1. An Assessment of Special and Differential Treatment (S&DT) in SAFTA Presented at Regional Seminar on Economic Cooperation in South Asia Organized by CUTS and FES 14-16 August, 2006 Kathmandu, Nepal by Posh Raj Pandey South Asia Watch on Trade Economics and Environment

2. Presentation outline  Key Indicators  Uneven level playing fields for LDCs  Rationale for special and differential treatment  Contours of S&DTs within SAFTA  Conclusion

3. Key Indicators of SA LDCs [ Sources: World Development Report, 2005; Asia Pacific Regional Human Development Report 2006] Country Geographic status Population in 2004 (Millions) GNI capita US $ in 2004 Aid per- capita US $ in 2003 Trade /GDP Ratio Human development Index in 2003 rank out of total 177 countries BangladeshCoastal140.54403633.3139 BhutanLandlocked0.96808864.6134 MaldivesSmall island0.32,54861152.196 NepalLandlocked25.22601947.0136

4. Key Indicators of SA DCs (contd…) [ Source: World Development Report, 2006; Asia Pacific Regional Human Development Report 2006] Country Geographic status Population in 2003 (Millions) GDP per capita in 2003 (constant 2000 $) Aid per- capita in 2003 (current $) Trade /GDP Ratio Human development Index in 2003 rank out of total 177 countries IndiaCoastal1079.7620130.8127 Pakistan Coastal 152.1600737.7135 Sri LankaIsland19.410103579.193

5. Structural Problems of LDCs : Uneven Level Playing Fields – I  Geographic constraints: Remoteness, inaccessibility, high transportation costs  Exposure to international shocks: Price takers, unable to influence the international/regional market  High export concentration ratio: Dependent on few export commodities. E.g., Bhutan – electricity; Nepal and Bangladesh – T&C; Maldives: tourism, tuna

6. Structural Problems of LDCs : Uneven Level Playing Fields– II  Supply side constraints: Lack of infrastructure, inadequate trade facilitation measures  Lack of competitive ability: Comparative advantage on a limited number of products/services, high cost of inputs (except labour)  Low institutional development : public, private and civil society – uncompetitive private sector, weak civil society to make informed interventions and governance problems  Exclusion from knowledge based economy: Low level of digital access in an increasingly digitized world - Digital access index Bangladesh – 0.18; Bhutan - 0.13; Nepal - 0.19, against the global average of 0.48.

7. Rationale for special and differential treatment (S&DT)  LDCs are placed differently in international trade and that these difficulties as well as imperatives of promoting social and economic development requires that these countries be treated differently  Different levels of development achieved by members require different sets of policies for development  Countries at different stages of economic development cannot implement same rules at the same speed, even if agreed  LDCs requires more policy flexibility to catch up other Members.

8. S & DTs within SAFTA One paragraph in Preamble Three sub-paragraphs in Article 3 (Objectives and principles) Four paragraphs in Article 7 (Trade liberalisation programme) Entire Article 11 (Special and Differential Treatment for the Least Developed Contracting States) One paragraph in Article 16 (Safeguards measures)

9. S&DTs in Objectives and Principles Preamble: ‘ Recognizing that Least Developed Countries in the region need to be accorded special and differential treatment commensurate with their development need.’ Objectives:  Article 3.1(b): “ promoting condition for fair competition …taking into account their respective levels and pattern of economic development”  Article 3.2 (c) “ benefit equitably …respective levels of economic and industrial development, the pattern of their external trade and tariff policies and systems”  Article 3.2 (f) “The special needs of the Least Developed Contracting States shall be clearly recognized by adopting concrete preferential measures in their favour on a non-reciprocal basis”

10. Implementation of S&DTs – I Trade Liberalization Programme  Article 7.1(b): reduce tariff to 30% within 2 year; as opposed to 20% for the Non-LDC members within the same time frame  Article 7.1(d): reduce tariff to 0-5% within 8 years counted from third year; as opposed to five years (for India, Pakistan) and six years (for Sri Lanka).  Article 7.3 (a): Maintaining a “sensitive list” flexibility to LDCs to seek derogation in respect of the products of their export interest : Bhutan and Maldives has lower number of tariff lines under sensitive list than DC members  Article 7.6: DCs should reduce tariff to 0-5% within three years for LDCs’ products [as opposed to 5 years provided by Article 7.1 (c)]

11. Implementation of S&DTs – II Article 11: exclusively devoted to S&DTs but with weak language and non- binding Anti-dumping and countervailing measures: “give special regards to” and “to the extent practical” …price undertaking… (Art. 11.a) “greater flexibility” in continuation of quantitative restrictions (Art. 11.b) “consider, where practical, …. direct measures” (Art. 11.c) “special consideration shall be given for technical assistance” to negotiated be later (Art. 11.d) “mechanism for revenue compensation” to be negotiated later (Art. 11.e) : to last for 4 years

12. S&DTs in Implementation Other S&DT  Article 16.8 – Safeguards measures cannot be taken against LDCs’ products as long as its share of imports of the product concerned in the importing Contracting State does not exceed 5 per cent  Rules of Origin: Domestic or regional value addition of at least 30% for LDCs (as opposed to 40% for India and Pakistan and 35% for Sri Lanka) Developing countries, which criticize developed countries at the WTO, could not leave upto LDCs’ expectation in SAFTA

13. Way forward  Magnanimity of more developed members: lenient rules of origin  Change in the mind set: from protectionism to export expansion  Make S&D provisions precise, effective and operational  Review sensitive list and reduce the number  Extend the implementation of revenue compensation mechanism