SAFTA:%20Few%20Observations

1
SAFTA Few Observations

• Shahid Ahmed, Ph.D
• Associate Professor,
• Department of Economics,
• Jamia Millia Islamia
• New Delhi

2
South Asia

• South Asia region has great economic strength in
  terms of its market potential and in terms of the
  rich natural resources and capable human
  resources.
• Notwithstanding the recent global financial
  crisis, countries in South Asia are still one of
  the fastest growing regions in the world. Among
  South Asian economies, India is the largest and
  the fastest growing economy - growing at a rate
  of around 7.3 per cent (in real term) since 2001.
• In this context, SAFTA must be a success story.

3
Few Facts

• Intra-regional trade not significant, remained
  below 5.
• Not much gains in terms of trade.
• Inequalities in the region has gone up

4
Sensitive List Criteria

• Sensitive List is generally prepared
• Based on RCAs, Unit Value analysis and
  Consultations with few business groups
• If FTA has an objective of trade creation,
  above methodology seems to be incorrect.
• Welfare is not a criteria
• Methodologically static one
• Objective is not clear

5
SAFTA Sensitive List

• SAARC members are still very conservative in
  trading among themselves.
• Since India has a better and more favourable
  trade regime with Bhutan, Nepal and Sri Lanka
  under the Bilateral Trade Agreements (BTAs), the
  coverage of trade in Sensitive List is merely
  indicative and has no bearing on the actual trade
  flows between them and India.
• Conventional goods agreement outdated in the
  present global scenario where other issues are
  also included.

6
More Comprehensive SAFTA Needed

• Goods Agreement like SAFTA can add value but not
  substantial
• Other engagements are more broader and wider
  covers services, investments, MRAs, trade
  facilitation etc.

7
Actions to be taken by India

• India drastically cuts down the size of its
  sensitive list for LDCs, especially their
  globally export items. This would be trade
  creating.
• The non-tariff measures should be addressed in a
  time bound manner.
• Facilitate intra-regional trade
• Take efforts for promoting investments in other
  SAARC members especially the LDCs so that overall
  economic activity is generated and greater
  employment opportunities are created.
• Provide better infrastructure and support at the
  border check posts of customs.

8
Constraints

• The policy-induced constraints include the
  presence of trade barriers, inadequate trade
  facilitation (TF) mechanisms and regulated
  investment regimes.

9
Implication of Negative List

• That the negative lists effectively captured the
  most traded items, and
• The negative lists are ineffective in checking
  trade.
• It only blocks formal trade

10

• Trade costs Much of the source of trade costs in
  South Asia results from lack of trade
  facilitation and lack of availability of physical
  infrastructure.
• (Sadiq and Ghani, 2007 cited that at the
  IndiaBangladesh border a consignment needs at
  least 22 documentations, more than 55 signatures
  and a minimum 116 copies for final approval.
  Paying bribes is a common phenomenon. Across
  South Asia the size of a bribe was reported to be
  between 2.2 per cent and 2.5 per cent of firm
  sales).
• According to Wilson and Ostuki (2007), if
  countries in South Asia raise capacity building
  in trade facilitation halfway to that of East
  Asias capacity, average trade is estimated to
  increase by 2.6 billion. This is approximately
  60 per cent of the regional trade in South Asia.
  The areas that will provide the greatest gains
  are service-sector infrastructure, and efficiency
  in airtime and maritime ports. Banik and Gilbert
  (2009) estimated the quantum of trade costs in
  the South Asian region.

11
Write Approach

• Ex ante analyses.
• Application of a General Equilibrium modelling
  framework to simulate the potential implications.
• Or
• SMART/GSIM model of World Bank/UNCTAD
• Using this model we can actually decompose the
  welfare effects, particularly