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Safta ’sensitive list’ : 20 percent reduction approved

Business Recorder, Pakistan

Safta ’sensitive list’ : 20 percent reduction approved

3 November 2011

The Cabinet on Wednesday approved a 20 percent reduction (233 tariff lines) in sensitive list for South Asian Free Trade Area (Safta) which, according to the Commerce Ministry, will earn goodwill for the country.

Saarc member states signed Safta during the 12th Saarc Summit held at Islamabad on 6th January, 2004.

Saarc was an attempt to liberalise trade through tariff reduction and removal of non-tariff barriers.

Total fob value of exports by member states under Safta is around $1.2 billion since launching of Safta in July 2006 which is only 4 percent as compared with the regional trade of the European Union at 67 percent, the North American Free Trade Agreement (Nafta) at 62 percent and the Association of Southeast Asian Nations (Asean) at 26 percent.

As per trade liberalisation program under Safta, the non-LDCs (Sri Lanka, India and Pakistan) would reduce their tariff to 0 to 5 percent by 2013, whereas the LDCs would reduce tariff to 0 to 5 percent by 2016.

Safta Tariff Liberalisation Program allows member states to retain ’sensitive lists’ that are not offered for concessional treatment.

It thus significantly limits the scope of the South Asian free trade regime.

Pakistan has placed 1169 tariff lines in its ’sensitive list’.

Other member states have following total number of tariff lines in their ’sensitive lists’ : Bangladesh 1254 ; Bhutan 157 ; India 865 ; Maldives 671 ; Nepal 1313 ; Pakistan 1169 ; and Sri Lanka 1065.

Official documents show that to deal with this issue the agreement envisages reduction in ’sensitive lists’ over time to ensure more open trading system in the region.

Accordingly, a working group for reduction in sensitive list was created to work out the modalities.

Three meetings of the working group have been held so far.

All member states have agreed to reduce the ’sensitive lists’ by 20 percent, at least.

Member states can unilaterally reduce the sensitive list by more than 20 percent and Maldives and Bangladesh have recently offered to reduce theirs by 40 percent.

In the last ministerial council meeting, held in Maldives on June 13, 2011, Pakistan had also offered to reduce the Safta ’sensitive list’ beyond its obligation of 20 percent minimum limit.

Summary to the Prime Minister was sent to reduce the list, and the Prime Minister desired that the proposal be finalised in consultation with the stakeholders and be submitted to the Cabinet for consideration.

Giving justification for reduction in the sensitive list, the Commerce Ministry said that reduction of 233 tariff lines (20 percent of that sensitive list), which is an obligation for Pakistan under Safta, will reduce Pakistan’s sensitive list from 1169 to 936 tariff lines.

Pakistan’s import of these tariff lines from Saarc member states is $94.6 million.

Out of this $94.6 million, $74 million worth of imports are already at MFN rate of 0 to 5 percent.

There are 31 such tariff lines on which the MFN tariff is 0 to 5 percent.

Most of these 233 items are also being imported at concessional rates under various FTAs.

There are 62 tariff lines in Pak-Malaysia FTA, 40 tariff lines in Pak-China and 147 tariff lines in Pak-Sri Lanka FTAs imported at 0.5percent rate of duties.

Total import of Pakistan from the Saarc region for these 233 tariff lines out of total of 1169 items above MFN tariff of 0-5percent is $20.6 million.

Reducing tariff to 5 percent under Safta would entail a revenue loss of $3.6 million.

However, with increase in import by 50 percent, as anticipated due to reduction in tariff, the revenue loss would be $3.1 million only.

Further analysis of Pakistan’s sensitive list of 233 items shows that most of the items are agriculture and food products and raw materials for industry : (i) agriculture products 60 ; (ii) food products 29 ; (iii) industrial raw materials 38 ; (iv) articles of iron and steel 23 ; (v) machinery 35 and (vi) textile 48.

At the political level, this offer to reduce sensitive list would also improve Pakistan’s image as pro-Safta, and would go a long way in establishing goodwill with other member states, especially Bangladesh, Sri Lanka, Maldives and Nepal.

On the economic front, it would enhance trade with the member states at much lower cost because of the proximity and reduced cost of transportation, and help Saarc to achieve its much sought after objective of regional integration and development.

The draft summary was circulated to the Ministry of Foreign Affairs, Ministry of Industries, Ministry of Textile and Federal Board of Revenue to seek views on the proposal.

In terms of rule 18(4) of the Rules of Business 1973, they were requested to give comments, if any.

The Ministry of Industries and Ministry of Textile have provided largely supportive comments.

The Ministry of Foreign Affairs said that Ministry of Commerce is in a better position to analyse the technical implications of reduction in Pakistan’s sensitive lists under Safta.