Impact of Sensitive Lists under SAFTA: Quantitative Assessment using a Partial Equilibrium Modeling

The long list of product in sensitive list maintained by the member countries is one of the major weaknesses of South Asia Free Trade agreement for its effectiveness. Present study analyzes the impact of sensitive list (Phase II) under the SAFTA at disaggregate level (HS6 digit) by using partial equilibrium modeling. This paper more specifically looked at consumer surplus, trade creation, trade diversion as well as impact on tariff revenues among India, Pakistan, Sri Lanka and Bangladesh as a result of removal of sensitive list. The study indicates positive effect on consumer surplus and trade flows; and negative effect on tariff revenues. RCA index indicated comparative advantage in textiles, machinery/ electric product, chemicals and allied products and metal products and different categories of textile products. The simulation results shows that aggregate total trade effect is US$ 902.82 million and a surge in export of crude oil, technically specified natural rubber, cotton, smoked sheets, articles of apparel and clothing accessories etc. Finally, the study recommended that each country should reduce the sensitive list.