SAFTA to boost stronger economic growth in the region

By Surekha Galagoda

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The South Asian Free Trade Agreement (SAFTA) will contribute to stronger economic growth in the region. While some sectors will gain and some sectors will lose in each country the net effect on economic output is positive.

These were the concluding remarks of a joint study done by the ADB UNCTAD on the Quantification of Benefits from Regional Cooperation in South Asia.

The results suggest that to maximise welfare gains it would be important to give flexibilities for countries to protect employment intensive manufacturing sectors in the smaller Least Developed Countries (LDCs.)

The adaptation of a transparent and effective regional safeguard mechanism for agriculture products could help to take care of sensitivities in agriculture that are bound to exist.

Much higher gains for the region can be secured if SAFTA is simultaneously implemented with measures to reduce transaction costs and create more efficient regional transportation and infrastructure networks.

Increasing the scope for intra regional trade in energy, improving road, rail and air links within the region building modern customs/border crossings and developing sophisticated telecommunication links are all vital in this endeavour.

According to Senior Economist UNCTAD Rashmi Banga, Sri Lanka’s gains in the first phase of liberalisation is almost nil largely because Sri Lanka already has close to free access to the Indian market and also because LDCs and Dcs have not committed to substantial liberalisation vis a vis Sri Lanka in the first phase.

She said that Sri Lanka’s gains are more improved in the second phase when all countries fully participate and remove their negative lists.

The increase in output in vegetable oils corroborates empirical evidence of duty structures that favour manufacture of edible oils.

The textiles sector which contributes to about 5% of total output in Sri Lanka will see a growth of 4% while relative changes of some products are quite high.

Their absolute outputs are quite low compared to the total output of the Sri Lankan economy. Negative employment and output effects are seen for wearing apparel and some agricultural products.