SAFTA South Asian Free Trade Area / its benefits
South Asian Free Trade Area (SAFTA) A major breakthrough has been, however, achieved by the SAARC countries at their 12th Summit held at Isiamabad (Pakistan) between 4th to 6th January, 2004. The member countries signed an agreement to create South Asian Free Trade Area (SAFTA) with effect from January 1, 2006.
After the ratification of SAFTA agreement it became operational on July 1, 2006. This agreement stipulated that all the trade barriers between the member countries would be removed by 2016. For the tariff phase-out, the applied rate of customs duty applicable on January 1, 2000 would be taken as base. India applied duty reduction with the average reduction standing at 5 percentage points per year for most of the products covered under the peak duty rate.
The member countries agreed to issue notification related to the ‘negative lists’ or ‘sensitive lists’. They contained the products which were not open for tariff concessions. As per the negative lists announced by the countries, Nepal had 1310 items, Bangladesh 1254 items, Pakistan 1183 items, Sri Lanka 1065, India 884, Maldives 671 and Bhutan 157 items. on that list.
The ‘sensitive list’ prepared by India includes, agricultural products, textiles, chemicals, leather and the products reserved for small scale industries. The least developed countries, like Bangladesh would be allowed to export some of those items to India under concessional terms.
Under the SAFTA agreement, the member countries will accord ‘Most Favoured Nation’ (MFN) status to one another. Pakistan has adopted a negative attitude as it refused MFN status to India, unless the political issue of Kashmir is settled in favour of that country. Despite that attitude. India decided to give MFN status to Pakistan. Pakistan is still hesitant in according the MFN status to India.
There is assurance from that country to comply with this regulation by the close of 2012. Meanwhile India has declared a negative list for trade with that country. It means Pakistan can import over 5600 items from India. In March 2012, Pakistan too declared the negative list for trade with India. Under that declaration, all products except 1209 items could be imported by India from that country. Thus there seems to be at last some light at the end of dark tunnel.
SAFTA has also made the provision for compensating LDC’s for the national import duty loss they may suffer on account of tariff cuts. It will benefit Bangladesh, Nepal, Bhutan and Maldives. The compensation would be subject to a cap of 1 percent in the first and second year, 5 percent in the third year and 3 percent in the fourth year, with customs revenues collected on non-sensitive items under bilateral trade in 2000 as the base.
Although compensation would be available to less developed countries for four years, Maldives will have the benefit for additional two years.
If SAFTA is implemented as it was intended to be, it can realise the full potential of trade among the member countries of this organisation. The progress of SAARC is very disappointing. Despite the region being afflicted by terrorism, the member countries have failed to create a system of intelligence sharing. There is no co-ordination on counter terrorism. Convention on legal assistance was although signed in August 2008, yet it has not been ratified by any member country. The implementation of SAPTA and SAFTA has been so far only half-hearted.
