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CHAPTER FIVE
Trade in SAARC Countries
SAARC
1985 = The Heads of State or Government at their First SAARC Summit
held in Dhaka on 7-8 December adopted the Charter formally establishing
the South Asian Association for Regional Cooperation

Prime Objectives :

To promote the welfare of the peoples of South Asia to improve their
quality of life;

To accelerate economic growth, social progress and cultural
development in the region

To provide all individuals the opportunity to live in dignity
SAARC (cont)
To strengthen cooperation with other developing countries

To strengthen cooperation among themselves in international
forums on matters of common interests; and

To cooperate with international and regional organizations with
similar aims and purposes
SAARC (cont)

Member Countries of SAARC:

Bangladesh

India

Pakistan

Nepal

Bhutan

Maldives

Afghanistan (new Member)
Intra-regional Trade
Figure 1: Share as Exporter in Intra-Regional Trade
Maldives
1%
Bangladesh
3%
Nepal
7%
Sri Lanka
7%
Pakistan
10%
India
72%
Intra-regional Trade (cont)
Figure 1: Share as Importer in Intra-Regional Trade
Bangladesh
34%
Maldives
5%
Nepal
18%
Pakistan
8%
India
12%
Sri Lanka
23%
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SAPTA TREATY
In 1995 SAARC preferential Trading Agreement (SAPTA) was
inaugurated for bilateral reductions in tariffs and non-tariff barriers on
specified commodities on a reciprocal basis, but with special treatment
given to the least developed countries (LDC).
The eventual objective was for SAPTA to become, by 2001, a
South Asian Free Trade Area (SAFTA) based on multilateral tariff
reductions.
SAPTA failed to yield the desired benefits to the members, particularly the
LDCs, due to the following reasons: (a) The tariff cuts were not deep
enough (b) The actively traded goods were not given the tariff
preferences.(c) Modalities of removal of non-tariff and para-tariff barriers
were not well articulated in the agreements. (d) The rules of origin criteria
acted as a hindrance
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SAFTA TREATY
SAFTA was signed at the Islamabad summit in January 2004 to go into
effect from January 1, 2006.

The SAFTA agreement would be fully implemented within December 31,
2016, in two phases.

The members, under the trade liberalization programme, agreed that Non-
Least Developed States (NLDS) -including India, Pakistan and Sri Lanka
would reduce their tariffs from existing levels to 20% by January 1, 2008
in equal proportions annually.

In case the tariffs would already be less than 20% when the agreement
comes into force on January 1, 2006, the NLDS should reduce the actual
tariff by 10% each during two years between January 1, 2006 to January 1,
2008.
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SAFTA TREATY (cont)
Therefore, under SAPTA, tariffs were reduced only for goods specified
in the agreement. Conversely, under SAFTA, tariffs will be reduced for
all products except those on each countrys sensitive list.

It was also agreed that the four Least Developed Countries (LDCs), as
defined by the UN, including Bangladesh, Nepal, the Maldives and
Bhutan-will reduce their existing tariff rates to 30% within two years
after the agreement comes into force on January 1, 2006.

If actual tariff rates in these four least developed member states are
already below 30% on January 1, 2006, the agreement comes into force,
there will be an annual reduction of 5% for each of the two years. That
will be the end of phase 1.
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SAFTA TREATY (cont)
In phase 2, the NLDC members, with the exception of Sri Lanka, will
have to reduce their tariffs from 20% or below, as may be the case, to
0-5% within five years by January 1, 2013.


Sri Lanka, however, shall be given an additional year till January 1,
2014, to reduce tariff to prescribed level of 0-5%.


The 4 LDC members, however, will be given 8 years from January 1,
2008 to reduce tariff from 30% or below, as may be the case, to 0-5%
at par with the rest of the SAARC member states.
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Characteristics of Trade in SAARC Region
Geographical proximity

High pre-FTA tariffs

High intra-regional trade levels:

Trade complementarities

Low political tensions

Streamlined market access for goods produced

Low non-tariff barriers (NTB)

Generally accepted preconditions required
Infrastructure and efficiency in ports

cross border transit points

Border crossings

Poor management at customs

Streamlining the market access

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The political environment needs to be improved by the regional
governments and political leaders. The governments, private sector,
academia, professionals and social sector organizations have to work in
unison.


Development of tourism can yield substantial benefit through a multiplier
effect.


The region should widen its export base by diversifying into capital-
intensive exports.

Areas of comparative advantage should be identified.


Steps To Improve Trade Situation
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Steps To Improve Trade Situation (cont)
Customs clearance, border crossing should be developed


A strong and supportive capital market should be formed


Human resources should also be developed in the region for
managerial, entrepreneurial and technical skills


Economic reforms policies and institutional arrangements should be
conducive to the agreement