Seven South Asian countries, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, signed an agreement to establish South Asian Association for Regional Cooperation (SAARC) on December 8, 1885. Afghanistan has become the 8th member of SAARC from 13th summit (2005). The objective of establishing this regional organization was to achieve economic growth and reduce poverty through collective effort and mutual cooperation. This organization felt the need of preferential trading agreement for increasing trade and investment in the region. This led to the birth of South Asian Preferential Trading Agreement (SAPTA).The seventh summit held in Dhaka in April 1993 had conducted South Asian Preferential Trading Agreement, SAPTA. This agreement was implemented from December, 1995. This agreement provides each other member countries the preferential treatment to reduce import tariffs on preferential items. Its objective was to convert the South Asian region gradually into free trade area or to move toward South Asian Free Trade Area, SAFTA. The Eleventh SAARC summit held in January 2002 at Kathmandu had decided to prepare a model of SAFTA. The member countries signed a free trade agreement on January 6. 2004 at the 12th SAARC summit held in Islamabad. The agreement has come into effect from January 1, 2006.Free trade area is an agreement under which there is a free flow of goods and services among member countries without any barriers.Since Nepal is a small and also a least developed country, the SAFTA is expected to provide enormous benefits to the country.The South Asian Free Trade Area includes the eight members of the South Asian Area for Regional Cooperation (SAARC). These are Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan which joined in 2005.SAFTA was launched in 2006 to reduce tariffs for intra-regional trade among SAARC countries. Member states have agreed to reduce their tariffs on each other’s goods not on sensitive lists as long as those goods have been produced in accordance with the agreement’s Rules of Origin provisions. The Agreement also includes provisions related to customs cooperation, dispute settlement, trade facilitation, safeguards against injury to industry, and eligibility for technical assistance.
The ultimate aim of SAFTA is to put into place a fully-fledged South Asian Economic Union similar to the European Union. This will take a long-time. Currently, SAFTA only covers trade in goods. There are early discussions about a possible agreement on trade in services but details have not yet been agreed among SAARC member countries.SAFTA aims to promote and enhance mutual trade and economic cooperation by eliminating barriers to trade, promoting conditions of fair competition in the free trade area, ensuring equitable benefits to all, and establishing a framework for further regional cooperation to expand the mutual benefits of the agreement. The basic objective of the agreement is to promote and enhance mutual trade and economic cooperation among member countries. Other objectives are as follows:- 1. To eliminate barriers in trade and facilitate cross-border movement of goods between the territories of contracting states. 2. To promote conditions of fair competition in the free trade area, and ensure equitable benefits to all contracting states, taking into account their respective levels and pattern of economic development. 3. To create effective mechanism for the implementation and application of the agreement for its joint administration and the resolution of disputes. 4. To establish a framework for further regional cooperation to expand and enhance the mutual benefits of the agreement.
Principles of SAFTA The SAFTA is governed by following principles. 1. Governed by the Provisions of this Agreement The SAFPA is governed by the provisions of this agreement and also by rules, regulations, decisions, understandings and protocols to be agreed upon within its framework by the contracting states. 2. Existing Rights and Obligations The contracting states affirm their existing rights and obligations with respect to each other under Marrakesh agreement establishing the WTO and other agreements to which such contracting states are signatories. 3. Overall Reciprocity It is based and applied on the principles of overall reciprocity and mutuality of advantages. 4. Free Movement of Goods The agreement involves the free movement of goods, between countries through the elimination of tariffs, Para-tariffs and non-tariff restrictions on the movement of goods, and other equivalent measures. 5. Adoption of Trade Facilitation and Other Measures The agreement entails the adoption of trade facilitation and other measures, and the progressive harmonization of legislation in the relevant areas. 6. Recognization of the Needs of LDCs The special needs of the least developed member countries is clearly recognized by adopting concrete preferential measures in their favour on non-reciprocal basis.
The Table illustrates that, in SAFTA First Phase, Non-LDC member countries reduced tariff up to 20 percent (for LDCs 30 percent) on its imported commodities which are not included in the sensitive list, and was applied from January 01, 2006, within two years. If the existing tariff rates were below 20 percent (for LDCs 30 percent) on January 2006, then there was an annual reduction of 10 percent (for LDCs 5 percent) on margin of preference basis for each of these two years. In SAFTA Second Phase, all the member countries will reduce tariff to 0-5 percent which is applied from January 01, 2008. The time schedule is 5 years for two of the Non-LDC member countries, India and Pakistan; and 6 years for another Non-LDC member country, Sri Lanka. For LDC members, the time schedule is of 8 years. Therefore, India and Pakistan will fully implement SAFTA on 2013, Sri Lanka on 2014 and Afghanistan, Bangladesh, Bhutan, Nepal and Maldives on 2016. 4 India, Pakistan and Sri Lanka are developing countries among the SAFTA member countries and referred to Non-LDCs in SAFTA agreement.
