CHARTING A FREE TRADE AREA IN SOUTH ASIA: INSTRUMENTS AND MODALITIES 1

Transcription

1 CHARTING A FREE TRADE AREA IN SOUTH ASIA: INSTRUMENTS AND MODALITIES 1 I.N.MUKHERJI 1. Introduction Preferential trading is one of the mildest forms of an integrative arrangement. Under the arrangement, the Contracting States (CS) offer a preferential margin with respect to trade barriers in relation to their MFN rates. CS having disparate levels of development as well as trade regimes find this an acceptable an acceptable instrument for initiating regional trade liberalization. Such an arrangement nevertheless provides the building blocks towards accelerated regional trade liberalization culminating in a free trade area within a defined time frame. Under a free trade area the CS eliminate all trade restrictions on their mutual trade, while maintaining restrictions in their trade with non- CS at a level they deem appropriate. When all CS decide on a common external tariff, then the arrangement translates itself in a more cohesive customs union. The most comprehensive integrative arrangement arises in the nature of a common market when all CS agree not only to allow free movement of goods and services, but all the factors of production including capital and labour. The Agreement on South Asian Preferential Trading Arrangement (SAPTA) which has been made operational since December 7 th, 1995 thus symbolises the beginnings of the very first stage of an integrative arrangement among the member countries of SAARC. The idea of regional co-operation in South Asia was first mooted in May Following consultations amongst the countries of the region, Foreign Secretaries of the seven South Asian Countries (SACs), viz. Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka met for the first time in Colombo in April This was followed, a few months later, by the meeting of the Committee of the Whole, which identified five broad areas of regional co-operation. The Foreign Ministers, at their first meeting in New Delhi in August 1983, formally launched the Integrated Program of Action (IPA) through the adoption of a Declaration on South Asian Regional Co-operation (SARC). At the first summit held in Dhaka on 7-8 th December 1985, the Charter was adopted establishing the organization of South Asian Association for Regional Co-operation (SAARC). The IPA presently covers thirteen agreed areas of co-operation. The first attempt towards moving into core areas of trade and economic co-operation was the commissioning by the SAARC Secretariat, a Regional Study on Trade, Manufactures and Services. The study was completed in 1991 outlining a number of recommendations for promoting regional 1

2 co-operation in the core economic areas. The Council of Ministers at its Ninth Session in Male in July 1991 endorsed the study and decided to set up a high level Committee on economic Co-operation (CEC). At the Colombo Summit in December 1991, the Heads of State or Government of SAARC approved the establishment of the Inter-Governmental Group (IGG) to seek agreement on an institutional framework under which specific measures for trade liberalization among SAARC Member States could be advanced. The IGG met twice to evolve a Draft Agreement on SAARC Preferential Trading Arrangement (SAPTA). The CEC at its third meeting in New Delhi in November 1991 recommended that the Draft Agreement on SAPTA, with a few modifications, be approved by the Council of Ministers at its next Twelfth Session in Dhaka. Subsequently, the Council of Ministers signed the framework Agreement on SAPTA in Dhaka on 11 th April The signing of SAPTA was a landmark achievement of the Seventh SAARC Summit held in Dhaka. The New Delhi Summit held from 2-4 th May 1995, formally approved the proposals for preferential trade worked out by the IGG and later endorsed by the SAARC Foreign Ministers. With all the member countries having ratified the Agreement, the same came into force on December 7 th, the date which marks the end of the first decade of SAARCs existence. In view of the very modest or symbolic nature of regional trade liberalization achieved in the First Round, the CS were looking forward to more far reaching trade liberalization in course of the Second Round. At the end of two-day meeting of SAARC Commerce Ministers held from 7-8 th January 1996 a joint communiqué reiterated a commitment to accelerate the SAPTA process and to the realization of the South Asian Free Trade Area (SAFTA) as the goal preferably by the year 2000 but not later than With a view to launching the Second Round, the IGG met in Colombo during th March 1996 and subsequently between 7-8 th September in Islamabad. The IGG met for the third time between th October, 1996 in New Delhi to finalize the National Schedule of Concessions (NSC) under the Second Round which was placed before a meeting of CEC to be held between th October, The NSC for the second round was concluded at the fourth meeting of the Inter-Governmental Group (IGG) held in Katmandu from th November It was decided that all necessary procedures would be completed so that the Schedules as finalized during the Second Round enter into force by March 1 st, In a significant development, at the Ninth SAARC Summit held in Male from th May 1997, the Heads of State or Government, decided to accelerate the pace of transition of SAPTA to SAFTA latest by the year

3 The SAPTA Second Round Negotiations were ratified by Contracting States as per notifications issued by the CS between March 1997 to June The Council of Ministers at its nineteenth session (Male, th May 1997) welcomed the start of the Third Round of Trade Negotiations under SAPTA and agreed that the process of liberalization of regional trade should be accelerated. It directed the IGG on trade liberalization to conduct negotiations on sectoral and across-the-board basis. It urged the removal of non-tariff and other barriers. Accordingly, the Third Round of Negotiations under SAPTA was initiated in SAARC Secretariat, Katmandu from th July 1997 and concluded in November The CS were required to issue customs notification by end of October, Accordingly these were issued by CS between June and September Negotiations for SAPTA Fourth Round was initiated subsequently. However due to political differences, the Eleventh SAARC Summit scheduled to be held in Katmandu in November 1999, has been indefinitely postponed following hardening of bilateral relations between India and Pakistan, the two largest member states of SAARC. The plan of this paper is: To examine the nature of trade restrictiveness among SAARC CS To examine the extent to which trade liberalization has been achieved under SAPTA by using several criteria of measurement, To assess the impact of regional trade liberalization To examine the experience of some regional arrangements in relation to their move to a free trade area and a number of blueprints for the same available for the SAARC region, and In the light of above, to highlight a number of negotiating procedures and on the basis of their potential estimates, suggest a feasible path for accelerated regional trade liberalization. 2. Trade Restrictiveness 2.1 Tariff and Para-tariffs An analysis of aggregated 5365 products at 6-digit HS code using TRAINS software reveals that there was considerable variation in the MFN tariff range of CS. varying from 0-to over 250 for India Pakistan and Sri Lanka and from 0-38 for Bangladesh, for Nepal. However in more recent years the peak tariffs of most SAC s have been brought down considerably, being 40%, 35 %, 35%, and 30% for India, Pakistan Bangladesh, and Sri Lanka respectively (The Economic Times, 11 August, 2000). The T RAINS data further reveals that 3

4 the MFN average tariff rates varied from 12.3% in Nepal to 47% in Pakistan. In between this average varied from 19.5%, 15.3% and 30.1% for Bhutan, Sri Lanka and India respectively. The data reveals that the total charges on imports (para-tariff measures) are also quite significant, varying from 40.2% in Bangladesh to 12.3% in Nepal. The non-tariff measures were the highest for India, being 29% and nil for Sri Lanka and Nepal. These measures were 11%, 4% and 3%, for Bangladesh, Pakistan and Bhutan respectively. Table 1: Tariffs Para-tariffs and Non-Tariff Measures in South Asian Countries (1997) Markets Imports( 000 US$) MFN Range MFN Average Total Charges NTM % Bangladesh Bhutan India Nepal NA Pakistan NA Sri Lanka Source: UNCTAD, TRAINS, March Non-tariff barriers Since the TRAINS data, being highly aggregative, can not fully reflect the nature of non-tariff barriers in each CS. Hence we turn to examine the nature of such barriers in CS Bangladesh Imports are guided by an annual Import Policy Order (IPO) announced by the Government. Items not specified in IPO are freely importable provided that the importer has a valid import registration certificate. Imports from Israel are prohibited. According to Import Policy Order of , there were 38 products in the banned list. The largest concentration of banned products (15) were in the product group of textile and textile articles (Section 11). As many as six banned products were in the product group of live animals and animal products (Section 1) Four of the banned products were drawn from the group of vegetable products (Section II). Three of the banned products were drawn from animal or vegetable fats and oils (Section III). The same numbers of products were prohibited under the group of chemical or allied products (Section 6). The negative list consisted of two products each in sections 4, 5 and 17. There were as many as 90 products in the restricted list of Bangladesh s imports. The maximum number of such products (23) were drawn from chemicals and allied products (section 6). The next important product group restricted to imports is textile and textile articles (Section 11). In this group 14 products are subject to restrictions. Following in importance in terms of import restrictions are vehicles (Section 17), mineral products 4

