Diagnostic study on SAFTA and SATIS - South Asia … · Diagnostic study on SAFTA and SATIS ......

Diagnostic study on SAFTA and

SATIS

Presented at the Public-Private Dialogue on Nepal-India trade and SAFTA-SATIS

23 March 2012, Kathmandu

Puspa SharmaResearch Director

(On behalf of SAWTEE Research Team)

Objectives

• Critically assess the Agreement on SAFTA and SATIS

• Identify factors that have held back Nepal’s trade with SAARC Member Countries except India

• Provide recommendations on future negotiation strategies and steps that need to be taken at the domestic level

Methodology

• Literature review

• Secondary data analysis

• Focused Group Discussion

• Field visit

Limitations

• Not enough data and information available on current NTBs and para-tariffs imposed on Nepal’s exports to SAARC Countries other than India. Therefore, not able to conduct an in-depth analysis regarding NTBs and para-tariff barriers.

• Not enough data on services at the disaggregated level.

Trend of Nepal’s merchandize trade with SAARC countries

Exports (including to India), in NRs. billion

2000/01 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Exports to

SAARC

countries

26.6 41.4 42.7 43.5 48.7 45 46.9

Total

Exports to

world

55 59.8 58.9 58.5 68.6 60.9 64.6

% of

exports to

the region

in total

exports

48.1 69.2 72.5 74.4 71.0 73.9 72.7

Exports (excluding to India), in NRs. million

2000/01 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Exports to

SAARC

countries

other than

India

566 662 976 4,923 5,159 5,109 4,052

Total

Exports to

world

55,246 59,777 58,927 58,474 68,597 60,950 64,562

% of exports

to the region

(other than

India) in

total exports

1.0 1.1 1.7 8.4 7.5 8.4 6.3


Imports (including from India), in NRs. billion

2000/01 2001/02 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Imports

from

SAARC

countries

45.9 57.6 107.6 116.5 143.2 166.2 215.5 260.8

Total

imports

from

world

118.8 108.6 160.7 195.8 237.0 291.0 375.6 397.5

% of

imports

from the

region in

total

imports

38.6 53.0 67.0 59.5 60.4 57.1 57.4 65.6


Imports (excluding from India), in NRs. billion2000/01 2001/02 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Imports

from

SAARC

countries

other than

India

0.65 1.02 0.48 0.63 0.86 1.10 1.20 1.7

Total

imports

from world

118.8 108.6 160.7 195.8 237.0 291.0 375.6 397.5

% of

imports

from the

region

other than

India in

total

imports

0.5 0.9 0.3 0.3 0.4 0.4 0.3 0.4


Direction of Nepal’s merchandize trade in South Asia

Exports (value in NRs. million; share as % of total exports to the region)

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Value Share Value Share Value Share ValueShar

eValue

Shar

eValue Share

India 40,715 98.4 41,729 97.7 38,556 88.7 43,574 89.4 39,903 88.6 42,868 91.4

Bangladesh 234 0.6 521 1.2 4,664 10.7 4,710 9.7 3,374 7.5 3,472 7.4

Bhutan 238 0.6 311 0.7 143 0.3 195 0.4 1,555 3.5 425 0.9

Maldives 0.047 0 1 0 0.089 0 4 0 0.29 0 0.4 0.0

Pakistan 186 0.5 127 0.3 81 0.2 86 0.2 79 0.2 142 0.3

Sri Lanka 2 0 3 0 35 0.1 162 0.3 100 0.2 7.6 0.0

Afghanistan 0.46 0 12 0 0.92 0 2 0 0.97 0 4.4 0.0

Total 41,376 100 42,704 100 43,480 100 48,733 100 45,012 100 46,919 100

Imports (value in NRs. million; share as % of total imports from the region)

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Value Share Value Share Value Share Value Share Value Share Value Share

India 107,143 99.6 115,872 99.5 142,376 99.4 165,119 99.3 214,261 99.4 259,162 99.4

