05. SAARC & SAFTA How It Can Be Made Sucessful

8/2/2019 05. SAARC & SAFTA How It Can Be Made Sucessful

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SAARC & SAFTA: How can it be

made successful ?


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Group Members

Nimit sheth- 102

Roopesh thopate- 138-

Shikha poddar- 149

Swapnil sawale- 163

Yogesh rane 179 Harshada dhage - 182


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SAARC

The South Asian Association for Regional CooperationAn organization of South Asian Nations founded in 1985

Dedicated to Economic, Technological ,Social & Culturaldevelopment

Countries part of this : Bangladesh, Bhutan , India, Pakistan

Bangladesh

India

Bhutan

Pakistan

, Nepa ,Ma ves an r Lan a A g an stan o ne n

Headquartered in Kathmandu, Nepal.

The SAARC seeks to promote the welfare of the peoples ofSouth Asia, strengthen collective self-reliance

Cooperate with international and regional organizations.

SriLanka

Nepal

Afghanistan*


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Objectives of SAARC To improve the quality of life and welfare of people of the

SAARC member countries

To develop the region economically, socially and culturally

To provide the opportunity to the people of the region to livein di nit and to ex loit their otentialities

To enhance the self-reliance of the member countries jointly

To provide conductive climate for creating and enhancing

mutual trust, understanding and application of one anothersissues

To enhance the cooperation with other developing economies


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Contd.. To extend cooperation to other trade blocks

To have unity among member countries

Promotion of active collaboration and mutual assistance inthe economic social cultural technical and scientific fields

Strengthening of cooperation among the Member States ininternational forum on matters of common interest

Acceleration of economic growth

Social progress and cultural development in the region


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SAARC Trade Agreements

At the 10th SAARC Summit held in Colombo in July1998 The Heads of the SAARC States decided to setup a Committee of Experts (COE) for creating FTAwithin the region

Three Agreements :

Bilateral Trade Agreement

SAPTA

SAFTA


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Bilateral Trade Agreement provides for expansion of trade and

economic cooperation

Making mutually beneficial arrangement for theuse of waterways, railways and roadways, passage

of goods between two places in one country

through the territory of the other

Exchange of business and trade delegations andconsultation to review the working of the

Agreement at least once a year


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Contd.. Indias trade with Bangladesh, Bhutan, Maldives, Nepal and

Sri Lanka are governed by the bilateral treaties/agreements

India-Bangladesh : October 04, 1980.

Indo-Maldives : Trade Agreement signed on March 31, 1981

India and Nepal :

Treaty of Trade to regulate bilateral trade, which was

re-negotiated and renewed for five years with effect from March2002

Treaty of Transit to facilitate each others trade with third countries

After independence, India and Pakistan signed a standstill

agreement under which goods from one country to another were

exempted from customs duty

Sri Lanka, having an adverse trade balance with India for the lastseveral years, was seeking Indias support for finding ways &

means to reduce the trade gap

The first formal Agreement on Trade and Commerce between Indiaand Bhutan was concluded in 1972.


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Why more Trade Four different forms of regional trading

agreements, Forming an FTA, members remove trade barriers

among themselves but keep their separate national

barriers against trade with outside nations. ,

barriers among themselves but also adopt a commonset of external barriers.

In a common market, members allow full freedomof factor flows (migration of labour and capital)

among themselves in addition to having a commonunion. In an economic union, members unify all their

economic policies, including monetary, fiscal andwelfare policies, while retaining the features of acommon market.


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Cont

Trade affects growth in three primary ways:

First, trade encourages the flow of resources from the lowproductive sectors to high productive sectors, leading to anoverall increase in output

Second, With unemployed resources, an increase in exportsales leads to an overall expansion in production and a fall inthe unemployment rate

Third, international trade also enables for the purchase ofcapital goods from foreign countries and exposes an economyto the technological advances of the developed countries.


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Criteria for Successful FTA As tariffs are not allowed under an FTA framework, individual Governments try to

protect their respective economies by imposing non-tariff barriers (NTBs),

antidumping measures, import licences and sanitary standards.

Some of the factors that affect the formation of an FTA are considered below.

Intra-industry trade: Trade happens in similar commodities, The likelihood that-

trade.

Economic characteristics:

Similarities are measured in terms of economic development and geographicalproximities. The more similar are the economies, the greater is the likelihood of

intra-industry trade.

Because geographically close economies with similar levels of economicdevelopment have access to similar kinds of technology

Consequently, they tend to produce more or less similar items and tend totrade in similar commodities Monopolistic Competition


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Contd..