5 (Section 5), live animal and animal products (Section 1), prepared food stuff (Section 4), machinery (Section 16) and arms and ammunitions (Section 19). In addition, there are some 450 items subject to a tariff value in Bangladesh. In the case of these items, irrespective of the value of the items in the export document, the customs authorities assess the goods as per tariff value fixed on these items. Some products facing tariff value are salt, yarn, both cotton and man made. Quite often, the actual landed cif value of a number of products is lower than the tariff value, implying added cost to the importers. More than half of Bangladesh s imports is made through tender or direct purchase by public sector corporations, autonomous bodies and government-controlled corporations. These agencies prefer to deal with local firms, acting as exclusive agents or distributors of foreign manufacturers or suppliers. This imposes some problem with foreign suppliers who may find it difficult to locate a reliable agent. It also comes in the way of establishing direct business contact with the project authorities. On product standards, the country maintains strict regulations with regard to agriculture pesticides and drugs and pharmaceuticals. Import of agriculture pesticides is governed under the Agriculture Pesticides Ordinance (No. 111 of 1971) and such imports are subject to registration, specific labeling requirements and storage use regulations. With regard to drugs and pharmaceuticals, the Ministry of Health and family Planning publishes every year a list of preparatory drugs and medicines of specified foreign origin, which have been approved and registered, and may be imported into the country. (CII, 1995) India An outward looking and liberal trade policy is one of the main features of India's economic reforms. The trade policy is characterized by rationalized tariff levels and a drastic reduction in quantitative restrictions by introducing a streamlined and simplified system of export and import licenses. Under India s Export-Import Policy , the negative list for India's imports has been indicated in Part I. Under this list are prohibited items. The main products in this category are tallow fat, and/ or oils, rendered, unrendered or otherwise of any animal origin, animal rennet, wild animals, etc. In Part II there are restricted items. These include consumer goods, precious, semi-precious or other stones, products restricted for safety, security and related items, products relating to seeds, plants, and animals, products relating to insecticides and pesticides, products relating to drugs and pharmaceuticals, products relating to chemicals and allied items, miscellaneous items, and products relating to special categories. In Part III a 5

6 list of canalized items has been included. Only seven categories of products are canalized. These include petroleum products, all types of fertilizers, coconut oil, seeds, other non-edible oils, palm stearin, and cereals. Under the Exim Policy announced on 31 March 1999, 967 additional items have been put in the Free List and another 430 items have been placed in the Special Import License List. This would mean that only 667 items remain in the restricted list. Quite a number of items have been removed from the restricted list to Special Import License (SIL) route. The maximum numbers of products under the SIL have been kept under machinery and mechanical appliances (Section 16). Next in importance for SIL are live animals and animal products (Section I) and articles of stone, plaster cement etc. (Section 13). Of the 967 products that have been freed, the maximum number relates to vegetable products (Section II). Coming next in importance in terms of product groups that have been freed include textile and textile articles (Section 11), and machinery and mechanical appliances (Section 6). Quite a number of products have also been freed under the product group of chemicals and allied products (Section 6). A summary of India s non-tariff barriers has been presented in Table-1. Under the exim policy announced on March 31, 2000, 773 items were removed from the restricted items to free list 4. Of the items freed the bulk of them (130 items) pertain to machinery and mechanical appliances. (Section 16). The other important products freed relate to live animals and animal products (section-1, 83 items). The same number of items has been freed in respect of prepared foodstuff (Section 4). A large number of products under textile (Section 11) has also been freed. The remaining 700 restricted items are expected to be made free with effect from April In this way all quantitative restrictions on India s imports would be eliminated. Although there is no official policy, the government endorses barter and counter trade as a financing and marketing tool for managing foreign exchange outflows and trade imbalances. Usually this is on a government-to-government basis. Indian government often favor indigenous suppliers. In the case of major foreign purchases, it is the normal practice to use foreign bids as a leverage to compel domestic suppliers to lower their prices. For projects financed by the World Bank or any other multilateral lending institutions, competitive bidding procedures are followed. But domestic companies offering indigenous equipment (defined as having at least 20% value addition) is accorded a 15% price preference. (CII, 1995) Maldives 6

7 In Maldives the incidence of trade restrictions in terms of non-tariff barriers is quite modest. Only five items are prohibited for imports. Such products include pigs, idols for worship, pornographic material, materials contrary to Islam and narcotics etc. The products restricted for imports in Maldives include alcohol, dogs, dangerous animals, gun powder and explosives, weapons, spear guns, chemical substances, pork and pork products, rice, wheat flour and sugar. In Maldives import operations may be conducted only after being registered and licensed at the Ministry of trade and Industries. All goods may be imported under an open general license system. License is issued on application. Staple commodities; such as rice, wheat, flour, and sugar, and aviation fuel are mainly imported by the state trading organization. Imports from Iraq, Israel, and the Federal Republic of Yugoslavia (Serbia and Montenegro) are prohibited Pakistan In Pakistan imports of 37 products are restricted on account of health and safety requirements and another 31 items are restricted on account of procedural requirements. Most of the restriction (15 items) on account of the former relates to products of chemical industries (Section 6). In addition Pakistan has a negative list of 161 items of which 16 items relate to live animals (Section 1) and a similar number of items relate to arms and ammunitions (Section 19). The details may be seen in Annex Sri Lanka In Sri Lanka as many as 378 items are subject to licensing requirements. Most of the licensing requirements relate to purchase of reconditioned vehicles (Section 17). Next in importance in terms of licensing requirements relate to products of chemical industry (Section 6). Quite a number of products are subject to licensing requirements in respect of live animals and animal products (Section 1). Annex 1 presents summary distribution of products under licensing by H.S. Sections. 3. Extent of Regional Trade liberalization 3.1 Product Coverage Approach The extent of regional trade liberalization may be assessed by several measures. One of these could be the product coverage approach, in terms of the number of products conceded concessions. This is the product coverage approach. The number of products offered concessions by CS in favor of other CS (including those exclusively for LDCs) could give some indication of the extent of concessions exchanged. 6 At the first instance the 7

8 number of products offered concessions in relation to number of tariff lines is taken as a broad indicator of the extent of trade liberalized. The details pertaining to these offers of concessions has been presented in table two below. It may be observed that the total number of tariff lines conceded concessions by all CS during the three rounds of negotiations was 3257 products of which 1356 tariff lines were in favor of LDC s and 1901 were in favor of all countries. India have offered as many as 1180 products for preferential imports of which 701 products were in favor of least developed countries only. Pakistan offered concessions in respect of 492 products of which 187 were in favor of LDC s. Apart from offering the highest number of concessions the preferential tariff rate offered by India was more favorable than those offered by CS. The preferential rate as a percentage of the MFN rate offered by India varied from 10 to 90 percent in favor of non LDC s and between 50 to 100 percent in favor of LDC s. In contrast the offer of preferential tariff as a percentage of the MFN rate for Pakistan varied from 10 to 30 percent. Similar preferential margins offered by other CS varied from 7.5 to 15 percent. Table 2: Number of Products Offered Concessions by Contracting States under SAPTA Rounds (1-3) Rounds Tariff Range Concessions Offered S1 S2 S3 S1-S3 S1 S2 S3 Bangladesh Non-LDCs LDCs All Countries Bhutan Non-LDCs LDCs All Countries Maldives Non-LDCs LDCs All Countries India Non-LDCs LDCs All Countries Nepal Non-LDCs LDCs All Countries Pakistan Non-LDCs LDCs All Countries Sri Lanka Non-LDCs LDCs All Countries SAARC Non-LDCs LDCs All Countries Note: 8

