US embassy cable - 03KATHMANDU2074

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 
---------- 
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 
--------------------------- 
2.  (C)  Rajiv Chander, an Indian national serving the SAARC 
Secretariat in the capacity of Director of the Trade and 
 
SIPDIS 
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 
 
SIPDIS 
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? 
--------------- 
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 
------- 
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