Trade in SAARC Countries

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CHAPTER FIVE

Trade in SAARC Countries


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SAARC

1985 = The Heads of State or Government at their First SAARC Summit

held in Dhaka on 7-8 December adopted the Charter formally establishing

the South Asian Association for Regional Cooperation

Prime Objectives :

To promote the welfare of the peoples of South Asia to improve their

quality of life;

To accelerate economic growth, social progress and cultural

development in the region

To provide all individuals the opportunity to live in dignity


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SAARC (cont)

To strengthen cooperation with other developing countries

To strengthen cooperation among themselves in internationalforums on matters of common interests; and

To cooperate with international and regional organizations with

similar aims and purposes


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SAARC (cont)

Member Countries of SAARC:

Bangladesh

India

Pakistan

Nepal

Bhutan

Maldives

Afghanistan (new Member)


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Intra-regional Trade

Figure 1: Share as Exporter in Intra-Regional Trade

Maldives1%

Bangladesh

3%Nepal

7%

Sri Lanka7%

Pakistan10%

India72%


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Intra-regional Trade (cont)

Figure 1: Share as Importer in Intra-Regional Trade

Bangladesh

34%

Maldives

5%Nepal

18%

Pakistan

8%

India

12%

Sri Lanka

23%


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SAPTA TREATY

In 1995 SAARC preferential Trading Agreement (SAPTA) was

inaugurated for bilateral reductions in tariffs and non-tariff barriers on

specified commodities on a reciprocal basis, but with special treatment

given to the least developed countries (LDC).

The eventual objective was for SAPTA to become, by 2001, a

South Asian Free Trade Area (SAFTA) based on multilateral tariff

reductions.

SAPTA failed to yield the desired benefits to the members, particularly theLDCs, due to the following reasons: (a) The tariff cuts were not deep

enough (b) The actively traded goods were not given the tariff

preferences.(c) Modalities of removal of non-tariff and para-tariff barriers

were not well articulated in the agreements. (d) The rules of origin criteria

acted as a hindrance


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SAFTA TREATY

SAFTA was signed at the Islamabad summit in January 2004 to go into

effect from January 1, 2006.

The SAFTA agreement would be fully implemented within December 31,

2016, in two phases.

The members, under the trade liberalization programme, agreed that Non-

Least Developed States (NLDS) -including India, Pakistan and Sri Lanka

would reduce their tariffs from existing levels to 20% by January 1, 2008

in equal proportions annually.

In case the tariffs would already be less than 20% when the agreement

comes into force on January 1, 2006, the NLDS should reduce the actual

tariff by 10% each during two years between January 1, 2006 to January 1,

2008.


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SAFTA TREATY (cont)

Therefore, under SAPTA, tariffs were reduced only for goods specified

in the agreement. Conversely, under SAFTA, tariffs will be reduced for

all products except those on each countryssensitive list.

It was also agreed that the four Least Developed Countries (LDCs), as

defined by the UN, including Bangladesh, Nepal, the Maldives and

Bhutan-will reduce their existing tariff rates to 30% within two years

after the agreement comes into force on January 1, 2006.

If actual tariff rates in these four least developed member states arealready below 30% on January 1, 2006, the agreement comes into force,

there will be an annual reduction of 5% for each of the two years. That

will be the end of phase 1.


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SAFTA TREATY (cont)

In phase 2, the NLDC members, with the exception of Sri Lanka, will

have to reduce their tariffs from 20% or below, as may be the case, to

0-5% within five years by January 1, 2013.

Sri Lanka, however, shall be given an additional year till January 1,

2014, to reduce tariff to prescribed level of 0-5%.

The 4 LDC members, however, will be given 8 years from January 1,

2008 to reduce tariff from 30% or below, as may be the case, to 0-5%

at par with the rest of the SAARC member states.


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Characteristics of Trade in SAARC Region

Geographical proximity

High pre-FTA tariffs

High intra-regional trade levels:

Trade complementarities

Low political tensions

Streamlined market access for goods produced

Low non-tariff barriers (NTB)


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Generally accepted preconditions required

Infrastructure and efficiency in ports

cross border transit points

Border crossings

Poor management at customs

Streamlining the market access


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The political environment needs to be improved by the regional

governments and political leaders. The governments, private sector,

academia, professionals and social sector organizations have to work in

unison.

Development of tourism can yield substantial benefit through a multiplier

effect.

The region should widen its export base by diversifying into capital-

intensive exports.

Areas of comparative advantage should be identified.

Steps To Improve Trade Situation


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Steps To Improve Trade Situation (cont)

Customs clearance, border crossing should be developed

A strong and supportive capital market should be formed

Human resources should also be developed in the region for

managerial, entrepreneurial and technical skills

Economic reforms policies and institutional arrangements should be

conducive to the agreement

Trade in SAARC Countries

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