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Tariff Liberalisation Under Tariff Liberalisation Under SAFTASAFTA

An Indian PerspectiveAn Indian Perspective

ByBy

Pranav KumarPranav Kumar

CUTS InternationalCUTS International

JaipurJaipur

E-mail: pk@cuts.orgE-mail: pk@cuts.org

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From SAPTA to SAFTAFrom SAPTA to SAFTA

• SAPTA (1993) – instruments of trade SAPTA (1993) – instruments of trade liberalisation on a preferential basisliberalisation on a preferential basis

• SAFTA superseded SAPTA in January 2004 (A SAFTA superseded SAPTA in January 2004 (A Framework Agreement signed) Framework Agreement signed)

• Final Agreement came into effect after 12 Final Agreement came into effect after 12 rounds of negotiations rounds of negotiations

• Four contentious issues – RoO, sensitive Four contentious issues – RoO, sensitive lists, technical assistance, and special funds lists, technical assistance, and special funds for LDCsfor LDCs

• SAFTA came into effect on 1 Jan 06 and SAFTA came into effect on 1 Jan 06 and operationalised from 1 July 06operationalised from 1 July 06

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SAFTA: Trade Liberalisation SAFTA: Trade Liberalisation ProgrammeProgramme

• Long-term objective is to secure free trade in Long-term objective is to secure free trade in region by 2016region by 2016

• Article 7 of SAFTA provides for the schedule of Article 7 of SAFTA provides for the schedule of tariff reductions to have extended time-period tariff reductions to have extended time-period for tariff reduction for LDCs and Non-LDCsfor tariff reduction for LDCs and Non-LDCs

• LDCs members also have to undertake lower LDCs members also have to undertake lower cut in the first two yearscut in the first two years

• Each country is allowed to maintain a sensitive Each country is allowed to maintain a sensitive list subject to a max. ceilinglist subject to a max. ceiling

• Non-LDCs to maintain smaller sensitive list for Non-LDCs to maintain smaller sensitive list for the LDCsthe LDCs

• Safeguard measures in case of surge in imports Safeguard measures in case of surge in imports

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Timeframe of Tariff Reduction Timeframe of Tariff Reduction Under SAFTA Under SAFTA

Tariff Reductions Under SAFTATariff Reductions Under SAFTASAARC SAARC CountrieCountriess

Ist Phase Ist Phase (1/7/2006(1/7/2006--1/7/2008)1/7/2008)

IInd Phase (1/7/2008-IInd Phase (1/7/2008-1/7/2013)1/7/2013)

IInd Phase (1/7/2008-IInd Phase (1/7/2008-1/7/2016)1/7/2016)

LDCs LDCs Reduce Reduce maximumaximum tariff m tariff to 30%to 30%

Reduce tariffs to 0-5% Reduce tariffs to 0-5% range in 8 yrs (equal range in 8 yrs (equal annual reduction but annual reduction but not less than 10% )not less than 10% )

Non-Non-LDCsLDCs

Reduce Reduce max. max. tariff rate tariff rate to 20%to 20%

• Reduce tariffs to 0-Reduce tariffs to 0-5% range in 5 yrs (SL in 5% range in 5 yrs (SL in 6 yrs)6 yrs)

• Reduce tariffs to 0-Reduce tariffs to 0-5% for the products of 5% for the products of LDCs within a LDCs within a timeframe of 3 yrstimeframe of 3 yrs

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Intra-SAARC Trade and IndiaIntra-SAARC Trade and India

• Intra-SAARC trade is dominated by IndiaIntra-SAARC trade is dominated by India

• SAARC region absorbs 5% of Indian SAARC region absorbs 5% of Indian export but only one percent of importexport but only one percent of import

• India has maintained a favourable trade India has maintained a favourable trade balance with the whole of South Asiabalance with the whole of South Asia

2003/042003/042002/032002/032001/022001/022000/012000/011999/001999/00US$ MnUS$ Mn

4148.14148.12724.12724.12026.02026.01928.51928.51394.61394.6ExportExport

668.8668.8512.0512.0571.5571.5465.9465.9397.6397.6ImportImport

3479.33479.32212.12212.11454.51454.51462.61462.6997.0997.0BalanceBalance

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Present Tariff Structure of India Present Tariff Structure of India

• Tariffs rose substantially in the 1980s, tariff Tariffs rose substantially in the 1980s, tariff revenue contributing as high as 44% in 1990revenue contributing as high as 44% in 1990

• Reduction of tariffs – one of the main items of Reduction of tariffs – one of the main items of reforms of 1990reforms of 1990

• Average import duty on mfg (150% in 1991-92) Average import duty on mfg (150% in 1991-92) gradually reduced to 15% in 2005 gradually reduced to 15% in 2005

• In agriculture the average tariff rate is still In agriculture the average tariff rate is still comparatively higher at around 30%comparatively higher at around 30%

