Report

6 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
SOUTH ASIAN FREE TRADE AREA
The decision for establishing a FTA in SAARC was taken
in the 9th SAARC Summit in May 1997 in Male. At
the 10th SAARC Summit held in Colombo in July
1998, it was decided to set up a Committee of Experts
(CoE) to draft a comprehensive treaty framework for
creating a free trade area within the region, taking into
consideration the asymmetries in development within
the region and bearing in mind the need to fix realistic
and achievable targets. Subsequently, at the 11th
SAARC Summit at Nepal in January 2002, the Heads
of State or Government directed the Council of
Ministers to finalise the text of the Draft Treaty
Framework by the end of that year.
The CoE first met in August 1999 but it took four
years to reach an agreement on SAFTA which was
finally signed on 6 January 2004 during the 12th
SAARC Summit in Islamabad and was implemented
with effect from 1 January 2006, though the tariff
liberalisation started from 1 July 2006. This was due
to the fact that the sensitive lists, rules of origin, mechanism
for compensation of revenue losses for LDCs and
areas for technical assistance were negotiated subsequently.
Further, there was a delay in commencement
of trade liberalisation programme due to procedural
requirements for ratification of the Agreement. Despite
the delay, it was agreed that time frame for reduction
of tariffs would remain unchanged.
Salient features of SAFTA
SAFTA has six core elements: Trade liberalisation programme;
Sensitive lists; Rules of origin; Non-tariff and
para-tariff barriers; Revenue compensation mechanism
for the LDCs; and Technical assistance for LDCs.
Trade Liberalisation Programme
The Agreement provides for the following schedule of
tariff reduction:
• Non-LDC of SAARC (India, Pakistan and Sri
Lanka): Non-LDCs would reduce their existing
tariffs (for MFN tariffs more than 20%) to 20%
within a time-frame of two years from the date the
Agreement comes into force. If the actual MFN
tariff rates are below 20% then there shall be an
annual reduction of 10% on MoP basis for each of
the two years. The subsequent tariff reductions
from 20% or below to 0–5% shall be done within
of the next five years by India and Pakistan and six
years by Sri Lanka. Therefore the trade liberalisation
programme (TLP) allowed the tariffs to be
reduced to 0–5% in a total time-frame of seven
years to India and Pakistan, and eight years to Sri
Lanka.
• LDCs of SAARC (Bangladesh, Bhutan, Maldives
and Nepal): The LDCs would reduce their existing
tariff (for MFN tariff more than 30%) to 30%
within a time-frame of two years from the date the
Agreement comes into force. If the MFN tariff rates
are below 30% there will be an annual reduction
of 5% on MoP basis for each of the two years. The
subsequent tariff reductions from 30% or below
to 0–5% shall be done within the next eight years,
thus allowing them a time-frame of a total of ten
years to reduce their tariffs to 0–5%.
The two phases of tariff liberalisation programme
as envisaged in SAFTA are summarised in Tables 1.1
and 1.2.
Notwithstanding the above provisions, the non-
LDCs shall reduce their tariffs to 0–5% for the products
of the LDCs within a period of three years beginning
from the date of coming in to force of the Agreement.
Sensitive Lists
The Agreement allows member countries to maintain
sensitive lists, consisting of items which are not subject
to tariff reduction. The size of the sensitive list was
negotiated in COE and it was agreed that it would be
Table 1.1 Tariff Reduction Plan under SAFTA: First Phase
Countries Existing Tariff Rates* (%) Tariff Rates Proposed Time Schedule
under SAFTA (from 1.1.2006)
Developing Countries More than 20 20 (maximum) Within 2 Years
Less than 20 Annual reduction of 10 Each of 2 Years
Least Developed Countries More than 30 30 (maximum) Within 2 Years
Less than 30 Annual reduction of 5 Each of 2 Years
* The tariff rates on the date of enforcement of SAFTA.
NB: All tariff rates are applied tariff rates and not bound tariff levels.
Source: SAARC Secretariat