Prices: Low technology intensive items, such as leatherfootwear, garments, gems and jewellery and textile products,which are typical of any developing countrys export profile,

they are price-elastic Should be beneficial

Government olicies: More liberal overnment olicies arelikely to be beneficial for an FTA. Higher trade volume,

resulting from external sector liberalization, is expected toincrease the likelihood of FTA formation


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SAPTA

SAARC Preferential Trading Arrangement

In December 1991, the Sixth Summit held in Colomboapproved the establishment of an Inter Governmental Group

(IGG) to formulate an agreement to establish a SAARCPreferential Trading Arrangement (SAPTA) by 1997

The Agreement reflected the desire of the Member States topromote and sustain mutual trade and economic

cooperation within the SAARC region through the exchange

of concessions.


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Basic principles underlying SAPTA

Overall reciprocity and mutuality of advantages so as tobenefit equitably all Contracting States with respect toeconomic and social development

Negotiation of tariff reform step by step, improved andextended in successive stages through periodic reviews

Recognition of the special needs of the Least DevelopedContracting States and agreement on concrete preferentialmeasures in their favour

Inclusion of all products, manufactures and commodities intheir raw, semi-processed and processed forms.

Four rounds of trade negotiations have been concludedunder SAPTA covering over 5000 commodities..


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SAFTA The objectives of SAFTA are to promote and enhance mutual trade

and economic cooperation among the 'Contracting States' by inter-

alia:-

Eliminating barriers to trade in, and facilitating the cross-bordermovement of goods between the territories of the Contracting

States.

Promoting conditions of fair competition in the free trade area,and ensuring equitable benefits to all Contracting States, taking

into account their respective levels and pattern of economic

development.

Creating effective mechanism for the implementation andapplication of this Agreement, for its joint administration and for

the resolution of disputes; and

Establishing a framework for further regional cooperation toexpand and enhance the mutual benefits of this Agreement.


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Indias Bilateral FTAs with SAARC

Members and SAFTA: A Comparison

Country Size of IndiasSensitive List

Timeframe (05%level)

Timeframe(zeroduty)

Rules of Origin

Indias FTAs Commitments: A Comparison

SAFTA Bilater SAFTA Bilateral SAFT Bilateralal A

Bhutan 744 Nil 01.01.2009* Already granted

CTH+30%

Mnftrs ofBhutan

Nepal 744 3 01.01.2009* Already granted

CTH+30%

CTH+30%

SriLanka

865 429 01.01.2011 Already granted

CTH+35%

CTH+35%


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Tariff Reduction Programme The Agreement provides for Special and Differential

Treatment (S&DT) for the LDCs in various forms - Revenue

Compensation Mechanism

The mechanism for Compensation of Revenue Loss (MCRL)for the SAARC LDCs prescribes:

The compensation to LDCs would be available for four years.However, for Maldives it would be available for six years.

The compensation would be in the form of grant in US dollar.

The compensation shall be subject to a cap of 1, 1, 5 and 3

percent of customs revenue collected on non sensitive itemsunder bilateral trade in the base year, i.e., average of 2004

and 2005.

The compensation shall be administered by the COE.


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Maintain sensitive lists, consisting of items which are not subject to tariffreduction. Only three countries namely Bangladesh, India and Nepal maintain differentsensitive lists for LDCs and NonLDCs


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SAFTA Framework Agreement

refers to such measures as Harmonisation of standards, reciprocal recognition of tests

and accreditation;

Harmonisation of customs clearance and customs

cooperation;

-

These measures indicate elimination of non-

tariff barriers (NTBs) will be a major trade task,

states;

Removal of barriers to intra-SAARC investments;

Development of communication system and transport

infrastructure;

Rules of fair competition and promotion of venture capital,

simplification of procedure for business visas

in order to enhance intra-regional trade inSouth Asia.


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Challenges

Determine the impact of SAFTA on SAARC countries.

The political economy of the selection of excluded sectors andrules of origin.

" " - - .

The coverage of SAFTA.

The cross border investment.

Finally the benefits of SAFTA should be seen to be equitablyshared.


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Business opportunities

South Asia remains one of the least integratedregions in the world

The FTA is very less among the union countries as

SAFTA is also a vehicle of promoting better politicalties among neighbours

SAFTA will help to bring about greater tradediversification.


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NTBs: A Major Concern Worldwide It is found that market access barriers faced by developing country exporters

are not decreasing under the liberalised trade regime for some of their most

important export sectors.

LDCs are especially at risk.

Recent research by ITC based on Market Access Map shows that three hardles

are blocking the track to better market access. , .

ordinary (ad valorem) tariffs and they tend to discriminate against the

developing countries.

Second, commodity prices have plummeted. If tariffs were ad valorem, the

duties actually paid would have declined with the prices. Since specific

tariffs are so importantespecially for commodities in practice, developing

countries and LDCs are witnessing an effective rise in protection. Third, non-tariff barriers (food safety standards, environmental

certification etc.) are growing in case of LDCs, they are particularly

dramatic.

