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South Asian Association for Regional Cooperation (SAARC) consists of seven countries, namely, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. A regional trade block among these members was formed when SAARC Preferential Trading Arrangement (SAPTA) was signed in April, 1993 for giving preferential market access to the exports of the member countries in a limited way. Four rounds of negotiations have been completed and no further round is now contemplated following the signing of Agreement on SAFTA. At the 9 th SAARC Summit held in Male in May 1997, the Heads of State or Government recognised the importance of achieving a free trade area by the year 2001 A.D. and reiterated that steps towards trade liberalisation must take into account the special needs of the smaller and the Least Developed Countries and that benefits must accrue equitably.
In its first meeting held at the SAARC Secretariat, Kathmandu, in July, 1999, the Committee of Experts (COE) finalised the Terms of Reference for drafting the SAFTA treaty. However, further meetings of the COE could not take place for almost three years due to inconvenience of dates proposed by the SAARC Secretariat for some Member countries.
In the 11 th SAARC Summit held at Kathmandu, Nepal in January, 2002, the following was decided:
"Recognising the need to move quickly towards a South Asian Free Trade Area, the Heads of State or Government directed the Council of Ministers to finalize the text of the Draft Treaty Framework by the end of 2002. They also directed that in moving towards the goal of SAFTA, the Member States expedite action to remove tariff and non-tariff barriers and structural impediments to free trade."
The COE held several meetings during 2002 and 2003 in Kathmandu to finalise the text of the Agreement. Some of the contentious issues were finally resolved in the Council of Ministers (Foreign Ministers) Meeting on 2-3 rd January 2004 and the Agreement was signed during the 12 th SAARC Summit held in Islamabad on 4-6 th January,2004.
The Agreement provides for free trade in goods among SAARC member countries. The highlights of the Agreement are as under :-
The Agreement provides for the following schedule of tariff reductions :-
Non-LDC countries would reduce their existing tariffs to 20% within a time frame of two years from the date of coming into force of the Agreement. If the actual tariff rates are below 20% then there shall be an annual reduction of 10% on Margin of Preference basis for each of the two years. The subsequent tariff reductions from 20% or below to 0-5% shall be done within a period of five (for Sri Lanka it is six) years, beginning from the third year from the date of coming into force of the Agreement.
The LDC Member countries would reduce their existing tariff to 30% within a time frame of two years from the date of coming into force of the Agreement. If actual tariff rates are below 30% there will be an annual reduction of 5% on Margin of Preference basis for each of the two years. The subsequent tariff reductions from 30% or below to 0-5% shall be done within a period of eight years, beginning from the third year from the date of coming into force of the Agreement. Notwithstanding the above provisions the Non-LDC member States shall reduce their tariffs to 0-5% for the products of the LDC member States within a period of three years beginning from the date of coming in to force of the Agreement.
Each country will maintain a sensitive list to protect the interests of the domestic stakeholders. This will be subject to a maximum ceiling and shall be finalised after negotiations among the Contracting States with flexibility to the Least Developed Contracting States to seek derogation in respect of the products of their export interest. This in effect means that the Non-LDC Member States would maintain smaller Sensitive List for the LDC Member States. The Sensitive Lists are subject to review after every four years or earlier with a view to reducing the number of items which are to be traded freely among the SAARC countries.
The sensitive lists have been exchanged and it was found that all automotive items of interest to SIAM is in the negative list of Pakistan, Bangladesh, etc.
b. The Agreement also provides for Institutional mechanism of SAFTA Ministerial Council (SMC); Safeguard Measures in case of surge in imports of product(s) covered under SAFTA concessions; and a detailed Dispute Settlement Mechanism.
Apart from provisions for longer phase out schedules and longer Sensitive Lists to be maintained by the LDCs, it provides for technical assistance in trade related areas and some relaxations for imposing safeguard measures against LDCs. The Agreement also provides, as mandated in the 10 th SAARC Summit, for compensation of revenue to LDCs who suffer from loss of customs revenue due to the implementation of the Trade Liberalisation Programme, the operational modalities of which are to be worked out through further negotiations.
SAFTA agreement will enter into force on 1 st January 2006 upon completion of negotiations on Sensitive Lists, Rules of Origin, Revenue loss Compensation Mechanism for LDCs. These negotiations would be carried out by the existing Committee of Experts and are expected to be completed by the end of June, 2005.
The Committee of Experts (COE) has already had five rounds of negotiations since January last year when the Agreement was signed. The discussions on the left over agenda as reflected in (d) above are proceeding on the expected lines and we are hopeful that the COE would be able to complete its task by the end of June 2005.
This Agreement shall supersede the Agreement on SAARC Preferential Trading Arrangement (SAPTA).
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