Report

I MPACT OF SAFTA ON MEMBER COUNTRIES: GENERAL EQUILIBRIUM ANALYSIS 49
The results for each of the following countries are
as follows:
Bangladesh
Table 6.1 Impact of SAFTA on Welfare
Country
Welfare Effects
Bangladesh 265.8
India 366.0
Pakistan 82
Sri Lanka 13.8
Rest of South Asia 130.7
Rest of the World –438.8
Bangladesh’s welfare gains are one of the highest for
South Asian countries. Its high welfare gains like that
of India, 1 may be attributed to the complete liberalisation
of high MFN tariffs, which generate benefits,
for both user industries as well as household consumers.
Bangladesh also experiences significant rise in global
exports, i.e. 4.31% on account SAFTA (Table 6.2).
Export gains for Bangladesh in SAFTA markets in the
1st phase of liberalisation (2008–09) are significant,
but not as high as the peak export growths to SAFTA
seen by other members.
Table 6.2 Impact of SAFTA on Output,
Employment and Trade: Bangladesh (% change)
Year Output Effect on Exports Global Global
Unskilled to Exports Imports
Employ- South
ment Asia
2008-09 –0.01 0.0001 38.08 0.19 0.27
2016 –0.03 0.0001 14.43 4.31 5.47
The lack of strong growth may be attributed to
India’s sensitive list, but it is in fact seen in the full
liberalisation scenario (where all countries liberalise
tariffs even on sensitive list items), Bangladesh does
not make any significant regional export gains despite
liberalisation of sensitive list items, including garments.
However, the most interesting result, is that its global
exports see a significant 5% rise in the second phase.
Most of this growth is to regions outside South Asia.
These results are not very surprising. A disaggregated
look at global export data shows Bangladesh’s
global exports grow largely due to increased exports
of wearing apparel. The wearing apparel sector grows
more on account of its improved global exports which
grow by as much as 6% a result of SAFTA Phase II. If
Bangladesh’s actual 2005–06 apparel exports are
considered global exports of Wearing Apparel show
increase of nearly US$ 500 million, of which only US$
6 million are apparel exports to South Asian countries.
Thus 98% of the increase wearing apparel exports are
to countries outside South Asia.
A plausible explanation for rise in imports of
Bangladesh in wearing apparels may be that the wearing
apparel industry in Bangladesh gains by being able to
source lower cost textiles from South Asia (since tariffs
in all items including intermediate products like textiles
are removed in simulated Phase II of SAFTA). A look
at weighted tariff data also shows that Bangladesh has
the highest level of tariffs in textiles among the bigger
countries in the region (see Table 6.3). This is also
corroborated by the fact that in SAFTA Phase II , India’s
textiles exports to Bangladesh go up by 84%, and that
90% of India’s total South Asian textile exports increase
go to Bangladesh. Similarly with Pakistan 95% exports
rise of textile go to Bangladesh. The results also show
that Bangladesh’s global imports of textiles rise by about
10% and a reduction in import prices of textiles to the
extent of about 3.3%.
Table 6.3 Trade Weighted Tariffs in Textiles in
South Asia
Country Ad Valorem Rates
Bhutan 27
Bangladesh 25
India 26
Sri Lanka 0
Maldives 20
Nepal 10
Pakistan 17
Average South Asia 17
The total output of Bangladesh does not show any
significant change, but SAFTA induces a reallocation
of output, with major production increases seen in
wearing apparel (5.5%) and leather sectors (3%). This
is a positive result since these sectors tend to be highly
employment-intensive. In fact, it appears that the gains
of Bangladesh are so significant that all other South
Asian countries see a decline in their output and global
exports. Its output in chemicals, rubber and plastics
also rises by about 2%, while global exports go up by
10%. This is a validation of indications that Bangladesh
is an emerging competitive producer in chemicals like
pharma, plastics and ceramics.
In terms of impact on employment, we find that
the sectors that gain most due to SAFTA are wearing
1
Note: Both countries also have the highest tariffs in the region.