SAFTA becoming more important as Doha is deadlocked

South Asian regional trade grouping is gaining in importance since Doha talks are deadlocked. And trade between most of the countries are low since they manufacture and export similar goods, said Rishad Bathiudeen, Minister of Industry and Commerce. Minister Bathiudeen was addressing the Fifth SAFTA Ministerial Council Meeting at the Maldivian capital of Malé on 13 June.

SAFTA, the ‘Agreement on South Asian Free Trade Area,’ was reached in January 2004 among Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka (and more recently, Afghanistan). The countries agreed to reduce Customs duties of all traded goods to zero by year 2016.

Sri Lanka has just a modest amount of trade taking place under the SAFTA agreement accounting for only US $ 1.18 m during July 2006 to December 2010. The total intra-regional trade under SAFTA stood at US$ 823.62 m during the same period.

Under the SAFTA, Sri Lanka has exported natural rubber, cloves, mace, black tea, coco peat, broom sticks, knitted fabric and tyres. However, Sri Lanka has substantial bilateral trade volumes with SAARC countries outside the SAFTA agreement. Most of such trades are under specific bilateral agreements such as Indo-Sri Lanka Free Trade Agreement and Pakistan-Sri Lanka Free Trade Agreement. This is one reason for Sri Lanka’s exports levels to be identified as ‘modest’ with SAFTA.

The rest of Sri Lanka’s substantial exports to SAARC countries fall outside the SAFTA preferences which are being focused by Sri Lanka in phasing out modalities of the negative list negotiations.  

Speaking about the need to improve intra-regional trade volumes, Minister Bathiudeen said: “SAFTA has made impressive progress towards achieving its objectives of strengthening intra-regional trade cooperation. I take this opportunity to appreciate the active involvement of a number of institutions and committees, which engage in advancing the process of deeper regional integration, especially the committees such as Committee on Economic Cooperation and the Committee of Experts.

“However, it should be highlighted that the intra-regional trade is still not up to the satisfactory level as compared to the region’s global trade which is increasing. The region, therefore, needs to make extra efforts to maximise the realisation of its optimum trade potential. In this regard it is important to reduce the size of sensitive lists and remove non-tariff and para-tariff measures to regional trade. Even though, I agree that these steps are not easy for all of us.”  

Under the Trade Liberalisation Programme of SAFTA, scheduled for completion by 2016, the customs duties on products from the region will be progressively reduced. Sri Lanka has to bring down its customs duties to 0-5% in six equal installments by 2014 for the products from other member states. The Least Developing Countries (LDC) — Afghanistan, Bangladesh, Bhutan, Maldives and Nepal — are to bring down to 0-5% in 8 equal installments by 2016.

India and Pakistan to bring down their tariff 0-5% in 5 equal installments by 2013. Sri Lanka, though not an LDC, given the size and vulnerability of its economy was able to achieve more concessions and more enforcement time period for the graduation of tariff in all negotiations of SAFTA.

In addition, a decision has been made to reduce the SAFTA Sensitive List (Negative List) by 20% by all member states at the 14th meeting of the Committee on Economic Cooperation of SAFTA, held in February 2009 in New Delhi and the 5th SAFTA Committee of Experts meeting held in October 2009 in Kathmandu and the Second meeting of the Working Group on Reduction in the Sensitive Lists under SAFTA in March 2011 in Kathmandu with a view to implementing the SAFTA Agreement in a meaningful way in letter and spirit.

Currently, most of the tradable items are in the negative lists of the respective member states. Even the concessions granted under South Asian Preferential Trading Arrangement (SAPTA) for tradable items have been brought under the negative list of SAFTA, though the SAFTA concessions were expected to supersede the concessions granted under SAPTA.  The Member States have circulated their request lists to their respective countries for the 20% reduction of the existing negative lists of each member. During the Working Group meeting on Reduction in the Sensitive Lists under SAFTA, in March 2011, it was decided to hold bilateral negotiations to finalise the lists of products to be taken out of the Sensitive Lists of Member States with a view to a sensible reduction in the negative lists of each Member State.

Stressing the need for improving economic cooperation among SAARC countries, Minister Bathiudeen said: “I am of the view that the main reason for these obstacles is that most of the countries manufacture and export similar goods. These countries are in deferent levels of development. The population of South Asia is approximately 1,624 million, a big market among us. Each member should identify the products which could gain the maximum comparative advantage in the region and export to each other members.

“The global economic recession hit all of us due to the dependence of traditional markets. When our major buyers are in bad economic situations, their impact is very bad for all of us. If all of us could increase and diversify our trade among us, then the effect of such extra regional economic calamities will be manageable. SAARC countries could accelerate their cooperation to seize the emerging market opportunities in South Asia itself. As we are all aware, the on-going Doha negotiations are deadlocked. In this scenario, the Regional economic integration is becoming more and more important.  Let me assure you that the Government of Sri Lanka remains committed to extend its fullest support to all other governments in the SAARC region to ensure realisation of the full potential of SAFTA.”  

The SAARC Council of Ministers signed a framework Agreement on South Asian Free Trade Area (SAFTA) in January 2004 in Islamabad. The SAFTA came into force on 1 January, 2006.  The objectives of SAFTA are to promote and enhance mutual trade and economic cooperation among the member countries by eliminating tariff and non-tariff barriers to trade, facilitating cross boarder movement of goods between member countries, promoting conditions of fare competition in the free trade area, ensuring equitable benefits to all members and establishing a framework for further regional cooperation to expand and enhance the mutual benefits of this Agreement.