Bangladesh 105 0.1 286 0.2 491 0.4 418 0.3 765 0.4 1,104 0.4

Bhutan 127 0.1 119 0.1 136 0.1 352 0.2 133 0.1 112 0.04

Maldives 0.05 0 0.1 0 0.3 0 0.07 0 0 0 0.9 0

Pakistan 191 0.2 171 0.2 180 0.1 249 0.2 281 0.1 294 0.1

Sri Lanka 52 0 46 0 25 0 58 0 55 0 152 0.05

Afghanistan 0.2 0 6 0 25 0 6 0 7 0 0.2 0

Total 107,618 100 116,500 100 143,233 100 166,202 100 215,502 100 260,825 100


Trade balance (in NRs. million)

Partner 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

India (66,428) (74,143) (103,821) (121,545) (174,358) (216,294)

Bangladesh 130 235 4,173 4,292 2,609 2,368

Bhutan 111 191 6 (158) 1,422 313

Maldives 0 0.9 (0.2) 4 0.3 (0.5)

Pakistan (5) (45) (99) (163) (202) (151)

Sri Lanka (50) (43) 10 103 45 (144)

Afghanistan 0.2 6 (24) (4) (6) 4

Total (regional) (66,242) (73,798) (99,755) (117,471) (170,490) (213,905)

Total (world) (100,901) (136,881) (178,556) (222,404) (314,656) (332,973)


Structure of Nepal’s merchandize trade in South Asia,

except India

EXPORTS• In 2009/10, Nepal’s exports were concentrated mainly in two

items in two countries:

▫ Bangladesh: lentils (NRS. 3 billion, which is 92 percent of Nepal’s total exports to Bangladesh in 2009/10)

▫ Bhutan: iron and steel products (HS 730890) (NRs. 1 billion, which is 66 percent of Nepal’s total exports to Bhutan in 2009/10)

• The share of these two items in Nepal’s total exports to the region (except India) was 81 percent.

• Largest export to Sri Lanka was also lentils (95 percent of total exports to Sri Lanka) but was only NRs. 95 million in value terms.

EXPORTS (contd…)• In 2010/11, exports were concentrated mainly in a single

item—lentils—to Bangladesh.

▫ Lentils worth NRS. 3.3 billion, which is 95 percent of Nepal’s total exports to Bangladesh in 2010/11, and 83 percent of Nepal’s total export to SAARC countries other than India, was exported to Bangladesh.

• Total value of exports to Bhutan decreased along with the decrease in exports of iron and steel products, but the number of exported items increased.

• Total exports to Sri Lanka also decreased, and there was no export of lentils at all.


except India

IMPORTS• In 2009/10, 62 percent (NRs. 765 mn) of Nepal’s total imports from

within the region (except India) was from Bangladesh. Imported items consisted mainly of lead acid batteries (NRs. 240 mn), cotton fabrics, water and non-alcoholic beverages, cotton wastes, medicines, raw jute, etc.

• Second largest import source was Pakistan (imports of NRs. 281 mn, which is 22 percent of Nepal’s total imports from within the region, except India).

• In 2010/11, Bangladesh’s share in Nepal’s imports from within the region other than India was 65 percent, and the largest import item was again lead acid batteries (NRs. 260 million). NRs. 250 million worth of jute and other textile bast fibre was also imported from Bangladesh in 2010/11.

• Thus, Nepal’s trade with SAARC countries is volatile, not showing distinct pattern and trend.


except India

Future trade prospects

Complementarity Index (Nepal’s exports and SAARC countries’ imports)

Importers 1999 2005 2006 2007 2008 2009 2010

Afghanistan NA NA NA NA 57.22 61.17 79.64

Bangladesh NA 26.07 24.70 30.98 NA NA NA

Bhutan 75.40 55.20 54.30 37.63 71.87 75.90 81.47

India 41.77 39.65 43.94 45.67 45.91 42.18 NA

Sri Lanka 36.56 22.52 20.87 25.88 25.07 32.39 29.37

Maldives 71.56 68.90 87.72 80.11 64.74 NA NA

Pakistan NA 26.62 29.43 29.37 28.10 28.60 30.12


• Revealed Comparative Advantage (RCA)

