Safta to ride clear over LDC roadblock of tariff rewards

New Delhi, Nov 18 | Updated: Nov 19 2005, 05:44am hrs
The thorny issue of tariff compensation mechanism demanded by the least developed countries (LDCs) of Saarc is not likely to delay the implementation of the South Asian Free Trade Agreement (Safta).

Speaking to FE, senior commerce ministry commerce said that while the compensation issue was far from being resolved, it would not hold up the agreement and the matter would be sorted out after the implementation of Safta.

We will not delay implementation of the agreement because of disagreement over one or two issues. Those can be sorted out later, an official said.

Safta, which was signed last year, is to be implemented on January 1, 2006. It is a free trade agreement between seven Saarc countries, India, Pakistan, Sri Lanka, Bangladesh, Nepal, Bhutan and Maldives. Afghanistan joined Saarc as its newest member recently.

The LDC members, especially Bangladesh and Nepal, have demanded that a tariff compensation mechanism should be in place for compensating the LDCs for the revenue loss they have to suffer due to reduction in tariffs under Safta.

India, which is the largest among members, will have to shell out the maximum compensation if such an agreement is reached.

India had been opposing this demand on the grounds that such a mechanism was not usual for a FTA and it could not be an intrinsic part of the agreement. Bangladesh, however, has been firm on its demand and unwilling to budge.

Sources said that while India had managed to convince Bangladesh to give up its demand for a tariff compensation mechanism in the Bimstec (agreement between Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan), it was not ready to do so in the case of Safta.

India is keen on ensuring that Safta is implemented on time as it has great expectations from the agreement. Prime Minister Manmohan Singh has expressed hopes that the agreement would lead to growth in intra-regional trade from $6 bn to $14 bn within two years of Saftas implementation.