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Background - Salient Features of 2006 LDC Report of UNCTAD. UNCTAD’s 2006 LDC Report “Developing Productive Capacities” Only 7 LDCs have experienced steadily sustained growth – Bangladesh , Bhutan , Burkina Faso, Cape Verde, the Lao People’s Democratic Republic, Lesotho and Nepal .
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Background - Salient Features of 2006 LDC Report of UNCTAD • UNCTAD’s 2006 LDC Report “Developing Productive Capacities” • Only 7 LDCs have experienced steadily sustained growth – Bangladesh, Bhutan, Burkina Faso, Cape Verde, the Lao People’s Democratic Republic, Lesotho and Nepal.
Background • Between 1990–1993 and 2000–2003, half of the total increase in manufacturing value-added in the LDC group as a whole was attributable to the growth of manufacturing in Bangladesh. • But Bangladesh will also account for 22% of increase in labour force in LDCs between 2000-10.
Background • Growth in Bangladesh Economy attributed to rapid growth in mainly services, construction and small scale industry on account of demand stimulus from • Growth of garment industry • Remittances • Growing agricultural income Osmani (2005)
Trends in South Asian Trade • Intra South Asian trade as a proportion of total South Asian trade fell from 19% in 1948 to 2% in 1967. • This share rose from 3.7% in 1991 to 5.2% in 2004. • Increase in trade from 1999 attributed to • Abolition of QRs by India in 2000-01 (1429 items) • Indo-Lanka and Nepal FTAs
Major developments • Generally more awareness in region on instability of international commodity prices and therefore also sensitivity to opening these to imports. (especially after spice imports under Indo-Lanka FTA) • Most countries in region have moved towards market based exchange rate system, thereby disabling them from using currency rate control as an instrument of trade policy.
SAFTA Studies I • World Bank (2004) • Potential for welfare reduction not great when compared to trade liberalisation versus rest of the world. • Losses in revenue and terms of trade will not get compensated by increased competition, economies of scale, or improved operating efficiency . • High chance of trade diversion in South Asia because of high MFN tariffs of India and Bangladesh.
Much growth in regional trade on account of increased competitiveness of India • Significant increase in India’s formal exports to South Asian partners between 1999-2004, but not in products in which preferences were granted. (probably on account of increased competitiveness of Industry in this period)
India’s Exports to SAARC grew at an average of 25% per year between 1999-2004
Textiles and Clothing Highly Protected in Region • Despite substantial liberalisation, in industrial goods tariffs, several tariffs of India on items of export interest to neighbours continue to be highly protected. • While ad valorem tariffs on par, India may actually have higher tariffs in Textiles on Clothing on account of specific duties
Weighted Tariffs in Textiles Source: WITS/TRAINS
Tariffs in Apparel Source: WITS/TRAINS
Why assessment of likely gains to LDCs is an important step ? • LDCs buy in is very important to support SAFTA ++ as well reduction of negatives lists in coming rounds of negotiations. • Ind, Pak and Lanka are to give 0-5% duty access to Bangladesh, Bhutan, Maldives and Nepal, but subject to the negative lists of the former. • Since India is the biggest market in the region we examine what India’s SAFTA commitments will mean to the LDCs.
Does SAFTA Offer Additional Market Access to PTAs/FTAs and other concessional schemes • Plethora of FTAs (FTAs in Asia – “The Great Maze” UNDP 2005) • Plenty of Bilateral, Regional and Bilateral Arrangements already in place.
Trade Arrangements in South Asia • GSTP • GSTP (LDC) • SAPTA • SAPTA (LDC) • Bangkok Agreement • Pakistan- Lanka FTA • Indo-Lanka, Indo-Bhutan, Indo-Nepal
Measuring Actual Access Created by SAFTA To Assess actual access generated by SAFTA • Negative lists of all members. • MFN tariffs only products are already between 0-5 there is no additional access created by SAFTA • Check if preferences already exist under other schemes
Measuring Actual Access Created by SAFTA (Partners Global Imports) Note Column I Denotes Concession Givers ; Row I Partners. % denotes share of global imports of concession giver in products in which access will be provided to partners.
Measuring Actual Access Created by SAFTA (Partners Bilateral Imports) Note Column I Denotes Concession Givers ; Row I Partners. % Denotes the proportion of present bilateral imports that will received additional market access.
