IMPACT OF ASEAN-INDIA PREFERENTIAL TRADE AGREEMENT ON PLANTATION COMMODITIES: A simulation analysis

Abstract

The present study analyses the impact of recently signed ASEANIndia preferential trade agreement (AIPTA) on plantation commodities - coffee, tea and pepper. The likely increase of imports into India is simulated using the SMART model (developed jointly by UNCTAD and World Bank) and gravity model. The analysis shows that the agreement may cause a significant increase in India’s imports of plantation commodities from the ASEAN countries. The increase in imports is mostly driven by trade creation rather than trade diversion. Trade creation improves welfare as the new imports replace the highcost domestic production. The proposed tariff reduction may lead to some loss of tariff revenue to the government. However, the gains in consumer surplus (due to the fall in domestic price and the consequent reduction in dead-weight loss) outweigh the loss in tariff revenue leading to net welfare gain. Simulations based on the SMART and gravity models yield broadly similar results regarding the magnitude of total increase in imports. During the years to come, the plantation sector will have to realign the production structure according to the changing price signals. It is important to devise appropriate adjustment assistance schemes for planters as well as for plantation workers who might be displaced