regional economic cooperation in south asia kathmandu, 14-16 august 2006 special treatment for ldcs...

Background - Salient Features Background - Salient Features of 2006 LDC Report of UNCTADof 2006 LDC Report of UNCTAD

UNCTAD’s 2006 LDC Report UNCTAD’s 2006 LDC Report “Developing Productive Capacities”“Developing Productive Capacities”

Only 7 LDCs have experienced Only 7 LDCs have experienced steadily sustained growth – steadily sustained growth – BangladeshBangladesh, , BhutanBhutan, Burkina Faso, , Burkina Faso, Cape Verde, the Lao People’s Cape Verde, the Lao People’s Democratic Republic, Lesotho and Democratic Republic, Lesotho and NepalNepal..

BackgroundBackground

Between 1990–1993 and 2000–2003, Between 1990–1993 and 2000–2003, half of the total increase in half of the total increase in manufacturing value-added in the LDC manufacturing value-added in the LDC group as a whole was attributable to the group as a whole was attributable to the growth of manufacturing in Bangladesh.growth of manufacturing in Bangladesh.

But Bangladesh will also account for But Bangladesh will also account for 22% of increase in labour force in LDCs 22% of increase in labour force in LDCs between 2000-10.between 2000-10.

BackgroundBackground

Growth in Bangladesh Economy attributed Growth in Bangladesh Economy attributed to rapid growth in mainly services, to rapid growth in mainly services, construction and small scale industry on construction and small scale industry on account of demand stimulus fromaccount of demand stimulus from

a.a. Growth of garment industryGrowth of garment industry

b.b. RemittancesRemittances

c.c. Growing agricultural incomeGrowing agricultural income

Osmani (2005)Osmani (2005)

Trends in South Asian TradeTrends in South Asian Trade

Intra South Asian trade as a proportion of Intra South Asian trade as a proportion of total South Asian trade fell from 19% in total South Asian trade fell from 19% in 1948 to 2% in 1967. 1948 to 2% in 1967.

This share rose from 3.7% in 1991 to This share rose from 3.7% in 1991 to 5.2% in 2004.5.2% in 2004.

Increase in trade from 1999 attributed to Increase in trade from 1999 attributed to Abolition of QRs by India in 2000-01 (1429 Abolition of QRs by India in 2000-01 (1429

items)items) Indo-Lanka and Nepal FTAsIndo-Lanka and Nepal FTAs

Major developmentsMajor developments

Generally more awareness in region on Generally more awareness in region on instability of international commodity prices instability of international commodity prices and therefore also sensitivity to opening and therefore also sensitivity to opening these to imports. (especially after spice these to imports. (especially after spice imports under Indo-Lanka FTA)imports under Indo-Lanka FTA)

Most countries in region have moved Most countries in region have moved towards market based exchange rate towards market based exchange rate system, thereby disabling them from using system, thereby disabling them from using currency rate control as an instrument of currency rate control as an instrument of trade policy.trade policy.

SAFTA Studies ISAFTA Studies I

World Bank (2004) World Bank (2004) Potential for welfare reduction not great when Potential for welfare reduction not great when

compared to trade liberalisation versus rest of compared to trade liberalisation versus rest of the world.the world.

Losses in revenue and terms of trade will not get Losses in revenue and terms of trade will not get compensated by increased competition, compensated by increased competition, economies of scale, or improved operating economies of scale, or improved operating efficiency .efficiency .

High chance of trade diversion in South Asia High chance of trade diversion in South Asia because of high MFN tariffs of India and because of high MFN tariffs of India and Bangladesh.Bangladesh.

Much growth in regional trade Much growth in regional trade on account of increased on account of increased competitiveness of Indiacompetitiveness of India

Significant increase in India’s formal Significant increase in India’s formal exports to South Asian partners exports to South Asian partners between 1999-2004, but not in between 1999-2004, but not in products in which preferences were products in which preferences were granted. (probably on account of granted. (probably on account of increased competitiveness of increased competitiveness of Industry in this period)Industry in this period)

India’s Exports to SAARC grew India’s Exports to SAARC grew at an average of 25% per year at an average of 25% per year

between 1999-2004between 1999-2004

YearIndias Exports to SAARC

($ Million)

1999 1,393

2000 1,958

2001 2,048

2002 2,711

2003 4,097

2004 4,306

Textiles and Clothing Highly Textiles and Clothing Highly Protected in RegionProtected in Region

Despite substantial liberalisation, in Despite substantial liberalisation, in industrial goods tariffs, several tariffs of industrial goods tariffs, several tariffs of India on items of export interest to India on items of export interest to neighbours continue to be highly neighbours continue to be highly protected. protected.

