Kathmandu, May 3:

South Asia Free Trade Arrangement (SAFTA) can contribute to stronger economic growth in the region.

A study conducted by the ADB-UNCTAD states a very optimistic scenario with SAFTA, although some sectors may lose and some may gain in each country.

The study states that gains are much higher if measures to establish more efficient regional transportation and infrastructure networks are simultaneously undertaken. It stresses the importance of a supportive overall policy framework for the promotion of transport and trade facilitation. The impact of SAFTA on production, employment, trade and welfare throws up interesting results, the study states adding that complementarity has improved considerably over time for within South Asia, implying exports are becoming increasingly regional that shows high gains from intra-regional trade.

There are gains in primary commodities with complete liberalisation for Nepal and Bhutan. “With the removal of sensitive lists in the full liberalisation scenario, there is a good export growth in agriculture products and primary commodities,” states the report. “Given that the agriculture and forestry sector in these countries accounts for over 50 per cent of domestic output and that these sectors are employment intensive, a full SAFTA is beneficial.”

However the manufacturing sectors are by and large uncompetitive, and hence suffer output and employment losses. Hence, Nepal may therefore want to preserve the sensitive list flexibility for a longer time, especially in employment intensive sectors like apparel.

The study estimates that complete tariff reduction by Bhutan results in increase in trade by approximately $17 million and maximum trade creation takes place between Bhutan and India. In the case of Nepal, complete reduction of tariffs leads to increased trade volumes with India, followed by Pakistan.

On FDI flows, the conclusion is that FDI is positively influenced and 30 per cent of the rise is FDI is attributable to the lowering intra-regional tariffs. In construction and related services, higher education and tourism India, Pakistan and Nepal have made/offered relatively high level of commitments under GATS.