Report

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