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Will Safta get launched on January 1?
By M. Aftab
WILL Safta get launched January 1? Will it become
operational as stipulated? It’s a big question mark, even
after years of preparations and rhetoric to get going and
expand regional trade through South Asia Free Trade Agreement
(Safta).
 When
the seven member nations of South Asian Association for
Regional Cooperation—Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan and Sri Lanka—had signed Safta in Islamabad
January 1, 2004, all hopes were that it will become effective
January 1, 2006. But, several members have been dragging their
feet in arriving at a consensus on details that were left to a
committee of experts (CoEs). That has not happened.
Dhaka Saarc summit deliberations will cover final negotiations
on operationalization of Safta and Agreement on Promotion &
Protection of Investment. “Emerging areas of cooperation
including trade, energy, environment, health and tourism will
also be taken up at Dhaka,” Foreign Office spokesperson MS
Tasnim Aslam said.
Safta stuck in its tracks, more than 1.4 billion impoverished
people of the region now look to its top leadership to take
some bold decisions, bring the agreement back on rails, and
get it moving.
Business is not the only stake. Pinned to trade and economic
cooperation in Saarc are hopes that it will bring peace and
stability to the region, and free its people from wars and
tensions that have persisted for more than half a century.
The misfortune of South Asian people is, while their leaders,—
civil, and military— were fighting each other, nearby Asean
took big strides in development, investment, business, and
cooperation in a wide range of fields. Asean is now a
formidable force in the global market place, while
neighbouring Saarc is still a victim of political indecision
and tensions, deprived of the benefits of peace.
The 13th summit of Saarc leaders in Dhaka this week is staked
on statesmanship that is expected of Prime Minister Sahukat
Aziz, the current Chairman of Saarc, Prime Minister Manmohan
Singh, and Bangladesh President Mrs. Khalida Zia, and their
other four collegues from Sri Lanka, Nepal, Bhutan and
Maldives. Their political and business acumen can make or mar,
the prospects of the scheduled Safta launch.
Instruments: Article 4 of Safta had identified six instruments
for its implementation, including: trade liberalization
programme (TLP), rules of origin (RoO), institutional
arrangements, consultation and dispute settlement procedures,
safeguards measures, and any other instrument that may be
agreed upon.
But, is it not amazing that out of four major issues,
identified for more than two years, three key ones still are
unresolved. These four areas, according to Pakistani official
negotiators, are: preparation and tabling of sensitive lists (SLs)
of items for which each country is demanding protection or
safeguards. Finalization of RoOs, compensation for revenues
loss (CRL) that each country, particularly, the
least-developed (LDCs), will suffer when trade opens up and
imports flow into each other’s country. And, technical
assistance (TA) for LDCs to train their personnel for
implementing Safta and handling freer trade.
Ironically, two years of talks by CoEs and other officials
trying to negotiate a consensus have failed to produce results
in the first three major issues—SLs, RoO, and CRL.
The seven have, so for, agreed only on technical assistance to
be provided to LDcs, to help train their customs, trade, tax
and communications people in handling larger trade flows when
Safta gets going.
Pakistan is one of the foremost countries that has offered
training to officials and personnel of LDCs in various fields.
LDCs when the agreement was concluded wanted TA because their
economies are small, their infrastructure, including ports,
roads and communications were developing, and their personnel
needed training in a range of areas, from customs procedures
to WTO.
India and Sri Lanka also have offered TA. The agreement
provides, “ special consideration shall be given by
contracting states (CSs) to requests from LDCs for TA and
cooperation arrangements, designed to assist them in expanding
their trade with other CSs and in taking advantage of the
potential benefits of Safta.”
Non-LDCs (NLDCs), according to the agreement, will bring their
existing tariffs rates down to 20 per cent within two years of
coming into force of the agreement, under trade liberalization
programme (TLP). They will also reduce tariffs from 20 per
cent or below to 0-5 per cent within a second period of five
years. LDCs will reduce their tariffs from their existing
rates down to 30 per cent within two years, and from 30 per
cent or below down to 0.5 per cent in a second time frame of
eight years.
CSs may not apply the stipulated TLP and tariff cutting to the
tariff lines included in the sensitive lists (SLs) which will
be negotiated and incorporated in the agreement. SLs will be
reviewed after every four years, or earlier, as decided by
Safta ministerial council.
