Letter to the Chairman of the Committee
from the Secretary of State for Foreign and Commonwealth Affairs
I promised you a note on the two questions that
you and members raised when I attended the oral evidence session
on South Asia on 23 January.
The first of these related to the South Asian
Association for Regional Co-operation (SAARC) which was established
in 1985 with the objective of promoting economic growth, social
progress and cultural development in the region. Progress to date
has been relatively slow. After 10 years, trading within the SAARC
region accounts for less than 5% of the members' global trade.
Regional co-operation has to some extent remained hostage to inter-regional
tensions. However, SAARC is beginning to show signs of progress
on economic and trade matters. The Indian External Affairs Minister
Pranab Mukherjee recently stated that India wanted the 14th summit
of SAARC countries, which will be hosted in New Delhi in April,
to give "a clear signal for improving the connectivity within
the subcontinent by ensuring free flow of trade, commerce, goods,
people and ideas".
SAARC's main economic forum is the South Asia
Free Trade Area. SAFTA was signed by SAARC members in January
2004 and began implementation in January 2006. The idea behind
SAFTA is to reduce trade barriers in South Asia by 2016. The agreement
requires India, Pakistan and Sri Lanka to bring their tariffs
down to 20% in the first two-year phase ending in 2007. In the
final five year phase ending 2012, the 20% duty is to be reduced
to zero in a series of annual cuts. Nepal, Bhutan, Bangladesh
and the Maldives are to have an additional three years to reach
zero tariffs, ending in January 2016.
Despite these ambitious measures the real test
of the effectiveness of SAFTA will be in the "sensitive"
lists. These are lists of goods temporarily exempt from the above
tariff reductions. Each country has submitted long lists of sensitive
goods (for example India's is 744 items, Pakistan's is 1,200).
The SAFTA agreement states that members will have to agree the
sensitive lists, which could involve drawn out negotiations. The
items countries have listed primarily include foodstuffs. Governments,
understandably, want to maintain tariffs on these items in order
to protect their domestic agricultural sectors, on which the majority
of South Asia's population is often dependent.
Further negotiations are likely to continue
on other trade issues as well, for instance: Rules of Origin—specifying
the conditions that would have to be met by products to qualify
for application of reduced customs tariffs on export to another
SAARC Member State; Mechanism for Compensation of Revenue Loss
for Bangladesh, Bhutan, the Maldives and Nepal in the event of
revenue loss resulting from lowering of customs tariffs in terms
of the Agreement; and Technical Assistance.
The next SAARC meeting in April 2007 will be
an opportunity to assess progress.
The second question related to the proposed
EU-India FTA. The Commission presented Member States with draft
negotiating mandates for various FTAs, including with India, in
December 2006. These draft mandates are now being discussed in
the appropriate Council working groups and need to be agreed by
Member States unanimously. The FTA negotiations will commence
once all practical preparations have been made following the Council's
decision to approve the mandate. There has been no delay in the
process to date and consultation between partners is moving at
its normal pace.
We very much welcome this initiative. However,
I would like to reiterate, as was also recognised at the EU-India
summit on 13 October, our first priority remains the Doha Development
Agenda (DDA). We want to ensure that the EU's next steps are consistent
with maximising the prospects of an ambitious and pro-development
outcome to the negotiations, as well as demonstrating the EU's
continuing commitment to multilateralism. Nothing we or the EU
do should undermine the DDA, and we need to ensure that any new
regional and bilateral free trade agreements are complementary
to the multilateral process, and can be building blocks to future
multilateral rounds.
I hope that you found the session useful in
the context of the report that you will issue shortly. If I can
be of any further assistance, then please do not hesitate to write
to me.
Rt Hon Margaret Beckett MP
Secretary of State for Foreign and Commonwealth Affairs
26 February 2007
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