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xii QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA cost analysis (BCA) for four projects has been undertaken. Results with Respect to Competitiveness and Complementarity The RCA indices are estimated for an average of two time periods, i.e. 1991–93 and 2004–06 for four major trading economies of SAFTA, viz., Bangladesh, India, Pakistan and Sri Lanka at SITC five-digit level. The competitive product basket for all the four countries, i.e. where a country is more competitive (RCA>1) with respect to other three has been arrived at for the two time periods. The results show that the competitive basket has changed substantially over time. The number of products that each country has a competitive edge in the region has increased over time. This indicates the possibility of increased intra-regional trade. The shift of these economies from agriculture to manufacturing and from manufacturing to services in some has led to higher trade potential. An argument which has often been put forward against SAFTA being economically viable to its member countries is that there exists low complementarity between the member countries. In other words, what is exported by one country may not be imported by the other country. Studies found the value of complementarity index low for SAARC region. However, using three year averages for the period 1991– 93 and 2003–05, complementarity indices has been estimated for the four major trading partners with respect to the region as a whole. The results show that the complementarity index has improved considerably over time for Bangladesh, India and Sri Lanka. This implies that for these countries, the products that they export are to a greater extent now being imported by the region as a whole. The only country where the complementarity index has declined is Pakistan. The improved complementarity indices indicate strong possibilities of higher intra-regional trade with SAFTA. To examine the products which may be traded within the region, intra-industry trade indices have been estimated using Grubel Lloyd index. Intra-industry trade has been found to have increased drastically in sectors like agriculture raw materials, chemicals and textiles. Within textiles, we find that the intra-industry trade has increased in some of the sub-sectors of textiles among the four major trading partners of the region. This indicates that even within textiles, countries specialise in products at different stages of production or in differentiated products. The possibility of establishing supply chains within the region exists in some sectors. The results of the economic analysis therefore strongly suggest that there exists enormous potential for intra-regional trade among the SAFTA economies. The study further estimates the extent of additional market access each country may gain and the total intraregional trade that may result from SAFTA. Results with Respect to Effective Additional Market Access due to SAFTA To gauge the benefits of a regional trade agreement it is essential to identify the EAMA that it creates for its members. There is a catena of unilateral, bilateral, regional and sub-global level tariff concessions which operate among the SAFTA economies. These include concessions related to the Bangkok Agreement, global system of trade preferences among developing countries (GSTP), least developed countries (LDC), the Indo- Bhutan, Indo-Nepal and Indo-Lanka Pakistan-Lanka bilateral free trade areas (FTAs). Several more agreements like the Bangladesh-Pakistan FTA and BIMSTEC are at various stages of negotiation. Given the history of multiplicity of agreements in concessions among South Asian countries, all concessions have to be considered to determine the benefits that SAFTA offers over and above these. In this context, the study attempts to capture EAMA that is created as a result of SAFTA for its various members Table 1 (a)–(c). Two aspects determine the EAMA. The first is the sensitive list decided upon and the second is the identification of those nonsensitive products for which concessions are effectively provided. SAFTA adopts a negative list approach to tariff liberalisation. This implies that countries will liberalise tariffs in all products, except those specified in the negative lists (that have been negotiated and agreed upon by all members). The EAMA is determined through the following three measures: • The proportion of global value of imports of non- South Asia’, along with Afghanistan, Bhutan Maldives, and Nepal (ABMN), and hence results could not be discretely attributed to Pakistan. In the present GTAP model ABMN are a single agreegation.
