Safta come into effect from January 1

Kathmandu Dec 2-In a major effort to promote regional trade, the seven South Asian countries have finalised the agreement on Free Trade Area, which is to come into effect from January 1.Twelve rounds of brainstorming, and the Committee of Experts (CoE) on the South Asian Free Trade Agreement has resolved all outstanding issues and pa-ved the way for implementation of the regional free trade area pact. Following three days of meetings in Kathmandu, CoE a technical committee of commerce joint secretaries of the seven-member bloc South Asian Association of Regional Cooperation (SAARC) has resolved the three issues of sensitive list, rules of origin and revenue compensation mechanism.

They met to resolve the outstanding issues including compensation of revenue loss to least developed countries, on Safta to complete the negotiations as agreed upon in the Saarc Summit in Dhaka last month.

Under Article 7 of Safta, a phased tariff liberalisation programme from the date of its coming into force, is envisaged. In first two years, non-LDCs (non-Least Developed Contracting States) will bring down tariffs to 20%, while LDCs will them down to 30%. Non-LDCs will then bring down tariffs from 20% to 0-5% in five years, Sri Lanka (which a non-LDCs) in six years and LDCs (from 30% to 0-5%) in eight years. Moreover, non-LDCs will reduce their tariffs for LDC products to 0-5% in three years. This tariff liberalisation would not be applicable to the tariff lines included in the Sensitive Lists to be incorporated in this Agreement as an integral part.
“The meeting succeeded in resolving all issues by creating a win-win situation for developing and under-developed countries,” said Naindra Prasad Upadhaya, leader of the Nepali delegation.

“It will help boost intra-regional trade and eventually translate the vision of the SAARC Economic Union into reality,” he said. One contentious issue resolved today was the setting up of products’ sensitive list for SAFTA. SAARC members have agr-eed to an average 13 to 20 per cent of total trading products for developing countries under the SAFTA sensitive list.
Nepal and Bangladesh have agreed to 23 per cent and 25 per cent respectively. Bhutan and Maldives, however, have listed it below 10 per cent. On the rules of origin, member-countries have agreed for “regional cumulation” provisions under general rules of origin, while developing countries will provide derogation of 10 per cent to LDC members for products identified under the product specific rule. Of a total 191 products, Nepal has 38 products of export value.
Under the regional cumulation provision, members decided the goods must have 20 per cent local or 50 per cent regional content to be considered as produced in the region. In the revenue compensation mechanism, developing countries have agreed to provide compensation against immediate revenue loss for four years after SAFTA comes into force. LDC members have to claim such losses through the SAARC secretariat on an annual basis.

According to SAFTA protocol, developing countries will bring down their customs tariff to 20 per cent while LDC countries will bring it down to 30 per cent during the first phase between 2006-2008. Non-LDC nations will bring down tariff level to between 0 and 5 per cent by 2009 while LDC nations will do so by 2016. Kesang Wangdi, Bhutanese leader told THT this meeting paved the path for the South Asian region to become the world’s largest free trade area in terms of population.

Safta signed at the Islamabad Saarc Summit in 2004 is to be fully operational from 2016.