the SAFTA Agreement has specific requirements to ensure that goods exported from member countries are produced, grown or extracted from the member countries.These requirements are called Rules of Origin Rules of origin are criteria used to determine the country of origin of a product and nationality of the product. Goods produced in third countries, for example, Iran or Japan cannot be re-packaged and sold to India as Afghan goods. That would give them an unfair advantage by allowing them to take advantage of reduced tariff rates between India and Afghanistan under SAFTA.The general rules of origin currently define the country of origin for a good as the country in which a good is manufactured, produced or grown. Further work or material added to the good in another country must affect "substantial transformation" of the good in order to change the good’s country of origin. Substantial transformation means production which results in a new and different good, that has a name, character and use that is different from those of its constituent materials.A product’s raw materials or components might come from a number of countries, but customs officials must determine the product’s origin to decide how to treat it, including what tariff to charge as the product enters their jurisdictionHere in the table we can see that there must be value addition of 40% and 30% for non LDC and LDC countries respectively in goods to gain the nationality of the product..
The SAFTA Agreement provides a provision to maintain a sensitive list for every member.The Agreement provides member countries to maintain sensitive lists, consisting of items which are not subject to tariff reduction The products, included in the sensitive list, are exempted from tariff reduction. There is a maximum ceiling of the number of products and some flexibility for LDCs which were mutually agreed. The sensitive list will be reviewed in every four years, in order to eliminate the number of commodities included into it.
Trade diversion is a protection to inefficient producers at cost of other countries. for example Indian producer doesn’t select Chinese suppliers. They chose Nepalese producer not bcoz Nepalese r efficient bt due to less custom. So there is wastage of resource n promotion of efficiency.
Principle of SAFTASAFTA shall be governed in accordance with the following principles:- The contracting state affirms their existing rights and obligations with respect to each other under Marrakech Agreement Establishing the World Trade Organization and other treaties/agreements to which such contracting states are signatories;- SAFTA will be governed by the provisions of this Agreement and also by the rules, regulations, decisions, understanding and protocols to be agreed upon within its framework by the contracting state;- SAFTA shall be based and applied on the principles of overall reciprocity and mutuality of advantage in such a way as to benefit equitably all contracting states;- SAFTA shall involve the free movement of goods between countries through inter alia, the elimination of tariffs and non-tariff restrictions on the movement of goods and any other equivalent measures;- SAFTA shall entail adoption of trade facilitation and other measures and the progressive harmonization of legislations by the contracting states in the relevant areas; and- The special needs of the least developed contracting States shall be clearly recognized by adopting concrete preferential measures in their favor on a non-reciprocal basis.SAFTA has created some concerns like Tariff compensation for LDC’s which may remain a sticking point. High value goods in negative lists could dilute benefits. Product specific deviations for agreed ROO (rules of origin) may lead to inflow from third countries. It will take some time to resolve complex issues relating to tariff compensation mechanisms like negative lists of products to be kept outside the agreement.Inter regional trade in South Asia has shown weak performance at 5 percent compared to 35 percent in ASEAN, 55 percent in NAFTA and 62 percent in the EU.This has partly been due to the political stand off between the two largest economics of the region, India and Pakistan. The South Asian Free Trade Area (SAFTA) replaces the earlier South Asia Preferential Trade Agreement (SAPTA) and may eventually lead to a full-fledged South Asia Economic Union.
With fast globalization of world's economy, BIMSTEC agreement call be viewed as all effort to strengthen the process of economic cooperation and free trade amongst the Asian countries for their mutual benefits.The agreement was signed among Bangladesh, India, Myanmar, Srilanka and Thailand on 8th Feb. 2004 at Phuket, (Thailand), where the Ministers of Commerce and Foreign affairs of these nations met in the process of strengthening the trade ties and binding them into an alliance. The name BIMSTEC an acronym consists of the first letters of the countries involved, (B) Bangladesh, (I) India, (M), Myanmar, (S) Srilanka and (T) Thailand. It was decided to include two other countries Nepal and Bhutan, the membership of the BIMSTEC would become more varied geographically.
Aims and PurposesAccording to the Bangkok Declaration on the Establishment of BIMSTEC is to create an enabling environment for rapid economic development, accelerate social progress in the sub-region, promote active collaboration and mutual assistance on matters of common interest, provide assistance to each other in the form of training and research facilities
cooperate more effectively in joint efforts that are supportive of, and complementary to, national development plans of member states, maintain close and beneficial cooperation with existing international and regional organizations, and cooperate in projects that can be dealt with most productively on a subregional basis and which make best use of available synergies.
