Multilateral Free Trade Agreements

This thesis analyzes the welfare effects as a result of trade liberalization between three countries, namely, the Netherlands, India and China using a general equilibrium scenario. Extending the Heckscher-Ohlin Trade model to a 3x3x3 setting, I use GAMS to simulate the trade results. Milk is produced in the Netherlands capital intensively, followed by sugar which is produced labor intensively in India and electronics which is produced technological intensively in China. To analyze the welfare gains between the three countries, I have simulated two scenarios, namely, (a) a normal free-trade scenario and (b) an ambitious free trade scenario. To liberalize trade, import tariffs between the Netherlands and India are reduced in a normal free trade scenario by 25% and these import tariffs are abolished completely in the ambitious free trade scenario. As a result of this trade liberalization, there is a rise in the welfare levels, more goods are produced and more goods are traded between these three countries. The free trade scenarios lead to trade creation between the three countries. Market access for India into the Netherlands has improved in the sugar sector. There is also an improvement in market access for the Netherlands into India in the milk and electronics sector. However, there is a small decrease in market access into China for the Netherlands. There is also an increase of 26% in the production of milk in the Netherlands and Sugar in India. There is a mere 1% increase in the production of electronics in China