ARTICLE to Non-LDC, issues related to the


)  Theagreement created a free trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and SriLanka. The main objective of the study will be to study the features of SAFTAand investigate its implications on bilateral and regional trade. Thestudy will also try to assess the role of India in making SAFTA asuccess especially in the context of multilateralism and emerging regionalism.

Thekey question would be whether SAFTA is beneficial or not in thecontext of multilateral trade negotiations. This paper will also seep throughimminent issues and threats which are preventing success of SAFTA and effectivetrade-led growth in India and the South Asian region.                                                                                                                  I.           INTRODUCTION-WHAT IS SAFTA?SouthAsian Association for Regional Cooperation (SAARC) was established in 1985 as agrouping of seven countries, namely, Bangladesh, Bhutan, India, Maldives,Nepal, Pakistan and Sri Lanka. South Asia has great economic strength in termsof its market potential (one third of humanity resides in this area) and interms of the rich natural resources and capable human resources. Recognisingthe potential of the role of trade and investment flows in the process ofregional economic integration, a trade block among SAARC members was formedwith the signing of SAARC Preferential Trading Arrangement (SAPTA) in April,1993. Four rounds of negotiations were held and tariff concessions wereexchanged by member countries on a number of products, however, theintra-regional trade remained modest.1Thedecision to convert SAARC into a Free Trade Area (FTA) was taken in the 9 thSAARC Summit in May 19972.

UnderSAPTA about 226 items were identified for export at concessional duties whereio6 items were covered for India and 35 items for Pakistan. But the ambiguoustrade concessions mainly to Non-LDC, issues related to the NTBs imposed byIndia, rules of origin, absence of provisions for antidumping, lead to afurther amendment when SAFTA or South Asian free trade agreement was to beadopted which was hoped to pave a way for the customs union and a common marketat some later date which facilitated cross-border trade of goods. Also, themember states are divided into least developed countries (LDCs) (Bangladesh,Bhutan, Maldives and Nepal) and Non-LDCs (India, Pakistan and Sri Lanka).3Under the Agreement, SAFTA will become fully effective for LDCs by 2016 and forNON-LDCs by 2013.

4TheObjectives of this Agreement are to promote and enhance mutual trade andeconomic cooperation among Contracting States by, inter-alia:·        eliminatingbarriers to trade in, and facilitating the cross-border movement of goodsbetween the territories of the Contracting States;·        Promotingconditions of fair competition in the free trade area, and ensuring equitablebenefits to all Contracting States, taking into account their respective levelsand pattern of economic development;·        Creatingeffective mechanism for the implementation and application of this Agreement,for its joint administration and for the resolution of disputes; and·        Establishing aframework for further regional cooperation to expand and enhance the mutualbenefits of this Agreement.                                             II.           WHAT DOES SAFTA OFFER?: KEY FEATURES OF THEAGREEMENTArticle 4 states that TheSAFTA Agreement will be implemented through the following instruments:- 1.Trade Liberalisation Programme 2. Rules of Origin 3.

Institutional Arrangements4. Consultations and Dispute Settlement Procedures 5. Safeguard Measures 6. Anyother instrument that may be agreed upon.Article 6 discusses theTrade Liberalisation Programme: While NLDCs are required to reduce existingtariffs to 20 per cent in two years from the date of entry into force of theagreement, the LDCs will bring down the tariff level to 30 per cent during thesame time frame. In the second installment, the NLDCs will take another fiveyears (except Sri Lanka, which has six years) to dismantle the tariff to o-5per cent, while the LDCs will have eight years for the same purpose. Therefore,the SAFTA will be fully operational only in 2016.Article 8: AdditionalMeasures: The article lays down that Contracting States agree to consider, inaddition to the measures set out in Article 7, the adoption of tradefacilitation and other measures to support and complement SAFTA for mutualbenefit.

Article 10Institutional Arrangements establishes SAFTA Ministerial Council (“SMC”) whichshall be the highest decision-making body of SAFTA and shall be responsible forthe administration and implementation of this Agreement and all decisions andarrangements made within its legal framework. The SMC shall be supported by aCommittee of Experts (“COE”). Further, it states that The COE will also act asDispute Settlement Body under this Agreement.Article 11 lists downSpecial and Differential Treatment to be granted for the Least DevelopedContracting States. Article 14 lays downgeneral exceptions.

