Transcript Reducing Regional Disparities through Regional Integration

Reducing Regional
Disparities through
Regional Integration
Saman Kelegama
Institute of Policy Studies
of Sri Lanka
Various Methods can be In-Built to
the RTAs/FTAs to address Regional
Disparities
 Special
& Differential Treatment
 Revenue Compensation
 Creating Special Development
Funds
 Investment Liberalization
Special and Differential Treatment
 Larger
“Negative List” offered to
less developed countries
 Tariff phasing out: less
developed countries offered a
longer period
 Rules of Origin: relaxed in favour
of less developed countries
Differentiating the Tariff Liberalization Programme (TLP)
Countries
First Phase
India, Pakistan & Sri Lanka
Bangladesh, Bhutan,
Maldives & Nepal
Existing Tariff
Rates
Tariff rates proposed under
SAFTA
Year to be
completed
20% & above
20% (Max)
2008
Below 20%
Annual reduction of 10%
2008
30% & above
30% (Max)
2008
Annual reduction of 5%
2008
Below 30%
Second
Phase
India & Pakistan
Sri Lanka (SL)
Bangladesh, Bhutan,
Maldives & Nepal
20% or below
0-5%
2013
20% or below
0-5%
2014
30% or below
0-5%
2016
TLP Differentiation: RTAs/FTAs in South Asia
SAFTA
ISFTA (India-SL)
PSFTA (PakistanSL
Immediate
0%
None
Ind: 1351 items
SL: 319 items
Pak: 206 items
SL: 102 items
TLP
for other
items
Non-LDCs: reduce
to 20% over 2 yrs
(LDCs 3 yrs)
Ind: rest to be
phased out over 3
yrs
Pak: rest to be
phased out over 3
yrs
Non-LDCs: reduce
to 0-5% over next 5
yrs
(LDCs 7 yrs)
SL: rest to be
phased out over 8
yrs
SL: rest to be
phased out over 5
yrs
2016
2008
2010
Completed
Negative List Differentiation: RTAs/FTAs in South Asia
SAFTA
Bangladesh
ISFTA
PSFTA
1254a
Bhutan
157
India
884b
Maldives
671
Nepal
1310c
Pakistan
1183
Sri Lanka
1065
419
540
1180
697
Notes: a. For LDCs 1249 items; b. For LDCs 763 items; c. For LDCs 1301 items.
Source: Respective agreements.
Rules of Origin Differentiation: RTAs/ FTAs in South Asia
SAFTA
ISFTA
PSFTA
India and Pakistan
40%
35%
35%
Sri Lanka
35%
35%
35%
LDCs
30%
4-digit
4-digit
6-digit
Minimum Aggregate Content
50%
35%
35%
Input from Exporting Country
20%
25%
25%
DVA: 25, 30, 40 or 60%
Being
Not
CTH: at 4 or 6-digit
Negotiated
6 digit
applicable
Process: PSR
Under CEPA
Single Country ROO
DVA (% of FOB)
CTH
Cumulative ROO
Derogation from General Rule
Source: Respective agreements.
Mechanism for Compensation of
Revenue Losses (MCRL)
Problem due to lost MFN tariff revenue as
a result of tariff removal under SAFTA
 Weaker tax bases in LDCs make tariffs
revenue more important for them
 MCRL important to ensure meaningful
concessions by LDCs
 Formula used in SAFTA is as follows:

Problems of MCRL
The MCRL takes time to come into
operation (SAFTA-4 years)
 There is no inbuilt incentives for LDCs to
devise alternative domestic mechanisms
to raise revenue
 No inbuilt incentives for non-LDCs to
provide technical assistance for
compensation
 Unreliability of customs data could affect
efficacy of MCRL

Development Fund
SAARC EPG Report (1998) recommended
US $ 500 mn for establishing a South Asia
Development Fund [SDF] (with major
contribution from the more developed
member countries, and possible outside
sources)
 SDF now established with major
contributions from India. Funds could be
utilized for supply-side development of
LDCs
 EU – Fund was available for Ireland,
Portugal, etc.
 GMS under ADB support for supply sector
development of Southeast Asia

Development Fund
For those RTAs where there are
‘observers’, they can be invited to
contribute to the Development Fund
 In Comprehensive Economic Partnership
Agreement’s there is an ‘Economic
Cooperation’ window where the more
developed country can assist through
concessional credit lines to develop the
supply side of the less developed partner

Investment Liberalization
 SAARC
EPG report argues for
creating a SAARC Investment Area
 Intra-regional investments can assist
in creating supply capabilities
 Investment integration can facilitate
industrial restructuring to assist in
building supply capabilities in
relatively smaller and lesser
developed economies
Investment led Supply
Development
There is substantial potential in increasing
intra-regional trade and efficiency-seeking
restructuring of industry and creating
supply capacities in relatively lesser
developed members
 South Asia Scenario: Emergence of
regional hubs: Sri Lanka for rubberbased industries; Bhutan for forest-based
industries; Bangladesh for energyintensive industries, India for IT, etc (RIS,
2008)

Investment led Development
 By
facilitating development of supply
capabilities in smaller and lesser
developed countries in the regional
groupings, the industrial
restructuring leads to balanced
regional development.
 ASEAN Investment Area, ASEAN
Industrial Cooperation, etc., are
partly based on this idea
Investment led Development
Less developed countries (viz. Spain,
Portugal, Greece, Ireland in EU) are the
key beneficiaries of integration through
industrial restructuring and building of
supply capabilities
 Sri Lanka has benefited from Indian
investment in increasing export and
supply base development
 Faster growth and convergence of levels of
development can be achieved

Unilateral Offers/Voluntary Methods
Larger/developed country can make
unilateral offers in trade. In SAFTA, India
offered duty free entry for SAARC LDC
goods subject to a negative list with effect
from 1.1. 08
 BIMSTEC liberalization is based on the 3 +
x formula, where those members that are
reluctant to join at the beginning, can join
when they are ready

Thank You
 www.ips.lk