While ad valorem tariffs on par, India While ad valorem tariffs on par, India may actually have higher tariffs in may actually have higher tariffs in Textiles on Clothing on account of Textiles on Clothing on account of specific dutiesspecific duties

Weighted Tariffs in TextilesWeighted Tariffs in Textiles

Reporter Name Ad Valorem

Rates

Bhutan 27

Bangladesh 25

India 26

Sri Lanka 0

Maldives 20

Nepal 10

Pakistan 17

Average South Asia 17

Source: WITS/TRAINS

Tariffs in ApparelTariffs in Apparel

Reporter Name Ad Valorem

Rates

Bhutan 30

Bangladesh 30

India 29

Sri Lanka 7

Maldives 25

Nepal 21

Pakistan 25

Average South Asia 21

Source: WITS/TRAINS

Why assessment of likely gains Why assessment of likely gains to LDCs is an important step ?to LDCs is an important step ?

LDCs buy in is very important to support LDCs buy in is very important to support SAFTA ++ as well reduction of negatives SAFTA ++ as well reduction of negatives lists in coming rounds of negotiations.lists in coming rounds of negotiations.

Ind, Pak and Lanka are to give 0-5% duty Ind, Pak and Lanka are to give 0-5% duty access to Bangladesh, Bhutan, Maldives access to Bangladesh, Bhutan, Maldives and Nepal, and Nepal, but subject to the negative lists but subject to the negative lists of the former.of the former.

Since India is the biggest market in the Since India is the biggest market in the region we examine what India’s SAFTA region we examine what India’s SAFTA commitments will mean to the LDCs.commitments will mean to the LDCs.

Does SAFTA Offer Additional Does SAFTA Offer Additional Market Access to PTAs/FTAs Market Access to PTAs/FTAs

and other concessional and other concessional schemesschemes

Plethora of FTAs (FTAs in Asia – “The Plethora of FTAs (FTAs in Asia – “The Great Maze” UNDP 2005)Great Maze” UNDP 2005)

Plenty of Bilateral, Regional and Plenty of Bilateral, Regional and Bilateral Arrangements already in Bilateral Arrangements already in place.place.

Trade Arrangements in South Trade Arrangements in South AsiaAsia

GSTP GSTP GSTP (LDC)GSTP (LDC) SAPTASAPTA SAPTA (LDC)SAPTA (LDC) Bangkok AgreementBangkok Agreement Pakistan- Lanka FTAPakistan- Lanka FTA Indo-Lanka, Indo-Bhutan, Indo-NepalIndo-Lanka, Indo-Bhutan, Indo-Nepal

Measuring Actual Access Measuring Actual Access Created by SAFTACreated by SAFTA

To Assess actual access generated by To Assess actual access generated by SAFTA SAFTA

i.i. Negative lists of all members.Negative lists of all members.

ii.ii. MFN tariffs only products are already MFN tariffs only products are already between 0-5 there is no additional between 0-5 there is no additional access created by SAFTAaccess created by SAFTA

iii.iii. Check if preferences already exist Check if preferences already exist under other schemesunder other schemes

Measuring Actual Access Measuring Actual Access Created by SAFTA (Partners Created by SAFTA (Partners

Global Imports) Global Imports) India

Bangladesh Pakistan

Sri Lanka Nepal Bhutan

Maldives

India 85% 86% 1% 0% 0% 85%

Bangladesh 23% 23% 23% 23% 23% 23%

Pakistan 70% 72% 70% 72% 72% 72%

Sri Lanka 1% 35% 34% 35% 35% 35%

Nepal 0% 52% 46% 46% 52% 52%

Bhutan 0% 68% 66% 66% 66% 68%

Maldives 34% 35% 34% 34% 35% 35%

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.


Bilateral Imports) Bilateral Imports)

Note Column I Denotes Concession Givers ; Row I Partners. % Denotes the proportion of present bilateral imports that will received additional market access.

IndiaBangladesh Pakistan

Sri Lanka Nepal Bhutan Maldives

India 92% 90% 0% 0% 0% 97%

Bangladesh 25% 22% 45% 76% 9% 25%

Pakistan 86% 69% 66% 74% 47% 100%

Sri Lanka 1% 10% 8% 82% #DIV/0! 52%

Nepal 0% 71% #DIV/0! #DIV/0! 82% #DIV/0!

Bhutan 0% 6% #DIV/0! 0% 22% #DIV/0!

Maldives 26% #DIV/0! 33% 26% 100% #DIV/0!