9 3.1 Trade Value Coverage The product coverage approach suffers from the limitation that it fails to take note of the intensity of trade relating to the negotiated products. It is possible to exchange concessions in respect of products that are not traded at all. Hence trade value coverage concept takes note of the trade intensity of negotiated products. The extent of trade liberalization may be assessed by examining the share of liberalized bilateral imports of negotiated products in relation to total bilateral imports. This measure is superior to product coverage method, as it is the extent of regional trade liberalized that is ascertained. This implies a value measure or value coverage criterion. As noted above, till to date as many as three rounds of negotiations under SAPTA has been implemented. It is time to take stock of the significance of such liberalization in terms of not merely the nature and number of products for which concessions have been exchanged, but also to analyze the extent of trade coverage in terms of both value as well as the depth of concessions extended to both Least Developed Countries (LDC s) as well as to the Non- LDC s. In order to analyze this, all the products offered concessions by the CS were identified in terms of their value of imports from other CS as obtaining in the last year of data availability. The value of imports offered concessions were aggregated in terms of local currencies of concession offering importing countries from all other CS receiving the concessions. Thereafter the values of local currencies were converted to US Dollars using period average exchange rates as available in IMF, International Financial Statistics relevant to the fiscal year trade statistics of the importing concession offering CS. In case of Pakistan, considerable difficulty was encountered in aggregating the import data. Since the commodity trade classification of Pakistan is based on SITC rev-3, unlike all other CS, which use Harmonized System (HS) of Trade Classification. In view of lack of identical correspondence between the two classifications, it was found preferable to use Pakistan s partner country export data corresponding to the list of concessions offered by Pakistan under the SAPTA negotiations. 7 Since India has free trade agreement with Bhutan and partial free trade with Nepal, the exchange of concessions under SAPTA is not quite relevant. This is evident from the fact that no concessions have been exchanged between India and Bhutan and India and Nepal As different CS have different accounting fiscal years, it was not possible to obtain the data for entirely identical fiscal year for all CS. 8 However in order to make the data comparable to cif, a 15 percent value was added to the value of exports of Pakistan s partner countries. The extent of regional trade liberalization in terms of import value coverage as well as the percentage of bilateral imports liberalized has been presented in Table-2 below. The data 9

10 Table: 3 Value of Preferential Imports of SAARC Countries of Negotiated Products and Their Percentage Distribution under SAPTA Rounds 1-3 (Value in "000 US $) BD BHU IND MLD NPL PAK SL SAARC BD:Bilateral Imp Round Round Round Pref. Imports BHU:Bilateral Imp Round Round Round Pref. Imports IND:Bilateral Imp Round Round Round Pref. Imports MLD:Bilateral Imp Round Round Round Pref. Imports NPL:Bilateral Imp. Round Round Round Pref. Imports PAK:Bilateral Imp. Round Round Round Pref. Imports SL: Bilateral Imp. Round Round Round Pref. Imports Note: Computed from National Publications of Bangladesh: Foreign Trade Statistics of Bangladesh, 10

11 India: Monthly Statistics of Foreign Trade of India, DGCI&S, Calcutta, 1 Maldives: Database, Maldives Customs, 9 Nepal: Nepal Overseas Trade Statistics, , Trade Promotion Center, Pakistan: Data obtained from Partner Countries Sri Lanka: External Trade Statistics, 1998, Statistics Division, Department of Sri Lanka reveals that the total imports of negotiated products by all CS amounted to US$ 479.8m during the reference period. Of this, the share of Pakistan was percent followed by India amounting to 26.2 percent. During this period Sri Lanka imported US$77.5m from the region which was equivalent to 16.2 percent of the total regional preferential imports. Bangladesh imports of negotiated products were valued at nearly US$ 46m, equivalent to 9.6 percent of all negotiated products imported to this region. The preferential imports of other CS in value terms were quite marginal. Figure Bilateral trade in products offered concession There are marked differences in the proportion of bilateral imports liberalized by the CS. The import value coverage from the region was highest in Pakistan (39.6%) followed by Nepal (35.2%) and 30% by India. The import values coverage of Bhutan and Sri Lanka from the region were 17% and 12% respectively. The import value coverage of Bangladesh and 11

12 Maldives was quite marginal. Bangladesh s imports in favor of India were more than balanced by India s imports in favor of Bangladesh. Even though Bangladesh had liberalized as much as 91 % of its total imports of negotiated products from the region in favor of India, in terms of its total bilateral imports from India, the share was quite modest (4.01%). By contrast, since India s imports from the region are modest, it is possible for it relatively modest value of concessions to cover a proportionately larger share of its bilateral imports. Here it may be worth examining to what extent there has been a balance in the nature of concessions exchanged between CS in value terms. This may be evaluated by observing the extent of concessions offered and received by the CS. It may be observed that the exchange of concessions between Bangladesh and India is fairly balanced, with India importing from Bangladesh a little more than Bangladesh importing from India. With respect to Sri Lanka Bangladesh has offered more concessions than those offered by Sri Lanka. There is need for Sri Lanka to offer more concessions to Bangladesh. However, the concessions exchanged between Bhutan and Bangladesh are fairly balanced. It is also to be observed that the exchange of concessions between India and Maldives is fairly balanced. However, India has received significantly higher concessions in value terms from Pakistan. There is need to rectify this imbalance. There has been hardly any exchange of concessions between Maldives and Nepal. Whereas Maldives has offered some modest concessions to Pakistan, it has not received any such from Pakistan. There is a need to rectify such imbalance. With respect to Sri Lanka it may be observed that this country has far higher value of concessions to Maldives in relation to such concessions received by it. There is a need to rectify such imbalance in future negotiations. It may be observed that Nepal has offered some modest concessions to Bangladesh but received nothing in return. Again, the concessions received by Nepal from Pakistan have been much higher in value terms than those received by it from Pakistan. These imbalances need to be rectified in future negotiations. With regard to Pakistan, it may be observed that this country has offered far more concessions to Bangladesh than it has received from the latter. There has been fairly good exchange of concessions between Pakistan and Sri Lanka. However the concessions offered by former has been substantially higher than those received from the latter. An attempt should be made to rectify these imbalances in future negotiations. 12

