SAFTA: India gets a rude shock

EXIM MATTERS

It was not a happy week for free trade enthusiasts in the commerce ministry. The South Asian Free Trade Agreement (SAFTA) came into effect on July 1, 2006 but Pakistan gave a rude shock to India by limiting the concessions to only 773 items.

The BIMSTEC (Bay of Bengal Multi Sectoral Technical and Economic Cooperation) free trade pact featuring Bangladesh, India, Myanmar, Sri Lanka, Nepal, Bhutan and Thailand missed this year's July 1 deadline due to differences among member-countries over rules of origin of goods, sensitive list of goods and tariff liberalisation schedule.

The trade talks at the World Trade Organisation to get the Doha Development Round going broke down once again at Geneva.

While the failure of talks at the World Trade Organisation was widely expected and the BIMSTEC failure could be considered as only a hurdle to be crossed later, what took India by surprise was the failure of Pakistan to abide by an agreement that it had ratified.

Pakistan says that the SAFTA agreement does not contain any provision that trade relations between the two countries would function on Most Favoured Nation (MFN) basis with the ratification of the agreement and that the grant of MFN treatment to India is an issue of the General Agreement on Trade and Tariffs, 1994 (GATT 1994).

So, while Pakistan has notified tariff concessions on import of 4,872 items for imports from SAARC countries, imports from India would be restricted to only 773 items.

India says that that SAFTA has little operational meaning if member countries do not honour their commitments in letter and spirit and that any efforts to subject SAFTA to such conditionalities would be a derogation of the agreement.

India has already taken up the matter with the SAARC secretariat but the dispute resolution mechanism at SAFTA might not bring any gains, as the main problem is that of Pakistan's attitude.

As matters stand, India has not extended tariff concessions to 884 sensitive items. Import of select textiles and textile articles from Pakistan and Sri Lanka would be subject to 12.5 per cent duty but their imports from Nepal, Bangladesh, Bhutan and Bangladesh would be at 9.5 per cent duty. Imports from all these countries would be subject to minimum import value at half or less than half of that prescribed for imports from other countries.

The tariff concessions for the remaining items are listed in 126 entries, where quite a few manufactured items attract 9.5 per cent duty for imports from Pakistan or Sri Lanka and 6.67 per cent for imports from Nepal, Bhutan, Maldives or Bangladesh.

On many other items where the duty rates have been retained at 12.5 per cent for imports from Pakistan and Sri Lanka, the duty rates have been slashed to 10 per cent for imports from Nepal, Bhutan, Maldives or Bangladesh.

In other cases, mostly farm products, the duty rates for imports from Nepal, Bhutan, Maldives and Bangladesh are about two-thirds of the duty rates for imports from Pakistan or Sri Lanka.

Whatever India's grievance, the approach should be to maintain the tariff concessions granted so that enough interest for trade with India is generated in Pakistan.

That will help create a vested interest for peace from those whose income depends on trade with India. Even a one-way concession may be a good strategy to give greater trade, stability and peace in the sub-continent a better chance to succeed.

tncr@sify.com