All the seven countries have already tabled, but not
finalized, their Sensitive Lists, they need to protect or
safeguard from imports from the region and the competition
under Safta. The lists are long and contain all imaginable
items that may be hit by perceived competition. Pakistani list
of SLs comprises 1,210 items, on import of which it will not
lower its tariffs or give concessions. Bangladesh and LDcs
have tabled longer SLs, on which they don’t wish to lower
their tariffs, as of now.
They also demand protection from imports for longer periods,
than originally envisaged. When the technical committee
finalizes SLs, and strikes a consensus, the lists will be
appended to the main Safta agreement.
According to Article 18, RoOs will be negotiated by the CSs,
and incorporated in the agreement as an integral part. These
rules cover questions like value addition (VA) and change of
tariff heading (CTH) over each tradable item among the member
countries. Pakistani negotiators, indicating the views of
their other colleagues from member countries are of the
opinion that once matters relating to Rules of Origin are
agreed, it will help a quick finalization of SLs, and their
incorporation in the agreement.
Compensation for CLR is, perhaps, the most tricky point in
negotiations. Bangladesh is a hard liner, while Pakistan and
India wish to go along the actual provisions of Safta
agreement. Negotiators are stuck over identification and
definition of loss of what categories of customs and other
taxes are to be calculated to determine the revenue loss. They
have also failed to finalize modalities and establish a
“mechanism” to compensate for the revenue loss.
The agreement provides that “LDCs may face loss of customs
revenue due to the implementation of the trade liberalization
programme (TLP).” “Until alternative domestic arrangements are
formulated to address this situation, the CSs agree to
establish an appropriate mechanism to compensate LDCs for
their loss of customs revenue.” It clearly means “loss of
customs revenue,” alone. Bangladesh disagrees with it. “The
mechanism and regulations will be established prior to the
commencement of the TLP.” Neither the formula to calculate the
“revenue loss” has been agreed nor the “mechanism” or
instrument to pay the loss has been established.
Bangladesh insists that LDCs should be compensated not only
for “the loss of customs revenue,” when tariffs, as envisaged
in Safta agreement, are lowered but also for loss of revenue
on several internal taxes, VAT and duties already levied on
domestically manufactured items.
The domestic production of these items, Bangladesh maintains,
will be reduced or eliminated in the face of imports from
member countries. Pakistan and India are among the countries
that have refused to accept this very enlarged and inflated
definition of “revenue loss,” because the definition provided
in the agreement is only based on customs revenue. This has
turned into an unsettling argument between NLDCs versus LDCs.
The negotiators also are unable to decide as how, and who,
will pay the compensation. And what should be the ‘mechanism.
The agreement had left these decisions for experts to take
after negotiations.
Various modes have merely been discussed, but there is no
consensus on the proposed Compensation Mechanism. These
include the proposal to establish a new fund. The unresolved
questions are: will the governments of exporting countries pay
the compensation? Will governments, exporters, and business of
exporting countries pool their resources to pay it to the
importing country? Will exporters and businessmen alone be
responsible to pay an importing country?
Each of the smaller countries is also worried about the future
prospects of one or two of its own key items. Maldives for its
fish and seafood, Bangladesh for its ready-to-wear garments,
and Bhutan for its timber export. Pakistan wishes to protect
its textiles, engineering and autos.
However, Safta members will go along the G-20 policy on
agricultural products at WTO forum, that was reflected at the
Group’s recent meeting at Islamabad.
Pakistani negotiators and exporters have to take into view
other elements of the future business prospects and
competition in the region, too. They have to brace for a good
deal of competition from India, especially, as far as exports
to the region, and especially Bangladesh, are concerned. They
will have to lower their cost of production on a large number
of items, improve efficiency, and offer a greater variety of
consumer products. Freight is an element that already goes
against them. It roughly costs Rs1,000 for one-ton freight
from India to Bangladesh, overland, compared to something like
$60 or Rs3,600 for shipping from Pakistan to that country.
They will have to add more for land transport from the port to
inland points and other costs. India also has a freight
advantage in exporting overland to Sri Lanka from the South.
Saarc countries will sign two agreements at Dhaka summit.
These are: cooperation in customs matters, and avoidance of
double taxation.
While everyone fervently hopes for Saarc and Safta to move
forward swiftly, the snags, the agreement still faces, will
have to be removed. The burden now lies on the shoulders of
the Summit leaders. Will statesmanship prevail at Dhaka?
Courtesy: The DAWN
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Pakissan.com;
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