Cost of Economic Non-Cooperation to Consumers in South Asia Pradeep S Mehta CUTS International Unleashing South Asia Connectivity, Sub-regional Initiatives, Energy and Investment Protection Mumbai, India, September 24, 2016

SAFTA – Where does it Stand? SAFTA was signed for greater economic interaction and integration among SAARC members. (Intra-regional trade remains low – less than 5% of SAARC total trade) The agreement was meant to liberalise tariffs lines on goods, thus increasing trade in the region (SAFTA members impose huge sensitive lists on each other, to control trade of goods) A trade agreement functions well when each member state show willingness to accept both consumer welfare gain along with producer welfare gain. (Both being equally important under trade liberalisation process)

Negative Lists – under SAFTA Member State Revised Sensitive Lists w.e.f. January 1, 2012 Number of Products Afghanistan 858 Bangladesh 987 (LDCs), 993 (NLDCs) Bhutan 156 India 25 (LDCs), 614 (NLDCs)  Maldives 154 Nepal 998 (LDCs), 1036 (NLDCs) Pakistan 936 Sri Lanka 837  (LDCs), 1058 (NLDCs) 

Potential Gains to South Asia - Loss incurred due to Non-Cooperation

Methodology – to arrive at Potential Gains in South Asia Country wise assessment of potential consumer welfare gains due to subjecting items in the sensitive lists to Trade Liberalization Programme of SAFTA Calculates figures of minimum gains for product categories with maximum potential effects on consumer welfare Country wise trade data for the analysis is accessed from Trade Maps, International Trade Centre.

Research Findings A total of 351 product lines were identified from the sensitive lists of five south Asian countries which have high regional trade potential and could result in huge welfare gains if removed from the respective sensitive lists. Intra-regional trade in these product lines will result in a total of USD 5.52 billion as annual savings (26.64% savings on South Asia’s current import expenditure) Nepal is found to gain maximum, 79.23%, by reducing 56 product lines from its sensitive lists.

Effect of Consumer Welfare Gains These estimates only show the effects of change in import price with fixed quantity of imports. The following three effects should be taken into account to arrive at revised figures: Effects of domestic price reduction due to import competition by using data for total quantity consumed in the importing country, instead of import quantity Effects of trade creation due to increase in import demand by using estimates of potential trade creation Effects of reduction in trade costs within the SAARC region following trade facilitation measures

Conclusion An increase in intra-regional trade also implies enhanced export opportunities for SAFTA members. The identified product lines with maximum potential for consumer welfare gains under each SAFTA member country, qualify for removal from their respective sensitive lists.

Thank You psm@cuts.org