Agreement on South Asia Free Trade Area - SAFTA

The trade agreement of India with South Asia is abbreviated as SAFTA. This came into force from 1st January, 2006. India, Pakistan and Sri Lanka are categorized as Non-Least Developed Contracting States (NLDCS) and Bangladesh, Bhutan, Maldives and Nepal are categorized as Least Developed Contracting States (LDCS).

SAFTA Agreement,

Afghanistan will join as the eighth member of SAARC during the 14th SAARC Summit will join SAFTA Agreement as an LDC member.

Article 7 of the SAFTA Agreement says under tariff liberalization programme (TLP) NLDCS would bring down tariffs to 20%, while LDCS will bring them down to 30% in two years.

NLDCs will reduce their tariffs for LDC products to 0.5% in 3 years. This TLP would cover all tariff lines except those which are listed in the sensitive list or negative list by the member states.

Highlights of the SAFTA Agreement

Rules of Origin:
  • The goods have undergone substantial manufacturing process in the exporting countries to give preferential access to the Member Countries under SAFTA. By substantial manufacturing process it is defined in terms of Change of Tariff Heading (CTH) at four-digit Harmonized Coding System (HS) and value content of 40% (30% for LDCSs).
  • Products-Specific Rules (PSR) for 191 tariff lines are provided to accommodate the interest of LDCSs given their limited base for natural resources and undiversified industrial structure.

Sensitive List:

The summary of the Sensitive Lists are as under:   
India maintains two sensitive lists under SAFTA; one for non- LDCs, which is applicable to Pakistan and Sri Lanka and the other for LDCs, which is applicable to Bangladesh, Nepal, Maldives, Afghanistan and Bhutan.

Mechanism for Compensation of Revenue Loss (MCRL) for the Least Developed Contracting States:
  • The compensation to LDCSs, would be available for four years; whereas to Maldives it would be for six years.
  • The compensation would be in the form of grant in US dollar.
  • The compensation shall be subject to a restrict to 1%, 1%, 5% and 3% of customs revenue collected on non sensitive items under bilateral trade in the average of 2004 and 2005.
  • The SAFTA Committee of Experts will administer the compensation as per the Administrative Arrangements.

Technical Assistance to Least Developed Contracting States (LDCS) in agreed areas

Capacity building in standards, product certification, training of human resources, data management, institutional up gradations, improvement of legal systems and administration, customs procedures and trade facilitation, market development and promotion fall under this category.

Implementation of SAFTA Agreement

Tariff Concessions granted under the SAARC Preferential Trading Arrangement (SAPTA) would be discontinued for the LDC Member States when the Non-LDCSs complete the Trade Liberalization Programme (TLP) for LDCSs within three years.

If any items, on which SAPTA concessions are available to LDCSs, appear in the Sensitive List of Non-LDCSs, they shall maintain the same level of concessions and should maintain the same position in their respective Sensitive Lists.

If the items under TLP enjoy tariff preferences under SAPTA, the Non-LDCS shall reduce their tariff on those items to a rate not higher than the rate applicable for LDCS under SAPTA on the date agreed for base rate for TLP.

The base rate for the purpose of tariff reduction would be the same as MFN applied rate on 1st January 2006.

Commencement of SAFTA Trade Liberalization Programme (TLP)

The TLP became operational from 1st July 2006 with the condition that the TLP for the first two years would be completed by 31st December, 2007, i.e. within two years of SAFTA coming into force.

The notifications on the tariff concessions granted by India under SAFTA can be checked with:

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