-income LDCs involve some inevitable in part because

the GTAP database is (because of its Australian roots) biased towards a high level of detail in South East Asia - there are many other African and South Asian LDCs that

are larger than Malaysia and the for example. It is considered necessary

to identify Brazil and "economies in transition" as separate regions because of their

high levels of agricultural and in that latter case because of its proximity to

and large trade with the EU.

Low-Income LDCs

It is considered to be necessary to provide separate treatment for low income LDCs, primarily because of the possibility of a negative impact on these regions from the Uruguay Round, and particularly as a result of the reform of EU export subsidies. China is included separately because (a) it is not a WTO member, and therefore does not need to make tariff reductions unless it joins the WTO and (b) it is so large that it would dominate the results of any aggregate region that included it. Sub-Saharan Africa does not have to make reforms as a result of the Uruguay Round because of least-developed status. The inclusion of South Asia and Indonesia in a single group is an unfortunate result of the need to keep the size of the aggregation from being too large, but the extent of liberalisation in these regions as a result of the Uruguay Round is likely to be small.

4.7 MODIFYING THE GTAP DATABASE FOR USE IN