In Discussion Paper No. 1008, Research Fellow Jan Haaland and Truls Tollefsen analyse a number of possible outcomes of the Uruguay Round, highlighting the most significant effects. Using a numerical general equilibrium model, the authors examine the possible production, trade and welfare effects of successful implementation of the Uruguay Round results. The model distinguishes four world regions (the EU, EFTA, Japan and the US), while trade balances with the rest of the world are kept constant. Each region produces 12 traded goods, two traded services and one non-tradable using three primary factors: capital and two types of labour, skilled and unskilled. For simplicity, the non-traded good is assumed to be produced in a perfectly competitive industry. All but one of the traded goods are produced and sold in markets where product differentiation, scale economies and imperfect competition play important roles. The model includes trade in manufactures and some services among industrial regions and countries. There is imperfect competition in most markets in the model, and reductions in both tariffs and non-tariff barriers are accounted for.

The results indicate that the welfare effects of the liberalization under consideration, which ignore both agriculture and trade with developing countries, may be fairly limited. On the other hand, compared with a scenario of GATT failure and global protectionism, the gains are significant, and it is concluded that the Uruguay Round plays an important role in avoiding a trade war in manufactures. Moreover, dynamic effects through endogenous investment growth might be just as important as the static effects reported.

The Uruguay Round and Trade in Manufactures and Services: General Equilibrium Simulations of Production, Trade and Welfare Effects of Liberalization
Jan I Haaland and Truls Cook Tollefsen

Discussion Paper No. 1008, July 1994 (IT)