▫ RCA>1 in 2009 and 2010 (290 items)

• Trade Potential

▫ US$ 1 million

• Import growth in partner countries during 2006-2010

▫ 10 percent

• Positive export growth during 2006-2010


• Afghanistan: None

• Bangladesh: 16 items

• Bhutan: 3 items

• Maldives: 2 items

• Pakistan: 13 items

• Sri Lanka: 8 items

• Products such as tea, cardamom, ginger, medicinal plants, vegetable products, iron and steel products made it to the list. These are also products identified by Trade Policy 2009 and NTIS 2010.

• Some other items include plastic products such as carboys, bottles, flasks, stoppers, lids, caps, closures, etc.; footwear; different types of yarn, etc.


• Some words of caution:

▫ Nuts also made to both Bangladesh’s and Pakistan’s list (???)

▫ Also, export growth of lentils and some varieties of tea seen negative; and Pakistan’s import growth of cardamoms less than 10 percent during the period. Hence, they did not make to the list.

SAFTA: Nepal’s perspectives

• Slower liberalization▫ Many items of Nepal’s export interest still in partners’ sensitive

lists.

▫ Higher tariffs on items in the sensitive lists

• Stringent Rules of Origin

• Customs-related problems

• Non-tariff barriers (???)

• Para-tariff barriers▫ E.g., According to latest Bangladesh’s Trade Policy Review of

2006 and a World Bank Study of 2006, imposition of infrastructure development surcharge (IDSC), supplementary duty (SD), regulatory duty (RD); discriminatory imposition of VAT by Bangladesh was prevalent.

▫ In FY 2008/09, revenue from SD was Tk 23 billion, which was 1/4th of the total customs duty collected.

• Non-availability of technical assistance

SAFTA: Nepal’s perspectives• Transit issues

▫ List of goods that require duty insurance not made available to Nepalese traders.

▫ High insurance premium rate due to monopoly of the Indian National Insurance Company Ltd.

▫ Problems at ports: delays, higher turnaround time, detention and demurrage; penalty charges on entire cargo rather than just on delayed portion of the cargo; non-issuance of TBLs at dry ports; etc.

▫ Inability to use Bangladesh’s Mongla port due to lack of cooperation from India in providing railway transit facility to Nepal; but recent developments are encouraging; e.g., The latest Indian budget announced the allocation of funds to develop rail links with Bangladesh and Nepal.

▫ Kakarvitta/Panitanki-Phulbari/Banglabandh an alternative route to use Mongla port, but so far only trade with Bangladesh taking place through this route.

▫ Many problems seen in this route being addressed through understanding between relevant Nepalese and Indian officials at the local level, which are temporary solutions.

▫ Other problems include: worse conditions of roads, collection of local taxes even from Nepalese vehicles on transit

SAFTA: Nepal’s perspectives

• Domestic constraints (supply-side related)

▫ Production capacity and exportable surplus

▫ Infrastructure

▫ Human capital

▫ Access to finance

▫ Technology

▫ Trade facilitation

SAARC Agreement on Trade in Services (SATIS)

• Signed at the 16th SAARC Summit in Thimphu in 2010.

• Its architecture resembles GATS as it borrows most of the provisions of GATS.

• However, the languages of some of the major disciplines are weak compared to GATS and other regional agreements on services.

• Nevertheless, Article V of GATS obliges SATIS Contracting States to be more liberal regionally than multilaterally.


• Covers any service in any sector except▫ services supplied in the exercise of governmental authority.

▫ transportation and non-transportation air services, including domestic and international services, whether scheduled or non-scheduled and related services in support of air services other than aircraft repair and maintenance services, selling and marketing of air transport services, and computerized reservation services.

• Additionally, two types of measures are expressly carved out from the scope of SATIS:▫ It does not apply to measures affecting individuals seeking access to

the employment market of a Contracting State, or to measures regarding citizenship, residence, or employment on a permanent basis.

