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196 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA • All non-LDC member countries of SAFTA reduce their negative list by 20–25%, based on considerations such as competitiveness of products in the sensitive list, global imports of products in the sensitive list and global exports of partner countries of products in its sensitive list. The corresponding reduction in the sensitive lists of LDCs could be 10–15%. The reduction could be made effective within a year. Timeframe for Tariff Liberalisation Given the timeframe for liberalisation of their tariffs in other FTAs (India – ASEAN/Singapore/Thailand, Pakistan – the People’s Republic of China, etc.), the current timeframe for tariff liberalisation (seven to ten years) needs to be shortened, implying advancement in the tariff liberalisation schedule. Duty-Free Market Access The present SAFTA treaty does not prescribe for a mandatory duty-free market access (the commitment is for bringing duties to 0–5%). The duty reduction to 5% may deny adequate preferential market access to the members and if the Doha Round succeeds, then a possibility of erosion of the SAFTA preferences cannot be ruled out. The study has estimated the gains that may accrue to member countries with 0% tariffs and finds the gains to be positive in all cases. This issue should also be included in the negotiating agenda of reviewing the TLP. It is important that all members decide to make it a duty-free agreement. Regional Cumulation The present RoO of SAFTA provides that in order to utilise the regional cumulation benefits the total regional value addition should be 50% (10% higher than the normal value addition) and the exporting party should have a minimum value addition of 20%. A similar provision which existed in SAPTA did not stimulate intra-regional trade; hence the concept of full cumulation without any value addition obligation to the exporting Party be explored. The impact of SAFTA RoO on effective preferential trade is not known and perhaps would take some time in dissemination of preferential trade data. It would therefore be important to conduct a study, in future, which can examine the impact of SAFTA RoO in intra – SAFTA trade. Have the rules facilitated value-added and greater economic activities in SAARC region or have impeded the trade needs to be explored on the basis of actual trade and investment flows? Non-Tariff Barriers (NTBs) Many exporters from South Asia allege that NTBs have been put in place with the intention to restrict trade from neighbouring countries. Though such measures may be totally WTO-compatible, the fact that it creates difficulty to the exporters of neighbouring countries cannot be denied. The COE is discussing this issue in its meetings. It is important to identify such measures and document them for a focused discussion in the meetings so that such irritants are removed in a time bound manner. Secondly, even if these are WTO compliant standards or regulations, a fast track procedure is required for establishing equivalence, MRAs, conformity assessment procedures, accreditation, etc., in a time bound manner. Going beyond SAFTA in Goods SAFTA is an agreement covering only goods. Given the fact that worldwide now the negotiations are held for comprehensive coverage of issues like services, investments, IPRs, competition policy, SPS, TBT, etc., it may be beneficial for the region that SAARC catches itself up with the pace of these agreements. Therefore, the following be included in its agenda: South Asian FTA in Services: There is a historical existence of services trade in the SAARC region, most of which is through informal channels. There is no official statistics on sector-wise services trade, but the fact that SAARC nationals travel to each other, especially to India for education or medical treatment is well known. Studies have shown that the SAARC member countries have revealed comparative advantage in different sectors covering transport, travel and other services (Banga 2008, Mukherji 2005). This study also points out the services where intra-regional trade can be boosted. It is understood that the SMC meeting on 3 March 2008 in New Delhi decided to include the Agreement in Services in SAARC and a road-map is being drawn for the negotiations. This is a positive and welcome step and negotiations should be started as soon as possible. In order to make the Services agreement effective and successful, following measures would be necessary: • The disaggregated data on services trade is not available for the individual SAARC members. In
