Regional Trade Agreements

(RTAs) & Nepal

By
Mukesh Mishra
Kathmandu, Nepal
 Contents
 Nepal and RTAs
 SAFTA: History and major provisions
 BIMSTEC: major provisions
 RTAs and Nepalese Business.
 Regional Trade Agreements and Nepal
Nepal is a contracting party of two regional and
17 bi-lateral trade agreements.
1. Agreement on South Asian Free Trade Area
-SAFTA (Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan, Sri Lanka and Afghanistan).

2. Bay of Bengal Initiative for Multi-Sectoral

Technical and Economic Cooperation –
BIMSTEC (Bangladesh, Bhutan, India,
Myanmar, Nepal, Sri Lanka, Thailand).
 SAFTA: A Brief History
 Formation of SAARC in 1985. Objectives (SAARC Charter) are:
 Acceleration of economic growth,
 Social progress and cultural development in the region,
 Promotion of active collaboration and mutual assistance in the
economic, social, cultural, technical and scientific fields, and
 Strengthening of cooperation among the Member States in
international fora on matters of common interest.

 In 1991, Council of Ministers at their Ninth Session at Malé

endorsed the Study on Trade, Manufactures and Services in the
South Asian region and established a high-level Committee known
as the Committee on Economic Cooperation (CEC) comprising
Commerce/Trade Secretaries of the Member States.

 The CEC was mandated to formulate and oversee implementation

of specific measures, policies and programmes within the SAARC
framework to strengthen and enhance intra-regional cooperation in
the fields of trade and economic relations.
 SAPTA to SAFTA
 The Sixth Summit (1991), held in Colombo approved the
establishment of an Inter-Governmental Group (IGG) to formulate
an agreement to establish a SAARC Preferential Trading
Arrangement (SAPTA) by 1997.

 The framework Agreement on SAPTA was finalized in 1993, and

formally came into operation in December 1995, well in advance
of the date stipulated by the Colombo Summit.

 Objective: ‘to establish and promote regional preferential

trading arrangement for strengthening intra-regional trade
cooperation and development of national economies through
step by step liberalization of trade’.

 Four Round of trade negotiations were held under SAPTA to

liberalize trade. The last (fourth) round of negotiation focused on
creation of SAFTA.

 A Journey Towards SAFTA…………….

 A Journey Towards SAFTA
 9th SAARC Summit (Male 1997) – Head of States/Governments
recognized the importance of achieving a free trade area by the
year 2001.
 10th Summit (Colombo 1998) – reiterated the mandate of 9th Summit
and decided to constitute a Committee of Experts (CoE) to draft
treaty.
 11th Summit (Kathmandu 2002)
 the Leaders agreed to accelerate cooperation in the core areas
of trade, finance and investment to realize the goal of an
integrated South Asian economy, gradually.
 the Leader directed the Council of Ministers to finalize the text of
the Draft Treaty Framework by the end of 2002.
 12th summit (Islamabad 2004)
 Head of sates endorsed the framework agreement of SAFTA.
 “The Islamabad Declaration” aims to launch the SAFTA on
January 1, 2006
 1 January 2006: SAFTA into Operation.
 SAFTA for What?
Preamble:

“To strengthen intra SAARC economic

cooperation to maximize the realization of
the region’s potential for trade and
development for the benefit of their people,
in a spirit of mutual accommodation, with full
respect for the principles of sovereign
equality, independence and territorial
integrality of all sates”.
 SAFTA: Objectives
 Article 3: Promote and enhance mutual trade and
economic cooperation among contracting states by:

a) eliminating barriers to trade in, and facilitating the cross-border

movement of goods between the territories of the Contracting
States;

b) Promoting conditions of fair competition in the free trade area,

and ensuring equitable benefits to all Contracting States, taking
into account their respective levels and pattern of economic
development;

c) Creating effective mechanism for the implementation and

application of this Agreement, for its joint administration and
for the resolution of disputes; and

d) Establishing a framework for further regional cooperation to

expand and enhance the mutual benefits of this Agreement.
 SAFTA: Principles
Article 3:

a) SAFTA shall be governed by the provisions of this agreement

and also by the rules, regulations, decisions, understandings
and protocols to be agreed upon within its framework;

b) Affirmation of rights and obligations under WTO and other

Treaties/Agreements signed by the Contracting States;

c) Shall be based and applied on overall reciprocity and mutuality

of advantages;

d) Involve the free movement of goods;

e) Adoption of trade facilitation and other measures and

progressive harmonization of legislation;

f) Special and differential treatment for LDCs : on non-reciprocal

basis.
 SAFTA: Major provisions
Instruments (Article 4): The Agreement will be implemented
through:

1. Trade liberalization programme (Tariffs on all products

except the products under the sensitive lists will be
reduced to 0-5% within the agreed time frame (Article 7).
2. Rules of Origin.
3. Institutional Arrangements: committee of experts, council
of ministers
4. Consultations and Dispute Settlement Procedures
5. Safeguard Measures
6. Any other instrument that may be agreed upon.
Trade Liberalization Programme (Article 7)

A. Non-LDCs

 First Phase (2006-2007)

 for tariffs higher than 20 per cent, reduction of
tariffs to 20 per cent within 2 years.
 for tariffs lower than 20 per cent, annual 10
per cent reduction.
 Second Phase (2008-2012)
 from 20 per cent or below to 0-5 per cent
within 5 years, Sri Lanka 6 years.
Trade Liberalization Programme (Article 7)

B. LDCs

 First Phase (2006-2007)

 for tariffs higher than 30 per cent, reduction of tariffs
to 30 per cent within 2 years.
 for tariffs lower than 30 per cent, annual 5 per cent
reduction.