Measuring Actual Access Created by SAFTA (Partners Global Exports) Note Column I Denotes Concession Givers ; Row I Partners. % Denotes the proportion of partners global exports which will receive additional market access under SAFTA.
Examining the Case of India’s Concessions under SAFTA and its Impact on LDCS
However Little in Comparison to SAARC LDCs global exports (USD Million)
Effect of Bilateral FTAs on Trade • Exports from SAARC countries have been highly responsive to bilateral FTAs with India • Three of India’s FTAs with SAARC countries • Bhutan (1995) • Nepal (1997) • Sri Lanka (2002)
Trends in SAARC LDCs Trade with India • In the early 90s Agri products more than 50% of LDCs total exports to India. This share has declined to about 20%. The share of chemicals in total exports has also declined. • Textiles exports has been fluctuating • Slow but steady increase in trade in export of plastic products and metals.(trade deflection?)
What SAFTA means for LDCs market access to India • The determinants of market access under SAFTA are therefore • Whether SAFTA offers additional market access over MFN tariffs (This will be determined by India’s negative list for LDCs) • If (I) is true whether SAFTA offers benefits in addition to those that already subsist under regional / bilateral / unilateral / other arrangements. • (eg. country like Bangladesh some of its products may receive preferences under SAPTA (LDC), GSTP (LDC), Bangkok Agreeement etc)
What SAFTA means for the 1500 products that Bangladesh Exports to the World
Gains for Bangladesh - I • Bangladesh will receive market access in products which constitute about 73% of existing trade. (about 137 items) (mainly jute / urea fertilizers ) • In addition to preferences 35% of imports from Bangladesh already under 0-5% MFN tariffs. Thus effective market access for only 35-40% of present value of imports.
What it means for present composition of Bangladesh’s exports to India
Negative list does not offer access to most of T&C market which is protected by high specific tariffs • About 17.5% of imports from Bangladesh already under preferences (Bangkok Agreement , etc. about 21 products). • India’s negative list has the effect of not allowing additional market access in products which constitute more than 70% of Bangladesh’s Global Exports (mainly garments (knit t.shirts and woven garments like trousers and woven textiles)
Products for which SAFTA may immediately create trade potential for Bangladesh
What SAFTA means for the 400 products that Maldives Exports to the World
What it means for present composition of Maldives’ exports to India
Gains for Maldives- I • Maldives will receive 0-5% duty access in in 5 out of the 7 products that it presently trades with India. Most of these are ferrous and non-ferrous waste/ scrap. • These items constitute about 96% of Maldives trade with India. • But the preference may not mean much as most metal waste is as it is imported at a duty rate of 5 - 7.5% (and likely to fall in coming budgets)
Gains for Maldives- II • Maldives may therefore have to make gains in products that it hasn’t been trading with India (but has with other countries) but can do so now on account of SAFTA. • These are likely to be limited to fish products like tuna and assorted manufactures like aircraft piston engines and textiles machinery (industrial sewing machines). Note: this is based on EXIM stats and these items, particularly manufactured products may be in the nature of re-exports.
Nepal and Bhutan • Bhutan and Nepal already have FTAs with India from 1995 and 1997 respectively. • India has a comprehensive FTA with Bhutan with no exceptions/no negative list. • In the Nepal FTA there are restrictions the exports of only 70 products from Nepal. • 90% of Nepal’s exports to India are already at 0 duty.
Rough GTAP Simulations • GTAP Modeling employed to make rough estimation of gains in welfare, production, employment and trade. • GTAP Version 6.02 (limited release) version only captures results for India, Bangladesh, Sri Lanka Pakistan and Rest of South Asia (Nepal, Bhutan Maldives & Afghanistan). • Therefore not possible to estimate separately for Nepal, Maldives, Bhutan. Estimates for these are made as a combination
GTAP Simulations – Stage 1 • 2005 base tariff taken for India. • On the basis of the extent of market access that the negative list will provide, shocks are administered to simulate import tariffs concessions that all SAARC members will reduce undertake under SAFTA. (to equate situation in 2008-09) • Results of the ensuing equilibrium are gathered and this new equilibrium is preserved.
Rough GTAP Simulations – Stage 2 • The resultant equilibrium is to determine the likely effect of members liberalisation for South Asian LDCs. • Next, a best case scenario is assumed and comprehensive Intra-South Asian liberalisation shock is introduced on import tariffs of all South Asian countries. • This second stage result is meant to be a rough estimation of best case scenario in 2016.
