1. 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 Professor Department of Economics University of Dhaka

2. The Emerging Trade Issues in South Asia Regional Bilateral Domestic Multilateral 2

3. 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

4. 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

5. 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

6. Country-wise Share (%) in Intra-SAARC Exports and Imports in 2003 India accounts for three-fourth of regional exports. Bangladesh accounts for less than 3 percent Bangladesh is the single largest importer in South Asia 6 ExportsImports

7. Raihan (2007): Trade Creation and Trade Diversion Effects of SAFTA Scenario: Simulation Using the GTAP Model 7

8. 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 RateRank Bangladesh15.227 Bhutan22.16 India19.210 Maldives20.27 Nepal13.932 Pakistan14.330 Sri Lanka11.262 Source: WTO (2006) Note: Number of Countries = 147 Level of Protection in South Asia 8

9. 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 9

10. Why BFTAs in South Asia? Because of slow progress in SAFTA, BFTAs are now reality BFTAs are more ‘attractive’ than SAFTA 10

11. 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 11

12. 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 12

13. 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) 13

14. Tariffs and Growth: TDP and Developing Countries 14

15. Growth and Poverty in TDP Countries 15

16. For a number of 135 countries, only 25 countries have lower tariffs but higher GDP growth than Bangladesh. 16

17. 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. 17

18. 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

19. 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

20. Thank you 20