Global Exports) 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.

IndiaBangladesh Pakistan

Sri Lanka Nepal Bhutan Maldives

India 18% 57% 4% 0% 0% 60%

Bangladesh 51% 44% 33% 44% 10% 5%

Pakistan 70% 23% 28% 44% 62% 80%

Sri Lanka 2% 92% 50% 63% 66% 34%

Nepal 0% 15% 23% 21% 26% 40%

Bhutan 0% 10% 23% 33% 37% 26%

Maldives 69% 78% 82% 74% 82% 75%

Examining the Case of Examining the Case of India’s Concessions India’s Concessions under SAFTA and its under SAFTA and its Impact on LDCSImpact on LDCS

Trends in SAARC LDCs Exports to India Trends in SAARC LDCs Exports to India ($m)($m)

0

50

100

150

200

250

300

350

400

450

500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Year

However Little in Comparison to However Little in Comparison to SAARC LDCs global exports (USD SAARC LDCs global exports (USD

Million)Million)

0

2,000

4,000

6,000

8,000

10,000

12,000

India

World

Effect of Bilateral FTAs on Effect of Bilateral FTAs on TradeTrade

Exports from SAARC countries have Exports from SAARC countries have been highly responsive to bilateral been highly responsive to bilateral FTAs with IndiaFTAs with India

Three of India’s FTAs with SAARC Three of India’s FTAs with SAARC countriescountries Bhutan (1995)Bhutan (1995) Nepal (1997)Nepal (1997) Sri Lanka (2002)Sri Lanka (2002)

India- Bhutan FTA (1995) India- Bhutan FTA (1995) Bhutan’s Exports to India (USD Bhutan’s Exports to India (USD

m)m)

0

20

40

60

80

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Indo-Nepal (1997) and Indo-Nepal (1997) and Indo-Lanka (2002) FTA. (USD Indo-Lanka (2002) FTA. (USD

m) m)

050

100150200250300350400

Nepal

Sri Lanka

Trends in SAARC LDCs Trade Trends in SAARC LDCs Trade with Indiawith India

In the early 90s Agri products more In the early 90s Agri products more than 50% of LDCs total exports to than 50% of LDCs total exports to India. This share has declined to India. This share has declined to about 20%. The share of chemicals in about 20%. The share of chemicals in total exports has also declined.total exports has also declined.

Textiles exports has been fluctuatingTextiles exports has been fluctuating Slow but steady increase in trade in Slow but steady increase in trade in

export of plastic products and export of plastic products and metals.metals. (trade deflection?)(trade deflection?)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Agri

Chemicals

Metals

Apparel

Textiles

Rubber/Plastics

Changing Composition of Trade with India

What SAFTA means for LDCs market access to India

The determinants of market access under SAFTA are therefore

I. Whether SAFTA offers additional market access over MFN tariffs (This will be determined by India’s negative list for LDCs)

II. 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 WorldAlready

Preferential Access, 102

Blocked By Sensitive List,

368

Now opened up for Access, 1053

Gains for Bangladesh - IGains for Bangladesh - I

Bangladesh will receive market access in Bangladesh will receive market access in products which constitute about 73% of products which constitute about 73% of existing trade. (about 137 items) (mainly existing trade. (about 137 items) (mainly jute / urea fertilizers )jute / urea fertilizers )

In addition to preferences 35% of imports In addition to preferences 35% of imports from Bangladesh already under 0-5% MFN from Bangladesh already under 0-5% MFN tariffs. tariffs. Thus effective market access Thus effective market access for only 35-40% of present value of for only 35-40% of present value of imports.imports.

What it means for present composition of Bangladesh’s exports to India

Already recieves preferential access

18%

Will not receive more than MFN access

because of negative list

10%

Will receive 0 duty access

72%

Negative list does not offer Negative list does not offer access to most of T&C market access to most of T&C market

which is protected by high which is protected by high specific tariffsspecific tariffs

•• About 17.5% of imports from Bangladesh About 17.5% of imports from Bangladesh already under preferences (Bangkok already under preferences (Bangkok Agreement , etc. about 21 products).Agreement , etc. about 21 products).

