SAFTA (Group 1)

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Presented to: Presented by:Dr. S.K.Dubey Sharad Shukla Siddharth Agarwal Vishal Gupta Anshita Srivastava Amritanshu Kumar Ashutosh Sarkar

APresentation On

SAFTA

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The Presentation Agenda

SAFTA

Trade: India-Pakistan

Customs duties

The way forward

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SAFTA

SAFTA stands for “South Asian Free Trade Agreement”.

It was signed in Jan 2004 in Islamabad.

SAFTA came into force on Jan 1 2006.

Commenced on July 1 2006.

Members – India, Pakistan, Sri Lanka, Bangladesh, Maldives, Bhutan, Afghanistan and Nepal.

Formation of SAFTA

Initially SAARC's activities were confined to 9 non controversial areas of regional cooperation in – Transport, Communication, Science & Technology, Education, Culture, Health, Population, Sports & Arts.

The Contracting states hereby establish the SAFTA to promote and enhance mutual trade and economic cooperation among the contracting states, through exchanging concession in accordance with this agreement.

OBJECTIVESThe Objectives of this Agreement are to promote and enhance mutual trade and

economic cooperation among Contracting States by, inter-alia:

a) eliminating barriers to trade in, and facilitating the cross-border movement of goods between the territories of the Contracting States;

b) 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;

c) creating effective mechanism for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and

d) establishing a framework for further regional cooperation to expand and

enhance the mutual benefits of this Agreement.

PRINCIPLESa) SAFTA will be governed by the provisions of this

Agreement and also by the rules, regulations, decisions, understandings and protocols to be agreed upon within its framework by the Contracting States;

b) The Contracting States affirm their existing rights and obligations with respect to each other under Marrakesh Agreement Establishing the World Trade Organization and other Treaties/Agreements to which such Contracting States are signatories;

c) SAFTA shall be based and applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all Contracting States, taking into account their respective levels of economic and industrial development, the pattern of their external trade and tariff policies and systems;

d) SAFTA shall involve the free movement of goods, between countries through, inter alia, the elimination of tariffs, para tariffs and non-tariff restrictions on the movement of goods,

and any other equivalent measures;

e) SAFTA shall entail adoption of trade facilitation and other measures, and the progressive harmonization of legislations by the Contracting States in the relevant areas; and

f) The special needs of the Least Developed Contracting States shall be clearly recognized by adopting concrete preferential measures in their favour on a non-reciprocal basis.

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Why regional trade?

• More integrated markets• Benefits of trade multipliers in the region• Intra-bloc trade – ‘cluster approach to development’

– Exploit trade complementarities of neighbouring countries

• Cooperate to compete (India-China energy example)• Price competitiveness of intra-bloc trade• More benefits (relatively) to small countries in intra-

bloc trade– E.g. Sri Lanka gaining relatively more from India-Sri Lanka

trade

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SAFTA

• SAFTA Agreement – “Strengthen intra-SAARC economic cooperation to maximize the realization of the region’s potential for trade.”

• Governed by WTO principles– Reciprocity, special and differential treatment– Awareness of the needs of least developed members

(Revenue Compensation Mechanism)

• Focus on elimination of tariff and non-tariff barriers

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Tariffs and Non-tariff barriers

• Tariffs (10 year phase-out of tariffs)– Least developed members reduce tariffs to a maximum of 30

per cent (in first 2 years).

