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The India cabinet ratified Thursday the South Asia Free Trade Agreement (Safta), which is coming into effect from January 01, 2006, according to a report received in Dhaka Thursday.
Under the South Asian pact, already ratified by Nepal, Bhutan, the Maldives, Bangladesh and Sri Lanka, member countries will reduce tariffs by at least 20 per cent in the first year and subsequently by 15 per cent every year to a level of 0-5.0 per cent within seven years.
Poorer countries, such as Bangladesh, Nepal and Bhutan, will get a 10-year time to reduce tariffs.
However, all countries will have negative lists of items on which they do not need to reduce tariffs.
The Indian cabinet also gave its approval to offer Bangladesh an additional Tariff Rate Quota (TRQ) of two million pieces of garments besides six million already offered, according to a PTI report.
India and other countries will also follow rules of origin while permitting goods from neighbours at cheap rates.
They will not allow goods from a cheap source like China to be transshipped to them without significant value addition by a South Asian country, which is supposedly exporting them.
India will also convert its specific duties into their ad valorem equivalents on certain textile items over a period of three years, which is likely to give market access to textiles from Bangladesh and Pakistan.
Total intra-regional trade in South Asia stands at a paltry $7.0 billion compared with the region's global trade of $350 billion.
The biggest gainers from Safta will be Bangladesh and Nepal as their exports to big markets like India are likely to rise three to times.
India is likely to record a lower but significant growth of around 30-40 per cent in the short-term from this accord.
PTI further adds from New Delhi: Indian Commerce Minister Kamal Nath said the coming into force of the Safta would be a historic milestone in the economic profile of the countries of the South Asian Association for Regional Cooperation (SAARC) region.
"Implementation of the Safta will further strengthen our trade relations with the SAARC countries," he said after the cabinet meeting chaired by Prime Minister Manmohan Singh.
Under the Safta agreement, trade liberalisation programme would not apply to the tariff lines included in the sensitive list, Nath said. "In order to protect interest of its domestic stakeholders, India has finalised two separate lists -- a longer list for non-least developed countries (LDCs) like Pakistan and Sri Lanka containing 884 items and a shorter one for others like Bangladesh, Bhutan, the Maldives and Nepal with 763 items," he said.
The agreement on the Safta provides for compensation of revenue loss to the LDCs, which would be available to the Maldives for six years and for the rest, for four years.
The LDCs would also be provided technical assistance in areas like capacity building in standard, protect certification, training of human resources, improvement of legal system and administration, customs procedures and trade facilitation, Finance Minister Chidambaram said.
As per the agreed rules of origin, twin criteria of change in tariff heading at four digit level and value addition of 40 per cent for the non-LDCs and 30 per cent for the LDCs would apply.
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