SAFTA: Negotiating status and Evaluation Deshal de Mel IPS

1
SAFTA Negotiating status and Evaluation

• Deshal de Mel
• IPS, Colombo, Sri Lanka

2
Introduction

• SAFTA was signed in 2004 in Islamabad
• Tariff liberalisation implemented on July 1st
  2006
• Several issues remain which threaten the success
  of the agreement Sensitive lists, NTBs, TLP,
  BTAs.

3
Table 1 Intra-SAARC Import Trade
Source IMF, Direction of Trade Statistics,
Yearbook 2005.
4
Table 2 Intra-SAARC Export Trade
Source IMF, Direction of Trade Statistics,
Yearbook 2005.
5
Tariff Liberalisation Program

• The TLP stipulates 0-5 tariffs for Non-LDCs by
  2013 (SL 2014), LDCs 2016
• Danger of SAFTA losing relevance due to competing
  RTA/BTAs
• Article 7.2 allows countries wishing to move
  faster to do so unilaterally
• Better approach to include fast track for heavily
  traded goods in SAARC

6
TLP
7
India and Pakistan

• Pakistan trade with India based on a specified
  positive list
• Economic and political reasons for concerns about
  altering the status quo
• India feels ve list is against the spirit of the
  agreement
• Potential for improvement in political relations
  through SAFTA

8
Sensitive Lists

• Article 7.3(b) recommends that the sensitive list
  be reviewed every 4 years
• This time frame possibly too long given the size
  of SLs in SAFTA
• Should adopt progressive reduction of SL a la
  ASEAN FTA

9
Table 5 Trade Restriction under SAFTA
Source Calculated using WITS data.
10
Table 4 Bilateral Trade Restriction under SAFTA
Source Calculated using WITS data.
11
Non-tariff Barriers

• Increasingly important as tariffs fall
• Over-regulation safety standards, other
  safeguards
• Entry point restrictions
• Bureaucratic processes
• Customs procedures
• Delays in transit due to border issues
• No mechanism to reduce NTBs recent discussion
  to include notification

12
Transaction Costs

• South Asia plagued by transaction costs
• Trade facilitation increasingly important for
  modern trade, benefits resonate beyond SAFTA
• SAFTA agreement has extensive list of TF measures
  without binding commitments
• TF measures have high fixed costs, benefits felt
  in medium-long run, thus little political will to
  implement

13
Trade Facilitation

• More prudent to identify few key measures
  producing tangible benefits in SR
• Simplify and harmonize customs operation
• Transit simplification
• Standards Harmonization
• Binding commitments for implementation and SDT
  for LDCs required.
• Additional measures to be progressive

14
Dispute Settlement Mechanism

• Yet to determine operationalisation of DSM
• SAFTA DSM too long, 330 days. ASEAN 290, MERCOSUR
  265, NAFTA 310
• Excess time in 1st stage, accused can delay
  consultations by a month
• Time allowed for compliance 90 days in SAFTA. 30
  days in ASEAN, MERCOSUR

15
DSM

• Length of DSM attributed to LDC requirements.
• Better to use differentiated time periods for
  LDCs and Non-LDCs
• Voting on consensus basis, problematic
  considering heterogeneity of interests
• Consensus to block or simple majority system are
  alternatives to consensus basis

16
Inclusion of Services

• Contribution of services value added to GDP is
  40 in South Asia
• Important to ensure this sector does not forego
  benefits of liberalisation
• Identify complementarities and liberalise
• Telecom IT
• Aviation
• Medical services
• Education

17
Inclusion of Services

• Tourism
• Couple services with economic cooperation to
  extend benefits to LDCs
• Possible 3x formula,
• Lessons from CEPA, progressive, sequential
  liberalisation. Building services database.
• Study on inclusion of services in SAFTA is
  ongoing.

18
Table 7 Volume of Intra-SAARC Trade (2004)
Source IMF, Direction of Trade Statistics,
Yearbook, 2005.
19
Positives

• Extent of informal trade in South Asia
• Potential for ve political spillovers
• Potential for attracting FDI
• Impact on poverty needs steps to improve access
  to markets for the poor
• Consumers competition, falling prices and
  increased variety

20
Conclusion

• Negotiations have made progress since Islamabad
  2004
• But key areas left unaddressed or under-addressed
• Importance of SAFTA given stalling of the Doha
  round
• Parallel importance of superseding competing
  RTA/BTAs
• Supply capacities TA best endeavours