Firstly, it states that nothing in this agreement preventsa contracting state party to adopt measures necessary for protection of itsnational security and secondly that nothing in this Agreement shall be construedto prevent any Contracting State from taking action and adopting measures whichit considers necessary for the protection of : (i) public morals; (ii) human,animal or plant life and health; and (iii) articles of artistic, historic andarchaeological value.Article 15 states thatnotwithstanding the provisions of this Agreement, any Contracting State facingserious balance of payments difficulties may suspend provisionally theconcessions extended under this Agreement.Article 16 coversprovision regarding safeguard measures. It states that If any product, which isthe subject of a concession under this Agreement, is imported into theterritory of a Contracting State in such a manner or in such quantities as tocause, or threaten to cause, serious injury to producers of like or directlycompetitive products in the importing Contracting State, the importingContracting State may, pursuant to an investigation by the competentauthorities of that Contracting State conducted in accordance with theprovisions set out in this Article, suspend temporarily the concessions grantedunder the provisions of this Agreement. The examination of the impact on thedomestic industry concerned shall include an evaluation of all other relevanteconomic factors and indices having a bearing on the state of the domesticindustry of the product and a causal relationship must be clearly establishedbetween “serious injury” and imports from within the SAARC region, to theexclusion of all such other factors.

Further, such suspension shall only be forsuch time and to the extent as may be necessary to prevent or remedy suchinjury and in no case, will such suspension be for duration of more than 3years.Article 20 discussesthe dispute settlement mechanism. Article 21 states that any Contracting Statemay withdraw from this Agreement at any time after its entry into force. Suchwithdrawal shall be effective on expiry of 14 six months from the date on whicha written notice thereof is received by the Secretary-General of SAARC, thedepositary of this Agreement. That Contracting State shall simultaneouslyinform the Committee of Experts of the action it has taken.                                                                                                                                       III.           PERSISTING ISSUESAllrecently established regional groupings provide not only for the freeing oftrade but also measures for deeper integration of the economies. However,according to South Asia scholars, governance issues have proven to be itsAchilles’ heel.

  Longstanding socialchallenges have exacerbated economic difficulties—the presence of corruption,inefficient government systems, incompetent bureaucracies in the larger SouthAsian economies, domestic turmoil, and foreign conflict have all proveddetrimental.5Various Hurdels that can be associatedto unsatisfied functioning may be enlisted as under:1.      Failureto follow EPG’s Recommendations:The SAFTA Agreement indeed includes such provisions under the heading”Additional Measures” under Article 8. But they do not measure up tothe Eminent Persons Group’s recommendations. Some of the important measuresrecommended by the EPG and missing from the Agreement are: finalization of thepending draft investment agreement, the creation of a SAARC Investment Area, aSouth Asian Development Fund, a South Asian Development Bank, and an AsianEnergy Grid; vertical industrial integration, harmonization of fiscal andmonetary policies. A crippling drawback of the SAFTA Agreement is that it doesnot provide for the creation of any mechanism for pursuing the “additionalmeasures” under Article 8.

This casts doubts on the seriousness of thecontracting parties to pursue these measures. 6 2.      Irritantsin Bilateral Relations: One of theprimary hurdles in realizing a FTA and moving beyond is irritants in bilateralrelations of the countries of the region. At times it becomes difficult evenfor the leaders to meet annually at the summit level owing to bilateraltensions. SAARC has been especially hostage to “love-hate relations”between India and Pakistan; and the shadow of suspicions spill over to economicarena. The long sensitive list declared by all countries raise the issue notaddressed so far, whether the countries are really serious about free trade atall.7 InNovember 2006, India claimed that Pakistan was deviating from the SAFTAAgreement and was refusing to implement it in letter and spirit.

The IndianMinister of External Affairs suggested that it would be difficult tooperationalize SAFTA unless Pakistan implemented it earnestly. The ministeraccused Pakistan of applying conditions to trade with India under SAFTA, a stepthat went against the essence of the agreement. India launched a formalcomplaint to the SAARC Council of Ministers.8 3.      Issueof Trade Creation: Anotherconcern that arises is the issue of’trade creation’. Economists like JagdishBhagwati argue that a FTA in South Asia, due to its inherent characteristic of’trade diversion’ instead of ‘trade creation’, would in the long run hamperliberalization of trade at the global level. Therefore, there is a need toconcentrate in ‘trade creation’, apart from increasing overall quality of goodsto global standards. In this regard, what is required on priority basis isinfrastructure linking all the countries to facilitate easy flow of goods andmaking South Asia as transit point between East and the West.

