South Asian Free Trade Area - Some Issues

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South Asian Free Trade Area - Some Issues Sanath Jayanetti

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Outline 1. Local Trading Arrangements and the WTO 2. Existing Trading Arrangements – Case of Sri Lanka -Broad rundown of all assentions, Sri Lanka, June 2005 (8-digit level) 3. SAFTA – Some issues of concern -Substantial exchange -RoO 4. Sri Lanka's FTAs with India and Pakistan 5. SAFTA – Some of the Challenges 6. Advancing/Conclusion

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Regional Trading Arrangements and the WTO Non-separation is the foundation of multilateral exchanging request as imagined by the MFN Principle (Article 1) and National Treatment Principle (Article III) of GATT MFN Principle permits a special case for provincial exchange activities under the GATT Article XXIV and the Enabling Clause; GATS Article V as for exchange administrations According to Article XXIV there ought to be an "arrangement and plan" and "significantly all the exchange" ought to be incorporated into the FTA course of action

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Existing Trade Arrangements India Sri Lanka Free Trade Agreement Pakistan Sri Lanka Free Trade Agreement SAPTA SAFTA Generalized Scheme of Trade Preferences Bangkok Agreement

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Broad synopsis of all assentions, Sri Lanka – June 2005 (8 digit level) ISFTA PSFTA SP B SL S GSTP BK Negative 1831 1145 Free 2034 763 7 0 6 0 2 11 Positive 2541 4498 194 25 155 5 86 297 Note: ISFTA-India Sri Lanka Free Trade Agreement; PSFTA-Pakistan Sri Lanka Free Trade Agreement, SP-SAPTA for creating nations; B-Bangladesh; SL-SAPTA LDC; S-SAARC; GSTP-Generalized Scheme of Trade Preferences: B-Bangkok Agreement Source: Author's calculations

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SAFTA – Some issues of concern Substantial Trade 20% of tax lines to be allowed for consideration for non-LDCs Items high on the present exchanging rundown will in all probability be in the negative rundown (generous exchange?) Sensitive List to be checked on each 4 yrs No dedication dissimilar to ASEAN to eliminate list This will make the viable security high for those businesses in the negative rundown and may prompt to wasteful parts at a high cost to the nation

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SAFTA – Some issues of concern (cont.) RoO RTAs require RoO to figure out if a relegation of products is qualified for particular treatment or not Success of exchanging game plan regarding net-exchange creation and welfare would depend an awesome arrangement on its RoO may constrain makers in the FTA to source their contributions from high cost territorial makers of intermediateries RoO can be utilized as a protectionist instrument Has to be basic

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SAFTA – Some issues of concern (cont.) RoO VA (rate test) may make predisposition against proficient makers; more prone to have exchange preoccupation Change of duty heading (CTH) origin? 4-digit or 6-digit? Eg. Tea

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100% evacuation of duties on 1351 things upon passage into compel 429 things in the negative rundown Rest 2797 things take after staged expulsion of levies up to 100% Within 3 years 25% decrease for materials half settled duty concession for imports of tea from Sri Lanka on a particular premise yearly max. standard upto 15 mil. Kgs. half altered levy concession for imports of articles of clothing from Sri Lanka subject to max. yearly share of 8 mil. bits of which least of 6 mil. pieces ought to contain Indian textures (no single classification ought to surpass 1.5 mil. pieces per annum) 100% expulsion of levies on 319 things upon section into drive 1180 things in the negative rundown half decrease in taxes for 889 things upon passage into compel with eliminated taxes: upto 70% toward the end of the 1 st year; 90% toward the end of 2 nd year; and 100% toward the end of 3 rd year Remaining 2724 things evacuation of taxes will be eliminated: at the very least 35% preceding the end of the 3 rd year; at the very least 70% preceding the end of the 6 th year; at the very least 100% preceding the end of the 8 th year Indo – Lanka Free Trade Agreement Sri Lanka India

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Indo – Lanka Free Trade Agreement (cont.) ROO criteria: To get tax concessions, an item ought to either be entirely gotten in a nation or ought to experience a considerable change inside a nation, on the off chance that it contains any material imported from a third nation. In the FTA, the ROO rule has been altered at 35 for each penny of FOB esteem. Consequently, an item with a base local esteem expansion of 35 for each penny of the FOB esteem would get to be qualified for levy concessions to be sourced from whatever other nation. The ROO is further decreased to 25 for every penny, gave that the item sent out from Sri Lanka contains at least 10 for every penny content beginning from the bringing in nation (as foreign made from India).

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Indo – Lanka Free Trade Agreement: CEPA Widened to incorporate more merchandise, and developed to enhance advertise access through exchange help and evacuation of non-levy boundaries Agreement on exchange administrations Measures for advancement of interest in each other's nations Enhance participation in regions, for example, training, instruction, transportation and ICT.

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100% duty evacuation for 206 levy lines upon section into compel 540 tax lines on the negative rundown Will dispose of the traditions tax on 4,680 tax lines out of a sum of 5,224 tax lines at six-digit level, over a time of three years. 34% before the end of the first year, 64% by the second and 100% following three years. Extraordinary Tariff Rate Quotas (TRQs):10,000 MT of tea free of obligation per annum; 1200 Tons of betel leaf per annum at special edge of 35% TRQ of 35% obligation concession for 200,000 pieces for each of 21 classifications of Sri Lankan Apparel items without RoO on textures. 20% special duty edge on artistic tiles and silverware (No entire levy disposal). 100% tax expulsion for 102 levy lines upon passage into drive 697 duty lines on the negative rundown Will take out 4527 tax lines of 5224 at 6-digit HS code more than five years. 30% levy decrease before the end of the first year, 40% by the second, 60% by the third, 80% by the fourth and 100% following 5 years TRQ for 6000MT of Basmathi rice and 1000MT of potatoes free of obligation per annum. Pakistan Sri Lanka Pakistan - Sri Lanka FTA

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Pakistan - Sri Lanka FTA (cont.) Rules of Origin require 35% residential esteem expansion. On the other hand 25% Sri Lankan esteem expansion alongside 10% utilizing Pakistani imports. Speculation and administrations will be drawn into the procedure of progression with the CEPA.

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SAFTA – Some of the Challenges Bilateral FTAs in South Asia Other more dynamic local/reciprocal arrangements

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Moving forward/Conclusion Negative records not bigger than respective negative records, negative records ought to be eliminated ROO comparable or superior to two-sided with local cumulation Importance of fusing two-sided assentions into SAFTA No paratariffs or NTBs No TRQs Investment understandings to encourage exchange Trade assistance India's lead part

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Thank You