A staggering 40% of LDC exports are subject to non-tariff barriers. Fordeveloping and transition economies and developed countries, the

figure is only 15%.


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Types of NON TARIFF BARRIERS

Import Policy Barriers Standards, Testing, Labeling and Certification

requirements

Antidumping & Countervailing Measures Government procurement Services barriers (including those on Movement

of Natural Persons)

Lack of adequate protection to IntellectualProperty Rights

Other barriers


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NTBs Facing by South Asian Countries within RegionNTBs Facing by South Asian Countries within Region

I

N

Textile

products

Although most importing countries accept the quality certification from ISO and Bureau

Veritas, Sri Lanka asks for certification from its own agencies like Sri Lanka Standards

Institution. This is a problem for Indian exporters as they have to get this certificate and

incur the cost and the time even though they have an ISO certificate from a recognised

agency in India.

Sanitary

ware

Sri Lanka does not accept products packed in straws. They demand that such products

be packed in 5-ply corrugated boxes. India does not manufacture enough 5-ply

corrugated boxes to meet the existing demand. The prices are too high compared to the

other countries. This actually increases the costs of the packaging and affects the

product pricing in the international market.

I

A

Others Regarding the first category of barriers in Sri Lanka majority of the firms faced barriers

related to product standards. In the second category of barriers majority of the firms felt

there were barriers related to banks and to competition.

Majority of the firms exporting to Sri Lanka disagreed that there was any kind of

discrimination against them vis--vis other competitors.

Majority of the firms exporting to Sri Lanka stated that they incurred expenses between

0 and 5% of total sales revenue to meet standards.

Other

barriers

Many buyers in Sri Lanka demand under invoicing in order to save themselves from

import duties. This causes exporters undue harassment. Also Indian banks like the

State Bank of India do not confirm the LC issued by Banks of Thailand and most banks

of Vietnam. Due to non-confirmation of the LCs the exporters are not able to take

orders. On the other hand, some of the private banks like Citibank, HSBC do confirm

the Letter of Credit.


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NTBs Facing by South Asian Countries within RegionNTBs Facing by South Asian Countries within Region

I

N

D

Communication

Problems

Whenever there are disturbances at the Indo-Pak border, the mobile connections

are not operational.

Trade Logistics While road routes for trade between India and Pakistan are non-existent, rail and

air connectivity between the two countries has been erratic.

Different

products

Indian entrepreneurs facing NTBs of their products like electronic items, jute

goods, machinery, plastic goods, textile and chemical items in Bangladesh.

Rice There are about 600 varieties of rice are grown in India. These include both

basmati and non- basmati rice. Sri Lanka, accepts up to 100% broken rice (non-

basmati).

I

A

ans me s n an a, exp e s equ e e e a e s an a s even ug

the product certified by several reputed third-party inspection agencies like

Crown Agents, ISO 9001:2000, Lloyds, Bureau Veritas, S.G.S. Robert, W. Hunt

Company, BSI Inspectorate, Griffith UK, OMIC Japan, Tubescope Vecto GmbH

Germany etc. Even though obtaining this certificate is not very complex or

expensive, it demands lot of time and effort, which is an irritant to exporters.

Cosmetics Sri Lanka specifies registration in their country even if the Indian exporter hasregistration in India. This registration is specific to Sri Lanka and is not a

mandatory procedure for exports to other countries. Hence, this aggravates the

agony of the exporter especially while exporting to Sri Lanka

Mango pulp In case of mango pulp export to Sri Lanka, Indian exporters are required to obtain

a Health certificate from the Ministry of Health of Sri Lanka. This test is conducted

in order to specify the exact contents of the product. This test is conducted over a

period of 2 days and costs about Rs.5000- Rs.7000 per consignment.


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ConclusionIndia, being the largest economy in SAARC, its role is widely regarded

as crucial in determining the effectiveness of SAFTA and therefore,it will have to play a proactive & leading role in drawing the futureagenda or the road map of SAFTA

Should cut down the size of its sensitive list initially 1200, now 744for LDCs

The issues relatin to non-tariff measures should be addressed in atime bound manner providing technical assistance and buildingcapacity for setting up the agencies/institutions

Encouraging sourcing of inputs from other SAARC members

Take efforts for promoting investments in other SAARC members(Maldives & Nepal) especially the LDCs so that overall economicactivity is generated and greater employment opportunity are created

Provide better infrastructure and support at the boarder check posts

of customs


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CONTIn order to promote intra SAARC trade and investment flows, the SAARC Member Countries

would also need to take necessary measures.

Recommendations are made :

Reduction of the size of sensitive list and time frame for tariff liberalisation

Duty free market access

Addressing nontariff barriers

Expanding the scope of SAFTA

Trade facilitation

Customs Cooperation

Cooperation in infrastructure

Transit treaty

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05. SAARC & SAFTA How It Can Be Made Sucessful