Cabinet clears implementation of South Asia Free Trade agreement – a historic milestone for SAARC, says Kamal Nath
The Cabinet today cleared the
implementation of the South Asia Free Trade Area (SAFTA) with effect from 1st
January, 2006. Announcing this, Shri
Kamal Nath, Union Minister of Commerce & Industry, said that the coming
into force of SAFTA would be a historic milestone in the economic profile of
the countries of the SAARC region.
“Implementation of SAFTA will further strengthen our trade relations
with the SAARC countries”, he said.
The SAFTA was signed by all SAARC
countries during the SAARC Summit held in Islamabad on 4-6 January, 2004 and
the Cabinet had thereafter accorded approval for the SAFTA Framework Agreement
in its meeting held on 20th January, 2004. The Agreement stipulated that SAFTA would enter into force from 1st
January, 2006, upon completion of formalities including ratification by all the
Contracting States and issuance of notification by the SAARC Secretariat. The completion of these formalities included
completion of negotiations on Rules of Origin, Sensitive List, Mechanism for
Compensation of Revenue Loss for Least Developed Contracting States and
Technical Assistance to Least Developed Contracting States in agreed
areas. Since the signing of the
Agreement, Committee of Experts (COE) had twelve meetings including the last
one held on 29th November – 1st December, 2005 and
finalised all the four Annexes to the Agreement. For implementation of SAFTA, four Annexes had to be attached with
the Agreement and, today, the Cabinet has accorded approval on all these issues.
The basic objective of SAFTA is to
reduce existing tariffs within the stipulated time frame in order to boost
trade among the member countries of SAARC, namely, Bangladesh, Sri Lanka,
Nepal, Pakistan, Bhutan, Maldives and India. At the same time, the sensitive
tariff lines relating to agro-commodities have been kept in India’s Sensitive
List (Negative List) under SAFTA. This means on items under Negative List,
Trade Liberalisation Programme (TLP) under SAFTA would not be applicable.
The
salient features of these four issues approved by the Cabinet are as follows:
i) Rules of Origin (ROO):
Under
ROO, for giving preferential access to the 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 (CTH) at four-digit Harmonized Coding System and domestic value
content of 40% for non-LDCs and 30% for LDCs.
Apart from this general rule, Product Specific Rules (PSR) have also
been provided for 191 tariff lines on technical grounds where both inputs and
outputs are on the same four-digit HS level.
ii) Sensitive List:
As per the Agreement of SAFTA, Trade
Liberalization Programme (TLP) would not apply to the tariff lines included in
the Sensitive List. In order to protect
interest of its domestic stakeholders,
India has finalized two separate Sensitive Lists – a longer list for non-LDCs
(Pakistan, Sri Lanka) and a shorter list for LDCs (Bangladesh, Bhutan, Maldives
and Nepal). India has kept 884 tariff
lines in the Sensitive List for non-LDCs and 763 for LDCs. India’s Sensitive Lists include mainly goods
from agriculture sector, textile sector, chemicals & leathers and sectors
reserved for small scale industries. On
the market access to Bangladesh, Bangladesh was not happy with our 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 condition that sourcing of fabrics should be either
from India or of Bangladesh origin. The
Cabinet has also accorded approval of TRQ of 2 million pieces without any
conditions of sourcing of fabrics.
iii) Mechanism for Compensation of Revenue Loss (MCRL) for Least
Developed Contracting States (LDCs):
The
10th SAARC Summit had mandated that Treaty on SAFTA should provide
an equitable distribution of benefits of trade to all States specially for
smaller and least developed countries including MCRL. Accordingly, Agreement on SAFTA provided for compensation of
revenue loss to LDCs who suffer from loss of customs revenue due to the implementation
of Trade Liberalization Programme (TLP) under this Agreement. The compensation to LDCs except to Maldives
will be available for four years and to Maldives for six years. The
compensation shall also be subject to a cap of 1%, 1%, 5% and 3% of customs
revenue collected on non-sensitive items under bilateral trade in the base
year. However, the extent of
compensation shall not apply in case of claims of compensation by Maldives from
India in the event of loss of revenue being higher than the above annual
ceilings.
iv) Technical Assistance to Least Developed Contracting States
in agreed areas:
In order to promote capacity
building in LDCs, non-LDCs would provide technical assistance in some of the
agreed areas like capacity building in standards, protect certification,
training of human resources, data management, institutional upgradation,
improvement of legal systems & administration, customs procedures &
trade facilitation and market development & promotion.
3. Besides
the above, the Cabinet has also given approval of the following:
a)
MFN (Most Favoured
Nation)** applied rate existing on 1st January, 2000, would
be taken as base rate for the purpose of tariff reduction;
b)
In order to adopt
a uniform date of Tariff Liberalisation Programme, India would bring out the
customs notification from 1st July, 2006.
India’s total trade with SAARC countries was valued
at US $ 5205.57 million (US $ 5.2 billion) in 2004-05.
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SB/NSD/MRS
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* Tariff rate quota refers 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 exceed that quantity.
** This forms part of the WTO principle of
non- discrimination, which require member countries not to discriminate between
goods on the basis of their origin or destination.
(Release ID :14637)