13 There has been hardly any exchange of concessions between Sri Lanka and Bhutan. However, there has been substantial exchange of concessions between Sri Lanka and India, even though the former has provided larger import value coverage as compared to the latter. The aforementioned imbalances in the exchange of bilateral concessions needed to be moderated in future rounds of negotiations, particularly in so far as these imbalances pertain to those between LDC s and non-ldc s among the CS. It may be interesting to examine at this stage, whether the CS has intensified their regional trade liberalization through the various stages of SAPTA negotiations. This sequencing of liberalization may be observed from Table-2. It may be observed that even though the number of products conceded concessions multiplied through the rounds, the same was not reflected in terms of import value coverage. It may be noted that Bangladesh, Bhutan and Pakistan liberalized their imports in the second round. Only India and Maldives intensified their liberalization through the rounds, having liberalized the most of their imports in the third round. All these points to the need of linking product coverage effectively with trade coverage. The need for better targeting of products for concessions by including those products that are intensely traded in the region deserves particular attention. 3.2 Revenue Forgone Criterion The trade value coverage fails to take account of the varying intensities of trade liberalization of the CS as reflected in differing reductions in tariff rates. This can be taken note of by estimating the loss in revenue forgone by reconcession offering states. In this context the difference in the MFN rates and the preferential rates has to be applied to the import values with respect to each product imported by the CS. The sum of revenue forgone on each product has to be aggregated over all such products being imported to arrive at the total revenue loss of each CS. It is further possible to identify the revenue loss sustained by each CS vis-à-vis it s trading partners receiving the concessions. Such an exercise would enable us to ascertain how much revenue loss each CS has sustained in favor of other partner CS. The loss of customs revenue of each contracting state vis-à-vis other partner CS has been presented in the Table-3 Table 4: Revenue Loss incurred on account of concessions offered to imports from other SAARC countries Importing country Revenue loss vis-à-vis ( 000 US $) SAARC Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Bangladesh * Bhutan * India *

14 Maldives * Nepal na 0.00 * Pakistan * Sri Lanka * Total Note: Based on import data for in the case of Bangladesh, India, Nepal, Pakistan and 1998 for Bhutan, Maldives and Sri Lanka. Data for Pakistan has been derived from the partner country exports to Pakistan for the above mentioned years. 15 per cent of the export value has been added to account for cost, insurance and freight charges. Source: Same as Table 3. Per cent Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Losses on account of contracting state as proportion of total losses Losses of contracting state as a proportion of total losses incurred by all states It will be observed that as a result of trade liberalization under the three rounds of SAPTA negotiations amounted to US$9.17m. The largest revenue loss was sustained by India (US$4.75m), equivalent to nearly 52 percent of the total revenue loss sustained by all CS in the region. Next to India Pakistan sustained a loss of nearly US$3m equivalent to nearly 33 percent of total revenue loss by all CS in the region. Sri Lanka s revenue loss was a little less than US$1m. The remaining least developed countries namely, Bangladesh, Bhutan, Maldives and Nepal sustained fairly modest revenue losses. India s revenue losses were primarily in favor of Bangladesh and Pakistan. The loss sustained by Bangladesh and Pakistan in favor of India were relatively modest. Pakistan s revenue loss was mainly in favor of Bangladesh, India and Sri Lanka. The revenue losses incurred by Bangladesh and Sri Lanka in favor of Pakistan were relatively modest. Sri Lanka s revenue losses were primarily in favor of India and Pakistan and to some extent in favor of Maldives. India s revenue loss with respect to Sri Lanka was marginally lower. Pakistan s revenue loss in favor of Sri Lanka was relatively higher. The revenue loss sustained by each contracting CS vis-à-vis other partner CS and vice versa has been illustrated in Chart-1 below. 14

15 Chart-1: Relative Bilateral Revenue Losses Sustained by Contracting States. Source: Based on Table Impact of Regional Trade Liberalization As noted above, customs notifications for the liberalization of imports for products negotiated under SAPTA-I, were issued in December 1995 by all CS. Similar notifications with respect to Second Round were issued by the CS between March to August Given the nature of availability of trade statistics of the member countries, it was felt that an analysis of the effects of trade liberalization could be undertaken only for such products for which there will be adequate time for such analysis. As such only products negotiated under SAPTA-I could provide adequate time to analyze the flow of negotiated products prior to and subsequent to regional trade liberalization. One had also to consider some time needed for information flow with respect to the concessions offered. The impact of liberalization on preferential imports by CS has been presented in Table-4. The figures reveal that Bangladesh s Share of preferential imports increased significantly from Sri Lanka over the reference period. India s share of imports from 15

16 Maldives and Sri Lanka increased significantly over the two periods. However the share of India s preferential imports from Bangladesh and Pakistan decreased significantly over this period. 9 Nepal did not import any product from Bangladesh, Bhutan, Pakistan and Sri Lanka prior to trade liberalization. It started importing from these countries after offer of preferences. Pakistan preferential imports declined drastically from all CS. The same was in case of Sri Lanka s preferential imports whose share declined in case of all countries except in case Bangladesh. Thus there was mutual trade expansion in negotiated products between Bangladesh and Sri Lanka over the pre and post liberalization period. Table 5 : Share of Bilateral Imports from SACs Importing Country BD BHU IND MLD NPL PAK SL SAARC Bangladesh Period Period India Period Period Maldives Period-1 Period-2 Nepal Period Period * 21857* 18771* 5398* Pakistan Period ** 1238** 16637** ** Period ** 117** 1477** 23208** Sri Lanka Period Period Note: Period 1 for BD , IND , MLD 1994, NPL , SL 1994 Period 2 for BD, IND AND NPL , MLD and SL 1998 * In 000 NR ** Pakistan s imports based on partner countries export data. (Value in 000 US $) 5. Charting to a Free Trade Area 5.1 Experience of Select Regional Arrangements It may be of interest to examine at this stage a few illustrations from other regional arrangements that could provide some insights to a similar endeavor being attempted in this region ASEAN Free Trade Agreement (AFTA) The ASEAN heads of State decided to establish an ASEAN Free Trade Area (AFTA) in A vital step in this direction is the liberalization of trade through the elimination of 16

17 tariffs and non-tariff barriers among the ASEAN members. This activity has begun to serve as a catalyst for greater efficiency in production and long-term competitiveness. In principle, the free trade area covers all manufactured and agricultural products, although the timetables for reducing tariffs and removing quantitative restrictions and other non-tariff barriers differ. Under Inclusion List. Products in the Inclusion List are those that have to undergo immediate liberalization through reduction in intra-regional (CEPT) tariff rates, removal of quantitative restrictions and other non-tariff barriers. Tariffs on these products should be down to a maximum of 20% by the year 1998 and to 0-5% by the year The new Members of ASEAN have up to 2006 (Vietnam), 2008 (Laos and Myanmar) and 2010 (Cambodia) to meet this deadline. By the year 2000, there would be 53,294 tariff lines in the Inclusion List representing 82.78% of all tariff lines in ASEAN. The timetable for the phase out of tariff restrictions is presented as below: TABLE 6(A) : TIMETABLE FOR ACCELERATING AFTA FOR THE ORIGINAL SIX ASEAN COUNTRIES YEAR COMMITMENT 2000 A minimum of 90% of the six countries total tariff lines must have tariffs of 0-5%. Individually, each country would commit to achieve a minimum of 85% of the Inclusion List with tariffs of 0-5% Each country would achieve a minimum of 90% of the Inclusion list in the 0-5% tariff range % of items in the Inclusion List would have tariffs of 0-5%, but with some flexibility. Under Temporary Exclusion List (TEL) products can be shielded from trade liberalization only for a temporary period of time. However, all these products would have to be transferred into the Inclusion List and begin a process of tariff reduction so that tariffs would come down to 0-5%. Starting on 1 January 1996, annual installments of products from the TEL have been transferred into the Inclusion List. By the year 2000, there would remain 9,674 tariff lines in the TEL representing about 15.04% of all tariff lines in ASEAN. Under Sensitive List are contained unprocessed agricultural products, which are given a longer time frame before being integrated with the free trade area. The commitment to reduce tariffs to 0-5%, remove quantitative restrictions and other non-tariff barriers is extended up to the year The new members of ASEAN have up to 2013 (Vietnam), 2015 (Laos and Myanmar) and 2017 (Cambodia) to meet this deadline. By the year 2000, there would be 370 tariff lines in the Sensitive List making up 0.58% of all tariff lines in ASEAN. 17

