The South Asia Free Trade Area, also known as SAFTA Agreement, was signed on 6 January 2004 at the 12th SAARC Summit in Pakistan (Islamabad). The treaty came into force on 1st January 2006 and will be fully implemented by 31st December 2015. SAFTA is intended to strengthen intra-SAARC economic cooperation and maximise the region’s economic and social potential through various instruments of trade liberalisation. The agreement binds each contracting state to reduce tariffs by 0-5 % by 31 December 2015. South Asian countries have been moving towards a SAFTA in recent years. SAFTA is considered the key to success to trade Liberalisation, economic growth, and welfare gains for the 7 countries in the South Asia region. Potential gains by SAFTA exist, but successful implementation & significant welfare gains are unlikely to be achieved under this agreement. Here are many obstacles to the enforcement and implementation of SAFTA. Unresolved political tensions and low-income classes will likely derail much of the agreement’s progress. Countries of the region are encouraging unilateral & bilateral liberalisations that may be more efficient and effective ways to achieve economic growth & development among member countries. In this blog, we will discuss the Core Objectives of SAFTA.
Definitions – Objectives of SAFTA Agreement
- Concessions mean tariff, para-tariff & non-tariff benefits agreed under the Trade Liberalisation Programme;
- Developed Contracting State included a Contracting State that is designated as a “Least Developed Country” by the United Nations;
- Direct Trade Measures are conducive to promoting mutual trade of the Contracting States like long & medium-term contracts containing import and supply commitments concerning specific products, buy-back arrangements, state trading operations, and government and public procurement.
- The margin of Preference means a percentage of tariff by which tariffs are reduced on products imported from one Contracting State to another due to preferential treatment.
- Para-Tariffs mean border charges, other than “tariffs”, on foreign trade transactions of a tariff-like effect that are levied solely on imports, but not those charges and indirect taxes, which are levied in the same manner on like domestic goods. Import charges corresponding to specific works rendered are not considered para-tariff measures;
- Non-Tariff Measures include any regulation, measure, or practice other than “tariffs” and “Para tariffs”.
- SAPTA Agreement on SAARC Preferential Trading Arrangement signed in Dhaka on 11 April 1993;
- Products mean all products, including manufacturers and commodities in their raw, semi-processed and processed forms;
- Tariffs are customs duties included in the national tariff schedule of the Contracting States;
- Serious injury refers to a significant impairment of the domestic industry of like/directly competitive goods because of a surge in preferential imports, causing losses in terms of production, earnings, or employment unsustainable in the short term;
- The threat of serious injury means a situation in which a substantial increase of preferential imports is likely to cause “serious injury” to domestic producers and that such harm, although not yet existing, is imminent. A determination of the threat of serious injury will be based on facts and not on mere allegation, remote, conjecture or hypothetical possibility.
Core Objectives of SAFTA
The primary objectives of SAFTA are to promote competition in the region while providing advantages to the countries involved. The agreement will advantage the people of South Asia by bringing transparency & integrity among the nations by reducing tariffs & trade barriers. Ultimately it establishes a framework for regional cooperation. The devices to help fulfil these objectives of SAFTA are as follows:
- eliminating barriers to trading and facilitating the cross-border movement of products between the territories of the Contracting States;
- Promoting conditions of genuine competition in the free trade area & ensuring equitable advantages to all Contracting States, taking into account their respective pattern and levels of economic development;
- Creating an effective mechanism for the application and implementation of this agreement, for its joint administration and disputes resolution; and
- Establishing a framework for regional cooperation to enhance & expand the mutual advantages of this agreement.
Principles of SAFTA
SAFTA will be governed under the following principles:
- SAFTA will be controlled through the provisions of this agreement and also by the rules, regulations, understandings, decisions, and protocols to be agreed upon within its framework by the Contracting States;
- SAFTA shall be applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit all Contracting States equitably, taking into account their respective levels of economic & industrial development, the pattern of their external trade and tariff policies and systems;
- The Contracting States affirm their existing rights & obligations concerning all others under Marrakesh Agreement Establishing the World Trade Organisation and other Treaties or Agreements to which the such Contracting States are signatories;
- SAFTA shall involve the free movement of products between countries through the elimination of tariffs, para tariffs, among other things, and non-tariff restrictions on the direction of products and any other equivalent measures;
- The special requirements of the Least Developed Contracting States will be recognised through adopting concrete preferential measures in their favour on a non-reciprocal basis; and
- SAFTA will entail the adoption of trade facilitation and other measures and the progressive harmonisation of legislations through the Contracting States in the relevant areas.
Analysing the Essential Terms Regarding SAFTA
It is called creating the free trade area to enhance the signed member countries’ relationship and reduce customs duties.
|Objective||The main objective is to enhance economic cooperation for each member country by reducing customs duties to zero.|
|Basic principles||The discussion of the basic principles in the matter of inclusion of all the commodities and the manufacturer’s products in several forms such as processed forms, semi-processed forms and raw forms. Non-negotiation tariffs have been improved and extended step by step. It is reviewed periodically.|
|Trade liberalisation program||As per this program, all the member countries need to follow the tariff reduction schedule of the contrasting countries. Thus, there must be a reduction of “20% in tariff by the non-least developed countries and 30% reduction in the least developed countries.”|
The primary objectives of SAFTA are to benefit the small economies of countries like Bhutan, Maldives, and Bangladesh. It is still debatable whether SAFTA will achieve its porpuses or not. Potential gains from SAFTA exist, but successful implementation & significant welfare gains are unlikely to be completed under this agreement. There are many obstacles to the implementation and enforcement of SAFTA. Unresolved political tensions & low-income groups are likely to derail much of the agreement’s progress.
Read our Article:How to Get SAFTA Certificate in India?