bi-lateral ftas, rtas and unilateral liberalization:the south asian trade highways

7/31/2019 Bi-lateral FTAs, RTAs and Unilateral Liberalization:The South Asian Trade Highways

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The Emerging Trade Issues in South Asia

Regional

Bilateral

Domestic

Multilateral

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Gains from RTA/Bilateral FTA

Static vs. Dynamic gains

When initial trade is very small or insignificantthen the predictions about gains become

problematic

Trade diversion and trade creation

Informal sector: which are not properly taken

into account because of lack of information

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South Asian Free Trade Area (SAFTA)

In early 2004, the South Asia Free TradeAgreement (SAFTA) was signed.

SAFTA has come into force from 1 July 2006,with the aim of reducing tariffs for intraregionaltrade among the 7 SAARC members.

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Problems in SAFTA

Ineffective and slow tariff reduction..

Long negative lists..

Phasing out of the negative list or eliminatingnon-tariff barriers (NTBs)..

Rules of origin...

Investment and Services..

Regional politics..

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Country-wise Share (%) inIntra-SAARC Exports and Imports in 2003

Bangladesh

2.3%

Sri Lanka

7.5%

Pakistan

7.3%

Nepal

5.4%

India77.2%

Maldives

0.3%

India accounts for three-fourth ofregional exports. Bangladesh

accounts for less than 3 percent

Maldives

2.6% India

12.8%Nepal

14.5%Pakistan

7.1%

Sri Lanka26.6%

Bangladesh

36.4%

Bangladesh is the single largestimporter in South Asia

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Exports Imports


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Raihan (2007): Trade Creation and Trade Diversion Effects

of SAFTA Scenario: Simulation Using the GTAP Model

20.4

-204.5

-184.1

359.3-46.7

312.6

106.2-19.1

87.1

145.2

-38.7106.5

223.3-129.6

93.7

-300 -200 -100 0 100 200 300 400

Bangladesh

India

Sri Lanka

Pakistam

RSA

Trade Creation Trade Diversion Total

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The relatively high levelsof protection among theSAARC economiesincrease the probability

of Trade Diversion. If thecountry participating in aregional arrangementwere itself open, it would

not suffer from tradediversion even if it weretiny.

Average MFNTariff Rate Rank

Bangladesh 15.2 27

Bhutan 22.1 6

India 19.2 10

Maldives 20.2 7

Nepal 13.9 32

Pakistan 14.3 30

Sri Lanka 11.2 62

Source: WTO (2006)

Note: Number of Countries = 147

Level of Protection in South Asia

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Bilateral FTAs in South Asia

India Sri Lanka BFTA

Sri Lanka Pakistan BFTA

India Nepal trade treaty

Bangladesh India BFTA (under negotiation)

Bangladesh Pakistan BFTA (under negotiation)

Bangladesh Sri Lanka BFTA (under negotiation)

In South Asia, the access to Indian market ismost important

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Why BFTAs in South Asia?

Because of slow progress in SAFTA,BFTAs are now reality

BFTAs are more attractive than SAFTA

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Concerns in BFTAs

The issue of trade diversion still remains

However, dynamic gains can be significant

It is important to have Timely negotiation

Setting the terms of negotiation

Ensuring countrys interest

Proactive role vs. passive role

The capacity of trade ministry is also important

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Raihan and Razzaque (2008) andRazzaque and Raihan (2008)

Trade Development Poverty Linkages Volume I

and Volume II

13 Country Studies: 8 from Asia (Bangladesh,Cambodia, China, India, Nepal, Pakistan, Sri Lanka and

Vietnam) and 5 from sub-Saharan Africa (Kenya,South Africa, Tanzania, Uganda, and Zambia)

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Cockburn, Decaluwe and Robichaud (2006)

Six Country Studies: Bangladesh, India, Nepal, Pakistan,Benin and Senegal

Major Lessons Learnt:

Trade liberalization increases welfare and reduces poverty

marginally Trade liberalization is pro-urban and may increase rural poverty

Industrial output increases relative to agriculture as a result of astronger export response and greater input cost savings.

Relative wages increase, returns to capital fall. Nominal income tends to fall most in rural areas.

Nominal consumer prices fall more in industry than agriculture orservices.

Cost of living effects vary.

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Concerns in Further Trade Liberalisation inSouth Asia

Trade liberalisation and anti-export bias

Potential growth dividend arising from further tariff cuts

Overwhelming attention has been given to trade relatedinstruments only

Reforms of the institutions as the key to the countrys

growth-supporting strategy

Difference between trade policy and policy of tradeliberalisation for protecting some policy

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bi-lateral ftas, rtas and unilateral liberalization:the south asian trade highways

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