Chanderprabhu Jain College of Higher Studies

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School of Law
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E-NOTES

Class : B.A.LL.B/BBA LL.B VIII Semester

Paper Code : LLB 408

Subject : International Trade Law

UNIT-4
Trade and SAPTA and SAFTA

The South Asian Free Trade Area (SAFTA)

The South Asian Free Trade Area (SAFTA) is a free trade agreement reached between the
members of the South Asian Association of Regional Cooperation (SAARC) on January 6, 2004.

South Asian Free Trade Area is an important topic in the International Relations segment

Overview of SAFTA

The South Asian Free Trade Area was signed in 2004 and came in to effect on January 1st 2006.
The members of SAARC signed the agreement in order to promote and sustain mutual trade and
economic cooperation within the region.

SAFTA required the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring
their duties down to 20 per cent in the first phase of the two-year period ending in 2007.

While the least developing countries (LDC) consisting of Nepal, Bhutan, Bangladesh,
Afghanistan and the Maldives had an additional three years to reduce tariffs

The basic principles regarding SAFTA are as follows:

1. Reciprocity and mutuality of advantages in order to benefit equally by considering the level
of economic trade, industrial development and trade and tariff systems

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2. Negotiation of tariff reform which will be implemented in successive stages through periodic
reviews.

3. Recognition of the special needs of the Least Developed countries and agreement on
concrete preferential measures in their favor.

4. Inclusion of all products, manufactures and commodities in their raw forms

The purpose of the SAFTA is to encourage and elevate common contract among countries such
as medium and long-term contracts. Contracts involving trade operated by states, supply and
import assurance in respect of specific products etc.

The objective of the South Asian Free Trade Area

The primary objective of the agreement is to promote competition in the region while providing
proper benefits to the countries involved. The agreement will benefit the people of South Asia by
bringing transparency and integrity among the nations by reducing tariff and trade barriers.
Ultimately it establishes a robust framework for regional cooperation

The instruments to help fulfill these objectives are as follows:

1. Trade Liberalization Programme

2. Rules of origin

3. Institutional Arrangements

4. Consultations and Dispute Settlement Procedures

5. Safeguard Measures

6. Any other instrument that may be agreed upon.

Benefits and Concerns regarding SAFTA

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The South Asian Free Trade Area agreement could boost foreign investment in SAARC Nations
provided such investments don‟t harm the domestic industries of member-nations.

The World Bank in its reports has shown that nations who have been involved in Free Trade
Agreements have had higher instances of economic growth compared to countries that were not.

The European Union trade bloc, for instance, led to the formation of the single European market
and substantial restructuring of industry on a pan-European basis. The EU also enabled member-
countries to exploit economies of scale, scope and specialisation.

The underlying concern is that certain items can be rerouted through the nations involved in
SAFTA. One example is the Palm Oil trade in which India had restricted its import from
Malaysia. But Malaysia‟s had apparently circumvented this loophole by rerouting their trade
through other member nations of SAARC.

SAARC Preferential Trading Arrangement (SAPTA)

The Agreement on SAARC Preferential Trading Arrangement (SAPTA) which envisages the
creation of a Preferential Trading Area among the seven member states of the SAARC, namely
Bangladesh, Butan, India, Maldives, Nepal, Pakistan and Sri Lanka was signed in Dhaka in April
1993.

The idea of liberalizing trade among SAARC countries was first mooted by Sri Lanka at the
sixth Summit of the South Asian Association for Regional Co-operation (SAARC) held in
Colombo in December 1991. It was agreed that SAPTA is a stepping stone to higher levels of
trade liberalization and economic co-operation among the SAARC member countries.

Objective

The objective of the SAPTA is to promote and sustain mutual trade and the economic co-
operation among the member states through exchange of trade concessions. SAPTA therefore is
the first step towards higher levels of trade and economic co-operation in the region.

