bi-lateral ftas, rtas and unilateral liberalization: the south asian trade highways presented at the...
TRANSCRIPT
Bi-lateral FTAs, RTAs and Unilateral Liberalization:
The South Asian Trade Highways
Presented at the ARTNeT-PEP Policy Forum on “Trade, Investment and Domestic Policy Coherence for Inclusive Growth”, December 9, 2008, Manila
Selim Raihan
Associate ProfessorDepartment of Economics
University of Dhaka
The Emerging Trade Issues in South Asia
Regional
Bilateral
Domestic
Multilateral
2
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
3
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.
4
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..
5
Country-wise Share (%) in Intra-SAARC Exports and Imports in 2003
Bangladesh 2.3%
Sri Lanka7.5%
Pakistan7.3%
Nepal5.4%
India77.2%
Maldives0.3%
India accounts for three-fourth of regional exports. Bangladesh accounts for less than 3 percent
Maldives2.6% India
12.8%Nepal14.5%
Pakistan7.1%
Sri Lanka26.6%
Bangladesh 36.4%
Bangladesh is the single largest importer in South Asia
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Exports Imports
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
145.2-38.7
106.5
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 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.
Average MFN Tariff 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 is most 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
10
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 country’s interest
Proactive role vs. passive role
The capacity of trade ministry is also important
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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)
Domestic Trade Liberalisation in South Asian Countries
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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)
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Uganda
South Africa
Tanzania
ZambiaKenya
Pakistan
Vietnam
Sri LankaNepal
China
Cambodia
BangladeshIndia
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0 5 10 15 20 25 30 35Average tariffs in 2001
Ave
rage
GD
P gr
owth
(199
5-20
02)
Avg. grwoth of developing countries
Avg. tariffs of developing countries
Tariffs and Growth: TDP and Developing Countries
14
Pakistan (1991-2001)
Kenya (1992-97)
South Africa (1996-2001)
Cambodia(1993-2004)
Nepal(1991-2001)
Zambia(1998-2004)
Tanzania(1991-2001)
Sri Lanka(1991-2002)
Bangladesh(1992-2004)
Uganda(1992-2003)
India(1990-2000)
Vietnam(1993-2004)
China(1982-2001)
y = 0.7349x - 1.843
R2 = 0.5402
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
0.0 2.0 4.0 6.0 8.0 10.0Avg GDP growth (%)
Ann
ual r
ate
of p
over
ty re
duct
ion
(%)
Growth and Poverty in TDP Countries
15
Bangladesh
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0 5 10 15 20 25 30 35 40
Average applied tariff rate (%)
Ave
rage
GD
P g
row
th r
ate
(%)
Countries with tariffs and average (1995-02) growth rate lower than Bangladesh
For a number of 135 countries, only 25 countries have lower tariffs but higher GDP growth than Bangladesh.
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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 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.
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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 country’s growth-supporting strategy
Difference between trade policy and policy of trade liberalisation for protecting some policy
18
Issues at the Multilateral Level
Agriculture Net Exporting and net importing countries.
NAMA Concern for domestic manufacturing industries in the
DCs in South Asia Preference erosion for LDCs
DFQF for LDCs Services: Mode 4
19
Thank you
20