 Second Phase (2008-2012)

 from 30 per cent or below to 0-5 per cent within 8
years.
Other important provisions (Article 7)

 provision of sensitive list - negotiable,

subject to maximum ceiling, to be
reviewed after every four years.
 elimination of quantitative restrictions.

 Non-LDCs to reduce tariffs to 0-5 per cent

within 3 years for LDCs products.
 mechanism for compensatory mechanism
for revenue loss of LDCs.
 Major Provisions of SAFTA

Rules of Origin

• Products with at least 40% domestic value addition will enjoy the
tariff reduction preferences under the SAFTA.

• Special and differential treatment is provided for products of LDCs

(30% value addition is required for LDCs to qualify tariff
reductions).

• Any product having 50% regional cumulative value addition with

20% value addition in the final manufacturing/exporting country will
qualify for tariff reduction.
Major Provisions of SAFTA…..
Sensitive list

 To protect some relevant domestic industries, member

countries may maintain Sensitive Lists, i.e. lists of products,
which will not be covered by SAFTA.

 The number of products in the list shall be subject to a

maximum ceiling to be mutually agreed among the
Contracting States with flexibility to LDCs.

 Members may have two lists- one for the non-LDCs and the
other, a more permissive one for the LDCs.

 The Sensitive List is reviewed every four years or earlier as

may be decided by the SAFTA Ministerial Council (SMC).
 Sensitive Lists of Members
Products under sensitive list
Country (Number)
For Non-
For LDCs
LDCs
Bangladesh 1254 1249
Bhutan 157 157
India 865 744
Maldives 671 671
Nepal 1335 1299
Pakistan 1191 1191
Sri Lanka 1079 1079
 Major Provisions of SAFTA…..

Non-Tariff and Para-Tariff barriers

 All quantitative restrictions, not compatible with GATT 1994

shall be eliminated (Article 7.5).

 The COE reviews the non-tariff and para-tariff barriers in its

regular meeting to make recommendations for their
elimination to facilitate intra- SAARC trade and make it non-
restrictive (Article 7.4).

 The countries notify the measures (non-tariff and para-tariff)

to SAARC Secretariat on an annual basis.
 SAFTA: Major provisions………

Additional Measures (Article 8)

 Harmonization of standards, reciprocal reorganization of tests and
accreditation of testing laboratories;

 Simplification and harmonization of customs administration

 Simplification of banking procedures for import financing

 Transit facility for efficient Intra-SAARC trade, especially for the

landlocked countries

 Removal of barriers to intra-SAARC investment

 Development of transport and communication system

 Harmonization of Macroeconomic policy

 SAFTA: Major provisions………
 Institutional Arrangements (Article 10)

 SAFTA Ministerial Council (SMC): administration and

implementation of the agreement

 SAFTA CoE : to monitor, review and facilitate implementation

 Special and differential treatment for LDCs (Article 11)

‘give special regards’; ‘consider, wherever practical’; ‘special

consideration shall be given’ Safeguard Mechanism : import
surge causes or threaten to cause serious injury to like or directly
competitive product

 Dispute Settlement Procedure (Article 20): bilateral consultations,

CoE, Appeal to SMC.
 BIMSTEC
 BIMSTEC: Bay of Bengal Initiative for Multi-Sectoral
Technical and Economic Cooperation.
 The first BIMSTEC Summit held on 31 July 2004.
 Objectives (Article 1):
(a) strengthen and enhance economic, trade and
investment cooperation among the parties;
(b) progressively liberalize and promote trade in goods
and services, create a transparent, liberal and
facilitative investment regime;
(c) explore new areas and develop appropriate
measures for closer cooperation among the Parties,
and
(d) facilitate the more effective economic integration of
the least developed countries in the region, and
bridge the development gap among the Parties.   
 BIMSTEC: Major Provisions
 Article 2: Measures for Comprehensive Free
Trade Area (FTA): Strengthen and enhance
economic cooperation through the:  
 Progressive elimination of tariffs and non-tariff
barriers.
 Establishing an open and competitive investment
regime.
 Provision for S&DT and flexibility to the LDCs in the
region.
 Establishing effective trade and investment facilitating
measures.
 BIMSTEC: Major Provisions
 Article 3: Trade in Goods
 elimination of tariff and non-tariff barriers in substantially all
trade in goods, except those in the Negative List, between the
parties,
• Fast Track (Shorter time frame).
• Normal Track (longer timeframe).
 Article 4: Trade in Services
 Article 5: Investment
 Article 6: Areas of Economic Cooperation (MRAs, Customs
cooperation, trade finance, E-commerce, Business VISA and Travel
facilitation.
 Article 9: Dispute Settlement Mechanism.
 Article 10: Institutional Arrangements.
 Article 14: Accession
THANK YOU