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Evaluation of Trade Agreements: A Case Study of Pakistan-Sri Lanka FTA

Synopsis

Over the past decade Pakistan remained involved in two major trade agreements with in the South Asia (Pakistan & Sri-Lanka FTA and SAFTA). It is meaningful from an operational and policy perspective to evaluate Pakistan’s trade performance in South Asia against its objectives of greater trade integration and suggest policy interventions to improve its effectiveness. In order to achieve this objective, current study evaluates the Pakistan’s overall and chapter-wise trade performance with SAARC major SAARC economies for the last seven years (2003-09). This study has been disaggregated into two parts: In the first part of the study, an assessment of trade performance of SAARC members is carried out with respect to the rest of the world. Pakistan’s trade performance vis-à-vis other SAARC members is the focus of this part. In the second part Pakistan’s trade performance in South Asia has been analyzed and policy interventions have been suggested to improve its effectiveness. Certain trade indicators like Trade Complementarity Index (TCI), Trade Specialization Index (TSI), Grubel Lloyd Index (GLI), Revealed Comparative Analysis (RCA), Bilateral Revealed Comparative Analysis BRCAs and Revealed Market Access (RMA) have been employed to achieve the above objectives.

Intoduction

Regional trade agreements with specific reference to South Asia

Salient features of PK-SL FTA

Tariff reduction programme

Rules of origin

Pre and Post FTA Trade between Pakistan and Sri Lanka

Process Analysis: Pakistan-Sri Lanka FTA

Phase 1: Feasibility

Assessing the overall economic situation of Sri Lanka

Domestic policy

Sectoral analysis

FDI and investment policy

Trade and tariff profile of Sri-Lanka

Trade barriers

Identifying other key trading partners

Structure of tariffs

International trade law compliance

Assess the trade data for Sri Lanka

Trade volumes and trade structure

Main exports and imports

Pakistan’s exports and imports

Trade balance

Liaison with industry representative

Structure of inputs used in exporting products

Tariff rates on these inputs

Imported inputs for export versus domestic consumption

Review previous cooperation efforts between Pakistan and Sri Lanka

Benefits derived from other agreements signed previously

Benefits that can be added in the further negotiations

Bilateral issues between the FTA partners

Current issues that have been discussed between the Pak-Sri Lanka

Barriers faced by Pakistani exporters

Phase 2: Internal analysis and industry outreach in Pakistan

Assessment of export priorities

Export competitiveness by using RCA’s

Assessment of import sensitivity

Structure of products with high applied tariffs

Assessment whether any items are sensitive

Identifying industry interest and concerns regarding the FTA

Compliance costs

Revenue impact: Loss of revenue due to preferential tariffs

Phase 3: Negotiations

Know your partner constraints

Develop scenarios

Management of negotiations

Phase 4: Post negotiation / implementation

Formulating a viable and effective communication strategy

Trade facilitating measures to implement the FTA

Phase 5: Periodic economic and social cost benefit evaluation of FTA

Trade analysis impact (Trade creation and diversion)

Methodology and data

Competitiveness analysis

G-L index

Trade specialization index

Revealed comparative advantage (RCA)

Survey results

Trade organizations

Comparative static analysis

Results from global CGE model

Trade creation under PSFTA

Conclusion

Making PK-SRI FTA Work: The Way Forward

Communication strategy

Simplification of trade documents procedure

Dispute settlement process

Potential traditional and non traditional sectors

Trade facilitating measures

Rigorous Pre and Post FTA negotiations process

Appendix

References

About Author

Dr. Dawood’s research interests center on issues of national competitiveness. His research, published in the Journal of Peace Research and Economics of Governance, finds that bilateral and multilateral trade mitigates conflict between India and Pakistan, and would like to extend his analysis to look at how spending on education or levels of education behave with respect to conflict. He believes that one reason poverty has not been significantly reduced in some developing countries is due to prevalent conflict. He also is director of the Center for Graduate Research. Among the courses he teaches is Harvard Business School’s microeconomics of competitiveness. He also supervises Ph.D and MS research and manages MS programs in the School of Business and Economics. Dawood holds a Ph.D in Economics of Sustainable Development and an MA in Development Economics, both from Erasmus University, the Netherlands. He also holds an MPhil and an MS in Economics, both from Quaid-e-Azam University in Pakistan.