Economic SignificanceThe SAARC (South Asian Association for Regional Cooperation) was also conceived for the purpose of regional cooperation, but couldn't deliver the expected results due to hostile attitude of India and Pakistan, a necessity was being felt to enhance trade links among the countries. The BIMSTEC serves the purpose, except Pakistan all other SAARC members have decided to join the BIMSTEC.The BIMSTEC agreement aimed to create a free trade zone where tariffs would be brought down to zero by20 12. Bangladesh and Myanmar, the two least developed countries of the forum given extra time to drop their tariff rates to zero level by the year 2017. This agreement opens new vistas for economic and commercial links amongst the member nations. It highlights the necessity of interdependence among member nations in the presently fast globalized economy of the world. The BIMSTEC would facilitate improvement in the trade at institutional and people level, most of the member countries are suffering from the menace of corruption, so the trade links at institutional and private level be positively resulted in enhanced trade links.The reasons of failure of SA ARC could result in the success of BIMSTEK, as most of the members of SAARC, except Pakistan have joined BIMSTEC. The members of BIMSTEC realize well that to benefit mutually in emerging globalization, they are to support and cooperate with each other whole heartedly. It is a fact that economic prosperity is a prime requirement for peace and tranquility in the region.Furthermore, it is important that all the countries should strive not only for the economic Cooperation, but also for the cultural and social links so that more closure and beneficial ties could take place.
The BIMSTEC involves the countries of two regions, South and South·East Asia. With an aim of economic cooperation, exploiting the potentials available in the member nations, it provides a useful platform from political point of view.For the nations of South Asia, it provides an alternative framework for bilateral and multilateral cooperation other than SAARC. The forum BIMSTEC is largely the result of initiative is aimed at benefitting with the trade links with India and other nations as well as to counter the rise of China, which is threatening the products of Thailand. India could also counter China's fast reaching products in the neighboring markets with BIMSTEe. The political benefits based on the economic cooperation have far-reaching impact and may result into closure ties.India has emerged as fast developing economy in the world today. India had closure ties and closure links with the BIMSTEC nations in ancient times,now with this agreement India got an opportunity to revive its past links with old partners. Moreover with BIMSTEC, India could seize an opportunity to have better trade links, more binding political relations beyond SAARC. India being the largest member nation could not only benefit itself, but played a leading role by assisting other smaller nations for mutual benefit. The success of BIMSTEC depends mainly on the sincere and honest cooperation of the member nations, keeping aside the political differences if there exist any.
SAFTA and BIMSTEC
Regional Economic Integration SAFTA and BIMSTEC
What is SAFTA? The South Asian Free Trade Area or SAFTA is a pact signed in 6 January 2004 It would gradually eliminate most tariffs and other trade barriers on products and services passing between Bangladesh, Bhutan, Nepal, Pakisthan, Afghanisthan and Srilanka The pact would effectively create a free-trade bloc among the eight countries of South Asia SAFTA’s main provisions called for the gradual reduction of tariffs, customs duties, and other trade barriers between the seven members, with some tariffs being removed immediately and others over periods of several years. SAFTA ensured eventual duty-free access for a vast range of manufactured goods and commodities traded between the signatories.
Objectives of SAFTA Promoting and enhancing mutual trade and economic cooperation by eliminating barriers in trade Promoting conditions of fair competition in the free trade area, Ensuring equitable benefits to all Establishing a framework for further regional cooperation to expand the mutual benefits of the agreement. creating effective mechanism for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes;
Principles of SAFTA . Governed by the Provisions of this Agreement 1 2. Existing Rights and Obligations 3. Overall Reciprocity 4. Free Movement of Goods 5. Adoption of Trade Facilitation and Other Measures 6. Recognization of the Needs of LDCs
Instruments Trade Liberalization Program Rules of Origin Institutional Arrangements Consultations and Dispute Settlement Procedures Safeguard Measures Any other instrument that may be agreed upon
Rules Of OriginNon LDC 40% value addition criteriaLDC 30% value addition criteria
Sensitive listS. No. Name of the No of tariff lines for No of tariff lines for Consolidated list Contracting States LDCS Non- LDCS (Total (total number of number of sensitive list) sensitive list) 1 Bangladesh 1249 1254 ------- 2 Bhutan ----- ----- 137 3 India 744 865 ------ 4 Maldives ----- ----- 671 5 Nepal ----- ----- 1335 6 Pakistan ----- ----- 1183 7 Sri Lanka ---- ------ 1065
Likely Effects of SAFTA : Positive Views SAFTA will bring significant gains for the small economies of the region. It will attract foreign capital. It will be a step toward better political relations and peace. Part of the informal trade will be diverted to official channels and bring revenue and other benefits. Elimination of tariffs will increase intra-regional trade by 1.6 times the existing trade. Dynamic gains will be more significant than static gains.
