South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Crucial test for SAFTA
Published: The Himalyan Times, 11 October 2005
By: Shyamal Krishna Shrestha

If negotiations in the Doha Round of the World Trade Organisation have reached an impasse, deadlock also persists in South Asian Free Trade Area (SAFTA), consisting of South Asian Association for Regional Cooperation (SAARC) members. The tenth meeting of the Committee of Experts (CoE) held in September in Kathmandu has stressed that only political will remains to address the schisms in regional trade liberalisation. Experts were expected to resolve all outstanding issues of the framework accord, revenue compensation, rules of origin (ROO), sensitive list, and technical assistance to least developed countries (LDCs) but did not reach breakthrough save on one issue. Hitherto, the CoE agreed on 40 per cent value addition as criteria for ROO for developing countries and pledged 10 per cent derogation for LDCs. The CoE had to decide on Nepal's request to pledge additional derogation for items, in which, fulfilling the specified value addition criteria are difficult for the LDCs. Nepal identified 25 products of export interest, in which satisfying changes in customs heading criteria were easy but fulfilling value addition condition is difficult; so it requested the value addition for such kind of products at 20 per cent. The members had pushed for the revision mainly to exclude products of their export interests from the list of sensitive items.

The developing partners had to agree to a modality to settle the revenue loss accounts bilaterally or through a fund. The former have also been pushing to phase out the compensation provision from 5 to 7 years while the LDCs insist that it should not be phased out before 2016 when trade liberalisation occurs fully. The CoE finalised provisions on technical assistance only. Developing country members agreed on the areas wherein they would pledge technical assistance to the LDC partners. They, however, did not fully endorse the submitted lists of products by LDCs, on which they sought special derogation, maintaining the value addition criteria for them at 20 per cent. The LDCs were asked to come up with stronger list of export products.

The members also failed to converge on the span of revenue compensation mechanism's effectiveness. While LDCs urged that the revenue compensation should be made effective from the third year of SAFTA enforcement (2008) till the final year of tariff liberalisation programme, the developing nations argued that it be limited to three years. The CoE will meet for the last time in Islamabad this month. Revenue compensation mechanisms can become a recipe for trade disputes if developing partners fail to fulfill their commitments. A regional fund could ensure greater accountability. It would not be far fetched to state that while developing partners blame rich nations for being insensitive to their concerns while they have shown little consideration to their LDC neighbours themselves. It would still be too premature to endorse the view that regional trade agreements are 'building blocks' to multilateralism.

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