•• India’s negative list has the effect of not India’s negative list has the effect of not allowing additional market access in allowing additional market access in products which constitute more than 70% products which constitute more than 70% of Bangladesh’s Global Exports (mainly of Bangladesh’s Global Exports (mainly garments (knit t.shirts and woven garments (knit t.shirts and woven garments like trousers and woven textiles)garments like trousers and woven textiles)

Products for which SAFTA may Products for which SAFTA may immediately create trade immediately create trade potential for Bangladeshpotential for Bangladesh

Urea

Jute raw, fiber & fabric

Cotton wastes

Processed intermediate leather

Fruit & Vegetable Juices

Potatoes & Tubers

Home textiles

Assorted Electronic products ; like batteries

Furniture; wooden

What SAFTA means for the 400 products that Maldives Exports to

the World Blocked By Sensitive List, 85

Now opened up for Access, 322

Already Preferential Access, 0

What it means for present composition of Maldives’ exports to India

Preferential Access Already

0%

Will receive 0-5% duty access

96%

Will not receive more than MFN access

because of negative list4%

Gains for Maldives- IGains for Maldives- I

Maldives will receive 0-5% duty access in in 5 Maldives will receive 0-5% duty access in in 5 out of the 7 products that it presently trades out of the 7 products that it presently trades with India. Most of these are ferrous and non-with India. Most of these are ferrous and non-ferrous waste/ scrap.ferrous waste/ scrap.

These items constitute about 96% of Maldives These items constitute about 96% of Maldives trade with India.trade with India.

But the preference may not mean much as But the preference may not mean much as most metal waste is as it is imported at a duty most metal waste is as it is imported at a duty rate of 5 - 7.5% (and likely to fall in coming rate of 5 - 7.5% (and likely to fall in coming budgets)budgets)

Gains for Maldives- IIGains for Maldives- II

Maldives may therefore have to make gains Maldives may therefore have to make gains in products that it hasn’t been trading with in products that it hasn’t been trading with India (but has with other countries) but can India (but has with other countries) but can do so now on account of SAFTA.do so now on account of SAFTA.

These are likely to be limited to fish These are likely to be limited to fish products like tuna and assorted products like tuna and assorted manufactures like aircraft piston engines manufactures like aircraft piston engines and textiles machinery (industrial sewing and textiles machinery (industrial sewing machines). machines).

Note: this is based on EXIM stats and these Note: this is based on EXIM stats and these items, particularly manufactured products items, particularly manufactured products may be in the nature of re-exports.may be in the nature of re-exports.

Nepal and BhutanNepal and Bhutan

Bhutan and Nepal already have FTAs with Bhutan and Nepal already have FTAs with India from 1995 and 1997 respectively.India from 1995 and 1997 respectively.

India has a comprehensive FTA with India has a comprehensive FTA with Bhutan with no exceptions/no negative Bhutan with no exceptions/no negative list.list.

In the Nepal FTA there are restrictions the In the Nepal FTA there are restrictions the exports of only 70 products from Nepal.exports of only 70 products from Nepal.

90% of Nepal’s exports to India are 90% of Nepal’s exports to India are already at 0 duty.already at 0 duty.

Rough GTAP SimulationsRough GTAP Simulations

GTAP Modeling employed to make rough GTAP Modeling employed to make rough estimation of gains in welfare, production, estimation of gains in welfare, production, employment and trade.employment and trade.

GTAP Version 6.02 (limited release) version GTAP Version 6.02 (limited release) version only captures results for India, Bangladesh, only captures results for India, Bangladesh, Sri Lanka Pakistan and Rest of South Asia Sri Lanka Pakistan and Rest of South Asia (Nepal, Bhutan Maldives & Afghanistan). (Nepal, Bhutan Maldives & Afghanistan).

Therefore not possible to estimate separately Therefore not possible to estimate separately for Nepal, Maldives, Bhutan. Estimates for for Nepal, Maldives, Bhutan. Estimates for these are made as a combination these are made as a combination

GTAP Simulations – Stage 1GTAP Simulations – Stage 1

2005 base tariff taken for India.2005 base tariff taken for India. On the basis of the extent of market access On the basis of the extent of market access

that the negative list will provide, shocks are that the negative list will provide, shocks are administered to simulate import tariffs administered to simulate import tariffs concessions that all SAARC members will concessions that all SAARC members will reduce undertake under SAFTA. (to equate reduce undertake under SAFTA. (to equate situation in 2008-09)situation in 2008-09)

Results of the ensuing equilibrium are Results of the ensuing equilibrium are gathered and this new equilibrium is gathered and this new equilibrium is preserved.preserved.

Rough GTAP Simulations – Stage 2Rough GTAP Simulations – Stage 2

The resultant equilibrium is to determine the The resultant equilibrium is to determine the likely effect of members liberalisation for likely effect of members liberalisation for South Asian LDCs. South Asian LDCs.

