1 SAFTA India-Pakistan-Afghanistan Trade Harsh Vivek February 1, 2006 – Taj Mahal Palace and Towers, Mumbai India Development Foundation

2 The Presentation Agenda SAFTA Trade: India-Pak-Afghan Customs duties The way forward

3 Why regional trade? More integrated markets Benefits of trade multipliers in the region Intra-bloc trade – ‘cluster approach to development’ –Exploit trade complementarities of neighbouring countries Cooperate to compete (India-China energy example) Price competitiveness of intra-bloc trade More benefits (relatively) to small countries in intra- bloc trade –E.g. Sri Lanka gaining relatively more from India-Sri Lanka trade

4 SAFTA SAFTA Agreement – “Strengthen intra-SAARC economic cooperation to maximize the realization of the region’s potential for trade.” Governed by WTO principles –Reciprocity, special and differential treatment –Awareness of the needs of least developed members (Revenue Compensation Mechanism) Focus on elimination of tariff and non-tariff barriers Two institutions to oversee implementation –SAFTA Ministerial Council (highest decision-making body) –Committee of Experts (senior economic official from each member-state) –Role of the SAARC Secretariat (?)

5 Tariffs and Non-tariff barriers Tariffs (10 year phase-out of tariffs) –Least developed members reduce tariffs to a maximum of 30 per cent (in first 2 years). –Tariffs already below 30 per cent will be reduced by 5 per cent annually for least developed members –Non-least developed members reduce tariffs to a maximum of 20 per cent (first 2 years) –Tariffs already below 20 per cent will be reduced by 10 per cent annually for non-least developed members Non-tariff barriers – QRs eliminated for products not on sensitive-list

6 The Presentation Agenda SAFTA Trade: India-Pak-Afghan Customs duties The way forward

7 Contribution to SAARC trade (2001) Export To/FromBangladeshBhutan India MaldivesNepal Pakistan Sri Lanka Bangladesh India Maldives Nepal Pakistan Sri Lanka

8 Trade within SAARC as a per cent of trade with Asia and the World CountriesExports 1991Exports 2001Imports 1991Imports 2001 AsiaWorldAsiaWorldAsiaWorldAsiaWorld Bangladesh India Nepal Pakistan Sri Lanka

9 India’s trade with SAARC

10 Share of developing and Asian countries in India’s trade

11 Country profile of tariff structure Bound Tariff (in percentage terms) Applied Tariff (in percentage terms) CountryAllAgri.Mfg.AllAgriMfg. India Bangladesh China Pakistan Malaysia Indonesia Thailand

12 Trade with Pakistan Bilateral trade a precursor to peace and security in the region –Economic-ties: a good confidence-building measure Dramatic increase in trade between India and Pakistan – 76 per cent growth in –More than USD 600 million ( ), likely to cross USD 1 billion by –Exist complementarities in many sectors in the two countries (agri-business, textiles, auto-components, engineering and tourism)

13 List of export-import commodities Pakistan import list / India export list Electric and power machinery Iron-ore, pig iron Medicine and pharma products Organic chemicals, pesticides and insecticides Rubber tyres Pulp and paper Pakistan export list/ India import list Animal hides and skins Raw cotton Edible nuts Metal scrap Precious and semi-precious stones Jewelry Source: International Trade Statistics Yearbook (2001), United Nations

14 Composition of India-Pak trade Major trade in mfg. goods (60 per cent) Bulk trade in agriculture and allied products –Sugar and onions (recent examples) Good potential for increase in trade –Textiles –Petroleum

15 Trade in agriculture commodities Commodity Name Pakistan Exports (USD Million) India Imports (USD Million) a) Tobacco b) Fish c) Natural honey d) Nuts Commodity Name India Exports (USD Million) Pakistan Imports (USD Million) a) Wheat b) Sunflower oil c) Coconut oil d) Tea e) Pepper f) Processed cereals

