SAFTA
Comes Along After a delay of six months, the SAFTA finally comes into force
By A CORRESPONDENT
In what is seen as a test of economic and trade liberalization commitments of leaders of South Asian region, the much-talked-about South Asian Free Trade Area (SAFTA) has come into force beginning July 1, 2006.
The seven member states of SAARC except Nepal – India, Pakistan, Sri Lanka, Bangladesh, Maldives and Bhutan – will start the phase-wise program of custom tariff reduction beginning July 1. They will reduce the tariff by 5 percent as per the agreement under SAFTA. Nepal, however, will do so beginning August 1. Nepal is expected to reduce tariff in the coming budget for the purpose.
In the first phase of the SAFTA, developing countries of SAARC – India, Pakistan and Sri Lanka – will need to bring down the current level of tariff rate to 20 percent within two years whereas least developed countries – Nepal, Bangladesh, Bhutan and Maldives – will need to slash the rate to 30 percent within the period.
Likewise, in the second phase of SAFTA implementation, India and Pakistan will need to bring down custom tariff rate between 0 to 5 percent within 2013. Sri Lanka will need to do so within 2014 and rest of the member states will need to do so within 2016.
The SAFTA pact has come into force at a time when regional experts and economists were criticizing it for failing to take off soon. “The fact that the member states haggled strenuously just to decide on the issues of Rules of Origin and Negative List provides an ill-omen for the future of this regional trading bloc,” said an economist.
Even as rest of the world had realized the potential benefits of working as a regional trading bloc – ASEAN, EU, Mercosur, NAFTA etc – the South Asian countries were very slow in coming forth. “To talk about forging common position of South Asian countries in WTO when we couldn’t get the SAFTA going on time is not understandable,” said Amir Khosru, former commerce minister of Bangladesh. Khosru added that given the prevalent mindset, the SAFTA would not deliver any fruitful results even if it comes into force.
South Asia is home to one-fifth of humanity. Although predominantly an agrarian region, countries of this region have steadily embraced industrial development as well. Trade, investment and growth have been encouraging, particularly in India and Pakistan – the two biggest nations of this region. However, the political disputes have tied down the pace of progress in the region. Take for instance the intra regional trade volume; the intra-regional trade volume among SAARC countries stand at abysmal 4.46 percent of the total trade of member states whereas the intra-EU trade is 55 percent, intra-NAFTA (North American Free Trade Area) trade stands at 61 percent and intra-ASEAN trade is 25 percent of its total trade.
Economists and trade-watchers are keeping their fingers crossed that with the start of the phase-wise enforcement of SAFTA, the intra-regional trade figures would increase. Officials have estimated that under the new trading arrangement, the intra-regional trade could rise from the current $5-6 billion to $18 billion in five years. Likewise, under the new system, tariffs on 4000 items in the member countries would be reduced to zero percent in staggered phases.
BIMSTEC Implementation Delays
At a time when the Doha Development Round in the World Trade Organization (WTO) seems to be hitting a snag, another regional trading arrangement, too, is facing problems.
The implementation of the Bay of Bengal Initiative for Multi-sectoral Technology and Economic Cooperation (BIMSTEC) free trade pact has delayed by at least another six months. This is contrary to the expectations that the Initiative marked a new beginning in the region.
After the member states of the organization – including Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan – failed to complete their dialogue process the deadline of implementing the pact by July 2006 has been crossed.
The 12 th meeting of the Trade Negotiation Committee of the BIMSTEC could not take place as scheduled in April due to political unrest in Thailand. And without the next round of negotiations, many issues still remain unresolved. Understanding has not yet been reached on issues such as Rules of Origin, Negative List, Market Protection Method, among others. The different member states are favoring different kind of Rules of Origin. They have also come up with fairly large number of items in the Negative List.
However, understanding has been reached on the formation of a commission for dispute settlement. Officials now say that free trade of products could start only by January, 2007. The BIMSTEC had earlier aimed to conduct free trade of services and investment by 2007.
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