Cabinet approves Safta

The Cabinet today approved the South Asian Free Trade Agreement (Safta), which comes into effect from January 1 2006.

Under the agreement, India, Pakistan and Sri Lanka are to reduce tariffs for the least developed countries""Bangladesh, Bhutan, Nepal and Maldives""to below 5 per cent over the next three years.

For products from the three countries, the tariffs are to be reduced to under 5 per cent over a 7-year period, starting January 2006. The LDCs have to reduce tariffs to the same level by 2016.

It has been decided to use the applied rate applicable on January 1, 2000 as the base rate for tariff reduction.

India would have the flexibility to maintain existing tariffs for 884 items imported from Pakistan and Sri Lanka, while it would have a sensitive list of 767 items with respect to the other countries, commerce department officials said.

The list includes agricultural, textile, chemical and leather goods, apart from certain products produced by small-scale industries.

Since Bangladesh was unhappy with India's sensitive list, the Cabinet has decided to allow the import of 6 million pieces of fabrics, with the condition that sourcing should be either from India or of Bangladesh origin. It also approved TRQs of 2 million pieces, without any sourcing conditions.

TRQ provides for the application of a customs duty at a certain rate to imports of a particular product up to a specified quantity. A different rate is applied in case the quantity ceiling is breached.

The agreement also has the clause to compensate the LDCs for revenue loss arising due to the trade liberalization programme under Safta. While Bangladesh, Bhutan and Nepal are entitled to compensation for four years, Maldives can seek compensation for six years.

The LDCs will also be entitled to technical assistance in certain areas.

The rules of origin (ROO) under Safta provide for substantial manufacturing in the exporting countries to avoid flooding of third country imports in the importing country.

The ROO prescribes twin criteria of change of tariff heading at four-digit product classification stage, and a domestic value content of 40 per cent for non-LDCs and 30 per cent for the LDCs. Product-specific rules have also been provided for 191 tariff lines.