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Driving benefit from SAFTA

New Nation, Bangladesh

Driving benefit from SAFTA

By Anu Mahmud

29 July 2006

The (SAFTA) South Asian Free Trade Agreement has been implemented from July 1, 2006, which is operating under the framework of the South Asian Association for Regional Cooperation (SAARC). The SAARC includes Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Afghanistan will join the group next year. India, Pakistan and Sri Lanka belong to the group of the developing countries while the least developed countries.

The South Asian history would have entered into a more encouraging phase with the free trade arrangement of the region (SAFTA) taken effect from the beginning of July had Pakistan not adopted the positive list approach granting duty concessions to a restricted number of Indian export items in difference with others in the group. Thus, the SAFTA has not begun its journey as smoothly as it should have. It belied the expectation that economic co-operation would progressively remove mistrust among the countries of the sub-continent to steadily encourage political rapprochement.

On the other hand, India-the largest economy of the sub-continent that draws benefits from regional trade larger than that drawn by all other countries combined-should be also ready to play a critical role in pulling up the entire area to a higher level of economic development and prosperity. It should play this role on its own as a responsibility conferred upon it by its size to help create positive demonstration effects in favour of gradual intensification of regional trade within the area. In pace with the rest of the member countries, it should unilaterally dismantle all non-tariff and para-tariff barriers to encourage trade with it so that the smaller countries may have no reason to suspect its intention.

The Indian act of imposing additional duties on four major export items of Bangladesh-hilsha fish, saree, medicine and porcelain, while SAFTA was about to take effect-has created an adverse notion in some circles in this country that the latter has raised its effective duties on these items for eroding the value of tariff concession to squeeze market access of these goods. If that were so, it is disconcerting for the people of this country and is a step in the wrong direction.

India should rescind the pertinent order to restore public confidence in this side of the border about its sincerity of purpose for making the SAFTA a success.

Bangladesh and other partners of the arrangement should unilaterally revoke all unjustified non-tariff and para-tariff barriers also to signal their firm commitment to the SAFTA. It would not be fair for them to expect that India alone should do it. But one is disappointed to see that-long after the preferential trade agreement into effect before commencement of free trade-the SAFTA countries are now working together to identity non-tariff and para-tariff barriers, which they individually face while exporting commodities to partner countries. It smacks of ill intention within this family of nations. The group which is doing the task, should finish it within the stipulated time and complete it in a flawless manner.

Recently, local business leaders complained that they were yet to receive the sensitive lists of all SAFTA countries. It speaks badly about those in the ministry of foreign affairs and that of commerce who are responsible for the SAFTA matter. About the role of business community in it and the government on its agencies to conduct business under the free economy still become questionable. If it is their mind-set for economic diplomacy, the nation should wait only for disasters. Copies of the sensitive lists and the SAFTA agreement should be immediately procured, if not already done, and distributed among the apex trade promotion bodies and the media so that concerted efforts can be mounted to draw maximum benefits from the free trade arrangement.

Since the sensitive list of this country, as that of others, will be shortened in phases, as the agreement stipulates, through subsequent reviews, the business community and opinion leaders in the country must know how quickly and in what sectors the country will have to be industrialised for drawing maximum benefits from this regional arrangement.

India has issued a series of specified tariff concession notifications to Bangladesh along with three other Least-Developed Countries (LDCs) on goods imported from the latter under the SAFTA.

The concession rate under SAFTA are higher for Bangladesh, Nepal, Bhutan and Maldives than that of Pakistan and Sri Lanka.

The notifications were issued by the Indian Customs Department on June 30. A list of goods not eligible for benefits of SAFTA has also been notified. The concession rates will be applicable in accordance with the Rules of Origin of goods under SAFTA agreement.

However, Indian official are concerned over media reports emanating from Pakistan that Islamabad is not ready to open up its market to India for 773 more items, which were previously placed in the positive list of goods it maintains bilaterally with New Delhi.

Under SAFTA, Pakistan had promised to offer preferential access to 4,800 items from all SAARC members and restrict only 1183 items that were specified in the negative list of goods.

However, Pakistan is yet to communicate its decision officially to restrict market access for the new items from India.