Likely Effects of SAFTA : Negative Views• SAFTA does not meet the standard economic criteria for successful integration (other than high pre-FTA tariff and geographical contiguity).• Other requisite criteria are high levels of international trade before the formation of the FTA, high degree of trade complementarity, secure market access (no tariff, no NTBs).• Long sensitive lists of members will lower the benefits of trade.• SAFTA will benefit India the most. Some member countries may even lose
Likely Effects of SAFTA : Negative Views Contd/1 Because of similar production structures in member countries, the expansion of intra-regional trade will be limited. SAFTA will lead to trade diversion. SAFTA will contribute to the “Spaghetti bowl” phenomenon, where many applicable tariff rates and multiple sources of origin will create confusion and difficulty among customs officials and producers.
BIMSTEC Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation (BIMSTEC) an international organisation involving a group of countries in South Asia and South East Asia The member countries of this group are: Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal.
BIMSTEC has thirteen priority sectors cover all areas of cooperation. Six priority sectors of cooperation were identified at the 2nd Ministerial Meeting in Dhaka on 19 November 1998. They include the followings: Trade and Investment, led by Bangladesh Transport and Communication, led by India Energy, led by Myanmar Tourism, led by India Technology, led by Sri Lanka Fisheries, led by Thailand
Agriculture, led by Myanmar Public Health, led by Thailand Poverty Alleviation, led by Nepal Counter-Terrorism and Transnational Crime, led by India Environment and Natural Disaster Management, led by India Culture, led by Bhutan People to People contact, led by Thailand
The aims and purposes of BIMSTEC To create an enabling environment for rapid economic development; Accelerate social progress in the sub-region, promote active collaboration and mutual assistance on matters of common interest; Provide assistance to each other in the form of training and research facilities;
Cooperate more effectively in joint efforts that are supportive of, and complementary to national development plans of member states; Maintain close and beneficial cooperation with existing international and regional organizations; Cooperate in projects that can be dealt with most productively on a sub-regional basis and which make best use of available synergies
Cooperation with ADB ADB has become BIMSTECs development partner since 2005, to undertake a study which is designed to help promote and improve transport infrastructure and logistic among the BIMSTEC countries So far, ADB has already finished the project so called BIMSTEC Transport Infrastructure and Logistic Study (BTILS) The final report of the said study from ADB has already been conveyed to all members and being awaited for the feedback
Membership Criteria Eligibility: Countries seeking membership should satisfy the conditions of territorial contiguity to, or direct opening into, or primary dependence on the Bay of Bengal for trade and transportation purposes Procedure: All applications should be submitted in writing to the Chairman of BIMSTEC. The decision on admitting new members will be taken on the basis of consensus by all the BIMSTEC members Institutional Structure and Arrangements The BIMST-EC Declaration provides for the following institutional mechanisms: Annual Ministerial Meetings, which shall be hosted by the Member States on the basis of alphabetical rotation; Senior Officials Committee, which shall meet on a regular basis as and when required;
A Working Group, under the chairmanship of Thailand andhaving as its members the accredited Ambassadors toThailand, or their representatives, of the other MemberStates, to carry on the work in between Annual MinisterialMeetings;And Specialized task forces and other mechanisms as maybe deemed necessary by the senior Officials to becoordinated by Member States as appropriate
Economic significance The BIMSTEC agreement aimed to create a free trade zone where tariffs would be brought down to zero by 2012 BIMSTEC would facilitate improvement in the trade at institutional and people level, most of the member countries are suffering from the menace of corruption, so the trade links at institutional and private level be positively resulted in enhanced trade links The members of BIMSTEC realize well that to benefit mutually in emerging globalization, they are to support and cooperate with each other whole heartedly it is important that all the countries should strive not only for the economic Cooperation, but also for the cultural and social links so that more closure and beneficial ties could take place
Political Significance With an aim of economic cooperation, exploiting the potentials available in the member nations, it provides a useful platform from political point of view For the nations of South Asia, it provides an alternative framework for bilateral and multilateral cooperation other than SAARC The political benefits based on the economic cooperation have far-reaching impact and may result into closure ties The success of BIMSTEC depends mainly on the sincere and honest cooperation of the member nations, keeping aside the political differences if there exist any
SAFTA and BIMSTEC Comparision BIMSTEC-FTA is a wide scope agreement covering trade in service, investment and tourism which are not included by SAFTA BIMSTEC aimed to serve as a bridge between the five SAARC countries and two ASEAN countries whereas SAFTA provisions called for the gradual reduction of tariffs, customs duties, and other trade barriers between the eight members of South Asia In BIMSTEC Tariff reduction/elimination will be divided into 2 tracks : Fast Track and Normal Track. Other than that, some of the products will be listed in the Negative List, to which no tariff reduction will be granted at this point whereas in SAFTA no such tracks are divided for tariff reduction