South Asian Free Trade Agreement Upsc

The customs revenue impact simulations (with their restrictions already mentioned) lead to two main conclusions: (i) SA-NAFTA would probably result in the least revenue losses, with the exception of India and Pakistan; and (ii) its effects would be heterogeneous, ranging from 0.01% of GDP for Bhutan to 0.2% for the Maldives. Such an uneven distribution of revenues is far from the existence of an exclusive agreement with NAFTA, since SAFTA`s TLP, as currently designed, produces the most diverse effects. The results of the estimate are presented in Table 1. Two versions of the gravitational equation were estimated, in which (i) the reactivity of imports to tariff changes could vary from source to source; and (ii) imports` ability to respond to tariff changes has been limited to the same in all sources. The two specifications of the model confirm the overall success of the gravitational equation in the declaration of business models. The standard variables of gravity equation, distance and mass of countries have the expected characters and are significant. Until 2005, India and China were close to the total volume of trade with South Asia. However, after 2005, China continued to expand its trade with South Asia, with a slight decline in 2009 due to the global financial crisis. In 2014, China`s trade peaked at $60.41 billion, while India negotiated about a third of the amount with $24.70 billion. After reaching their highest level in 2014, both countries recorded a decline in trade with South Asia in 2015 and 2016. SAFTA would have a similar impact on customs revenues. Smaller countries may find that their perception of tariffs is down to 21/2 of GDP (for Bhutan), while India and Pakistan could not undergo significant changes. It is important to note that these estimates ignore the potential benefits of trade facilitation, such as homogenization and simplification of customs administration, as well as incentives to promote formal trade.

Recent tax reforms in the region and other developing countries show that difficulties in adapting the tax system to compensate for tariff losses can be significantly mitigated if technical changes are accompanied by strong political commitment (IMF, 2006). For example, India, which has been gradually removing trade barriers since 1991-92, has recovered a significant portion of the rights losses by improving total tax productivity (Poirson, 2006).

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