18 Under General Exception (GE) products are permanently excluded from the free trade area for reasons of protection of national security, public morals, human, animal or plant life and health and articles of artistic, historic and archaeological value. There are 1,036 tariff lines in the GE List representing about 1.61% of all tariff lines MERCASUR Comprising Argentina, Paraguay, Uruguay and Brazil, the Southern Common Market - MERCOSUR represents a total population of 190 million individuals, living in an area larger than the total surface of the European continent, covering more than 12 million square kilometers. In 1993, the total Gross Domestic Products (GDP) of these four nations were approximately US$ 715 billion. Although MERCOSUR is not yet fully implemented, the 1990 volume of business among MERCOSUR nations was US$ 3.6 billion, and has been increasing every year. It is estimated that in 1994 the commercial interchange between the four nations reached approximately US$ 12 billion. Of course, the potential for new business is even higher than this, as the sum of the business volume with other nations is something on the order of US$ 100 billion per annum. The lifting of import duty on achieving a FTA in this region is presented as per schedule presented in Table-6 (B) below: TABLE 6 (B) : MERCUSUR - TIMETABLE FOR LIFTING OF TRADE RESTRICTIONS Date %Lifting of Import Duty June 30, % Dec. 31, % June 30, % Dec. 31, % June 30, % Dec % The general lifting of all duties however permits the maintenance of a list of exceptions these would be reduced at the end of each calendar year. 5.2 Moving to a Free Trade Area in South Asia: Blueprints Before suggesting a blueprint for moving to a FTA in this region, it is essential to take stock of some of those already available in the nature of recommendations Report of SAARC Eminent Persons Group (EPG) 18

19 The SAARC EPG in its report suggested that at the first stage a South Asian free Trade Area (SAFTA) should be created. This can be done only through the negotiation and implementation of a comprehensive inter-governmental treaty, which was in conformity with Article XXIV of WTO. In particular it should have a plan and a schedule for establishing a free trade area, covering substantially all the trade. Some of the basic recommendations are: The implementation of the treaty should start from the beginning of the year 2000, and the process should be completed by the year 2010 so far as the LDCs are concerned and and by 2008 with respect to other member states. A possible method of eliminating restrictions on substantially all trade could be a 12.5% reduction of tariffs per annum over the eight-year period. The reductions should be across the board with a negative list, which should also be phased out by the end of eight-year period. All non-tariff barriers, including discriminatory practices, should be identified during the first year of the implementation period and should be phased out over the next seven years by the other countries, and nine years by the LDCs. The Group further suggested that alternative approaches and sequencing for achieving the same goal should be explored by drawing upon the experiences of other regional groupings in establishing a FTA. At the second stage, the GEP suggested that the south Asian Countries should create a customs union, preferably by the year This will require the establishment of single tariffs by all the member states, on imports from non-member states, and agreement on common non-tariff barriers and other measures for regulating trade. In the third stage, the goal would be to move towards the establishment of a South Asian Economic Union, by Recommendations by SAARC Chambers of Commerce & Industry (SCCI) A blueprint for moving towards a FTA has been recommended by the SCCI to the SAARC Secretariat. Some of its major recommendations are: The reduction of existing tariff rates to 20% (30% for LDCs) has to be done within a time frame of 2 years, beginning 1 January The CS are encouraged to adopt reductions in equal annual installments. In case actual tariff rates on the base year is below 20%, (30% for LDCs), the concerned CS need to reduce tariffs at an annual rate of 10% in the next two years. The subsequent reduction from 20% or below to 0-5% will be done within a second timeframe of 2 years for primary and intermediate products and 3 years for finished 19

20 products (for LDCs 2, 4, and 6 years for primary, intermediate, and finished products respectively) beginning 1 January, 2002 and subject to a program of reduction to be decided by each CS, to be announced on 1 January, Two or more CS may enter into arrangements for tariff reductions to 0-5% on specific products at an accelerated pace to be announced on 1 January, The above schedules of tariff reductions will not prevent CS from immediately reducing their tariffs to 0-5% or from following an accelerated pace schedule of tariff reductions. Para-tariffs will be excluded from the first phase of tariff reductions from 1 January 2001, but will be included in the second phase of tariff reductions from January 1, In the current political stalemate that characterizes the region, charting to a FTA in this region seems to be removed from reality. This is to state that to set a baseline for moving to a FTA is quite far fetched. Nevertheless a blueprint for such liberalization has the value that this process could be put on fast track once the SAARC process is brought to normalcy. Taking note of the experience of select regional groupings and after examining some blueprints, charting the path to a FTA in South Asia, the following measures appear to be appropriate, At the first instance the CS would do well to draw up an inventory of two lists: (i) prohibited, and (ii) restricted. The items included in the prohibited list are those that are prohibited or banned from being imported on grounds of national security, health, or morals. Most CS already have such a list. (See section on trade restrictiveness discussed earlier). The items in the restricted list (sometimes referred to as negative list ) contain those items which CS are not yet ready to liberalize to the forces of regional / international competition. 11 As and when these products are able to withstand the forces of competition, they may phased out of this list to the inclusion list. Once these lists are in place, the movement to a FTA in the region could be expeditiously set to motion. SAPTA provides for four principal modalities for negotiations. These include: (A) Product-by-product basis, (B) Across-the-board tariff reductions, (C) Sectoral basis, and (D) Direct trade measures This paper thus would limit its scope to examining the implications of two modes of regional trade liberalization, viz. (1) product by product approach and (2) across the board tariff reductions across sectors. In this case the sectors are the Chapters of the HS classification. Looking at the nature of trade liberalization undertaken so far, it appears that there is considerable information gap as to the how to proceed to a fast track of trade 20

21 liberalization. This paper endeavors to provide some guidelines, on the basis of actual and potential trade flows, the selection of products for inclusion in future negotiations. 6. Methods of Negotiating Trade Preferences 6.1 Product by Product Approach Negotiating for the Top 100 A product by product approach (PPA) appears to have been the preferred modality of trade negotiations under SAPTA. There is now a realization that while the number of products offered concessions have been increasing, this has not been adequately targeted in favor of intensively trade products One of the simplest methods of product identification is to classify the top ranking ones (preferably at 6-digit HS code) in the bilateral imports of each CS from other CS. The identification of such products should pose no problem, as data is now available for some if not all countries in electronic format. CS, which do not have such data, can create such databases 12. Concession seeking CS must ensure that their request list contains such products as are intensively imported from other partner CS. In Table-7 we observe that if the top 100 products imported were offered concessions, then a movement to a FTA would be easily achieved since the these products account for almost all imports from the region. Chart 1 further illustrates this. Table 7: The Share of top 100 Products in Bilateral Imports of Contracting States Importing country Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Bangladesh India Maldives Nepal Pakistan Sri Lanka Note: The products for India and Maldives are at 8-digit HS code. For Sri Lank and Bangladesh the products are at 7-digit HS code. Nepal s products have been ranked under 5-digi HS code. The products for Pakistan are ranked at 7-digit rev-3 code. A consolidated list of top 100 products imported by each CS from other partner CS from the region has been drawn up so as to help the conduct of future negotiations. This has been presented in Annexures 2.1 to

