Report

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QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
of SAFTA implementation, i.e as on 1 January 2006. 5
The GTAP database was updated till 2005 based on
tariff changes obtained from trade analysis and
information systems (TRAINS). The database was also
subjected to shocks to incorporate the significant grant
of concessions by India to Sri Lanka under the Indo-
Lanka FTA.
This equilibrium was shocked to take into account
what may be described as Phase I of SAFTA implementation,
which includes:
• Reduction of tariffs by developing countries to 20%
by 2008
• Reduction of tariffs by LDCs to 30%
• Reduction of tariffs of developing countries vis-àvis
imports from SAARC
• LDCs to 0–5% by 2009
• Reductions in first three categories above, subject
to the sensitive lists.
The results provide an updated database that
simulates the equilibrium of 2008–09. The 2008–09
base was then shocked completely to equate a 2013–
16 situation where all SAFTA duties are brought to 0.
A best case scenario of complete elimination of sensitive
lists is also assumed in this shock, i.e. Phase II of SAFTA.
The study makes two key assumptions. First, all
members will fully comply with their tariff reduction
obligations that they agreed to in the SAFTA document.
Second, all countries will fully liberalise their sensitive
lists over the next nine years. The study also assumed
that Afghanistan will have the status of a full member
of SAARC in the near future.
Using the general equilibrium analysis, the impact
of SAFTA on production, employment, trade and
welfare for each member country has been estimated.
Afghanistan, Bhutan, Maldives and Nepal
Though the ABMN group gets zero duty access to the
developing countries by 2009 itself, its gains are limited
on account of their inability to access agricultural
products markets, which are blocked by the sensitive
lists of the developing countries.
There are gains in primary commodities with
complete liberalisation in 2016. With the removal of
sensitive lists in a full liberalisation scenario, ABMN
Table 2 Impact of SAFTA on ABMN Gains (per cent)
Output Effect on Exports Global Global
Unskilled to Exports Imports
Employ- South
ment Asia
2008-09 0.03 –0.0004 20.82 0.74 1.96
2016 0.26 0.0002 60.32 7.89 11.99
see good export growth in agriculture products and
primary commodities (Table 2). Given that the
agriculture and forestry sector in ABMN accounts for
over 50% of domestic output, and given that these
sectors are employment intensive, a full SAFTA is
beneficial to ABMN. However, the manufacturing
sectors in ABMN are by and large incompetitive, and
hence suffer output and employment losses.
Bangladesh
Bangladesh’s welfare gains are one of the highest in
South Asia. This may be attributed to the complete
liberalisation of high MFN tariffs, which generates
consumptive benefit for both the user industries as well
as household consumers. Bangladesh has also seen an
increase in global exports by a significant 4.31% on
account SAFTA. Export gains for Bangladesh in SAFTA
markets in Phase I of liberalisation (2008–09) are
significant, but not as high as the peak export growths
to SAFTA seen by other countries (Table 3).
Table 3 Export Gains for Bangladesh in SAFTA
Market (per cent)
Output Effect on Exports Global Global
Unskilled to Exports Imports
Employ- South
ment Asia
2008-09 –0.01 0.0001 38.08 0.19 0.27
2016 –0.03 0.0001 14.43 4.31 5.47
The lack of strong growth may be attributed to
India’s sensitive list, but it is in fact seen in the full
liberalisation scenario (where all countries liberalise
tariffs even on sensitive list items), Bangladesh does
not make any significant regional export gains despite
liberalisation of sensitive list items including garments.
However, the most interesting result is that its global
exports has seen a significant 5% rise in the second
phase. Most of this growth is to regions outside South
Asia.
negative list for LDCs impedes EAMA in several garments products, which actually do form the bulk of Bangladesh’s global
exports. The concessions which Pakistan and Maldives receive in the Indian market vis-à-vis each of their global exports is
higher at 57% and 60% respectively.
5
The implementation of SAFTA commenced on 1 July 2006.