• Tariff rates increased during the period 1998/99 Tariff rates increased during the period 1998/99 to 2001/02to 2001/02

• However, reductions have been remarkable in However, reductions have been remarkable in 2004/05 – basic duty reduced, special additional 2004/05 – basic duty reduced, special additional duty abolished and uniformity within sectors duty abolished and uniformity within sectors

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No. of Commodities within Ranges of Customs Duty in India (HS 6-digit level)

Duty rates Duty rates (%)(%)

1991/921991/92 1994/951994/95 1999/001999/00 2004/052004/05

300 and 300 and aboveabove

3838 212212 00 00

200-299200-299 183183 00 88 2020

100-199100-199 39133913 249249 1212 4949

50-9950-99 756756 36703670 44 4747

25-4925-49 2424 633633 45464546 787787

0-240-24 126126 476476 569569 42614261

TotalTotal 50405040 50405040 51395139 51445144Source: A. Mathur and A. Sachdeva 2005, Customs Tariff Structure in India, Economic and Political Weekly No.6

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India’s Profile of Tariff Structure: A Comparison

CountrCountryy

All All GoodsGoods

Agri. Agri. GoodsGoods

Non-Non-AgriAgri

All All goodsgoods

Agri. Agri. GoodsGoods

Non-Non-AgriAgri

IndiaIndia 49.849.8 114.5114.5 34.334.3 29.029.0 36.936.9 27.727.7

B’DeshB’Desh 163.8163.8 188.5188.5 35.735.7 19.519.5 21.721.7 19.219.2

PakistaPakistann

52.452.4 97.197.1 35.335.3 17.117.1 20.420.4 16.616.6

ChinaChina 10.010.0 15.815.8 9.19.1 12.412.4 19.219.2 11.311.3

Bound Tariff (%) Applied Tariffs (%)

Note: While for India the applied tariff rates for 2002, for others it is 2003

Source: A. Mathur and A. Sachdeva

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India’s Tariff Reduction under India’s Tariff Reduction under SAFTA SAFTA

• With effect from July 01, 2006, India With effect from July 01, 2006, India reduced customs duty on nearly 380 tariff reduced customs duty on nearly 380 tariff lineslines

• The level of duty will range from 5-117.5% The level of duty will range from 5-117.5% (for Non-LDCs)(for Non-LDCs)

• For LDCs the duty ranges from 5-100%For LDCs the duty ranges from 5-100%

• Kept 868 tariff lines in the sensitive list for Kept 868 tariff lines in the sensitive list for non-LDCsnon-LDCs

• For LDCs, the no. of tariff lines under For LDCs, the no. of tariff lines under sensitive list is 743sensitive list is 743

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India-Pak Bilateral Issues Under India-Pak Bilateral Issues Under SAFTASAFTA

• Pak has offered to give tariff concessions Pak has offered to give tariff concessions on import of 4872 products to SAARC on import of 4872 products to SAARC Members except IndiaMembers except India

• Concessions to India to be available only on Concessions to India to be available only on the basis of bilateral trade policythe basis of bilateral trade policy

• It will be governed by positive list – It will be governed by positive list – allowing tariff concession only on 773 itemsallowing tariff concession only on 773 items

• Pakistan accused India of not reducing Pakistan accused India of not reducing tariff on 350 items of its export interesttariff on 350 items of its export interest

• There are almost 2646 items that are There are almost 2646 items that are common in Pakistan’s import and India’s common in Pakistan’s import and India’s exports exports

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India-Bangladesh Bilateral India-Bangladesh Bilateral Concessions Concessions

• TRQ to Bangladesh on 8mn pieces of TRQ to Bangladesh on 8mn pieces of garments and 6mn pieces of fabricsgarments and 6mn pieces of fabrics

• To bring down duty to 0% on 4200 items To bring down duty to 0% on 4200 items from B’desh in 3 yrs from current level of from B’desh in 3 yrs from current level of 12-20% 12-20%

• Additional duties o four major export Additional duties o four major export items of Bangladesh – Hilsha fees, saree, items of Bangladesh – Hilsha fees, saree, medicine and porcelain to Indiamedicine and porcelain to India

• India’s sensitive list comprises of India’s sensitive list comprises of agricultural products, textiles, chemicals agricultural products, textiles, chemicals and leathers and leathers

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ConclusionsConclusions

• Tariffs reduction are not a big stumbling Tariffs reduction are not a big stumbling block block

• The success of SAFTA depend a lot on The success of SAFTA depend a lot on removal of non-tariff barriersremoval of non-tariff barriers

• Poor trade facilitation is another critical issue Poor trade facilitation is another critical issue impacting adversely on intra-SAARC tradeimpacting adversely on intra-SAARC trade

• Trade competitiveness among SAARC Trade competitiveness among SAARC countries need to be turned into “trade countries need to be turned into “trade complementarities”complementarities”