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The basic principles

 . Overall reciprocity and mutuality of advantages

 Step by step negotiations and periodic reviews so as to improve and extend the preferential
trade arrangement, in stages

 Inclusion of all products, manufactures and commodities in their raw semi- processes and
processed forms

 Special and favourable treatment to Least Developed Contacting States

Main components

1. Tariff

2. Para Tariff

3. Non Tariff

4. Direct Trade Measures

SAPTA specified four negotiating approaches namely, product by product basis, across the board
tariff reduction, sectoral basis and direct trade measures. However it was agreed that tariff
concessions would initially be negotiated on a product - by- product basis.

The agreement also provides for negotiation of tariff concessions to be an ongoing process. The
SAPTA envisages that concessions on tariff para-tariff and non tariff measures will be negotiated
step -buy step improved and extended in successive stages.

National Schedules of Concessions

The process of negotiation on the schedule of concession, which forms an integral part of the
Agreement, commenced in 1993. For this purpose, the Inter Governmental Group on Trade

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Liberalization (IGG) was set up. The IGG met on six occasions in various capitals. At the sixth
meeting held in Katmandu on 20 th and 21 st April 1995, the delegations held intensive rounds
of bilateral and multilateral negotiations and agreed on the National Schedule of concessions to
be granted by individual member states to other member states under the SAPTA Agreement.

Four rounds of trade negotiations were concluded under SAPTA covering over 5000
commodities. Each Round contributed to an incremental trend in the product coverage and the
deepening of tariff concessions over previous Rounds.

During the first and the second rounds, trade negotiations were conducted on a product by
product basis. In the third and the fourth rounds, negotiations were conducted on chapter wise.

Maintenance of SAPTA Concession

The Agreement on the South Asian Free Trade Area (SAFTA)which was implemented with
effect from 1st January 2006 will supercede the SAARC Preferential Trading Arrangement
(SAPTA). On the issue of maintaining SAPTA concessions for LDCs, the Committee agreed that
once the Non-LDCs member states complete the Trade Liberalization Programme (TLP) for
LDC member states, SAPTA concessions would cease for LDC member states. However, if any
item on which SAPTA concessions are available to LDC, appear in the sensitive lists of non-
LDC, they shall maintain the same level of concession through derogation.

The Committee has further agreed that 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. It was also agreed at
the first SAFTA Ministerial Council Meeting held in April that LDCs should also maintain
concessions under SAPTA for Non LDCs until the completion of TLP irrespective of whether
the products are in the sensitive lists or not(Please contact the Department of Commerce for
further clarifications).

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Trade and the environment

How are trade and environmental sustainability compatible?

The expansion of global trade and the increasing integration of global value chains raise
questions about how trade and the environment interact with each other. What are the effects of
trade on the environment? And inversely, how can a changing natural environment (e.g. climate
change impact) modify trade patterns? Is trade liberalisation good or bad for the environment?
What are the short term and long term consequences and can an optimal combination of trade
and environment policies harness the benefits of trade while minimizing environmental costs?

Trade can have both positive and negative effects on the environment

Economic growth resulting from trade expansion can have an obvious direct impact on the
environment by increasing pollution or degrading natural resources. In addition, trade
liberalization may lead to specialization in pollution-intensive activities in some countries if
environmental policy stringency differs across countries – the so-called pollution haven
hypothesis.

However, increased trade can in turn, by supporting economic growth, development, and social
welfare, contribute to a greater capacity to manage the environment more effectively. More
importantly, open markets can improve access to new technologies that make local production
processes more efficient by diminishing the use of inputs such as energy, water, and other
environmentally harmful substances.

Similarly, trade and investment liberalization can provide firms with incentives to adopt more
stringent environmental standards. As a country becomes more integrated within the world
economy, its export sector becomes more exposed to environmental requirements imposed by
the leading importers. Changes needed to meet these requirements, in turn, flow backwards along
the supply chain, stimulating the use of cleaner production processes and technologies.

