Report

EXECUTIVE SUMMARY
xv
India
A full SAFTA will help India nearly doubled its exports
to South Asia. India’s export gains from SAFTA are
limited to a few agricultural sectors and the auto sector
where it is seen to have a relative comparative advantage
vis-à-vis the rest of South Asia.
Table 4 Export Gain for India in SAFTA Market
(per cent)
Output Effect on Exports Global Global
Unskilled to Exports Imports
Employ- South
ment Asia
2008-09 0 –0.00001 3.41 0.09 0.11
2016 0.08 0.00002 90.44 1.19 1.68
There are two agricultural sectors where India does
gain significantly from SAFTA – poultry and sugar. In
fact its highest output gain is in the poultry sector, where
output in ‘other meat products’ shows an increase of
over 100%, indicative of the high level of demand of
poultry and also its protection in the region.
Pakistan
Like India, a full SAFTA for Pakistan will help double
its exports to South Asia. Pakistan sees positive results
for important employment-intensive agricultural sectors
like wheat, horticulture, meat products (mainly poultry)
and other food products. The textiles sector, which is
very important to the economy, has seen an output
expansion of about 0.5%.
Table 5 Export Gain for Pakistan in SAFTA Market
(per cent)
Output Effect on Exports Global Global
Unskilled to Exports Imports
Employ- South
ment Asia
2008-09 0.01 0 5.52 0.17 0.19
2016 0.02 –0.0001 102.41 0.77 1.54
Sri Lanka
Sri Lanka’s gains in the first phase of liberalisation is
almost nil. This is largely because Sri Lanka already
has nearly free access to the Indian market, and also
because LDCs and developed countries have not
committed to substantial liberalisation vis-à-vis Sri
Lanka in the first phase.
Sri Lanka’s gains improve in the second phase, when
all countries participate fully (and remove their negative
Table 6 Export Gain for Sri Lanka in SAFTA
Market (per cent)
Output Effect on Exports Global Global
Unskilled to Exports Imports
Employ- South
ment Asia
2008-09 0.1 0 2.52 0.05 0.14
2016 0.55 –0.000107 58.78 0.72 1.98
lists). The increase in output in vegetable oils
corroborates empirical evidence of duty structures that
favour manufacture of edible oils. The textiles sector
which contributes to about 5% of the total output in
Sri Lanka has seen a growth of about 4%.
Results from Trade Potential due to SAFTA
To validate the results of the above section, another
methodology has been adopted to arrive at the trade
potential due to SAFTA. A gravity model is estimated
using bilateral trade flows between SAFTA members
and factors that may explain trade with respect to
gravity. Inter-regional tariffs have been included in the
model. The results of the model show that the estimated
trade is much higher than the actual trade indicating a
huge potential for intra-regional trade.
The estimates show that the potential trade between
the SAFTA member countries as predicted by the gravity
model is 120% more than the actual trade. A number
of studies have estimated potential trade as the
difference between trade predicted by the gravity model
and actual trade. The entire difference between
predicted and actual trade has been attributed to tariffs
and it has been argued that removal of tariffs will
increase trade to the predicted level. However, the entire
difference between the predicted trade and actual trade
may not be due to tariffs. The results show that even if
tariffs are not removed a gap between potential and
actual intra-regional trade exists. Increase in trade
which can be directly attributed to removal of tariffs
under SAFTA is 80% of the actual intra-regional trade
from the predicted intra-regional trade of 120%. This
implies that apart from tariffs there exist other barriers
to trade. Intra-regional trade may rise by a further 40%
if other factors affecting trade are addressed, such as
non-tariff barriers and political constraints.
Revenue Loss due to SAFTA
In addition to the benefits of SAFTA in terms of gains
in trade, output, employment and prices, it has been
argued that custom duties form an important share in