Tariff rows may delay launch of SAFTA

The Financial Express | July 19 2005

Textile and clothing remain to be bone of contention — Tariff rows may delay launch of SAFTA

NEW DELHI, July 18: Bangladesh, Pakistan and India continue to get locked in the niceties of negotiations on exchange of tariff concessions, particularly for competing products such as textiles at a time when less than six months are left for the agreement on South Asia Free Trade Area (Safta) of the seven-member South Asian Association for Regional Cooperation (Saarc) to come into operation from January 01, 2006, a website report said.

While New Delhi has bilateral trade treaties with Nepal and Bhutan under which duty-free imports from these two countries are allowed on the principles of non-reciprocity, Bangladesh and the Maldives are classified as least developed country (LDC) members of the Saarc with longer period for tariff cuts. India has a separate free trade agreement (FTA) with Sri Lanka since 2001.

Sources in the Government told Business Line here that senior officials of the Ministries of Commerce & Industry, Textiles, Steel, Agriculture and External Affairs would gather in Kathmandu (Nepal) from July 20 to 22 for the ninth rounds of negotiations with their counterparts from the SAARC countries as part of hastening the process for graduating into the Safta from the current Sapta (South Asian Preferential Trading Arrangement).

Even as the Safta provides for free trade in goods and services among the SAARC member-countries, officials have to wrestle with various contentious issues — such as preparing the sensitive or negative list on which exchange of tariff concessions is forbidden, evolving rules of origin to ensure value addition and prevention of third party from piggybacking on the preferential route, resolving revenue loss compensation mechanism for LDCs and technical assistance for LDCs. The last two components of LDCs are designed to compensate them for their tariff reduction phase, the sources said.

For India, which has 5,200 tariff items comprising all commodities/goods for trade with the member-countries of the Saarc, 20 per cent or slightly above 1,000 tariff items need to be given out for preferential treatment to its other member countries of this regional cooperation body.

The problem with Indian negotiators is that in the case of 800-odd textile items, more than half of is in the negative list where tariff concessions cannot be extended, as domestic textile and clothing industry’s interests would be gravely jeopardised.

Sources said that the complexity of the problem could be gauged from the fact that while India has put all garments in the negative list, Bangladesh with a strong competitive garment industry feels let down because it cannot trade its low-cost and efficiently produced garments into the vast Indian market on a preferential basis as India has put garments in the negative list. Pakistan with a robust cotton economy finds cotton textile items and garments in India’s negative list as restricting its market access to India.

Similarly, Pakistan has man-made fibre and cotton-based items under negative list, while Bangladesh has yarn and fabrics in the negative list, blocking Indian exporters of these goods from enjoying any preferential entry into these neighbouring markets. So among India, Pakistan and Bangladesh, the exchange of tariff concessions on textile and clothing goods appears intractable as the competitive advantage of each one of the producer is at stake if tariff barriers are broken or paved with preferential path.

Moreover, strong domestic textile and clothing industry lobby in each of the three countries in the sub-continent fear they would be wiped out if the tariff safeguard gets loosened.

Even as officials said that the Safta agreement would come into effect from January 1, 2006, upon completion of negotiations on sensitive lists, rules of origin, revenue loss compensation mechanism for the LDCs, the Committee of Experts was supposed to have completed these negotiations by June.

But the delay in finalising the negative list for tariff concessions in the light of the abiding concern of domestic industries, particularly on products in which exchange of tariff concession is to be done, risks derailing the scheduled launch of the Safta unless the political leaders of the participating countries from non-LDCs, particularly India and Pakistan, display strong will not to get swayed by protectionist sentiments in their backyards, trade experts say.