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Consequences from climate change can disrupt trade

Direct consequences of climate change on trade could come from more frequent extreme weather
events and rising sea levels. Supply, transport and distribution chains infrastructure are likely to
become more vulnerable to disruptions due to climate change. Maritime shipping, which
accounts for around 80% of global trade by volume, could experience negative consequences, for
instance from more frequent port closures due to extreme events. More importantly, climate
change is expected to decrease the productivity of all production factors (i.e. labor, capital and
land), which will ultimately result in output losses and a decrease in the volume of global trade.

At the same time, there could also be positive economic impacts on maritime shipping through
the potential further opening of Arctic shipping routes, albeit at the cost of environmental
degradation.

How can policymakers optimally combine trade and the environment policies?

Effective environmental policies and institutional frameworks are needed at the local, regional,
national, and international levels. The impact of trade liberalisation on a country‟s welfare
depends on whether appropriate environmental policies are in place within the country in
question (e.g. correctly pricing exhaustible environmental resources). Stringent environmental
policies are compatible with an open trade regime as they create markets for environmental
goods that can subsequently be exported to countries that follow suit on environmental
strandards – the so-called first-mover advantage. This is especially true for complex technologies
such as renewable energies.

Countries have undertaken a number of environment-related efforts under the World Trade
Organization (WTO) framework including negotiating tariff reductions in environmental goods
and services, seeking more clarity on the relationship between existing WTO rules and specific
trade obligations in multilateral environmental agreements, and seeking disciplines on fisheries

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subsidies. In this way, the WTO is building a multilateral framework for international trade that
also discourages any misguided temptation to engage in a “race to the bottom”.

The inclusion of environmental provisions in bilateral and regional trade agreements has also
helped harmonise environmental regulations between developed and developing countries. More
advanced economies can provide resources and institutions for capacity building, and can
encourage less-developed partners to strengthen environmental regulations.

The OECD has addressed many issues on trade and environment such as environment and
regional trade agreements (RTAs) the drivers of environmental provisions in RTAs, as well as
the stringency of environmental policies as a driver for trade in goods in environmental goods
and services. We are also currently developing a set of policy indicators on trade and
environment to help monitor progress towards more policy coherence, and to identify policy
priorities at the intersection of trade and environment.

New Digital Technologies to Tackle Trade in Illegal Pesticides

Global trade in illegal pesticides has been steadily growing in recent years, posing serious threats
to agriculture, the environment, human health, and the economy. Evidence of this trend can be
found in the increasing number of seizures of counterfeit, fake, and unauthorised pesticides, as
well as their growing share in the global pesticide market. This paper identifies the main drivers
and enablers of this illicit trade, and explores the potential of digital technologies, such as
blockchain, to support policies to tackle this criminal activity. It also outlines the challenges in
the adoption of these digital-based policy responses and discusses other available policy options.

WTO Rounds of Trade Negotiations

There have been nine rounds of trade negotiations since the Second World War. The list of WTO
rounds (initially as GATT) are mentioned below:

1. Geneva Round (April 1947) – GATT was signed.

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2. Annecy Round (April 1949) – Tariff Concessions discussed.

3. Torquay Round (September 1950) – Cut in tariff levels.

4. Geneva II Round (January 1956) – Japan was admitted and tariff reductions.

5. Dillion round (September 1960) – Tariff Concessions.

6. Kennedy Round (May 1964) – Tariff Concessions and Anti-Dumping covered.

7. Tokyo Round (September 1973) – Tariff, Non-Tariff measures discussed.

8. Uruguay Round (September 1986) – WTO was created, tariffs and agricultural subsidies
were reduced.

9. Doha Round (November 2001) –Overview of Doha Development Agenda

Overview of Doha Development Agenda

The trade negotiations are achieved by consensus and with the single undertaking. Doha Round
is formally not completed but some issues related to Doha Development Agenda were taken up
in the Nairobi Ministerial Conference (10th WTO Ministerial Conference) that took place in
December 2015. Read the overview below:

1. It is the first round of negotiations since the WTO adopted a multilateral trading system in
1995 and the first of the nine rounds to put the development of developing nations at the centre
stage.

