DTIS, Volume I - Enhanced Integrated Framework (EIF)

emoved. However, in order to provide early benefit to the least developed member
states, India, Pakistan and Sri Lanka are to bring down their customs duties on imports
from these countries to 0 to 5 % by 1 January 2009. It should be noted that within the
SAFTA arrangements, Maldives has successfully negotiated to continue to enjoy the
privileges of an LDC even after graduation.
Since the Maldives generates most of its government revenue from import duties,
elimination of duties on around 20 per cent of imports will inevitably adversely affect
government revenues. Government revenues on existing regional imports will be lost
(static effects). 17 There will also be a loss of revenue on imports from other countries
(dynamic effect) as buyers in Maldives switch to “cheaper” duty free regional imports. A
2004 report on the impact of SAFTA on Maldives calculated, on the basis of a partial
equilibrium model, that the loss of total tariff revenue could be 26.7% of total customs
duties. “This implies that the loss of government current revenues will be of the order of
7.0%.” 18
Some sectors of the economy, such as tourism and fishing, should benefit from lower
prices on imports of inputs such as food imports and packing materials from regional
trade partners like India and Sri Lanka. The construction sector should also be a
beneficiary, thus improving the competitiveness of the economy through its imports,
especially from India.
On the export side, the preferential, eventually tariff-free, access to the SAFTA market
represents new opportunities for developing export sectors. Currently, merchandise
exports to the other SAARC members are limited – largely because of the low
consumption of fish in those countries. Dried fish exports to Sri Lanka are a notable
exception. The Agreement does however present an opportunity in principle for the
Maldives to look at developing possible new export sectors.
The SAFTA Agreement is restricted to the liberalization of trade in goods, though one of
the stated objectives is the establishment of a framework for further regional cooperation
– leaving the way open for agreements on such matters as trade in services in the future.
There is still insufficient analysis and information available to be able to determine the
long-term implications of SAFTA membership. However political commitment has been
given, so Maldives has to undertake the necessary measures for implementation of its
commitments and to instigate measures now to mitigate the threats and to seize the
opportunities being created from membership. More detailed analysis is therefore
required on these threats and opportunities. Regarding implementation commitments, the
Customs Tariff will have to be modified to reflect a new column for qualifying SAFTA
imports. This will have to be revised on an annual basis. Systems will have to be
established concerning certificates of origin and notifications. New sources of
17 A detailed static and dynamic analysis of the impact of liberalisation on revenues is required (trade
creation and trade diversion) using a partial equilibrium model of Maldives imports.
18 “Viability of Maldives’ Entry into SAFTA” by Michael Davenport, 2004
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