Abstract Most international trade models fail to account for the fact that almost all goods mustpass through the distribution sector. The authors compare different approaches tomodeling distribution within an Applied General Equilibrium framework and find thatsuch modeling may significantly affect trade opening simulations. They also predictlarge potential gains from streamlining distribution. For instance, a 10% reduction in Japan’s final goods distribution margins would benefit it as much as worldwide free trade would. They also find that, compared to trade opening, reducing marginsleads to smaller inter-sectoral production shifts and thus may engender less politicalopposition. 1. Introduction The distribution 1 sector plays a crucial and large role in most economies.According toPilat (1997, Table 2.1), in the G-7 (United States, Japan, Germany, France, UnitedKingdom, Italy, and Canada), distribution’s share of GDP ranges from 8 to 15%, andits share in employment ranges from 11 to 19%. Since almost all goods sold in aneconomy pass through it, the distribution sector can heavily influence prices. Forinstance, according to OECD data, the average ratio of the final consumer price to theproducer price varies from 1.2 in the UK to 1.4 in Australia and Canada for the year1993. Final goods have much higher ratios, on average (see Table 2 below). In additionto—indeed, because of—its economic importance, distribution enjoys substantial poli-tical clout and has,thus,has won many favorable regulations from the political process,as discussed in Kalirajan (2000) and Pilat (1997).