2. 157 members of the WTO participated in the Doha Round

3. The major subjects for negotiations that are covered in Doha Round are:

 Multilateral environmental agreements

 Trade barriers on environmental goods & services

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 Fisheries subsidies

 The negotiations on the trade and the environment were the first of its kind in WTO/GATT
rounds of negotiations.

 Issue of the Geographical Indications is the only intellectual property right issue included in
the Doha Round.

 The Doha Round is formally not completed.

One of the focus points of Doha Round was to put the development of the developing and lesser
developed countries at the heart of the trade negotiations. Special and differential treatment for
the developing countries made the core of the Doha Development Agenda.

Overview of Doha Development Agenda

The trade negotiations are achieved by consensus and with the single undertaking. Doha Round
is formally not completed but some issues related to Doha Development Agenda were taken up
in the Nairobi Ministerial Conference (10th WTO Ministerial Conference) that took place in
December 2015. Read the overview below:

 It is the first round of negotiations since the WTO adopted a multilateral trading system in
1995 and the first of the nine rounds to put the development of developing nations at the
centre stage.

 157 members of the WTO participated in the Doha Round

 The major subjects for negotiations that are covered in Doha Round are:

 Multilateral environmental agreements

 Trade barriers on environmental goods & services

 Fisheries subsidies

 The negotiations on the trade and the environment were the first of its kind in WTO/GATT
rounds of negotiations.

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 Issue of the Geographical Indications is the only intellectual property right issue included in
the Doha Round.

 The Doha Round is formally not completed.

 One of the focus points of Doha Round was to put the development of the developing and
lesser developed countries at the heart of the trade negotiations. Special and differential
treatment for the developing countries made the core of the Doha Development Agenda.

Doha Round – Success or Failure

Doha Round negotiations have been stalled as the participating countries could not reach a
consensus over trade negotiations with major differences between developed and developing
countries. As a matter of debate, the following points can be taken as the reason of the failure of
Doha Round:

1. The developed countries especially EU, the USA, Canada and Japan had differences with
developing countries (India, Brazil, China, South Africa) arguments over Special Safeguard
Mechanism (SSM)

2. The negotiations considered in the Doha Round were taken up in Geneva in 2008 but were
again stalled due to the lack of consensus on SSM.

3. On the other hand, the developed countries and blocks such as EU argue that the developing
economies don‟t comply with their demands for near zero-tariffs in agriculture and services.

4. During most of the Doha talk rounds, the developed countries pressurized the developing
countries to open their markets further via a so called Trade Facilitation Agreement (TFA). On
the other hand, the developing countries pressurized the developed countries to bring more
transparency to rules and regulations in the global financial bodies; and for removing or raising
the cap on food and agricultural subsidies (this also known as “aggregate measure of support”, or
AMS). The issue got politicised in both the blocks.

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Further, the developing countries also could not make some credible union {G-33 had not strong
coherence} to put their cause and lacked a coherent strategy. Summarily, the Doha Round talks
failed because of the following:

 Inability of the participating countries to achieve an agreement in the key areas of

agricultural subsidies and tariffs.

 Developing countries have sought an agreement from developed countries on cutting back
farm subsidies as well as tariffs.

 Developing countries seeking bigger cuts on industrial tariffs to have more market access.

What is a Special Safeguard Mechanism?

It is a mechanism used by countries to put a restraint on international trade to protect domestic

industries from foreign competition.

With a focus on WTO, a participating nation can take a safeguard action, such as restricting
imports of a product temporarily to protect a domestic industry from an increase in imports
causing or threatening to cause injury to domestic production.

1. Issues over agricultural trade between the US, India and China led to the collapse of
negotiations that started in Geneva in 2008.

2. The Doha talks followed in the ministerial conferences at Cancun, Geneva, Hong Kong have
been unable to reach a consensus (especially the breakdown of the Cancun negotiations.)

