Report

I NTRODUCTION 7
Table 1.2 Tariff Reduction Plan under SAFTA: Second Phase
Countries Existing Tariff Rates (%) Tariff Rates Proposed Time Schedule
under SAFTA (%) (from 1.1.2008)
India Pakistan 20 or below 0–5* within 5 years
Sri Lanka 20 or below 0–5* within 6 years
Least Developed Countries 30 or below 0–5** within 8 years
* In equal annual installments, but not less than 15% annually.
** In equal annual installments, but not less than 10% annually.
Source: SAARC Secretariat
25% of the total number of items at 6-digit HS level.
The Agreement also provides that LDCs can seek
derogation for removal of items of their export interest
from the sensitive list of developing country members.
This meant that a SAARC member could maintain two
sets of sensitive lists: a larger list for the non-LDCs and
a shorter list for the LDCs. However, only three
members, namely Bangladesh, India and Nepal
maintain different sensitive lists for LDCs and non-
LDCs. Besides, the LDCs were allowed to maintain a
bigger size of sensitive lists than the non-LDCs. The
sensitive lists are subject to review after every four years
or earlier with a view to reducing the number of items
which are to be traded freely among the SAARC
countries. The number of tariff lines (at 6-digit HS
codes) of SAFTA members for the sensitive lists are
given in Table 1.3.
Table 1.3 Sensitive Lists in SAFTA
Total Number of Coverage of Sensitive
Sensitive Lists List as % of
Total HS Lines
Country Non-LDCs LDCs Non-LDCs LDCs
Bangladesh 1,254 1,249 24.0 23.9
Bhutan 157 157 3.0 3.0
India 865 744 16.6 14.2
Maldives 671 671 12.8 12.8
Nepal 1,335 1,299 25.6 24.9
Pakistan 1,191 1,191 22.8 22.8
Sri Lanka 1,079 1,079 20.7 20.7
Source: SAARC Secretariat
Rules of Origin
The rules of origin agreed under SAFTA are general
(i.e. one criterion for all products) barring 191 products
for which product specific rules are applied. Thus,
SAFTA rules of origin prescribe for an application of
twin criteria of sufficient transformation through a
change in tariff heading (CTH: change at 4-digit HS
level between the non-originating inputs and the final
export product) and achieving a local value-added
content of at least 40% as a percentage of free on board
(FoB) value. However, local value-added content
requirement is lower for Sri Lanka and LDCs, which is
35% and 30% respectively. Unlike SAPTA, there are
detailed minimal/non-qualifying operations. Therefore,
the Rules of Origin of SAFTA is more stringent than
SAPTA. There is also a provision relating to Regional
Cumulation wherein inputs from other SAARC
members can be sourced. Under this provision a higher
value-added content of 50% for the entire region has
been prescribed, of which 20% value-added content
should be done in the exporting country. The condition
of CTH applies on the non-originating inputs. In order
to avoid fraudulent practices detailed operational
certification procedures have been adopted.
Non-Tariff and Para-Tariff Barriers
The Agreement provides that no quantitative restrictions
would be maintained by SAARC members, if they
are not allowed under GATT 1994. With respect to
other non-tariff measures and para-tariff measures, the
Agreement prescribes that the countries notify their
measures to the SAARC Secretariat on an annual basis
and SAFTA COE will review them and make necessary
recommendations for their elimination. The Agreement
further prescribes that the initial notification shall be
made within three months from the date of coming
into force of the Agreement and the COE shall review
the notifications in its first meeting and take appropriate
decisions. For its implementation a sub-group on nontariff
measures has already been established, which is
engaged in addressing the NTBs.
Mechanism for Compensation of Revenue Loss
A mechanism has been established to compensate the
revenue loss to be incurred by the LDCs due to reduction
of tariffs. The mechanism for compensation of
revenue loss (MCRL) for the SAARC LDCs prescribes
the following: