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R EVENUE AND WELFARE IMPLICATIONS OF SAFTA: PARTIAL EQUILIBRIUM ANALYSIS 57<br />
Table 7.7 Effect of 100% Tariff Cuts on Revenue: Sri Lanka<br />
($ ‘000)<br />
Partner Country Revenue Effect: Using Revenue Effect Revenue Effect Sri Lanka Imports<br />
SMART Simulations (using simple average) (using weighted average)<br />
India–Sri Lanka* –99,147 –110,826 –106,652 1,439,298<br />
Bangladesh–Sri Lanka –652 –852 –590 8,867<br />
Maldives–Sri Lanka –1,210 –5,356 –2,593 42,576<br />
Nepal–Sri Lanka –11 –18 –10 111<br />
Pakistan–Sri Lanka –2,742 –11,024 –2,935 115,558<br />
Bhutan–Sri Lanka 0 0 0 0<br />
Total effect –103,762 –128,076 –112,779<br />
* Actual revenue loss may be much lower as India allows significant imports from these countries at zero duty.<br />
on the basis of SMART simulation while it is $0.12<br />
and 0.11 billion on the basis of simple and weighted<br />
average tariff. Maximum revenue loss of $0.09<br />
billion is due to tariff cut by 100% on imports from<br />
India (Table 7.7).<br />
• There are welfare gains for Sri Lanka and other<br />
SAARC countries from the 100% tariff reduction<br />
by Sri Lanka. Welfare gains for all seven countries<br />
amounts to be $15 million and maximum welfare<br />
gains are due to India and Sri Lanka (Table 7.8).<br />
• 100% tariff reduction by Sri Lanka creates trade<br />
approximately $0.17 billion (Table 7.8).<br />
Table 7.8 Effect of 100% Tariff Cuts on Welfare<br />
and Trade: Sri Lanka<br />
($ ‘000)<br />
Partner Country Welfare Effect Total Trade Effect<br />
India–Sri Lanka* 13,858 162,261<br />
Bangladesh–Sri Lanka 127 3,593<br />
Maldives–Sri Lanka 531 4,029<br />
Nepal–Sri Lanka 118 365<br />
Pakistan–Sri Lanka 970 7,641<br />
Bhutan–Sri Lanka 0 0<br />
Total effect 15,604 177,890<br />
* Actual trade creation may be much lower as India allows<br />
significant imports from these countries at zero duty.<br />
Impact on Bhutan<br />
Tables 7.9 and 7.10 indicate bilateral revenue, welfare<br />
and trade effects in case Bhutan cuts tariff by 100%<br />
for SAFTA member countries<br />
• Revenue losses to Bhutan are about $7.3 million<br />
on the basis of SMART simulation while it is also<br />
approximately $ 2.3 and 2.6 million on the basis<br />
of simple and weighted average tariff (Table 7.9).<br />
• There are welfare gains for Bhutan and other<br />
SAARC countries from the 100% tariff reduction<br />
by Bhutan. Welfare gains for all seven countries<br />
amounts to be $ 3.2 million and maximum welfare<br />
gains are due to Bhutan and India (Table 7.10).<br />
• In case of 100% tariff reduction by Bhutan, trade<br />
increased by approximately $17 million (Table<br />
7.10).<br />
Table 7.10 Effect of 100% Tariff Cuts on Welfare<br />
and Trade: Bhutan<br />
($ ‘000)<br />
Partner Country Welfare Effect Total Trade Effect<br />
Bangladesh–Bhutan 0 0<br />
India–Bhutan 3,247 17,490<br />
Pakistan–Bhutan 0 0<br />
Total effect 3,247 17,490<br />
Table 7.9 Effect of 100% Tariff Cuts on Revenue: Bhutan<br />
($ ‘000)<br />
Partner Country Revenue Effect: Using Revenue Effect Revenue Effect Bhutan Imports<br />
SMART Simulations (using simple average) (using weighted average)<br />
Bangladesh–Bhutan 0 –993 –1,077 3,928<br />
India–Bhutan –7,361 –22,468 –25,385 99,549<br />
Pakistan–Bhutan 0 –9 –6 51<br />
Maldivies–Bhutan 0 0 9<br />
Sri Lanka–Bhutan –1 –1 12<br />
Total effect –7,361 –23,471 –26,469
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