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I NTRODUCTION 5<br />
in SAARC using BCA. Volume II, Chapter 10 provides<br />
an overview of trade in services in SAFTA region. Five<br />
service sectors have been identified as having export<br />
potential within SAFTA. These are construction and<br />
related services (chapter 11), tourism and travel related<br />
services (chapter 12), higher education services (chapter<br />
13), health and related services (chapter 14) and<br />
telecommunication services (chapter 15). A detailed<br />
analysis of each sector is undertaken and possibilities<br />
of areas for MRAs have been identified and presented.<br />
Chapter 16 discusses cross-cutting issues and concludes<br />
the study. Finally, chapter 17 provides the way forward<br />
in terms of policy directions.<br />
THE BACKGROUND<br />
Established in 1985, SAARC is a group of seven<br />
countries, Bangladesh, Bhutan, India, Maldives, Nepal,<br />
Pakistan and Sri Lanka. Subsequently, Afghanistan<br />
became a member of SAARC. SAARC’s activities were<br />
initially confined to nine areas of regional cooperation<br />
and economic cooperation was deliberately kept outside<br />
its purview. In the early 1990s, there was a surge in<br />
regional arrangements. The experience of the growth<br />
and consolidation of various regional blocks brought<br />
to fore the realisation that core economic areas need to<br />
be brought within the scope of SAARC activities if the<br />
objective of bringing about accelerated social and<br />
economic development in the region through mutual<br />
cooperation was to materialise. The sixth summit at<br />
Colombo in 1991 declared commitment to initiate<br />
cooperation in economic areas initially in trade and<br />
agreed to formulate an agreement on an institutional<br />
framework for trade liberalisation among themselves.<br />
Recognising its great economic strength in terms of its<br />
market potential, rich natural resources and capable<br />
human resources, and the possibility of enhanced intraregional<br />
trade and investment flows, a trade blocks<br />
among SAARC members was formed with the signing<br />
of SAPTA during the Seventh Summit held in Dhaka in<br />
April 1993. The Agreement reflected the desire of the<br />
member States to promote and sustain mutual trade<br />
and economic cooperation within the SAARC region<br />
through the exchange of concessions. SAPTA made a<br />
distinction between the least developed and other<br />
developing member countries with the former consisting<br />
of Bangladesh, Bhutan, Maldives and Nepal and<br />
the latter consisting of India, Pakistan and Sri Lanka.<br />
Being a preferential trade agreement, the negotiations<br />
for SAPTA during each round were held on the<br />
basis of ‘request and offer’ approach; where the<br />
exporting party came up with a ‘country-specific’<br />
request list of its exportable (real as well as potential)<br />
items on which it would seek preferential market access.<br />
The other party would then make an offer on items<br />
from ‘request-list’ and indicate the extent of tariff<br />
concessions in terms of margin of preference (MoP). In<br />
each round the coverage of products under tariff<br />
concessions were expanded and the MoP on products<br />
under concessions were also increased. At the end of<br />
each round, these offers were multilateralised to all<br />
SAARC members which thereby expanded the items<br />
on which concessions were offered by each member.<br />
The LDC members got concessions on a large number<br />
of products with deeper MoP, without reciprocating<br />
with equivalent concession to other developing<br />
countries under the special and differential treatment<br />
(S&DT) provision of SAPTA. In four rounds of negotiations<br />
that were held under SAPTA, tariff concessions<br />
on around 5000 products at 6-digit HS level were<br />
exchanged. It has been found that though a number of<br />
products exported by LDCs were limited, tariff concessions<br />
were made available to them on a wide range of<br />
products. The opportunity to expand the basket of<br />
products for exports to SAARC member countries<br />
(SMC) was not fully utilised. Some attribute this to the<br />
non-tariff barriers (NTBs) imposed by other members;<br />
the supply-side constraints of LDCs; and the lack of<br />
intra-regional investment flows and the absence of<br />
backward-forward linkages amongst the industries.<br />
SAPTA was initially viewed as an instrument that<br />
could transform the South Asian trade landscape<br />
through a greater regional integration. This optimism<br />
began to wane with the slow progress of SAPTA under<br />
the four rounds of trade negotiations, as it did not<br />
increase the volume of intra-regional trade and investment<br />
flows. This was mainly because of the limited<br />
tariff preferences extended to a country’s trading<br />
interest, limited depth in tariff cuts, and prevalence of<br />
NTBs. Contrary to general belief, the rules of origin of<br />
SAPTA were much more liberal as compared to other<br />
PTAs as a product would be considered as originating<br />
from a country if it generated a local value added content<br />
of 40% (30% for LDCs). This also included profit<br />
made not only by the manufacturers but also by the<br />
traders. The non-qualifying/minimal operations were<br />
confined to packaging and transportation operations<br />
only. For SAFTA to be successful, therefore, several<br />
lessons from SAPTA need to be learnt so that the pitfalls<br />
are not repeated.