The recent change of government in Nepal as well as the flurry of South Asian Association of Regional Cooperation (Saarc) seminars and summits have led to the re-emergence of discussion concerning the South Asia Free Trade Area (Safta). But while these discussions focus on how Safta can be made more efficient and effective, they seem to have undermined the role of a dispute resolution mechanism under Safta that is essential if it is to be effectual.

The Agreement for Safta 2006 was originally entered into between by the Saarc countries with the intention of creating a “free trade area” and reducing customs and duties on goods in between the said countries by 2016. Yet despite this legal framework, according to a study of the World Bank, intra-trade within the South Asian region still remains at a dismal 5 percent.

On-going discussions have indicated that the failure of Safta can be attributed to the dominant role of India and its tense relationship with its neighbours, particularly Pakistan, which have proven to be constraints to bilateral agreements, and the lengthy list of items as contained under the “sensitive list”, which are exempt from the lifting of tariff barriers imposed by each country. What is really needed to make Safta work is: stronger political commitment, better negotiation skills and a conducive economic climate. The role of the dispute resolution mechanism under Safta is also an area that requires direct attention.

Towards resolution

Article 4 of the Safta Agreement recognises certain instruments for the implementation of the Agreement, such as the “Trade Liberalisation Programme”, “Rules of Origin” and “Safeguard Measures” as well as the instrument of “Consultations and Dispute Settlement Procedures”.

Article 20 of the Safta Agreement provides for a method of dispute resolution for disputes arising out of the interpretation and application of the provisions of the Agreement and instruments adopted thereafter. The Article stipulates that attempts should be made to primarily resolve the dispute via consultations between the contracting states.

Should the consultations fail, the dispute shall be referred to a “Committee of Experts” (CoE). The CoE shall promptly investigate the matter and make recommendations to the parties involved in the dispute. Should the parties not be satisfied with the recommendations, they may appeal to the Safta Ministerial Council (SMC), which is the highest decision-making body under Safta. The recommendation of the CoE/ SMC shall be implemented by the concerned contracting state. Should the contracting state fail to implement the recommendations within 90 days, the COE/ SMC may authorise other interested contracting states to withdraw concessions having trade effects equivalent to those of the measure in dispute.

There are several issues with this method of dispute resolution. Although the primary method suggested, i.e. consultation, is a valuable way of avoiding international disputes, it has several limitations, beginning with the agreement on agenda, recognition of each other’s status, and if the parties’ positions are polar opposites, then the possibility of the parties not coming to the negotiating table at all. Should the consultations not fructify within an extended period of 60 days, then the state parties shall refer the matter to the CoE. The said Committee is to be comprised of one nominee from each country, designated as a “Senior Economic Official”. It is unclear what the qualification to be a designated as a Senior Economic Official is, which in turn undermines the competency and efficiency of such a Committee. While the CoE itself has the mandate to make recommendations within 60 days, it may refer the matter to a Specialist not from the disputing state parties, to conduct a peer review within 30 days from such referral. The dispute resolution mechanism does not in itself bar experts from the states in dispute from sitting in on the Committee, which may lead to conflicts of interest. Further, a time period of 60 days for seven experts from different nations to come to a conclusion in itself seems ambitious.

In case the state parties to the dispute are not satisfied with the recommendations made by the Committee, they may appeal the decision to the SMC, which comprises of the Minister of Commerce and Trade of the contracting states. Perhaps it is a tad bit unrealistic to assume that a consortium of seven ministers or their delegates would have the time and expertise to oversee the resolution of such disputes.

Falling short

It is noteworthy that the Safta Agreement gives both the CoE as well as the SMC the liberty to adopt its own procedures. While this may have been intended as a permissive provision, in the absence of clear, cogent and publicised rules, the CoE and the SMC, as they stand today are free to act according to their will.

While I have argued that the time period for dispute resolution at various stages is ambitious, in case of a dispute concerning perishable goods, such as the issue of exporting ginger from Nepal to India in the winter of 2017, more stringent timelines and immediate attention are required. Therefore, the dispute resolution mechanism has to take into account the subject matter of the dispute.

It is necessary that such a dispute resolution mechanism have its own funding through a designated fee structure so it can support its own functioning. Under the current regime of the Safta Agreement, the Saarc Secretariat has been designated with the responsibility of providing secretarial support to the CoE as well as the SMC, thus indicating interdependence.

This method of dispute resolution is similar to the dispute settlement mechanism in the World Trade Organisation, yet the dispute settlement process within the WTO itself has also been criticized for its inaccessibility to least developed countries, lack of expediency, and lack of compliance by member states.

In light of this, it is surprising that the Safta Agreement does not endorse more effective and widely accepted methods of alternate dispute resolution, such as conciliation, mediation and even arbitration. Especially when it already has an inter-regional body such as Saarc Arbitration Council (Saarco) to resolve disputes through arbitration. In fact, all Saarc Agreements are to include a dispute resolution clause referring the disputes arising from those agreements to Saarco. Further, in the event of an arbitral award by Saarco, it would also be enforceable as an award of Court, and therefore have legal authority.

For any system to function, there must be an independent and functional dispute resolution mechanism, and Safta is no exception.

Yonzon is a scholar of Bharat Raj Upreti Memorial Foundation and a lecturer at the Kathmandu University School of Law