SAFTA: Negotiating status and Evaluation

Deshal de Mel IPS, Colombo, Sri Lanka

Introduction
SAFTA was signed in 2004 in Islamabad  Tariff liberalisation implemented on July 1st 2006  Several issues remain which threaten the success of the agreement: Sensitive lists, NTBs, TLP, BTAs.


Table 1: Intra-SAARC Import Trade

Bangladesh Bangladesh India Maldives Nepal Pakistan Sri Lanka Total 15.5 0.0 0.0 1.1 0.1 16.7 0.0 0.3 0.1 0.3 0.8 0.0 0.3 10.6 21.1 0.2 0.0 42.4 0.3 3.1 25.9 India 0.1 Maldives 0.0 10.2 Nepal 0.3 42.0 0.0 Pakistan 0.3 2.5 0.0 0.0 Sri Lanka 0.1 18.1 0.3 0.0 1.4

Source: IMF, Direction of Trade Statistics, Yearbook 2005.

Table 2: Intra-SAARC Export Trade

Bangladesh Bangladesh India Maldives Nepal Pakistan Sri Lanka Total 0.0 1.0 0.0 0.1 0.6 0.2 1.8 India 2.3 0.0 0.1 1.0 0.6 1.9 5.8 Maldives 0.0 0.4 0.0 0.0 0.0 12.3 12.7 Nepal 0.3 39.2 0.0 0.0 0.5 0.0 40.0 Pakistan 1.5 1.2 0.0 0.0 0.0 1.0 3.7 Sri Lanka 0.2 6.8 1.1 0.0 0.7 0.0 8.8

Source: IMF, Direction of Trade Statistics, Yearbook 2005.

Tariff Liberalisation Program

The TLP stipulates 0-5% tariffs for NonLDCs by 2013 (SL 2014), LDCs 2016  Danger of SAFTA losing relevance due to competing RTA/BTAs  Article 7.2 allows countries wishing to move faster to do so unilaterally  Better approach to include fast track for heavily traded goods in SAARC


TLP
Countries Existing Tariff Rates Tariff rates proposed under safta Year to be completed First Phase India, Pakistan & Sri Lanka 20% & above Below 20% Bangladesh, Bhutan, Maldives & Nepal 30% & above Below 30% 20% (Max) Annual reduction of 10% 30% (Max) Annual reduction of 5% 2008 2008 2008 2008

Second Phase

India & Pakistan

20% or below

0-5%

2013

Sri Lanka

20% or below

0-5%

2014

Bangladesh, Bhutan, Maldives & Nepal

30% or below

0-5%

2016

India and Pakistan

Pakistan trade with India based on a specified positive list  Economic and political reasons for concerns about altering the status quo  India feels +ve list is against the spirit of the agreement  Potential for improvement in political relations through SAFTA


Sensitive Lists
Article 7.3(b) recommends that the sensitive list be reviewed every 4 years  This time frame possibly too long given the size of SLs in SAFTA  Should adopt progressive reduction of SL a la ASEAN FTA


Table 5: Trade Restriction under SAFTA

Value of Imports from SAARC Subject to NL (%) Bangladesh India Maldives Nepal Pakistan Sri Lanka Total 65.0 38.4 74.5 64.0 17.2 51.7 52.9 Value of Exports to SAARC Subjects to NLs (%) 22.0 56.6 57.6 46.4 34.0 47.0

Source: Calculated using WITS data.

Table 4: Bilateral Trade Restriction under SAFTA

Bangladesh % of imports under NL Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka 69.4 66.0 72.9 87.8 54.5 66.6 3.6 46.2 16.4 41.5 0.0 15.5 85.4 30.0 37.6 29.7 11.2 36.8 0.0 0.0 65.2 29.7 15.0 64.2 0.0 31.3 50.4 14.5 0.0 25.4 45.2 0.0 53.5 59.2 17.6 28.4 India Maldives Nepal Pakistan Sri Lanka

Source: Calculated using WITS data.

Non-tariff Barriers
 

    

Increasingly important as tariffs fall Over-regulation safety standards, other safeguards Entry point restrictions Bureaucratic processes Customs procedures Delays in transit due to border issues No mechanism to reduce NTBs recent discussion to include notification

Transaction Costs
 

South Asia plagued by transaction costs Trade facilitation increasingly important for modern trade, benefits resonate beyond SAFTA SAFTA agreement has extensive list of TF measures without binding commitments TF measures have high fixed costs, benefits felt in medium-long run, thus little political will to implement

Trade Facilitation


   

More prudent to identify few key measures producing tangible benefits in SR Simplify and harmonize customs operation Transit simplification Standards Harmonization Binding commitments for implementation and S&DT for LDCs required. Additional measures to be progressive

Dispute Settlement Mechanism

 

Yet to determine operationalisation of DSM SAFTA DSM too long, 330 days. ASEAN 290, MERCOSUR 265, NAFTA 310 Excess time in 1st stage, accused can delay consultations by a month Time allowed for compliance 90 days in SAFTA. 30 days in ASEAN, MERCOSUR

DSM
 

Length of DSM attributed to LDC requirements. Better to use differentiated time periods for LDCs and Non-LDCs Voting on consensus basis, problematic considering heterogeneity of interests Consensus to block or simple majority system are alternatives to consensus basis

Inclusion of Services


    

Contribution of services value added to GDP is 40 % in South Asia Important to ensure this sector does not forego benefits of liberalisation Identify complementarities and liberalise Telecom & IT Aviation Medical services Education

Inclusion of Services
 

 

Tourism Couple services with economic cooperation to extend benefits to LDCs Possible 3+x formula, Lessons from CEPA, progressive, sequential liberalisation. Building services database. Study on inclusion of services in SAFTA is ongoing.

Table 7: Volume of Intra-SAARC Trade (2004)

Share of SAARC Trade in Total Trade of Country Bangladesh India Maldives Nepal Pakistan Sri Lanka 11.2 3.0 19.8 41.7 3.3 15.1 Share of Trade with India in Total Trade of Country 10.1 8.7 41.2 2.0 13.3

Source: IMF, Direction of Trade Statistics, Yearbook, 2005.

Positives
Extent of informal trade in South Asia  Potential for +ve political spillovers  Potential for attracting FDI  Impact on poverty needs steps to improve access to markets for the poor  Consumers competition, falling prices and increased variety


Conclusion
Negotiations have made progress since Islamabad 2004  But key areas left unaddressed or underaddressed  Importance of SAFTA given stalling of the Doha round  Parallel importance of superseding competing RTA/BTAs  Supply capacities TA best endeavours