W AY FORWARD IN SAFTA 197 order to have meaningful results in terms of preferential market access in services, it would be essential to have a proper and comparable data on services. • SAARC members can consider binding unilateral liberalisation in identified sectors of services in the FTA in Services. • In order to provide effective market access, it is essential that MRAs in identified areas of services are facilitated and agreement reached in the FTA. In this regard, special focus needs to be given to higher education, health and related services, tourism & travel, construction and engineering services. • Given their stages of economic development, the SAARC LDCs can be benefited from services agreement only when they are given market access under Mode 4. The expansion of activities in the construction and infrastructure sectors in India, Pakistan and Sri Lanka can provide greater opportunities to unskilled labours of LDC members of SAARC and therefore market access commitments would need to be made under the agreement. • Given their similar interests in communication and infrastructure, it would be essential that SAARC members take higher commitments under Mode 1 and Mode 3. • In order to encourage member countries to take deeper and wider commitments in services, a flexible architecture of services framework may be considered whereby member countries, especially LDCs, are given the flexibility to impose a standstill on commitments taken in those sectors which might have been adversely affected by liberalisation under SAFTA. SAARC Investment Area: To enhance the intra-SAARC trade and investment flows as well as backwardforward linkages between the investors of the region, it is essential that a blueprint for SAARC investment area be prepared and negotiations be held to finalise the agreement. The agreement will not only bring transparency and predictability in the respective regimes but would also ensure that investors’ rights are protected and the reforms are ‘locked-in’. One could also look at innovative methods of linking the preferential market access through ‘equity sharing’ between the two SAARC members. There exist possibilities of vertically integrated FDI in many sectors, e.g. textiles, food processing, etc. Studies need to be encouraged in this area and member countries need to adopt policies to encourage investments so as to form supply chains in the region. Trade Facilitation Studies 1 have pointed out that the cost of doing business through formal channels in the region is higher than through informal channels in SAARC. Moves should be initiated for standard setting and mutual recognition of standards through accredited testing laboratories. In order to minimise the cost of trade in the SAARC region it is essential that focused study on trade facilitation is carried out. Cooperation in Infrastructure The members of SAARC are at different levels of economic development and so are their infrastructural supports to promote trade and investment flows. The countries in the region have common interest in the areas of road and railway construction, building of bridges and telecommunication development. SAFTA does not explicitly provide for transport facilitation, one would need to look beyond SAFTA to address this issue. This study has undertaken cost-benefit analysis of some micro transport facilitation projects in the region to demonstrate the gains from these projects to the country of origin. Joint projects for development of ports and land customs infrastructure for facilitating movement of goods should be initiated on priority. Transit Treaty SAARC involves some members who are landlocked and therefore they face problems relating to accessibility to seaports for their trade. Given the geographical location of even other members which are not landlocked, it may be economical to transport goods through the land route, transiting through other SAFTA member. There is a need for a regional framework or treaty for promoting transit to promote unhindered movement of goods across borders. S&D for the LDC Members Though the SAFTA provides for S&D treatment to be 1 Taneja, Nisha, Muttukrishna Sarvanathan and Sanjib Pohit. 2003. ‘India-Sri Lanka Trade: Transacting Environments in Formal and Informal Trading’, Economic and Political Weekly, July 19, 3095-98.
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QUANTIFICATION OF BENEFITS FROM ECO
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QUANTIFICATION OF BENEFITS FROM ECO
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Preface Our consultations with seni
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viii CONTENTS 7. Revenue and Welfar
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Executive Summary OBJECTIVE This st
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EXECUTIVE SUMMARY xiii Table 1 EAMA
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EXECUTIVE SUMMARY xv India A full S
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EXECUTIVE SUMMARY xvii indicates th
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Part I BENEFITS FROM TRADE, INVESTM
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4 QUANTIFICATION OF BENEFITS FROM E
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2 Literature Review and Rationale f
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4 Effective Additional Market Acces
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6 Impact of SAFTA on Member Countri
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7 Revenue and Welfare Implications
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8 Impact of SAFTA on Inward and Out
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Part II BENEFITS FROM DEEPENING INT
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11 Construction and Related Enginee
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BIBLIOGRAPHY 247 (1998), Tourism Se
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