16 Trade in engineering goods Commodity NamePakistan exports (USD Million)India imports (USD Million) a) Hand tools b) Base metal fittings c) Gas turbines d) Turbo propellers e) Radar apparatus f) Electrical insulators g) Tractors h) Records, tapes i) Telephone sets

17 Afghanistan’s trade Trade suffered a setback due to prolonged strife, civil wars and political turmoil Total exports to India and Pakistan (2004) – USD 150 million (approx) Bulk of Afghanistan’s exports go to Pakistan (69 per cent in 2004) India (8%) and Russia (6%) other major trading partners Imports from a larger number of countries

18 Afghanistan trade destinations

19 Composition of Afghan. trade (2004) Commodity (Exports) Pakistan (%) India (%) Dry fruits Animal skins and fur Carpets Medicinal seeds Fresh fruits Wool Cotton Others Total trade (exports) Commodity (Imports) Pakistan (%) India (%) Fabrics Tyres and tubes Metals Wheat and flour Tea Vegetable oil Cement Medicines Sugar Bicycles Stationery Total trade (imports)

20 The Presentation Agenda SAFTA Trade: India-Pak-Afghan Customs duties The way forward

21 Customs Valuation Indian Customs requires extensive documentation. Processing delays often due to complex tariff structure and multiple exemptions, which may vary according to product or user.

22 Customs Valuation On an average, documents required for importing or exporting one consignment in/out of India includes: Type of documents29 No. of copies118 No. of Signatures256 Manpower Required7 Cost of procedures10 % of consignment value Source: An UN ESCAP estimate.

23 SAFTA - % of Tariff Cut The tariff concessions varied in depth from % The tariff cuts offered by India have been the deepest, varying from % for LDCs and % for all countries The other countries offered much milder tariff cuts ranging from to15-20 % for all countries (except Sri Lanka, which offered cuts up to 75 %)

24 SAFTA - Tariff Structure Provides free trade in goods –The Agreement does not look at trade in services –The issue of cross-border investments is also not dealt with strongly in the Agreement Each SAFTA nation will maintain a Sensitive List to protect the interests of the domestic stakeholders The Agreement also provides for an institutional mechanism of the SAFTA Ministerial Council (SMC) Detailed Dispute Settlement Mechanism (on the lines of the WTO) –Proper documentation, case based on scientific, verifiable evidences

25 India’s Trade with SAFTA Nations India's Export to SAARC Nations INR In billion SAARC Nations Apr-Oct Afghanistan Bangladesh Nepal Pakistan Sri Lanka Source: DGCI&S India's Import from SAARC Nations INR In billion SAARC Nations April-Oct Afghanistan Bangladesh Nepal Pakistan Sri Lanka Source: DGCI&S

26 India's Market among SAFTA Nations India’s Market in SAARC for it’s Major Export Commodities BangladeshOrganic chemical, jewelry, articles of iron & steel, pharmaceutical products, computers NepalMedicines and drugs, oil, ores, organic chemical, articles of iron & steel, electrical machinery, processed foods, textiles PakistanOres, slag & ash, chemicals, iron & steel (articles), mfg. products, tea, sugar, processed foods, spices, computers, auto-components (e.g. Tyres) Sri LankaOres, slag & ash, organic chemicals, cotton, iron & steel (articles), electrical machinery, auto-components and parts, pharmaceutical products

27 The Presentation Agenda SAFTA Trade: India-Pak-Afghan Customs and transit rights The way forward

28 The Way Forward Need to strengthen the Agreement –Expanding the scope to include trade in services Focus on cross-border investments Simplification of trade procedures and documentation Strengthening the implementation of the Agreement – focus on trade reforms in SAARC Involvement of international organisations –Harmonizing tariffs and standards between nations –Working-out a compensation mechanism for the revenue loss by the least developed countries in the region

29 In conclusion… “The success of SAFTA greatly depends on the political commitment and harmony among all the signatory members, and on the vigour and vision with which India and Pakistan – the two largest economies in the region – lead meaningful trade reforms.”

30 Thank you.