SAFTA to have positive impact for S Asia: ADB-UNCTAD

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New Delhi, March 28: The study conducted by the Asian Development Bank and UNCTAD-India has observed that the full implementation of the South Asia Free Trade Agreement (SAFTA) would contribute to stronger economic growth in the region. While there would be losses in some sector in the region, there would be gains in other sectors – the net effect on economic output being positive.

The agreement on SAFTA was signed on January 6,2004 during the 12th summit of the South Asia Association for Regional Cooperation (SAARC) in Islamabad. SAFTA came into force on January 1, 2006 in a limited way. Currently, the sensitive lists of products, rules of origin, technical assistance as well as a mechanism for compensation of revenue loss for least developed member states are under negotiation. It is proposed to have a complete trade liberalization programme by 2016.

The study suggested that in order to maximize welfare gains, it would be important to give flexibilities to protect employment intensive manufacturing sectors in the smaller least developed countries (LDCs) in the region. The adoption of a transparent and effective regional safeguard mechanism for agriculture products could help to take care of sensitivities in the farm sector that were bound to exist, it said.

Much higher gains for the region can be secured, the study said if SAFTA would be simultaneously implemented with measures to reduce transaction costs and create more efficient regional transportation and infrastructure networks. Increasing the scope for intra regional trade in energy, improving road, rail and air links within the region, building modern customs and border crossings, developing sophisticated telecommunications links like optic fibre were vital to this endeavour, it said.

Using the CGE modeling, the study said that the welfare gains for Bangladesh would be one of the highest for South Asian countries, which may be attributable to complete liberalization of high MFN tariffs which generates consumption benefits for both user industries as well as household consumers. Bangladesh also can increase in global exports by a very significant 4.31% by 2016 on account of SAFTA. Export gains for Bangladesh in SAFTA market in phase-I of liberalization (2008-09) would be significant (38.08% to South Asia), but not as high as the peak export growths to SAFTA seen by other countries.