Abstract:
This paper attempts to evaluate the Pareto optimality of SAFTA for all the member states.
Besides, the welfare optimality of three other alternative sets of coordinated trade policies
that go beyond SAFTA has also been studied here. These include (a) extended preferential
trading between SAFTA and three other major trading blocs (ASEAN, NAFTA and EU27),
(b) coordinated full trade liberalisation (carried out unilaterally or as part of a multilateral
agreement) by South Asian countries, and (c) SAFTA plus a customs union (two variants with
5% and 10% CET). The analysis, using the standard static GTAP model, shows that the
welfare basis for establishing SAFTA or for deeper trade policy coordination is not very
strong. Nor is it obvious that cooperation among the South Asia would be forthcoming given
the anticipated welfare impacts.
