SAARC'S FRAMEWORK FREE TRADE TREATY: THE DEVIL

C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 002074

SIPDIS

STATE FOR SA/INS, LONDON FOR POL/GURNEY

E.O. 12958: DECL: 10/22/2013
TAGS: ETRD PREL NP
SUBJECT: SAARC'S FRAMEWORK FREE TRADE TREATY: THE DEVIL
STILL IN THE DETAILS

REF: NEW DELHI 5841

Classified By: CDA Robert K. Boggs for reasons:1.5 (B and D)

SUMMARY
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1. (U) Rajiv Chander, Director of Trade and Transport
Division of the South Asian Association for Regional
Cooperation (SAARC) Secretariat, provided EconOff with an
up-beat read-out from the recent Committee of Experts (CoE)
meeting (at the Commerce Secretary level) held in Kathmandu
from 15 to 17 October. Although a few details of the draft
South Asia Free Trade Area (SAFTA) framework remain to be
finalized, Chander is optimistic that these can be completed
during the sixth round of CoE meetings scheduled for 30
November to 1 December in Kathmandu. The hope is to have the
SAFTA framework as a deliverable for the SAARC Summit to be
held in Islamabad during January 2004. End Summary.

REMAINING ITEMS TO IRON OUT
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2. (C) Rajiv Chander, an Indian national serving the SAARC
Secretariat in the capacity of Director of the Trade and

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Transport Division, met with EconOff on October 21. Chander
painted a positive picture of the recent CoE meeting in
Kathmandu that ended on 17 October. Chander indicated that
the final day of the meeting led to a substantial
breakthrough with regard to the trade liberalization program
and that only a "few minor details" remain before consensus
is reached. Chander is hopeful that the next CoE round,
scheduled for 30 November to 1 December, will lead to a final
agreement on the SAFTA framework. Chander mentioned that
additional meetings could be held to reach final consensus
prior to the SAARC Summit scheduled to be held in Islamabad
in January 2004.


3. (C) Chander said that the SAFTA framework treaty is
expected to be a deliverable during the SAARC Summit.
Chander stated that members "want something they can throw
their arms around" during the Summit. If the agreement is
reached and the framework is approved during the Summit,
SAARC member countries would have about a year to ratify the
framework agreement, including further development of a
"negative" list of products outside the scope of the
agreement. Chander expects the SAFTA framework treaty to be
implemented in January 2005, but acknowledges that
implementation might slip to June 2005.


3. (C) Chander indicated that although general consensus was
reached on the concept of a SAFTA framework, "small details"
remain to be finalized regarding the time frame of trade
liberalization, dispute settlement mechanisms, institutional
arrangements and rules of origin. One item not discussed and
deferred until the next CoE meeting was the product negative
list. Chander believes that the finalization of the negative
list might be delayed until after the SAARC Summit, i.e.,
during the ratification stage.


4. (C) Substantial breakthrough in the area of trade
liberalization reportedly occurred during the last day of the
meeting. Chander mentioned that the CoE decided to pledge a
10-year transition period for the developing members to
reduce customs tariffs to between zero and 5 percent and to
work on diminishing the non-tariff barriers to trade between
developed and developing member countries. The time frame of
this implementation remains to be determined during the next
CoE meeting. (FYI: Agreement was reached during the CoE
meeting that only India and Pakistan would be considered
"developed countries" within SAARC's terms.)


5. (C) According to Chander, the Pakistani Commerce
Secretary verbally agreed during the CoE meeting to the SAFTA

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framework, but did not commit to extending that support to
items on Pakistan's negative list. Chander believes that
SAARC countries might use the ratification process to
increase the number of items on the negative list.


6. (C) Chander reported that a European Commission
representative would be arriving in Nepal to research and
report on standards and trade facilitation recommendations
for SAFTA. The report will be presented sometime in July

2004. In addition, Chander said that he expects a SAARC
customs valuation report to be completed by February 2004.
SAPTA or SAFTA?
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7. (C) South Asian Preferential Trade Agreement (SAPTA) has
not been able to "deliver the goods," stated Chander.
Chander indicated that agreements already reached within
SAPTA would be upheld, but that following SAFTA
implementation, SAPTA would be subsumed by the more
encompassing terms of the SAFTA.

COMMENT
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8. (C) Post has learned from past discussions with Chander
that he is perennially optimistic when it comes to SAARC
matters. Although Post believes that SAARC members are
committed to the draft framework as a deliverable during the
January Summit, we have serious doubts about the actual
implementation of SAFTA. Quite frankly, the devil remains in
the thorny issues that Chander dismissed as "small details."
Serious obstacles, like the Indo-Pakistan relationship; big
nations versus small nations; and the "negative" lists that
have held SAPTA hostage, must be dealt with if SAFTA will
ever become a reality in South Asia. It appears that SAFTA
as a concept might be a conference deliverable, leaving major
issues to be dealt with during the ratification and
implementation stages.
BOGGS