Bi-lateral FTAs, RTAs and

Unilateral Liberalization:
The South Asian Trade Highways

The Emerging Trade Issues in South Asia

Regional

Bilateral

Domestic

Multilateral

Gains from RTA/Bilateral FTA

Static vs. Dynamic gains

When initial trade is very small or insignificant

then 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

South Asian Free Trade Area (SAFTA)

In early 2004, the South Asia Free Trade

Agreement (SAFTA) was signed.

SAFTA has come into force from 1 July 2006,

with the aim of reducing tariffs for intraregional
trade among the 7 SAARC members.

Problems in SAFTA

Ineffective and slow tariff reduction..

Long negative lists..

Phasing out of the negative list or eliminating

non-tariff barriers (NTBs)..

Rules of origin...

Investment and Services..

Regional politics..

Country-wise Share (%) in

Intra-SAARC Exports and Imports in 2012

Exports

Imports

India accounts for three-fourth of

regional exports. Bangladesh
accounts for less than 3 percent

Bangladesh is the single largest

importer in South Asia

Raihan (2007): Trade Creation and Trade Diversion Effects

of SAFTA Scenario: Simulation Using the GTAP Model

Level of Protection in South Asia

The relatively high levels
of protection among the
SAARC economies
increase the probability
of Trade Diversion. If the
country participating in a
regional arrangement
were itself open, it would
not suffer from trade
diversion even if it were
tiny.
8

Average MFN
Tariff Rate

Rank

Bangladesh

15.2

27

Bhutan

22.1

India

19.2

10

Maldives

20.2

Nepal

13.9

32

Pakistan

14.3

30

Sri Lanka

11.2

62

Note: Number of Countries = 147

Source: WTO (2006)

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 is

most important
9

Why BFTAs in South Asia?

10

Because of slow progress in SAFTA,

BFTAs are now reality

BFTAs are more attractive than SAFTA

Concerns in BFTAs

The issue of trade diversion still remains

However, dynamic gains can be significant

It is important to have

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Timely negotiation

Setting the terms of negotiation

Ensuring countrys interest

Proactive role vs. passive role

The capacity of trade ministry is also important

Domestic Trade Liberalisation in

South Asian Countries

12

Trade liberalization, economic growth and poverty:

empirical evidences

Studies using CGE and econometric techniques

Raihan (2007), Razzaque, Khondker, Ahmed (2003)

Annabi, Khondker, Raihan, Cockburn and Decaluwe

(2005), Khondker, Mujeri and Raihan (2008), Raihan
(2008)

Siddiqui and Kemal (2006)

Raihan and Razzaque (2008) and Razzaque and

Raihan (2008)

Cockburn, Decaluwe and Robichaud (2006)

Raihan and Razzaque (2008) and

Razzaque 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)

13

Tariffs and Growth: TDP and Developing Countries

14

Growth and Poverty in TDP Countries

15

For a number of 135 countries, only 25 countries have

lower tariffs but higher GDP growth than Bangladesh.

16

Cockburn, Decaluwe and Robichaud (2006)

Six Country Studies: Bangladesh, India, Nepal, Pakistan,

Benin and Senegal

Major Lessons Learnt:

17

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 a

stronger 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 or

services.

Cost of living effects vary.

Concerns in Further Trade Liberalisation in

South Asia

Trade liberalisation and anti-export bias

Potential growth dividend arising from further tariff cuts

Overwhelming attention has been given to trade related

instruments only

Reforms of the institutions as the key to the countrys

growth-supporting strategy

Difference between trade policy and policy of trade

liberalisation for protecting some policy

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Issues at the Multilateral Level

Agriculture

NAMA

19

Net Exporting and net importing countries.

Concern for domestic manufacturing industries in the
DCs in South Asia
Preference erosion for LDCs

DFQF for LDCs

Services: Mode 4

Thank you

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