Agreement on South Asian Free Trade Area

The South Asian Association for Regional Cooperation (SAARC) was established on December 8, 1985.The SAARC Charter was adopted by Governments of Bangladesh, Bhutan,India, Maldives, Nepal,
Pakistan and Sri Lanka with a aim to accelerate the process of economic and social development
in Member States.The Agreement on South Asian Free Trade Area (SAFTA) was signed at Islamabad during the Twelfth SAARC Summit on 6 January 2004. The ratification of SAFTA by all the member countries is major achievement of SAARC mandate. SAARC Secretariat on 22 March 2006 has issued a Notification formally announcing the entry into force of SAFTA Agreement with effect from 1st January 2006.

The entry into force of the Agreement thus launches the South Asian Free Trade Area
which would be completed by 1st January 2016.
The first round of customs duty reduction would take place, as agreed by the Member States, in July/August
2006.

Under Article 7 of the Agreement tariff reduction Modality is defined as Trade Liberalisation Programme (TLP) – in the first phase, India, Pakistan and Sri Lanka will bring down their customs tariff to
20% by 1st January 2008. As far as the LDC Member States i.e. Bangladesh, Bhutan, Maldives and Nepal
are concerned, they would reduce their customs tariff to 30% . First tariff reduction would be effected on 1st July 2006 by all Member States with the exception of Nepal which would do so on 1st August 2006.

Article-7 of the Agreement contains modalities of tariff reduction under TLP, which are as follows:-

• No tariff reduction on items in theSensitive List.
• Non-LDCs (Pakistan, India, Sri Lanka) shall reduce tariff to 0-5% for LDCs (Bangladesh, Bhutan,
  Nepal, Maldives) within three years (2009)
• Tariff Reduction by Non-LDCs for Non-LDCs Reduction in two phases:
  Phase-I (2006-2008)Existing tariff rates above 20% to be reduced to 20% within two years Tariff below 20% to be reduced on margin of preference basis of 10% per year.
  Phase-II (2008-2013) Tariff to be reduced to 0-5% within 5 years.
• Tariff Reduction by LDCs for all SAARC Members Reduction in two phases:

Phase-I (2006-2008)

Existing tariff rates above 30% to be reduced to 30% within two years Tariff below 30% to be reduced on margin of preference basis of 5% per year.

Phase-II (2008-2016)

Annexes

Annex ‘I’ Sensitive Lists:

Annex I relates to the Sensitive Lists of Member States.

• No reduction of tariff on these tariff lines

Summary of Sensitive Lists

Sensitive Lists

Annex
‘II’ Technical Assistance for LDCs:

Annex II relates Technica Assistance for LDCs, Areas of Technical Assistance include:-

• Advisory services for identifying export niches for the products of LDCs.
• Capacity building in metallurgy, standards, testing and quality control.
• Training of Trade Officers.
• Training in sanitary and phyto-sanitary measures; technical barriers to trade and export proceed on agro based products.

Annex
‘III’ Mechanism for Compensation of Revenue Loss for LDCs (MCRL): Annex III defines mechanism and its rules and regulations to compensate the Least Developed member countries for their loss of customs revenue due to the implementation of the Trade Liberalisation Programme (TLP) under this Agreement. Main Feature are as under:

• To be enforced one year after implementation of tariff reduction (i.e. after July 2007). Shall remain operative for 4 years.
• Compensation only on revenue loss on import of products where tariff reduction is made by LDCs. The extent of compensation shall be as follows:
  • First year and second year – Not more than 1% of customs duty collected.
  • Third year – Not more than 5% of customs duty collected.
  • Fourth year – Not more than 3% of customs duty collected.

  
  Annex ‘IV’ –
  SAFTA Rules of Origin:

  Annex IV defines mechanism and its rules and regulations to compensate the Least Developed member countries for their loss of customs revenue due to the implementation of the Trade Liberalisation Programme (TLP) under this Agreement. Main Feature are as under:

  Annex IV deals with the rules of origin under the SAFTA required to qualify products for preferential duty benefits. Rules of Origin – to be operative on 01.07.2006. Basic Criteria is as under:

  • For non-LDCs40% value addition + change in tariff heading at 4 digits (CTH).
  • For LDCs30% value addition + CTH.