The Hindu Business Line : Cabinet gives nod for SAFTA — `Major step for trade integration with neighbours'

THE Union Cabinet today gave its nod to the implementation of the South Asia Free Trade Area (SAFTA) to be launched on January 1, 2006, paving the way for the integration of entire South Asian markets of seven participating countries by way of free trade in goods and providing a stepping-stone for an eventual unified South Asian single market.The Union Commerce and Industry Minister, Mr Kamal Nath, after the Cabinet meeting, told reporters here that "this is the first major step for a trade agreement with our neighbours" and hoped that "implementation of SAFTA will further strengthen our trade relations with the SAARC countries".

The seven members of the South Asian Association for Regional Cooperation (SAARC), who are signatories to the SAFTA, include non-LDC member countries such as India, Pakistan and Sri Lanka and least developed countries (LDCs) such as Bangladesh, Bhutan, Maldives and Nepal.

The basic objective of SAFTA is to reduce extant tariffs to less than 5 per cent within the stipulated time frame of 2016 by all the participating countries with due compensation to LDCs for loss of revenues on account of tariff reduction being undertaken by them on a phased liberalisation programme. Bowing to intense demand from domestic industries that cheap and low-cost suppliers from neighbouring countries would dump the domestic market by piggybacking on the concessional conduits being provided by SAFTA, it has been agreed to keep rigorous rules of origin and also two separate sensitive lists.

Under rules of origin, for according preferential access to member countries under SAFTA, the goods have to undergo substantial manufacturing process in the exporting countries.

The substantial manufacturing processes are defined in terms of twin criteria of Change of Tariff Heading at four-digit Harmonised Coding System and domestic value content of 40 per cent for non-LDCs and 30 per cent for LDCs.

Besides this general rule, Product Specific Rules have also been provided for 191 tariff lines on technical grounds where both inputs and outputs are on the same four-digit Harmonised Coding System level.

On the two separate sensitive lists India has finalised, a longer list is for non-LDCs (Pakistan and Sri Lanka) and a shorter one for LDCs.

Thus India has kept 884 tariff lines in the sensitive list for non-LDCs and 763 tariff lines for LDCs. India's sensitive lists include mainly goods from agriculture sector, textile sector, chemicals and leathers and sectors reserved for small-scale industries.

On the market access to Bangladesh, Dhaka was not happy with India's sensitive list which included 185 tariff lines out of 234 tariff lines in Chapters 61 & 62 of garments and hence in order to give a limited market access through Tariff Rate Quota (TRQ), the Cabinet has decided to accord 6 million pieces of fabrics with the proviso that sourcing of fabrics should be either from India or of Bangladesh origin.

The Cabinet has also approved TRQ of 2 million pieces without any condition of sourcing of fabrics. TRQ pertains to a trading mechanism that provides for the application of a customs duty at a certain rate to imports of a particular good up to a specified quantity (in quota quantity) and at a different rate to imports of that good that surpass that quantity.

The Cabinet has also given approval that MFN (Most Favoured Nation) applied rate existing on January 1, 2000 would be taken as base rate for the purpose of tariff reduction. It has also been decided to bring out the customs notification from July 1, 2006 in order to adopt a uniform date of tariff liberalisation programme.

India's total trade with SAARC countries rose from $4,816.88 million in 2003-04 to $5,205.57 million last year, registering an increase of 8.07 per cent.

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