22 100 % share of top 100 imported products Bangladesh India Maldives Nepal Pakistan Sri Lanka Importing Country Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Identifying Products with Trade Potential In order to promote therapid growth in regional trade, it is essential that the products identified for liberalization have adequate trade potential. This requires that the products identified have; (i) adequate demand in the receiving countries, and (ii) adequate supply capabliities in the sourc countries. Products identified under the top 100 criterion may not meet the twin criteria noted above. Further, even if a product is not imported from the region, but is being imported from outside the region, and a partner CS possesses the supply capability, such products would fail to be identified under the top 100 criterion. The basic objective of identifying the products under potential trade is to point to the supply demand possibilities existing in the region. Potential trade is given by (min SE, MI) - ET where SE, MI., and ET are suppliers exports, market s imports, existing trade respectively. By matching the import demand with export supply, it gives the most optimistic possibility of trade expansion under most favorable competitive conditions after netting the existing trade. This has been attempted with respect to India with Bangladesh, Sri Lanka and Pakistan in respect of top 50 products at six-digit HS classification level, using the TRAINS database. The products have been sorted in order of their importance in potential trade. The potential trade of India with respect to Bangladesh as market and India as supplier and vice versa has been presented in Annexure

23 India s potential trade with Sri Lanka, with India as market and Sri Lanka as supplier and vice versa has been presented in Annexure 3.2 In Annexure 3.3 the potential trade between India and Pakistan with former as market and the latter as supplier has been presented. No data was available to indicate this potential with Pakistan as market and India as supplier from the TRAINS data base. It will be observed that very few products having trade potential have been offered concessions under SAPTA negotiations held so far. This points to the need for inclusion of such products in future SAPTA negotiations. 6.2 Across the Board / Sectoral Approach This approach is likely to be more effective in moving towards a FTA since entire sectors are liberalized in negotiations. This method was used in a limited way by India and Bangladesh during the Third Round. In this study we have identified all chapters of HS classification that are at least 5 per cent or more of all bilateral imports of CS from each other. The estimates have been presented in Table 8 below. It will be observed that the major sectors selected on the basis of this criterion accounted for as much as per cent of Bangladesh s imports from the region. In case of Maldives the share was low since its imports are fairly well distributed over the different chapters. In case of India s and Maldives imports from Sri Lanka, 67% and 47% of the bilateral imports are covered. In the remaining cases the import coverage ranges from ther-quarter to nearly total coverage of bilateral imports. A sectoral approach to trade liberalization thus could be an effective way of deepening the process of regional trade liberalization A scrutiny of Chapters offered concessions under the SAPTA negotiations reveals that none of the Chapters conceded concessions (except for Chapter 53 offered concessions by India to bangladesh) are among those having high trade intensity. Table 8: Major Chapters in Contracting State s Imports CS Imports From Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Bangladesh 8, 25, 20 10, 25, 52, 84 73, 84 7, 10 52, 10 15, 40, 69, India 53*, 28, 3, 52, 05, 72 08, 17 72, 09, 47, Maldives 52 07, 08, 10, 04, 07, 52, Nepal 11, , 52, 84 8, 45, 87, Pakistan 0, 2 0, 7 0, 2, 5, 6 5, 6, 7 0, 2, 4, 8 00, Sri Lanka 53, 63, 56, 82, 03, 07, 09 3, 23, 61, , 07, 10, Note: Figures in bold are the imports of products covered under the chapters cited above as a percent of total bilateral imports. * This Chapter has been offered concession by India to Bangladesh under SAPTA Third Round. 23

24 Index to Chapter Nos. 03 Fish & crustacean 04 Dairy products.. 05 Products of animal origin 07 Edible vegetables.. 08 Edible fruits and nuts 09 Coffee, tea, mate and spices.. 10 Cereals 11 Prod. Mill ind., malt, starches, 12 Oilseeds, etc. 15 Animal, veg. fats 17 Sugar and confectionary 19 Prep. Of Cereals etc. 20 Prep. Of veg. Fruits, nuts.. 23 Residues and waste 25 Salt, sulphur, etc. 27 Mineral fuels.. 28 Inorganic chemicals.. 29 Organic chemicals.. 30 Pharmaceutical products 31 Fertilizer 40 Rubber and articles of rubber 45 Cork and articles 47 Pulp of wood, etc. 52 Cotton 53 Other vegetable textile fibres 54 Manmade filaments 55 Manmade staple fibres 56 Wadding felt non woven 61 Articles of apparel, knitted 62 Articles of apparel, non-knitted 63 Other made up textile articles 69 Ceramic products 72 Iron & steel 73 Articles of iron or steel 82 Tool implement or cutlery 83 Miscellaneous articles of base metal 84 Nuclear reactors, boilers 87 Vehicles o/t railway/tram 94 Furniture, bedding mattress 7. Concluding Observations In the present context of political stalemate that characterizes the South Asian region, the move towards a FTA in South Asia looks like a mirage. Even prior to the hardening of political tensions, the path charted out by CS of SAARC seems to have gone quite modest distance. While the magnitude of products covered under negotiations appeared to look 24

25 plausible, the share of regional trade liberalized has been quite modest. Except for India, none of the other CS have conceded meaningful tariff cuts. The effects of trade liberalization are thus modest. The only bright spots are enhanced trade between Bangladesh and Sri Lanka and India s increasing import share of negotiated products from Sri Lanka and Maldives. With global trade liberalization being at the doorsteps of all countries, regionalism will not make much sense unless the pace of similar liberalization is further intensified. At the outset this paper has highlighted how far the CS of SAARC under SAPTA have proceeded towards the goal of FTA. The steps advanced have been short, hesitant and in the final analysis, halting. A blueprint nevertheless serves the purpose that as and when normalcy is achieved in the region, the CS would have some guidelines as to how they could proceed further towards the path of a FTA in the region and compensate for the lost opportunities. The study has highlighted how meaningful negotiations could be resumed that could accelerate the pace of trade liberalization within the region. It may be noted that in recent years there has been a move towards bilateral and sub-regional arrangements with objectives similar to those endeavored under SAPTA. It is hoped that this study will continue to have relevance as to the method to be applied in the conduct of negotiations even under such arrangements. The researcher has encountered enormous difficulties in making quantitative estimates of the effects of different modes of negotiations given the non-availability of electronic databases for all countries in the region. This necessitated the construction of useful databases at a highly disaggregated level, which permitted the analysis, and which it is hoped, would provide useful inputs to future negotiators. 25

26 ANNEXURE 1: NON-TARIFF BARRIERS IN SELECTED SAARC COUNTRIES COUNTRIES NTBs I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI XVII XVIII XIX XX XXI ALL Sections BANGLADESH B R MALDIVES B 1 R 2 INDIA B 3 R SIL F PAKISTAN RESTRI CTED (A) RESTRI CTED (B) NEGAT IVE LIST SRI LANKA L SOURCE: (A) HEALTH & SAFETY RERQUIREMENTS (B): PROCEDURAL REQUIREMENTS BANGLADESH: BANGLADESH GAZETTE EXTRAORDINARY, JUNE 14, 1998 MALDIVES: CUSTOMS, MALE INDIA: GAZETTE OF INDIA EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (11), NOTIFICATION NO. (RE-98), , 31 MARCH, 1999, MINISTRY OF COMMERCE, GOI SRI LANKA: SRI LANKA CUSTOMS TARIFF GUIDE, 1999, SRI LANKA CUSTOMS NOTE: R: RESTRICTED; B: BANNED; SIL: SPECIAL IMPORT LICENSE; F: FREED; L: LICENSING 26

