Report

EXECUTIVE SUMMARY
xvii
indicates that the impact will be significant, i.e. 30%
of the rise in inward FDI may be because of lowering
of intra-regional tariffs. This indicates that SAFTA may
encourage FDI inflows into member countries and
consequently into the region as a whole.
To assess whether SAFTA will encourage vertical
FDI, the impact of the share of SAFTA member countries
in imports of intermediate goods on inward FDI
is examined. The results show that the imports of intermediate
goods in the host country have a significant
impact on the inward FDI. In other words, higher the
probability of importing intermediate goods into the
host country more attractive will be the destination for
inward FDI. SAFTA may therefore encourage vertically
integrated FDI. However, share of SAFTA member
countries in total exports of the destination country
does not have any significant impact indicating that
inward FDI may not necessarily be attracted to
countries with higher exports to SAARC as a proportion
of total exports.
IMPACT OF TRADE AND TRANSPORT
FACILITATION
Benefits from improved transport and trade facilitation
measures bring obvious win-win outcomes for all
trading partners. High trade costs such as transportation
charges, documentation requirements, and
clearance delays at the borders have a discouraging
impact on trade and production similar to trade restrictions
such as tariffs and quotas. Trade and transport
facilitation measures targeted at improved trade logistics
through simplification of customs procedures and
enhanced connectivity bring direct benefits to exporters
and consumers such as faster clearance and release of
goods, increased transparency, and improved competitiveness.
The benefits in the form of times savings and
reduced costs to the trading partners benefits the
economy as a whole. In South Asia, although lowering
border tariffs was integral trade policy liberalisation
since the 1990s, restrictive trade and transport facilitation
have hampered intra-regional trade.
Given the various issues of trade and transport
facilitation in South Asia, a quantification of gains from
identified regional infrastructure projects using BCA is
performed. Although regional in nature, the benefits
are computed for one country which is undertaking
the project on its territory to demonstrate the extent of
benefits that can accrue. The four projects include:
Upgrading of the Kolkata-Petrapole/Benapole corridor
and Customs Facilities; Development of Bagdogra
Airport as a Gateway and Hub; Railway Improvement
at between Lahore and Wagah; and Colombo Port
Expansion.
The positive impact of all projects is intuitive. As
compared to national projects, these projects have the
added benefit of high trade and tourism potential. The
BCA for the projects in different scenarios demonstrates
that the projects have high economic rates of return.
Cost and time savings and increased exports from
enhanced connectivity brings in high returns. The
projects are immensely beneficial for the country undertaking
the project and extension of infrastructure facilities
could be considered by the countries jointly. Further,
the importance of a supportive overall policy framework
for the promotion of transport, trade, and tourism
is underlined.
SAFTA AND TRADE IN SERVICES
Historically, the case for inclusion of services as part of
SAFTA has been a strong one. As long as SAFTA is
confined to goods, the member countries are far from
progressing towards full regional economic integration.
In this context, the 14th SAARC Summit at New Delhi
was a landmark as it underlined the collective vision of
South Asia of an inter-connected region where there
would be free flow of peoples, goods, services and ideas.
Some of the sectors included tourism and education
services.
The present study analyses five services sectors –
construction and related services, higher education
services, telecommunication services, health and related
services and tourism and travel related services in seven
South Asian countries, namely India, Pakistan, Sri
Lanka, Bangladesh, Nepal, the Maldives, and Bhutan.
Six of these seven countries are already part of the
multilateral trading system where they have taken
commitments to liberalise these sectors and still they
are contemplating to further liberalise during the
ongoing services negotiations. Bhutan, the only one of
the seven countries from the region not yet part of the
WTO, is also actively involved in accession negotiation
and has submitted its services offer to undertake
commitments in various services sectors including
perhaps the three being discussed here.
In this regard, while the study argues that all seven
countries should make liberal commitments under the
General Agreement on Trade in Services (GATS), they
should be willing to undertake more liberal commitments
at the regional level in order to reap the full
benefits of liberalisation. There could be two specific