– Tariffs already below 30 per cent will be reduced by 5 per cent annually for least developed members

– Non-least developed members reduce tariffs to a maximum of 20 per cent (first 2 years)

– Tariffs already below 20 per cent will be reduced by 10 per cent annually for non-least developed members

• Non-tariff barriers – QRs eliminated for products not on sensitive-list

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SAFTA


Customs duties

The way forward

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Contribution to SAARC trade (2006)

Export To/From Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka

Bangladesh 1.58 23.42 75.00

India 37.53 5.38 1.41 22.75 7.24 25.69

Maldives 1.45 98.55

Nepal 0.56 0.19 99.22 0.03

Pakistan 46.72 21.45 0.43 4.35 27.05

Sri Lanka 32.47 50.90 16.63

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Trade within SAARC as a per cent of trade with Asia and the World

Countries Exports 1991 Exports 2001 Imports 1991 Imports 2001

Asia World Asia World Asia World Asia World

Bangladesh 16.9 4.1 8.2 0.8 26.1 15.9 22.3 15.6

India 9.9 2.9 15.0 5.5 1.4 0.4 4.2 1.0

Nepal 87.5 25.5 93.5 45.1 21.3 14.2 48.4 37.8

Pakistan 10.0 3.9 9.1 3.2 3.1 1.6 3.30 2.4

Sri Lanka 10.1 2.9 15.9 3.8 7.9 5.5 16.2 13.7

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India’s trade with SAARC

India's trade with SAARC nations

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2000-01 2001-02 2002-03 2003-04

Year

Gro

wth

(%

)

0.00

1.00

2.00

3.00

4.00

Sh

are

(%

)

Growth (%) Share (%)

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Share of developing and Asian countries in India’s trade

Share of developing and Asian countries in India's trade

0.0010.0020.0030.0040.0050.0060.00

2000 2001 2002 2003 2004

Year

Per

cen

tag

e

Developing Countries Asia

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Country profile of tariff structure

BoundTariff

(in percentage terms)

Applied Tariff

(in percentage terms)

Country All Agri. Mfg. All Agri Mfg.

India 49.80 114.50 34.30 29.00 36.90 27.70

Bangladesh 163.80 188.50 35.70 19.50 21.70 19.20

China 10.00 15.80 9.10 12.40 19.20 11.30

Pakistan 52.40 97.10 35.30 17.10 20.40 16.60

Malaysia 14.50 12.20 14.90 7.30 2.10 8.10

Indonesia 37.10 47.00 35.60 6.90 8.20 6.70

Thailand 25.70 35.50 24.20 16.10 29.00 14.20

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Trade with Pakistan

• Bilateral trade a precursor to peace and security in the region– Economic-ties: a good confidence-building measure

• Dramatic increase in trade between India and Pakistan – 76 per cent growth in 2004-2005– More than USD 600 million (2004-05), likely to

cross USD 1 billion by 2005-2006– Exist complementarities in many sectors in the two

countries (agri-business, textiles, auto-components, engineering and tourism)

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List of export-import commodities

Pakistan import list / India export list

• Electric and power machinery

• Iron-ore, pig iron

• Medicine and pharma products

• Organic chemicals, pesticides and insecticides

• Rubber tyres

• Pulp and paper

Pakistan export list/ India import list

• Animal hides and skins

• Raw cotton

• Edible nuts

• Metal scrap

• Precious and semi-precious stones

• Jewelery

Source: International Trade Statistics Yearbook (2001), United Nations

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Composition of India-Pak trade

• Major trade in mfg. goods (60 per cent)

• Bulk trade in agriculture and allied products– Sugar and onions (recent

examples)

• Good potential for increase in trade– Textiles

– Petroleum

Exports from India to Pakistan (2004-05)

20%

4%

60%

6%

1%

2%

7%

Agri. and allied Ores and minerals Mfg goods

Engg goods Machinery Textiles

Petroleum

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Trade in agriculture commodities

Commodity Name

Pakistan Exports (USD Million)

India Imports (USD Million)

a) Tobacco 1.95 3.63

b) Fish 2.02 5.36

c) Natural honey 2.33 1.18

d) Nuts 12.44 19.04

Commodity Name

India Exports (USD Million)

