India, Pak to give 4-yr sop to poor cousins under Safta

Two countries to give compensation for losses due to lower import duties.

India and Pakistan have agreed to compensate the least developed countries (LDCs) in the proposed South Asia Free Trade Agreement (Safta) for four years for the losses suffered by them. These losses were on account of lowering of import duties as part of the trade liberalisation programme.

Sri Lanka, the only other non-LDC besides India and Pakistan, will have to provide compensation to the LDCs for only three years with the exception of the Maldives to which it would provide compensation for four years.

Unanimity on the compensation mechanism was one of the main points which was delaying the finalisation of the Safta. The commerce and industry ministry has already prepared a Cabinet note to approve the Safta, which is to be made effective from January 1, 2006.

The extent of the compensation, to be paid annually in dollars, has, however, been capped in each of the four years as a percentage of the basic customs duty collected on imports of non-sensitive items from India and Pakistan in the base year. The base year is being defined as the average of the calendar years 2004 and 2005.

The cap in the first and second year is 1 per cent, 5 per cent in the third year and 3 per cent in the fourth year. There is, however, a special dispensation for the Maldives which would be allowed as a special case to receive compensation for six years from India with a cap of 5 per cent for the fifth and the sixth year.

Officials said the Maldives had also been given a special dispensation that the cap would not apply for its compensation claims from India if revenue loss was higher than the annual ceilings.

There are four LDCs in the Saarc "" Bangladesh, Bhutan, the Maldives and Nepal. The non-LDCs comprising India and Pakistan would be required to reduce their tariffs to 0-5 per cent within seven years, while Sri Lanka has been allowed to reduce tariffs over eight years.

In addition to Safta, four other agreements would come into effect from January 1, 2006.

These include mutual administrative assistance in customs matters, an agreement on promotion and protection of investments, agreement on establishment of SAARC Arbitration Council and SAARC arbitration rules and an agreement on avoidance of double taxation.

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Paying up

India and Pakistan have to reduce their tariffs to 0-5% within 7 years

Sri Lanka has been allowed to reduce tariffs over 8 years

Compensation package was delaying the agreement