3. The SSM and Special Agricultural Safeguard (SSG) – SSG is mentioned in the Uruguay
Round but many developing countries were unable to make its use as it is available for only
those goods in which non-tariff barriers have been converted to equivalent tariff barriers.

India in Doha Round

India puts forth the following stance:

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a. It supports Special Safeguard Mechanism (SSM) to protect its farmers from the import surge.

b. It supports the development agenda of the Doha round for the developing nations and wants
each country to support the same.

c. The government focussed on the need for the successful completion of Doha Round and
wanting developed nations to undertake greater market-opening commitments.

d. India also wants rich countries to drastically reduce its „trade-distorting‟ farm subsidies.

e. India wants a permanent solution to the issue of public food stockholding in developing
countries for the purpose of food security.

f. It supports duty-free and quota-free market access for developing nations.

g. India has consistently opposed an expansion of the multilateral trading system in the
direction of negotiating and implementing multilateral agreements on investment,
competition policy, and government procurement – a possibility created by the Singapore
Ministerial Declaration of 1996.

h. In the Doha Round, India‟s then Commerce and Industry Minister emphasized on the need to
recognize the existing development deficit in the WTO agreements; and also drew attention
to the asymmetries in the agreements of the Uruguay Rounds and the TRIPS agreement.

i. It argued that IPR protection under geographical indication should not be limited only to
wine and spirits but should be extended to include other products (such as Basmati rice)

j. It pushed for restrictions on the use/misuse of biological and genetic resources and

k. At the Cancun ministerial conference, Arun Jaitely (The then Minister of Commerce and
Industry) argued over agricultural negotiations stating that the developed countries have high
levels of agricultural subsidies and these are far greater than what these countries spent on
official development assistance.

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l. India demands elimination of trade-distorting domestic support from other WTO members
and has insisted on the system of proportionality (Which needs developed nations to make
greater concessions than the developed countries.) normal announcement has been made.

Market Access

Agriculture

 Agriculture has become the linchpin in the Doha Development Agenda.

 It aimed to give more market access to agriculture thus reducing government control over
agriculture.

 It called for elimination of export subsidies and reduction of trade distorting domestic
support.

 It also dealt with non-trade concerns like food security, rural development, among others.

 Special Safeguard Mechanism (SSM): It is a tool that will allow developing countries to raise
tariffs temporarily to deal with import surges or price falls.

Non-Agricultural Market Access (NAMA)

 Non-Agricultural Market Access (NAMA) relates to trade negotiations on non-agricultural or

industrial products.

 In the NAMA negotiations, WTO Members discuss the terms or modalities for reducing or
eliminating customs tariff and non-tariff barriers on trade in industrial products.

Services

 It aimed to improve market access in trade in services.

 It also aimed to strengthen rules related to market access.

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10th Ministerial Conference and Nairobi Package

The Tenth Ministerial Conference of the WTO was held in Nairobi, Kenya during 15-19
December 2015. This was the first such meeting to be hosted by an African nation. The
agenda of this meeting was to take forward issues that were unresolved during last
ministerial conference in Bali in 2013.

The Nairobi Package

After five days negotiations, a “Nairobi Package” was defined which contained a series of
six ministerial decisions on agriculture, cotton and issues related to LDCs. These include a
commitment to abolish export subsidies for farm exports”. As per this package:

 Developed countries such as United States will need to eliminate the farm export
subsidies immediately, except on a handful of agriculture products. The developing
countries were allowed to end these export subsidies by 2018.

 The Developing countries were given flexibility to cover marketing and transport costs
for agriculture exports until the end of 2023. Additional time was given to the poorest
and food importing countries. This simply implied that India will not be able to offer
export subsidies for sugar and other farm products after eight years.

 No final decision was taken on public stock-holding as well as Special Safeguard

Mechanisms (SSM).

 The countries struck a deal on IT trade whereby, they would eliminate the tariffs on 201
IT products per year. The idea is to make all IT products duty-free by 2019.

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