EXECUTIVE SUMMARY xiii Table 1 EAMA Created by SAFTA (a) Partners in Global Imports (%) India Bangladesh Pakistan Sri Lanka Nepal Bhutan Maldives India 85 86 1 0 0 85 Bangladesh 23 23 23 23 23 23 Pakistan 70 72 70 72 72 72 Sri Lanka 1 35 34 35 35 35 Nepal 0 52 46 46 52 52 Bhutan 0 68 66 66 66 68 Maldives 34 35 34 34 35 35 (b) Bilateral Imports (%) India Bangladesh Pakistan Sri Lanka Nepal Bhutan Maldives India 92 90 0 0 0 97 Bangladesh 25 22 45 76 9 25 Pakistan 86 69 66 74 47 100 Sri Lanka 1 10 8 82 0 52 Nepal 0 71 0 0 82 0 Bhutan 0 6 0 0 22 0 Maldives 26 0 33 26 100 0 (c) Concession Receivers Global Exports (%) India Bangladesh Pakistan Sri Lanka Nepal Bhutan Maldives India 18 57 4 0 0 60 Bangladesh 51 44 33 44 10 5 Pakistan 70 23 28 44 62 80 Sri Lanka 2 92 50 63 66 34 Nepal 0 15 23 21 26 40 Bhutan 0 10 23 33 37 26 Maldives 69 78 82 74 82 75 sensitive items to total global imports of concession giver. 2 • The proportion of bilateral value of imports of nonsensitive items to total bilateral imports of the concession giver from the concession receiver. 3 • The proportion of value of global exports of sensitive items (notified by opposite concession giver) to total global exports of concession receiver. 4 Results from Computable General Equilibrium Analysis Simulations have been carried out using GTAP to estimate the effect of tariff reduction on each member country of SAFTA under various scenarios. The GTAP simulations take a base scenario that reflects most favoured nation (MFN) tariffs at the commencement 2 This measure essentially looks at the entire global import basket of a concession-giving country and sees what is the import coverage of items that it has designated as non-sensitive. India offers EAMA to Bangladesh, Maldives and Pakistan, concessions on products which constitute 85% of its global imports. The figure is either 0 or close to 0 in the case of EAMA that India gives to Nepal, Bhutan and Sri Lanka because India has already nearly completely liberalised imports vis-à-vis these countries. Also note, sensitive items always refer to sensitive items of concession giver. 3 This measure gives an indication of the EAMA afforded to products which are already being bilaterally traded between a pair of countries. For instance India provides an EAMA to the extent of 92% of value of its present bilateral imports from Bangladesh, and 90% and 97% in the case of Pakistan and Maldives respectively. However it is limited as it looks at bilateral trade prior to the FTA; given that the intra-SAARC trade basket is limited, and that most of the existing trade may be taking place in products in which are outside the sensitive list, this measure is not adequate by itself. 4 This measure is more comprehensive than the first two, because it captures the trade specialisation of the concession-receiving country and determines whether it receives access (to concession giver’s market) in products which constitute most of its (the concession receiver’s) global exports. In the case of India and Bangladesh, it is seen that the negative list of India has the effect of allowing EAMA to Bangladesh in items that constitute only about 18% of its global exports. This is largely because India’s
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42 QUANTIFICATION OF BENEFITS FROM
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6 Impact of SAFTA on Member Countri
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7 Revenue and Welfare Implications
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8 Impact of SAFTA on Inward and Out
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9 Quantification of Benefits from T
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Part II BENEFITS FROM DEEPENING INT
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11 Construction and Related Enginee
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12 Tourism and Travel Related Servi
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14 Health and Related Services 1 IN
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15 Prospects for the Telecommunicat
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APPENDICES
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Appendix 8 Intra SAARC FDI Collabor
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Appendix 11 Table A11.1 On an Emplo
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Appendix 12 Original Commitments/In
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Appendix 14 Table A14.1 Telecommuni
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Appendix 15 REFERENCE PAPER Scope T
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Bibliography Abelson, P. (1996),
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BIBLIOGRAPHY 241 Cuba (2002), Negot
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BIBLIOGRAPHY 243 (2004), Impacts of
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BIBLIOGRAPHY 245 Silva, Patricia an
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BIBLIOGRAPHY 247 (1998), Tourism Se
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