Identifying non-tariff barriers as the main bottleneck in implementing SAFTA agreement, the country’s experts expressed their mixed reaction over the benefit Bangladesh can reap from the deal. They however, understand the need for participation of all SAARC nations in making the deal properly effective.

There is no way to avoid any clause of the agreement as SAARC member states altogether signed the deal. The country can get benefit through export of fish, vegetables, jute, tea, leather, ready-made garments, home textiles, medicines, processed food, consumer goods, cosmetics, handicrafts and ceramics to other SAARC countries.

It will get trade benefits under SAFTA not from all countries. But as per the deal, it can get some export benefits from India, Bhutan, Sri Lanka and the Maldives. Bangladesh will have duty -free access of jute and jute goods, fruit, leather products, ceramic, electrical goods to India’s big market as the giant member country of the region keeps these products out of its sensitive list.

A number of Bangladesh’s export items including ceramic, melamine products, garments, fruit juice, electrical wire, leather and footwear, edible oil, hilsha fish and traditional jute products have huge demand in the Indian market. But due to non-tariff barriers such export potential is yet to be tapped.

Dwelling on the problems of non-tariff barriers imposed by the Indian customs it may be mentioned that the Indian authority does not seem to accept certification from Bangladesh organisations, although these products are also exported to the EU and US markets.

In the SAFTA sensitive list, Pakistan includes potential export items of Bangladesh such as jute, fabrics, woven and fabrics, made-up textiles and footwear. Although Bangladesh will not get much benefit from Pakistan under the SAFTA, it is possible to export some major items to Pakistan through bilaternal deal, which is under process. As per commitment, high level officials of both Bangladesh and Pakistan are supposed to sign bilateral deal by September-’06, which may help Bangladesh get market access of some major export items.

According to Export Promotion Bureau, Bangladesh exported goods worth $46.17 million to Pakistan in July-March period of FY 2005-06, which is 0.61 per cent of the total export earnings of the country. The main products that Bangladesh usually exports to Pakistan are raw jute and tea.

Sri Lanka sensitive list includes fish, leather and footwear, while all major export items of Bangladesh except tea are excluded from the sensitive list of Bhutan. So, Bangladesh will get a chance to boost its export to these countries.

Meanwhile, major export items of Bangladesh such as fish, jute fabrics, woven and knitted garments, made-up textiles and footwear are on the sensitive list of Nepal. Only three major items of Bangladesh is on the sensitive list of the Maldives.

Data of the country’s promotional agency for export show that the main export items of Bangladesh to the SAARC region are chemical fertilisers, raw jute, frozen fish, leather goods, tea, ceramic, garment and textile products.

As per the SAFTA, Bangladesh will have to allow for the next six months imports of other ten items under its sensitive list from the contracting states by reducing 2.5 per cent tariff from the existing rates. The highest rate of customs duty in Bangladesh is 25 per cent.

India, Pakistan and Sri Lanka will reduce their tariff for Bangladesh and other LDC contracting states by 10 per cent from their existing rates for next six months as per the negotiation concluded at the maiden SAFTA Ministerial Council meeting in Dhaka on April 20. ’06.

The member-states had decided to notify the non-tariff measures (NTM and para-tariff measures (PTMs) they face with their exports to other states of the regional body by October 01, ’06.

Chamber and business leaders have expressed their doubt about the benefits that Bangladesh will gain from the implementation of the SAFTA. It will rather depend on successful negotiations with the SAFA partners.

The country’s export basket is small, there is a need for effective negotiation with the partner countries for it expansion, especially for RMG and textile products.

We should remember two things in the perspective of the SAFTA. Firstly, we have a very small export basket and secondly, India is the major business partner of Bangladesh. If we want some positive outcome from such a move, we need concentrated efforts and effective negotiation. Bangladesh should look for areas having maximum export potential as the Indian side hardly gives concession in the bilateral trade with Bangladesh.

Harnessing of benefit from SAFTA implementation for Bangladesh depends largely on effective negotiation. Normally, India will not Liberalise its RMG market for Bangladesh, because it is our one of the competitions in the global market. But it can liberalise its cosmetics and toiletries market for Bangladesh.

It also needs investment along with the trading under the SAFTA. Inclusion of investment option in the regional trade agreement could benefit the member countries. But a concerted knowledge based negotiation by the public and private stakeholders can bring some positive benefits for the country.