▫ It does not prevent Contracting States from regulating the entry of natural persons provided that regulations are not applied in such a manner as to nullify or impair the benefits to other Contracting States accruing from the specific commitments.


• General obligations and disciplines of SATIS

▫ Most Favoured Nation (MFN) Treatment

▫ Transparency

▫ Domestic regulations

▫ Recognition of professional qualification

▫ Competition discipline

▫ Safeguard measures

▫ Subsidies

▫ General and security exceptions

• Specific commitments

▫ National Treatment

▫ Market access

▫ Payments and transfer


• Schedule of Specific Commitments among SAARC Member Countries to be negotiated further.

• Nepal has made relatively more liberal commitments in GATS than by other South Asian countries—both in terms of sectoral/sub-sectoralcoverage and limitations and conditions specified in the schedules.

• Most of the other SAARC countries, fully exploiting the flexibilities provided by GATS, have made commitments below the level of locking-in unilateral services liberalization. The level of commitments in terms of sectoral coverage, except for Nepal, is lower than the average of their respective groups. However, India and Pakistan have improved their schedules of commitments during the Doha Round services negotiation by including new sectors or relaxing the limitations on previously scheduled sectors. Despite all this, the GATS commitment of Nepal is the most liberal in South Asia.

SAARC Agreement on Trade in Services (SATIS)GATS Commitments Restrictiveness Index for SAARC countries

Sectors Bangladesh India Maldives Nepal Pakistan Sri Lanka

Overall Index 3.36 6.69 2.33 33.34 8.97 5.64

Market Access 2.24 5.46 2.33 29.19 8.90 4.57

National Treatment 4.47 7.91 2.33 37.49 9.05 6.71

Business Services 0.00 2.52 8.03 30.32 7.32 0.00

Communication

services26.68 12.08 0.00 15.68 16.42 6.16

Construction/engineeri

ng services0.00 4.02 0.00 14.73 4.02 0.00

Distribution services 0.00 0.00 0.00 54.45 0.00 0.00

Educational services 0.00 0.00 0.00 40.76 0.00 0.00

Environmental

services0.00 0.00 0.00 68.75 0.00 0.00

Financial services 0.00 6.19 0.00 47.58 6.57 16.93

Health/social services 0.00 6.38 0.00 25.53 14.89 0.00

Tourism/ travel

services33.09 18.20 0.00 66.73 24.26 38.60

Recreational/ cultural

services0.00 0.00 0.00 28.65 0.00 0.00

Transport services 0.00 0.00 0.00 13.25 0.00 0.00

Other Services 0.00 0.00 0.00 0.00 0.00 0.00


• Nepal’s indicative offer list

▫ Same as the GATS schedule of commitments.

▫ However, Nepal could show flexibilities in relaxing conditions on the share of foreign equity participation in the offered sectors during the negotiation.

• Nepal’s indicative request list

▫ Should be based on three criteria:

Sectors of high growth potential

Sectors of comparative advantages

Sectors of policy direction


• Sectors of high growth potential

▫ Information on the level of investment—both public and private—at the service sector-specific disaggregated level; on human resource and technology are lacking.

▫ Therefore, taking growth rate of the services sectors based on National Account as a proxy, the following services sectors should be strong candidates to be included in the request list:

Financial intermediation, having the highest growth rate of 13.6 percent

Health (9 percent)

Electricity, gas and water (8.8 percent)

Education (7.9 percent), and

Community and social services (7.4 percent)


• Sectors of comparative advantage▫ Based on RCA index of the sector for which data is available

RCA

Sector 2001 2005 2010

Transport 0.94 0.68 0.63

Travel 2.07 2.08 4.55

Communication .. 6.01 8.62

Insurance … 0.32 0.64

Other business 2.27 0.94 1.87

Services (Total) 1.82 1.12 2.23


• Sectors of policy direction

▫ Trade Policy 2009: Tourism, education, health and information technology (IT).

▫ NTIS 2010: Tourism, labour, IT and BPO, health, education, engineering and hydroelectricity.

Overall recommendations

• Refer to the Action Matrix

Action Matrix.doc

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