The Hindu : Front Page : Cabinet clears SAFTA

Online edition of India's National Newspaper
Friday, Dec 30, 2005

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Cabinet clears SAFTA

Special Correspondent

The agreement is a historic milestone, says Kamal Nath The agreement on SAFTA provides for compensation of revenue loss to LDCs

New Delhi: The Union Government has cleared the Agreement for South Asian Free Trade Area (SAFTA) aimed at providing free trade in goods among SAARC member countries from January 1, 2006. SAFTA is expected to integrate the entire South Asian market of seven countries, paving the way for an eventual single market in the region.

Disclosing this after a Cabinet meeting, Finance Minister P. Chidambaram said approval had been given to the agreement signed by SAARC nations in Islamabad in January last year. He said that India being the larger and relatively developed economy will be providing concessions to Least Developed Countries (LDCs) such as Bangladesh and the Maldives, including a mechanism for compensating revenue loss due to reduction in duties, technical assistance. The rules of origin (ROO) clause under the agreement was also cleared as well as a sensitive list of items that are not covered by the trade liberalisation.

Earlier, Commerce and Industry Minister Kamal Nath said the coming into force of SAFTA would be a "historic milestone" in the economic profile of the countries of the SAARC region. "Implementation of SAFTA will further strengthen our trade relations with the SAARC countries," he said.

He said the Cabinet also approved an offer to Bangladesh of an additional Tariff Rate Quota (TRQ) of two million pieces of garments besides six million already offered. This will not have any condition of sourcing fabrics from India or Bangladesh.

Mr. Kamal Nath clarified that the trade liberalisation programme would not apply to the tariff lines included in the sensitive list. He said that in order to protect interest of its domestic stakeholders, India has finalised two separate lists — a longer list for non-LDCs such as Pakistan and Sri Lanka containing 884 items and a shorter for others like Bangladesh, Bhutan, Maldives and Nepal with 763 items. On the market access to Bangladesh, he said that country was not happy with the sensitive list and therefore the Cabinet decided to accord six million pieces of fabric with the condition that sourcing of fabrics should be either from India or Bangladesh.

The agreement on SAFTA provides for compensation of revenue loss to LDCs, which would be available to Maldives for six years and the rest for four years.

LDCs would also be provided technical assistance in areas like capacity building in standard, protect certification, training of human resource, improvement of legal system and administration, custom procedures and trade facilitation.

Rules of origin

Under the agreed rules of origin, for giving preferential access to member countries under DSAFTA, the goods have to undergo substantial manufacturing process in the exporting countries.

The "substantial manufacturing process" is defined in terms of twin criteria of change in tariff heading at four digit level and value addition of 40 per cent for Non-LDCs and 30 per cent for LDCs.

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