Impact of ASEAN-India Preferential Trade Agreement on Plantation Commodities: A Simulation Analysis

Abstract

This study analyses the impact of the asean-India Preferential Trade Agreement on plantation commodities – coffee, tea and pepper – using the smart and gravity models. This reveals that the agreement may cause a significant increase in India’s imports of plantation commodities from the asean countries, which is mostly driven by trade creation rather than trade diversion. The proposed tariff reduction may lead to some loss of tariff revenue to the government. However, the gains in consumer surplus outweigh the loss in tariff revenue resulting in a net welfare gain. Simulations based on both the 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 thus important to devise appropriate adjustment assistance schemes for plantation workers who might face displacement.

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