Next, a best case scenario is assumed and Next, a best case scenario is assumed and comprehensive Intra-South Asian comprehensive Intra-South Asian liberalisation shock is introduced on import liberalisation shock is introduced on import tariffs of all South Asian countries.tariffs of all South Asian countries.

This second stage result is meant to be a This second stage result is meant to be a rough estimation of best case scenario in rough estimation of best case scenario in 2016.2016.

Key Macro Results BangladeshKey Macro Results Bangladesh

% Change Output

Effect on Unskilled Employment

Exports to South Asia

Global Exports

Global Imports

2008-09 -0.01 0.0001 38.08 0.19 0.27

2016 -0.02 0.68 14.43 4.31 5.47

Key Macro Results Bhutan, Key Macro Results Bhutan, Maldives Nepal (BMN)Maldives Nepal (BMN)

% Change Output

Effect on Unskilled Employment

Exports to South Asia

Global Exports

Global Imports

2008-09 0.030.03 -0.0004-0.0004 20.8220.82 0.740.74 1.961.96

2016 0.260.26 0.630.63 60.3260.32 7.897.89 11.9911.99

Bangladesh Employment Gaining Bangladesh Employment Gaining Sectors 2008Sectors 2008

Winning SectorsEmployment Increase %

Meat products n.e.c. 73.33

Crops n.e.c. 1.19

Motor vehicules and parts 0.77

Plant-based fibers 0.75

Mineral products n.e.c. 0.26

Animal products n.e.c. 0.16

Metals n.e.c. 0.10

Raw Milk 0.09

Paddy rice 0.08

Forestry 0.08

Bangladesh Employment Gaining Bangladesh Employment Gaining Sectors 2016Sectors 2016

Winning Sectors Employment Increase %

Wearing apparel 5.90

Leather products 3.60

Chemical, rubber, plastic products 2.32

Cereal grains n.e.c. 1.48

Wood products 1.25

Forestry 1.20

Metals n.e.c. 1.12

Beverages and tobacco products 0.81

Processed rice 0.73

Electricity 0.64

Bangladesh Employment Losing Bangladesh Employment Losing Sectors 2008Sectors 2008

Wheat -0.55

Leather products -0.53

Textiles -0.39

Petroleum, coal products -0.39

Electronic equipment -0.30

Transport equipment n.e.c. -0.28

Metal products -0.21

Oil seeds -0.20

Wearing apparel -0.19

Paper products, publishing -0.15

Bangladesh Employment Losing Bangladesh Employment Losing Sectors 2016Sectors 2016


Meat products n.e.c. -26.92



Dairy products -5.67

Metal products -2.88

Machinery and equipment n.e.c. -2.66

Gas -2.17

Crops n.e.c. -2.10

Sugar cane, sugar beet -1.95

BMN Employment Gaining Sectors BMN Employment Gaining Sectors 20082008

Metals n.e.c. 8.36



Raw Milk 2.86

Ferrous metals 2.70


Forestry 0.73

Wood products 0.56

Vegetables, fruit, nuts 0.45

Minerals n.e.c. 0.45

BMN Employment Gaining Sectors BMN Employment Gaining Sectors 20162016

Metals n.e.c. 29.44


Crops n.e.c. 11.73

Ferrous metals 10.95



Raw Milk 7.85

Vegetable oils and fats 2.97

Sugar cane, sugar beet 2.29

Vegetables, fruit, nuts 2.12

BMN Employment Losing Sectors BMN Employment Losing Sectors 20082008

Motor vehicules and parts -3.51

Wheat -2.81




Dairy products -1.78

Oil seeds -1.66

Textiles -1.33

Leather products -1.18

Manufactures n.e.c. -1.16

BMN Employment Losing Sectors BMN Employment Losing Sectors 20162016

Motor vehicules and parts -30.32



Manufactures n.e.c. -8.71

Wheat -8.35



Textiles -6.78

Wearing apparel -6.17

Plant-based fibers -5.68

Some ConclusionsSome Conclusions

•Gains to LDCs modest in first phase of liberalisation.

•LDC gains are significant in 2nd phase, provided there is complete liberalisation and elimination of sensitive lists by 2016.

•Bangladesh significant gains in employment in Apparel Sector (5%) and Leather sector (3%). Losses is some manufacturing products (electronics, transport and machinery/equipment).

•BMN, gains in some agri and chemical products. Losses in manufacturing including Textiles and Apparel.

•But overall employment effects positive for Bangladesh and BMN.

•Issue of Revenue Compensation Still needs to be evaluated.

regional economic cooperation in south asia kathmandu, 14-16 august 2006 special treatment for ldcs...

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