Assessing the Economic Impact of the Proposed “Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC)” Preferential Trade Agreement

Abstract

A draft text on IOR-ARC Preferential Trade Agreement was negotiated in the Trade Expert Group and latest revision was completed in August 2010. However, before finalizing the Agreement, the parties decided that a feasibility study was required to examine the possible benefits of the proposed PTA. The main objective of this study is to do just this, investigate the economic impact of the preferential agreement. The commutable general equilibrium (CGE) simulations show that if the four high income countries i.e., Australia, Singapore, UAE, and Oman eliminate all tariffs and at the same time middle income countries like Malaysia, Mauritius, Iran, South Africa, Thailand, Indonesia, Sri Lanka, and India successively cut tariffs by 75% and LDCs cut tariffs by 50% respectively, then all IOR-ARC countries except Madagascar could gain welfare significantly. The largest welfare could be gained by India which is around USD 10.8 billion followed by Australia around USD 5.8 billion. Thailand, UAE, Indonesia, Singapore, etc. may also gain under the PTAs. At the same time, exports may increase significantly for all IOR-ARC countries except Madagascar.