1 Tariff Liberalisation Under SAFTA An Indian Perspective By Pranav Kumar CUTS International Jaipur

2 From SAPTA to SAFTA SAPTA (1993) – instruments of trade liberalisation on a preferential basis SAPTA (1993) – instruments of trade liberalisation on a preferential basis SAFTA superseded SAPTA in January 2004 (A Framework Agreement signed) SAFTA superseded SAPTA in January 2004 (A Framework Agreement signed) Final Agreement came into effect after 12 rounds of negotiations Final Agreement came into effect after 12 rounds of negotiations Four contentious issues – RoO, sensitive lists, technical assistance, and special funds for LDCs Four contentious issues – RoO, sensitive lists, technical assistance, and special funds for LDCs SAFTA came into effect on 1 Jan 06 and operationalised from 1 July 06 SAFTA came into effect on 1 Jan 06 and operationalised from 1 July 06

3 SAFTA: Trade Liberalisation Programme Long-term objective is to secure free trade in region by 2016 Long-term objective is to secure free trade in region by 2016 Article 7 of SAFTA provides for the schedule of tariff reductions to have extended time-period for tariff reduction for LDCs and Non-LDCs Article 7 of SAFTA provides for the schedule of tariff reductions to have extended time-period for tariff reduction for LDCs and Non-LDCs LDCs members also have to undertake lower cut in the first two years LDCs members also have to undertake lower cut in the first two years Each country is allowed to maintain a sensitive list subject to a max. ceiling Each country is allowed to maintain a sensitive list subject to a max. ceiling Non-LDCs to maintain smaller sensitive list for the LDCs Non-LDCs to maintain smaller sensitive list for the LDCs Safeguard measures in case of surge in imports Safeguard measures in case of surge in imports

4 Timeframe of Tariff Reduction Under SAFTA Tariff Reductions Under SAFTA SAARC Countries Ist Phase (1/7/ /7/2008) IInd Phase (1/7/ /7/2013) IInd Phase (1/7/ /7/2016) LDCs Reduce maximum tariff to 30% Reduce tariffs to 0-5% range in 8 yrs (equal annual reduction but not less than 10% ) Non-LDCs Reduce max. tariff rate to 20% Reduce tariffs to 0-5% range in 5 yrs (SL in 6 yrs) Reduce tariffs to 0-5% range in 5 yrs (SL in 6 yrs) Reduce tariffs to 0-5% for the products of LDCs within a timeframe of 3 yrs Reduce tariffs to 0-5% for the products of LDCs within a timeframe of 3 yrs

5 Intra-SAARC Trade and India Intra-SAARC trade is dominated by India Intra-SAARC trade is dominated by India SAARC region absorbs 5% of Indian export but only one percent of import SAARC region absorbs 5% of Indian export but only one percent of import India has maintained a favourable trade balance with the whole of South Asia India has maintained a favourable trade balance with the whole of South Asia US$ Mn 1999/002000/012001/022002/032003/04 Export Import Balance

6 Present Tariff Structure of India Tariffs rose substantially in the 1980s, tariff revenue contributing as high as 44% in 1990 Tariffs rose substantially in the 1980s, tariff revenue contributing as high as 44% in 1990 Reduction of tariffs – one of the main items of reforms of 1990 Reduction of tariffs – one of the main items of reforms of 1990 Average import duty on mfg (150% in ) gradually reduced to 15% in 2005 Average import duty on mfg (150% in ) gradually reduced to 15% in 2005 In agriculture the average tariff rate is still comparatively higher at around 30% In agriculture the average tariff rate is still comparatively higher at around 30% Tariff rates increased during the period 1998/99 to 2001/02 Tariff rates increased during the period 1998/99 to 2001/02 However, reductions have been remarkable in 2004/05 – basic duty reduced, special additional duty abolished and uniformity within sectors However, reductions have been remarkable in 2004/05 – basic duty reduced, special additional duty abolished and uniformity within sectors

7 No. of Commodities within Ranges of Customs Duty in India (HS 6-digit level) Duty rates (%) 1991/921994/951999/002004/ and above Total Source: A. Mathur and A. Sachdeva 2005, Customs Tariff Structure in India, Economic and Political Weekly No.6

8 India’s Profile of Tariff Structure: A ComparisonCountry All Goods Agri. Goods Non- Agri All goods Agri. Goods Non- Agri India B’Desh Pakistan China Bound Tariff (%)Applied Tariffs (%) Note: While for India the applied tariff rates for 2002, for others it is 2003 Source: A. Mathur and A. Sachdeva

9 India’s Tariff Reduction under SAFTA With effect from July 01, 2006, India reduced customs duty on nearly 380 tariff lines With effect from July 01, 2006, India reduced customs duty on nearly 380 tariff lines The level of duty will range from % (for Non-LDCs) The level of duty will range from % (for Non-LDCs) For LDCs the duty ranges from 5-100% For LDCs the duty ranges from 5-100% Kept 868 tariff lines in the sensitive list for non- LDCs Kept 868 tariff lines in the sensitive list for non- LDCs For LDCs, the no. of tariff lines under sensitive list is 743 For LDCs, the no. of tariff lines under sensitive list is 743

10 India-Pak Bilateral Issues Under SAFTA Pak has offered to give tariff concessions on import of 4872 products to SAARC Members except India Pak has offered to give tariff concessions on import of 4872 products to SAARC Members except India Concessions to India to be available only on the basis of bilateral trade policy Concessions to India to be available only on the basis of bilateral trade policy It will be governed by positive list – allowing tariff concession only on 773 items It will be governed by positive list – allowing tariff concession only on 773 items Pakistan accused India of not reducing tariff on 350 items of its export interest Pakistan accused India of not reducing tariff on 350 items of its export interest There are almost 2646 items that are common in Pakistan’s import and India’s exports There are almost 2646 items that are common in Pakistan’s import and India’s exports

11 India-Bangladesh Bilateral Concessions TRQ to Bangladesh on 8mn pieces of garments and 6mn pieces of fabrics TRQ to Bangladesh on 8mn pieces of garments and 6mn pieces of fabrics To bring down duty to 0% on 4200 items from B’desh in 3 yrs from current level of 12-20% To bring down duty to 0% on 4200 items from B’desh in 3 yrs from current level of 12-20% Additional duties o four major export items of Bangladesh – Hilsha fees, saree, medicine and porcelain to India Additional duties o four major export items of Bangladesh – Hilsha fees, saree, medicine and porcelain to India India’s sensitive list comprises of agricultural products, textiles, chemicals and leathers India’s sensitive list comprises of agricultural products, textiles, chemicals and leathers

12 Conclusions Tariffs reduction are not a big stumbling block Tariffs reduction are not a big stumbling block The success of SAFTA depend a lot on removal of non-tariff barriers The success of SAFTA depend a lot on removal of non-tariff barriers Poor trade facilitation is another critical issue impacting adversely on intra-SAARC trade Poor trade facilitation is another critical issue impacting adversely on intra-SAARC trade Trade competitiveness among SAARC countries need to be turned into “trade complementarities” Trade competitiveness among SAARC countries need to be turned into “trade complementarities”