The Impact Of South Asian Free Trade Area On Pakistan's Trade

This paper assesses the potential economic impacts of South Asian Free Trade Area that was signed in 2004,on Pakistan's trade using the GTAP Model which is a Computable General Equilibrium Model.The proliferation of regionalism and opening up of economies towards free trade has led to creation of SAFTA.The need for economic development for South Asian countries has also led to the need for such an agreement.The problem statement of the paper is “How will South Asian Free Trade Area benefit Pakistan's trade and what factors are required to make SAFTA successful? The desirability of this paper lies in the fact that it investigates why there is need for SAFTA with focus on Pakistan.It also uses a comparatively newer version of GTAP database with respect to previous literatures.GTAP database 7 has been used in the paper to assess the possible effects of complete trade liberalization.Actual trade data after the implementation of SAFTA from 2006-2014 was used to support and analyze the simulation results.Several conclusions were drawn.Firstly,SAFTA is beneficial to Pakistan's trade as it will increase Pakistan's exports at a higher rate than imports;there will be decreased trade balance deficit and a trade surplus through trade with SAFTA members however at the cost of negative welfare effects.Total intraregional trade will increase in the region which is the main purpose of forming SAFTA therefore the trade arrangement is recommended to be implemented at an accelerated pace.There are issues with implementation of SAFTA that need to be corrected which include hostile political climate,lack of political will,supply-side issues and weak SAFTA framework.Governments need to collaborate and reduce tariff rates at a more accelerated pace.They are already behind schedule.Pakistan's policy makers are advised to take steps to make sure SAFTA is operational fully to maximize benefits.A separate government division should be created that monitors and controls the effectiveness of SAFTA on a regular basis and is to be strengthened with more autonomy.Exporting companies should be fostered with special attention to investment in research and development,technological advancements and financial aids and help in facilitating exports of products for export businesses.Pakistan is advised to take the first step in reducing hostilities by eliminating items from the sensitive lists as quick as possibly.