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          The last round of negotiations on the South Asian Free Trade Area (SAFTA) begins in the Nepalese capital, Kathmandu, today (Tuesday) to strike a deal on important issues to pave the way for making Safta operational from January 1, 2006, report agencies.
The Bangladesh government delegation left Monday for Kathmandu to attend the three-day wrap-up discussions, the official sources said pinning high hopes on the successful conclusion of the negotiation.
The SAARC leaders in their Dhaka summit early this month reaffirmed that SAFTA would be launched on its scheduled date on January 01.
The sources said negotiating teams from other capitals would join the meeting in Kathmandu with the political mandate of their leaders to conclude the talks. There is a possibility that the 'revenue compensation issue' -- one of the four issues on the table for agreement -- may be delayed or deferred, pending a consensus on the three remaining issues. Such issues include the negative list of products, rules of origin (RoO) and trade arbitration.
The sources said the gap on the negative list has already been narrowed down and flexibility is at work about the RoO. So also is the case with trade arbitration.
One sources said the revenue compensation issue for the least developed countries (LDCs) of the SAARC, including Bangladesh, is a proposition that has no working model in other regions. So there is a need for more time to build a structure.
There is a pressure to drop the revenue compensation issue altogether, the source added noting that the demand for revenue compensation originally came from the Maldives which is heavily dependent on customs duty at the import stage, as a source of its budgetary resources. Its internal tax structure is not sufficient to generate enough domestic revenues for funding the budget.
Bangladesh has also taken it seriously. However, to avoid the delay in sorting out a mechanism, a consensus is emerging for resolving the issue later after the SAFTA coming into effect.
Bangladesh has also undertaken a study to examine the implications of trade liberalisation on revenue for the government at the import stage. "It will obviously happen as the collection of customs duty will fall significantly following the opening up of duty-free trade regime for some products and lowering of duty for some others within the region", the source observed.
The commerce ministry and the national board of revenue (NBR) are jointly concluding the study, the sources said.
The four-member Bangladesh delegation is headed by Deputy Secretary of the Ministry of Commerce AKM Fazlur Rahman.
Director general, SAARC of the Ministry of Foreign Affairs Ruhul Amin, Deputy Chief of Bangladesh Tariff Commission Mostafa Abid Khan and Second Secretary (Customs) of the NBR Syed Mushfiqur Rahman are other members of the delegation that will attend the three-day meeting -- the 12th one of the Committee of Experts (CoE).
"The negotiation on the mechanism for compensation of revenue loss, remaining as the main unresolved issue, will be the crucial one to concluding the South Asian Free Trade Area (SAFTA) negotiations in the meeting," a senior Commerce Ministry official said.
During the SAARC Summit in Dhaka, the standing committee discussed whether a mechanism could be devised within six months from January 01, 2006, but the least developed LDC members of the SAARC wanted the issue relating to revenue compensation to be settled before the commencement of the agreement.
The SAFTA deal states that until alternative domestic arrangements are formulated, the contracting states will establish an appropriate mechanism to compensate the LDCs for their loss of customs revenue.
During the negotiations at the earlier CoE meetings, the developing member-countries proposed a formula for calculating such revenue losses, officials said.
They said the formula is so designed that the LDCs having alternative domestic arrangements in place would not incur any revenue loss and there would be no compensation.
The LDC members of the SAARC did not agree with the formula and tabled an alternative one to ensure compensation for the revenue loss, said one of them.
Finalisation of the sensitive lists and rules of origin (RoO) were two other standing issues. "There was substantial progress on these two issues in the last meetings," said the official.
To conclude negotiations on sensitive list and RoO, he said Bangladesh would hold on its previous stance as was decided in the preparatory meetings at the Ministry of Commerce.
Further, he added, the country identified over 250 products to be dropped from the sensitive list to trade off with the SAARC member-countries in the next round of the SAFTA negotiations.
Bangladesh will furthermore request the SAFTA-contracting states to shorten their respective lists of sensitive products in exchange for the products it can leave out, he said.
On the rules-of-origin issue, officials said, India, Pakistan and Sri Lanka disagreed with Bangladesh's proposal for allowing 20 per cent value addition to RMG under a product-specific rule -- a relaxation from the general rule that the member-countries have agreed on the issue. The issue is expected to be resolved in the current CoE meeting.
Bangladesh has a total of 1,300-plus products on its sensitive list that constitutes 25 per cent of total tariff lines. Other LDCs also maintained 25 per cent of the same kind of tariff lines while India, Pakistan and Sri Lanka held on their positions -- 20 per cent of their respective total tariff lines.
Earlier, Bangladesh requested for dropping of 36 items from Bhutan's sensitive list, 144 items from Sri Lankan list, 393 from Nepal's list, 286 from Pakistan's list, 318 from the Indian list and 134 from the Maldives list.
Officials said Bangladesh had requested India and Pakistan at the last CoE meeting in Kathmandu to drop the readymade garment (RMG) products in the country's major export-earning sector, from their respective sensitive lists. Both India and Pakistan agreed earlier to convey their decision in the Kathmandu meeting.
Bhutan also requested Bangladesh to drop apples and oranges from the sensitive list, and this would be discussed in the inter-ministerial meeting in Kathmandu.