SAFTA: Tariff and Other Measures to Enhance Integration Dr Zafar Mueen Nasir Chief of Research Pakistan Institute of Development Economics

Outline  Importance of regional economic integration in South Asia  Factors which have so far hampered economic cooperation in the region  Future course of action

Regional Economic Integration  Regional and bilateral trade agreements (make up almost 40 percent of total world trade) −Trade Creation more competition, efficient allocation of resources, better productivity, enhanced economic growth more competition, efficient allocation of resources, better productivity, enhanced economic growth −Institutionalization of policy reforms improved policy credibility improved policy credibility −Stepping stone to multilateral trade liberalization −Enhanced regional security

Impediments to Regional Integration in South Asia  Restrictive trade policies −Protective taxes and import duties −Complicated custom procedures  Similar comparative advantage & lack of trade complementarities

Impediments to Regional Integration in South Asia (cont.)  Political problems  Lack of regional transport network & Transit system −High handling and transport charges

Measures to Enhance Economic Cooperation  Confidence-building Measures –India and Pakistan must lead the way –easing of travel and visa restrictions –Opening up of bilateral trade beyond what is covered by SAPTA, though initially on a limited scale –Create awareness about the potential benefits

Measures to Enhance Economic Cooperation (cont.)  Reform and harmonize trade policies to create a level playing field for stakeholders — Collective actions to lower trade barriers and advance domestic reforms — Reduce complexity of the tariff structure — Improvement in custom procedures  Facilitate the trade through improvement in regional transport and transit system

Measures to Enhance Economic Cooperation (cont.)  Promoting Collectivism –To safeguard regional interests in multilateral fora  Minimizing Trade Diversion –Reduction in level of external protection

Measures to Enhance Economic Cooperation (cont.)  Making SAFTA work −Effective implementation −Conducive political and economic environment & strong willingness for integration −Acceptance for subsequent economic adjustments −Continuous dialogues and interaction

Measures to Enhance Economic Cooperation (cont.)  Making SAFTA work (cont.) –Reduced negative list and product specific rules –Broader tariff liberalization –Transparent anti dumping and countervailing duties

Measures to Enhance Economic Cooperation (cont.)  Exploring Potential in new areas –Regional production sharing arrangements –Intra-industry trade –Cooperation in technology development and diffusion

Concluding Remarks  To move the process of regional economic integration forward we need: −Reduction in trade barriers −Harmonization of custom procedures and tariff structure −Improving transparency in policies −Collectivism −Effective implementation of SAFTA