27 December 2005

SAFTA to allow direct trade with Pakistan

Express News Service

Kolkata, December 26: India and Pakistan will be able to trade directly without the help of third-country destinations once the South Asian Free Trade Agreement (SAFTA) comes into force from January 1, according to Union commerce secretary SN Menon.

At present, Indians trading with Pakistan have to send their consignments to Dubai or Singapore, since Pakistan has a big list of “negative” items relating to exports from India. Imports from Pakistan come in freely.

India is expected to sign the SAFTA among the six south Asian nations - Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka - this Thursday after Parliament clears it.

Menon, addressing members of the Engineering Export Promotion Council (EEPC) on its golden jubilee, said SAFTA would replace the SAARC preferential trade agreement (SAPTA) by rationalising the 5,500-odd tariff lines under the existing tariff Acts of the member nations.

Tariff lines are import duties imposed on the commodities. They are expected to come down by five percentage points in SAFTA, Menon said.

Under the SAFTA, India would be able to export fabrics to Pakistan and Bangladesh as both countries are among the leading producers and exporters of garments and apparels.

At present, they import fabrics from other countries but SAFTA would make India products cheaper for them.

However, this is not mandatory. But with the tariffs reduced, importing from India will be an advantage, he said.

India has a negative list for 950 commodities, which implies restrictive trade of them. Every nation under SAFTA will have its own negative list, Mr Menon said.

For trade with Bangladesh and Myanmar, the government is developing 12 land border posts. As for China, he said trade via Nathula pass in Sikkim is expected to begin any time after March. However, trade via Nathula will be restricted to a list of around 30 items.

EEPC chairman Rakesh Shah said the fringe benefit tax (FBT) and service tax had pushed down exports of Indian engineering goods by 11.3 per cent in November this year compared with the same month of 2004.

Although the government has extended the Duty Entitlement Pass Book (DEPB) scheme up to March 31, the uncertainties had hit exports.

Menon said the DEPB has to be replaced with a new scheme that conforms to the WTO requirements. But, as India’s per capita GDP is below $1000, the government can continue the scheme without a countervailing duty imposed by the importing country against it.