Tariff Liberalisation Under SAFTA An Indian Perspective

1. Tariff Liberalisation Under SAFTAAn Indian Perspective By Pranav Kumar CUTS International Jaipur E-mail: pk@cuts.org

2. From SAPTA to SAFTA • SAPTA (1993) – instruments of trade liberalisation on a preferential basis • SAFTA superseded SAPTA in January 2004 (A Framework Agreement signed) • Final Agreement came into effect after 12 rounds of negotiations • Four contentious issues – RoO,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

3. SAFTA: Trade Liberalisation Programme • 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 • 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 • Non-LDCs to maintain smaller sensitive list for the LDCs • Safeguard measures in case of surge in imports

4. Timeframe of Tariff Reduction Under SAFTA Tariff Reductions Under SAFTA

5. Intra-SAARC Trade and India • Intra-SAARC trade is dominated by India • 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

6. Present Tariff Structure of India • 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 • Average import duty on mfg (150% in 1991-92) gradually reduced to 15% in 2005 • In agriculture the average tariff rate is still comparatively higher at around 30% • 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

7. No. of Commodities within Ranges of Customs Duty in India (HS 6-digit level) 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 Comparison 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 • The level of duty will range from 5-117.5% (for Non-LDCs) • For LDCs the duty ranges from 5-100% • Kept 868 tariff lines in the sensitive list for non-LDCs • 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 • 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 • 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

11. India-Bangladesh Bilateral Concessions • 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% • 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

12. Conclusions • Tariffs reduction are not a big stumbling block • 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 • Trade competitiveness among SAARC countries need to be turned into “trade complementarities”