Pakistan Imports (USD Million)

a) Wheat 1.42 3.92

b) Sunflower oil 1.55 5.79

c) Coconut oil 4.63 1.83

d) Tea 3.18 6.11

e) Pepper 124.47 5.22

f) Processed cereals 1.27 9.39

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Trade in engineering goods

Commodity Name Pakistan exports (USD Million) India imports (USD Million)

a) Hand tools 1.34 3.77

b) Base metal fittings 1.24 1.6

c) Gas turbines 2.4 5.59

d) Turbo propellers 1.8 22.41

e) Radar apparatus 1.21 11.58

f) Electrical insulators 1.19 7.72

g) Tractors 3.35 1.29

h) Records, tapes 26.04 12.19

i) Telephone sets 3.07 7.75

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SAFTA


Customs duties

The way forward

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Customs Valuation

• Indian Customs requires extensive documentation.

• Processing delays often due to complex tariff structure and multiple exemptions, which may vary according to product or user.

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Customs Valuation• On an average, documents required for importing or

exporting one consignment in/out of India includes:

Type of documents 29

No. of copies 118

No. of Signatures 256

Manpower Required 7

Cost of procedures 10 % of consignment valueSource: An UN ESCAP estimate.

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SAFTA - % of Tariff Cut

• The tariff concessions varied in depth from 5-100 %

• The tariff cuts offered by India have been the deepest, varying from 25-100 % for LDCs and 10-90 % for all countries

• The other countries offered much milder tariff cuts ranging from 7.5-10 to15-20 % for all countries (except Sri Lanka, which offered cuts up to 75 %)

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SAFTA - Tariff Structure

• Provides free trade in goods

– The Agreement does not look at trade in services

– The issue of cross-border investments is also not dealt with strongly in

the Agreement

• Each SAFTA nation will maintain a Sensitive List to protect the

interests of the domestic stakeholders

• The Agreement also provides for an institutional mechanism of

the SAFTA Ministerial Council (SMC)

• Detailed Dispute Settlement Mechanism (on the lines of the

WTO)

– Proper documentation, case based on scientific, verifiable evidences

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India’s Trade with SAFTA Nations

India's Export to SAARC Nations

INR In billion

SAARC Nations

2002-03

2003-04

2004-05

Afghanistan 762.82 936.81 467.55

Bangladesh 56.91 7.99 41.83

Nepal 16.96 30.76 15.77

Pakistan 9.98 13.19 4.03

Sri Lanka 44.57 60.62 32.31

Source: DGCI&S

India's Import from SAARC Nations

INR In billion

SAARC Nations

2002-03

2003-04

2004-05

Afghanistan .89 1.86 .77

Bangladesh 3.00 3.56 2.00

Nepal 13.64 13.14 6.31

Pakistan 2.17 2.64 1.87

Sri Lanka 4.40 8.94 3.51

Source: DGCI&S

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India's Market among SAFTA Nations

• India’s Market in SAARC for it’s Major Export Commodities

Bangladesh Organic chemical, jewelry, articles of iron & steel, pharmaceutical products, computers

Nepal Medicines and drugs, oil, ores, organic chemical, articles of iron & steel, electrical machinery, processed foods, textiles

Pakistan Ores, slag & ash, chemicals, iron & steel (articles), mfg. products, tea, sugar, processed foods, spices, computers, auto-components (e.g. Tyres)

Sri Lanka Ores, slag & ash, organic chemicals, cotton, iron & steel (articles), electrical machinery, auto-components and parts, pharmaceutical products

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SAFTA


Customs and transit rights

The way forward

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The Way Forward

• Need to strengthen the Agreement– Expanding the scope to include trade in services

• Focus on cross-border investments• Simplification of trade procedures and documentation• Strengthening the implementation of the Agreement –

focus on trade reforms in SAARC• Involvement of international organisations

– Harmonizing tariffs and standards between nations

– Working-out a compensation mechanism for the revenue loss by the least developed countries in the region

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In conclusion…

“The success of SAFTA greatly depends on the political commitment and harmony among all the signatory members, and on the vigour and vision with which India and Pakistan – the two largest economies in the region – lead meaningful trade reforms.”

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Thank you

SAFTA (Group 1)

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