Consensus Crucial For SAFTA Success

Font Size

Print

Feedback

Email

Discuss

: Assuming that the South Asian Free Trade Area (SAFTA) Agreement wo-uld be implemented as envisaged, it would have two prime effects. First, it would open up vast opportunities to tap trade complementarities. Second, it would engender a process in which new trade complementarities get created.

In the literature on regional trading arrangements, the effe-cts of removal of trade barriers in terms of export growth are analysed in the context of static and dynamic gains. For insta-nce, tariff reduction means gre-ater market access to member countries, leading to export gro-wth in a static setting. The scenario of a dynamic framework is different in that due to economies of scale — on acco-unt of enhanced market access — the manufacturing proce-sses experience gains in terms of cost reductions and improved product competitiveness. What is more, in a dynamic setting, trade-investment linkages get strengthened whereby trade deficits between bigger and smaller countries of an FTA get compensated by capital acco-unt surpluses wherein outward-FDI from bigger to smaller countries takes place. This kind of linkage helps in improving the export supply capabilities of smaller countries. It is this analytical context in which some preliminary estimates of the projected increase in some sma-ller and lesser developed SAFTA members need to be studied.

Two inferences could be dra-wn from the projected increase in intra-SAARC exports, as presented in the table in four possible scenarios. On the one hand, relatively under-developed SA-FTA countries would gain substantially. In fact, their gains would be greater than those for bigger countries. This is so because in the static scenario, smaller countries would have access to bigger markets. One may say that Nepal, Bhutan and Sri Lanka already have FTAs with the biggest country, i.e., India. But they would gain from SAFTA as they would also get access to other members.

On the other hand, the gains from economies of scale and better product competitiveness appear noteworthy. This would further help the under-developed members to increase their intra-SAARC exports. It may be mentioned that the gains accruing to a country like Bangladesh would be initially due to impr-oved market access in bigger countries whereas in the case of Sri Lanka, its somewhat better export supply capability would serve as an additional force.