27 FOR DETAILED DESCRIPTION OF PRODUCTS, SEE ABOVE SOURCES. 1 BANNED ITEMS INCLUDE: PIGS, IDOLS FOR WORSHIP, PORNOGRAPHIC MATERIAL, MATERIALS CONTRARY TO ISLAM, NARCOTICS,ILLICIT DRUGS, AND PSYCHOTROPIC SUBSTANCES 2 RESTRICTED ITEMS INCLUDE: ALCHOL, DOGS, DANGEROUS ANIMALS, GUN POWDER AND EXPLOSIVES, WEAPONS, FIREARMS AND AMMUNITION, SPEAR GUNS, CHEMICAL SUBSTANCES, PORK AND PORK PRODUCTS, RICE, WHEAT FLOUR, AND SUGAR (DATA BASED ON INTERVIEWS) 3 PROHIBITED ITEMS FOR IMPORT ARE; TALLOW, FAT AND/OR OILS, RENDERED, UNRENDERED OR OTHERWISE, OF ANY ANIMAL ORIGIN INCLIDING: (1) LARD STEARINE ETC, (2) NEAT S FOOT OIL, (3) POULTRY FATS, (4) FATS AND OILS OF FISH, (5) MARGARINE, IMITATION LARD, ANIMAL RENNET, WILD ANIMALS, IVORY 4 NOW ONLY 667 ITEMS REMAIN IN THE RESTRICTED LIST. SECTION I: LIVE ANIMALS, ANIMAL PRODUCTS (CHS ) SECTION II: SECTION III: SECTION IV: SECTION V VEGETABLE PRODUCTS (CHS.06-14) ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES (CH.15) PREPARED FOODSTUFFS; BEVERAGES, SPIRITS AND VINEGAR; TOBACCO AND MANUFACTURED TOBACCO SUBSTITUTES (CHS.16-24) MINERAL PRODUCTS (CHS.25-27) SECTION VI: PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES (CHS ) SECTION VII: PLASTICS AND ARTICLES THEREOF; RUBBER AND ARTICLES THEREOF (CHS ) SECTION VIII: RAW HIDES AND SKINS, LEATHER, FUR SKINS AND ARTICLES THEREOF; SADDLERY AND HARNESS; TRAVEL GOODS, HANDBAGS AND SIMILAR CONTAINERS; ARTICLES OF ANIMAL GUT (OTHER THAN SILKWORM) (CHS ) SECTION IX: SECTION X: WOOD AND ARTICLES OF WOOD; WOOD CHARCOAL; CORK AND ARTICLES OF CORK; MANUFACTURES OF STRAW, OF ESPARTO OR OF OTHER PLAITING MATERIALS; BASKETWARE AND WICKER WORK (CHS ) PULP OF WOOD OR OTHER CELLULOSIC MATERIAL; WASTE AND SCARP OF PAPER AND PAPERBOARDS AND ARTICLES THEREOF (CHS.47-49) SECTION XI: TEXTILE AND TEXTILE ARTICLES (CHS ) SECTION XII: FOOTWEAR, HEADGEAR, UMBRELLAS, WALKING STICKS, PREPARED FEATHERS, ARTIFICIAL FLOWERS ETC. (CHS ) SECTION XIII: ARTICLES OF STONE, PLASTER CEMENT, ASBESTOS, MICA OR SIMILAR MATERIALS, CERAMIC PRODUCTS, GLASS AND GLASSWARE (CHS ) SECTION XIV: NATURAL OR CULTURED PEARLS, PRECIOUS OR SEMI-PRECIOUS STONES, PRECIOUS METALS, METALS CLAD WITH METALS AND ARTICLES THEREOF, IMITATION JEWELRY, COIN (CH.71) SECTION XV: BASE METALS AND ARTICLES OF BASE METAL (CHS ) SECTION XVI: MACHINERY AND MECHANICAL APPLIANCES; ELECTRICAL EQUIPMENT AND PARTS THEREOF; SOUND RECORDERS AND REPRODUCERS; TELEVISION IMAGE AND SOUND RECORDERS AND REPRODUCERS, AND PARTS AND ACCESSORIES OF SUCH ARTICLES (CHS ) SECTION XVII: VEHICLES, AIRCRAFT, VESSELS AND ASSOCIATED TRANSPORT EQUIPMENT (CHS ) SECTION XVIII: OPTICAL, PHOTOGRAPHIC, CINEMATOGRAPHIC, MEASURING, CHECKING, PRECISION, MEDICAL OR SURGICAL INSTRUMENTS AND APPARATUS; CLOCKS AND WATCHES; MUSICAL INSTRUMENTS, PARTS AND ACCESSORIES THEREOF (CHS.90-92) SECTION XIX: ARMS AND AMMUNITIONS, PARTS AND ACCESSORIES THEREOF (CH.93) SECTION XX: MISCELLANEOUS MANUFACTURED ARTICLES (CHS ) SECTION XXI: WORKS OF ART, COLLECTORS PIECES, AND ANTIQUES (CHS.97-99) 27

28 END NOTES 1 The author expresses his thanks to Mr. Jibby Thomas, Mr. Shatadru Chattopadhyay, and Mr. Jaikumar for their assistance in computation. I am further thankful to them for their valuable suggestions. My special acknowledgement to Mr. Subhas C Sharma, Professional Staff, Economic and Trade Division, SAARC Secretariat, Katmandu, for the kind assistance rendered by him in enabling me to access databases available at the Secretariat during my field visit. 2 The dates of customs notifications issued were: Bangladesh: 26 February 1997 Bhutan: 4 th February 1997, India: 1 st March 1997, Maldives: 1 st March 1997, Nepal: 31 st March 1997, Pakistan: 13 th June 1997 Sri Lanka: 17 th June India issued customs notification on 12 August, This figure was obtained from the web site of the Ministry of Commerce, Government of India. However there is some discrepancy of figure quoted in public pronouncements which is stated to be 714 items only. 5 Confederation of Indian Industries (CII) (1995), Non-Tariff Barriers in SAARC Countries. 6 The danger of this approach is that it could be subject to considerable window dressing with a large number of products not relevant to the region being offered concessions. 7 The Fiscal Year for Bangladesh, Nepal and Pakistan is July to June, Where as for India it is April to March, for Bhutan, Sri Lanka and Maldives it is calendar year. 8 The researcher also did not have access to the latest trade statistics of Pakistan. 9 The main reason for increase in India s imports from Sri Lanka was on account of agro products while in case of Maldives it was on account of increase in imports of cowrie shells. India s imports from Bangladesh declined on account of acute shortfall in urea production in the country. 10 It may be recollected that the SAARC CS earlier pledged to move towards a FTA by However due to active lobbying by the SAARC Chamber of Commerce and Industry the timetable was advanced to Later, looking at the impracticability of such a proposal and looking at the hard groug realities, it was suggested that only a blueprint for moving to a FTA be competed by Even this timetable seems to be out of reach. 11 An illustration of such a list is available in Asean Free Trade Agreemet (AFTA) which includes most primary products which are intended to be phased out for liberalization at a later date. In the context of Indo Sri Lanka Free Trade Agreement a similar list has been drawn up by both the countries. 12 The researcher was able to access data in electronic format only for India. For other countries the entire data set in HS code (SITC-rev3 in case of Pakistan) had to be input electronically manually in order to sort a list of most actively traded products in the region. 13 The list of 100 top products imported by each CS from the other CS was drawn up at the first instance. These bilateral lists were sorted in descending order of value. The different bilateral lists of sorted products were merged in one list and sorted again to derive a list of of potential suppliers from the region. It is hoped that this consolidated list for each CS could help in negotiating more meaningful trade preferences. A comparison of the products negotiated in various SAPTA rounds revealed that a large number of products negotiated were either not being imported or did not figure among the top 100 products. 28