Cooperation inenergy sector is highly promising. In the long run, the SAFTA has to includeprovisions for trade in services and investments. This would increase thedegree of complementarily in trade. On the whole, the SAFTA is promising intaking SAARC – still in infancy compared to other arrangements – to new heightsand in the process passing on the benefits to its inhabitants. But, realizingthe status of an Economic Union is a distant dream. 4.      Leavesout Trade in Services: A majorlimitation of the Treaty is that it leaves out trade in services. Another majordeficiency and element of uncertainty in the Agreement is that it leavesun-negotiated far too many things critical for the success of SAFTA.

Theseinclude the formulation of rules of origin, the preparation of the”sensitive” or the negative list, the creation of a fund forcompensating the Least Developed Countries (LDCs) for loss of revenue from theelimination of customs duties, and the identification of areas for providingtechnical assistance to these countries. 9 5.      Non-tariffBarriers: (NTBs) which had nowevolved as an area of serious concern to the developing countries had been yetanother major flaw of the Agreement. Distinct types of non-tariff barrierswhich had been and is affecting SAFTA’s performance includes: import policy barriers;standards, testing, labeling and certification requirements; anti-dumping &countervailing measures; export subsidies and domestic support; servicesbarriers (including those on movement of natural persons); governmentprocurement; lack of adequate protection to intellectual property rights; andother barriers, like investment barriers, language barriers, etc. Under the COEPakistan, Bangladesh and Nepal notified 50 NTMs/PTMs that they faced inaccessing the Indian market.

Pakistan notified the maximum number of NTMs/PTMs(31), while Bangladesh and Nepal notified 14 each. The notified NTMs relate toTBT and SPS measures, cumbersome procedures, licenses and quotas, para tariffmeasures, infrastructure constraints, interstate movement of goods and otherNTMs (related to valuation, trading through state enterprises and anti-dumpingmeasures).10 6.      Specialand Differential Treatment to the LDCs:The Agreement makes a number of provisions for according special anddifferential treatment to the LDCs of the region – Bangladesh, Bhutan andNepal. These provisions do not go far enough to ensure that the LDCs will beable to derive equitable benefits from SAFTA. At the penultimate stage of thenegotiations, the Agreement got held up because Bangladesh wanted it to gofurther towards securing special and differential treatment to the LDCs. At thefinal stage of the negotiations, a compromise was reached that only partially meetsthe demands of the LDCs.  7.

      Jurisdictionof Dispute Settlement Mechanism:A primary concern is whether the SAFTAagreement’s dispute settlement mechanism will be the sole and exclusive basisfor remedying violations of the agreement, or whether Contracting States cansimultaneously approach multilateral organizations, such as the WTO, to resolvetrade-related disputes, utilizing concurrent jurisdiction. Additionally, theagreement does not discuss instances of violations of the SAFTA agreement andits Contracting States’ obligations under the WTO, giving rise to multipleclaims under both mechanisms.11                                                                                                                                                     IV.           CONCLUSION The question whether SAFTA is yielding benefits hasremained unanswered respite numerous empirical studies. They have concludedthat the socio-economic pressures and tensions coupled with internal issues ofcountries such as low income per capita, abundant labour in manual work etc posesimmense hindrance in success of a regional trade agreement.

They are of theopinion that the countries would be better off liberalizing trade unilaterally.However, these studies do succumb to the fact that SAFTA is a step in positivedirection.India is the most important player in the SouthAsian Integration. Almost 90% of the trade with Bangladesh, Nepal and Maldivesis with India.  For SAFTA to be rewarding,it is imperative that India and Pakistan ease tensions between them which ispossible only if socio-political issues between them are resolved throughamicable dialogues. Further, other contracting parties of SAFTA need toliberalize their policies and remove items from “sensitive list” which posesrestricting on imports. Only those goods which are highly necessary should beplaced under the list and the rest should be subjected to the concessionsoffered under the said Agreement.

In the absence of progress on the frontsmentioned in this paper, it is apprehended that SAFTA will stagnate or worsefragment as countries pursue more and more bilateral trade than regional cooperation. 1 M. S. S Perera, The South AsianFree Trade Area: an Analysis of Policy Options for Sri Lanka, Journal ofEconomic Integration 24(3), September 2009; 530-5622 Selim Raihan and M. A. Razzaque,Welfare Effects of South Asian Free Trade Area (SAFTA) Regional TradingArrangements (RTAs) in South Asia: Implications for the Bangladesh Economy,UNDP Regional Centre Colombo, (2007) 3 R.

S. Ratna and Geetu Sidhu, MakingSAFTA a Success: The Role of India, CUTS International, Jaipur, available at

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pdf11 Amala Nath, The SAFTA DisputeSettlement Mechanism: An Attempt to Resolve or Merely Perpetuate Conflict inthe South Asian Region, 22 Am. U. Int’l L.

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