29 ANNEXURE: 2.1: Bangladesh s imports of products from other South Asian countries Top 100 imports only ( ) Value in 000 Takas HS Codes Value Supplier HS Codes Value Supplier HS Codes Value Supplier IND IND IND IND PAK IND IND IND IND IND IND IND IND IND IND IND IND SL IND IND IND IND IND IND IND IND IND IND IND IND IND IND IND IND IND IND IND PAK IND IND IND IND IND IND IND PAK IND IND IND IND IND IND IND IND IND IND IND IND IND IND IND IND PK IND IND IND IND IND IND IND IND IND IND IND NPL IND IND IND IND IND IND IND IND IND NPL PAK IND IND IND IND PAK IND IND PAK IND PAK IND IND IND IND Note: For broad HS section-wise description of products and relevant chapters contained therein see footnote to Annexure 1. For detailed description of products see Nepal Overseas Trade Statistics, Trade Promotion Centre, Katmandu, from which data has been extracted. 29

30 ANNEXURE: 2.2 India s imports of top 100 products from other South Asian countries. ( Value in Indian Rupees: ). HS Codes Value Supplier HS Codes Value Supplier HS Codes Value Supplier PAK SL SL BD SL PAK PAK SL PAK BD PAK SL BD BD SL BD BD SL SL BD PAK PAK SL PAK SL SL SL SL PAK SL BD PAK SL SL PAK BD BD SL PAK SL SL SL PAK PAK SL PAK SL BD PAK SL SL SL PAK PAK SL PAK SL BD SL SL SL SL PAK PAK PAK SL SL SL SL SL SL BD SL SL BD SL PAK PAK SL SL PAK SL SL PAK PAK PAK PAK PAK PAK PAK PAK SL BD PAK SL MLD SL SL SL PAK Note: For broad HS section-wise description of products and relevant chapters contained therein see footnote to Annexure 1. For detailed description of products see Monthly Statistics of Foreign Trade of India by Commodities, , DirectorGeneral of Commercial Intelligence & Statistics, Calcutta, from which data has been extracted. 30

31 ANNEXURE: 2.3 Maldives Imports of Top 100 Products from other South Asian Countries (Value in Rufiyas : 1998) HS Codes Value Supplier HS Codes Value Supplier HS Codes Value Supplier SL IND IND IND IND SL IND SL IND IND IND IND IND SL IND SL IND PAK IND IND IND IND SL SL IND IND SL IND SL SL SL PAK SL SL SL IND IND IND IND SL IND IND SL IND SL IND SL IND SL SL SL IND SL SL IND IND SL IND SL SL IND SL SL SL SL SL SL SL IND SL PAK SL SL SL SL IND SL SL IND SL IND IND SL SL SL SL SL SL IND IND IND SL IND IND PAK IND IND SL IND SL Note: For broad HS section-wise description of products and relevant chapters contained therein see footnote to Annexure 1. For detailed description of products see Maldives Trade Statistics, 1998, Maldives Customs, Male.from which data has been extracted. 31

32 ANNEXURE: 2.4 Nepal s Imports of Products from other South Asian Countries. All Products ( ) Value in Nepali Rupees. HS Codes Value Supplier HS Codes Value Supplier PAK PAK BD PAK BD BD PAK SL SL BD PAK BD SL BD BHU PAK SL PAK PAK PAK PAK PAK BD SL PAK PAK SL PAK SL PAK SL PAK PAK PAK PAK PAK BD PAK BD PAK PAK PAK PAK PAK PAK PAK SL PAK PAK SL PAK PAK PAK PAK SL PAK BD PAK BD SL BD BD BD PAK SL BD BD PAK PAK BD PAK MLD BD PAK MLD Note: For broad HS section-wise description of products and relevant chapters contained therein see footnote to Annexure 1. For detailed description of products see Nepal Overseas Trade Statistics, Trade Promotion Centre, Katmandu, from which data has been extracted. 32

33 ANNEXURE: 2.5 Pakistan s Imports of Products from other South Asian Countries. Top 100 Imports only ( ) Value in Pak Rs. SITC Rev-3 Codes Value Supplier SITC Rev-3 Codes Value Supplier SITC Rev-3 Value Supplier Codes IND IND BD SL SL SL IND BD SL BD IND IND BD IND SL IND IND IND IND SL BHU BD BD SL SL IND IND IND IND IND SL SL IND SL IND SL SL IND IND SL IND IND IND IND IND IND SL IND BHU BD SL SL NPL IND IND IND IND IND SL BD SL IND IND SL IND IND IND BD IND IND IND IND IND IND SL IND BHU SL BD IND IND IND IND IND BD IND IND IND SL SL IND NPL SL IND BD IND SL SL IND IND Note: For broad HS section-wise description of products and relevant chapters contained therein see footnote to Annexure 1. For detailed description of products see Foreign Trade Statistics of Pakistan, Part II, 1994 from which data has been extracted. 33

34 ANNEXURE: 2.6 Sri Lanka s Imports of Products from other South Asian Countries. Top 100 Imports only (1998) Value in SL Rs. HS Codes Value Supplier HS Codes Value Supplier HS Codes Value Supplier IND PAK IND PAK PAK PAK IND PAK PAK PAK IND PAK PAK IND PAK PAK IND PAK IND PAK PAK MLD PAK PAK PAK PAK PAK PAK PAK PAK PAK PAK PAK MLD PAK MLD IND PAK PAK IND PAK PAK IND PAK IND PAK IND IND PAK PAK IND MLD PAK BD PAK IND PAK NPL IND IND MLD IND IND IND PAK IND PAK PAK MLD PAK PAK MLD PAK PAK PAK IND PAK PAK MLD MLD PAK MLD PAK PAK PAK PAK MLD PAK PAK PAK PAK IND MLD MLD PAK PAK PAK PAK PAK PAK Note: For broad HS section-wise description of products and relevant chapters contained therein see footnote to Annexure 1. For detailed description of products see, External Trade Statistics, Sri Lanka Customs, 1998 from which data has been extracted. 34

35 ANNEXURE: 3.1: POTENTIAL TRADE : INDIA AND BANGLADESH ('000 US $) Market Bangladesh, Supplier India:1997 Market India, Supplier Bangladesh : 1997 HS SE RCA MI ET PT CO HS SE RCA MI ET PT CO , , , Note: For broad HS section-wise description of products and relevant chapters contained therein see footnote to Annexure 1. HS: Product code under Harmonised System; SE: Supplier's world exports; RCA: Revealed Comparative Advantage; MT: market's world imports; ET: existing bilaateral exports of supplier; PT: potential trade; CO: concessions offered under SAPTA Rounds 35

36 Source: UNCTAD, Trade Analysis and Information System, Spring 2000, Version 7, based on Comtrade ANNEXTURE: 3.2: POTENTIAL TRADE: INDIA AND SRI LANKA ('000 US $) Market India, Supplier Sri Lanka: 1997 Market Sri Lanka, Supplier India: 1997 HS SE RCA MI ET PT CO HS SE RCA MI ET PT CO , , Note & Source: as in Annexure

37 ANNEXTURE: 3.3: POTENTIAL TRADE: INDIA AND PAKISTAN ('000 US $) Market India, Supplier Pakistan: 1997 HS SE RCA MI ET PT CO Note & Source: as in Annexure

38 CHARTING A FREE TRADE AREA IN SOUTH ASIA: INSTRUMENTS AND MODALITIES PAPER PRESENTED AT SECOND CONFERENCE OF THE SOUTH ASIA NETWORK OF ECONOMIC RERSEARCH INSTITUTES (SANEI) AUGUST-28-29, 2000, KATHMANDU INDRA NATH MUKHERJI SOUTH ASIAN STUDIES DIVISION SCHOOL OF INTERNATIONAL STUDIES JAWAHARLAL NEHRU UNIVERSITY NEW DELHI Ph: Fax: imukherji@hotmail.com 38