So the winds of change have started blowing in the
South Asian region with the warming of relations between the two leading
states — India and Pakistan — of the seven-member South Asian
Association for Regional Cooperation (SAARC). The signing of the
landmark agreement to create South Asian Free Trade Area (SAFTA) and the
ultimately reduction in tariff to 0.5 per cent by 2016 is expected to
boast legal trade among the member states to replace the rampant
informal as well as illegal trade presently.
The free trade agreement belated as is, it was
expected to be in place in 2001, nevertheless is a significant
development indeed if viewed in the backdrop of severely strained
relationship between India and Pakistan, the nuclear powers of the
The Safta agreement would come into force on January
1, 2006 and would be fully implemented, in two phases, nine years later
on December 31, 2016. The agreement signed at the beginning of the
concluding session of the 3-day 12th Summit held in Islamabad early this
month aims at allowing free movement of goods within the 7-member Saarc
The members, under the trade liberalization programme,
agreed that Non-Least Developed States (NLDS) — a new phrase coined to
reflect the wildly fluctuating economies within the region — including
India, Pakistan and Sri Lanka will reduce their tariffs from existing
levels to 20 per cent by January 1, 2008 in equal proportions annually.
In case the tariffs would already be less than 20 per cent when the
agreement comes into force on January 1, 2006, the NLDS should reduce
the actual tariff by 10 per cent each during two years between January
1, 2006 to January 1, 2008.
It was also agreed that the four Least Developed
Countries (LDCs), as defined by the UN, including Bangladesh, Nepal, the
Maldives and Bhutan — will reduce their existing tariff rates to 30
per cent within two years after the agreement comes into force on
January 1, 2006. If actual tariff rates in these four least developed
member states are already below 30 per cent on January 1, 2006, the
agreement comes into force, there will be an annual reduction of 5 per
cent for each of the two years. That will be the end of phase 1.
In phase 2, the non-least-developed members, with the
exception of Sri Lanka, will have to reduce their tariffs from 20 per
cent or below, as may be the case, to 0.5 within five years by January
1, 2013 per cent. Sri Lanka, however, shall be given an eadditional year
till January 1, 2014, to reduce tariff to prescribed level of 0.5 per
cent. The 4 least-developed members, however, will be given 8 years from
January 1, 2008 to reduce tariff from 30 per cent or below, as may be
the case, to 0.5 per cent at par with the rest of the Saarc member
The schedules of tariff reductions, however, shall
not prevent the member sates from immediately reducing their tariffs to
0-5 per cent or from following an accelerated schedule of tariff
reduction. The number of products in the "Sensitive Lists"
shall be subject to a maximum ceiling, to be mutually agreed among the
states. The list shall be reviewed after every four years or earlier
"as may be decided by SAFTA Ministerial Council."
What does free trade mean for Pakistan? Would it be
advantageous or otherwise for it as feared by many because of industrial
edge enjoyed by the biggest Saarc state — India. The local business
and trade generally feel that Saarc's activation would benefit Pakistan
in many ways by opening a market of over one billion people which have
many economic, financial, social and cultural similarities.
Engineer M.A. Jabbar Memon, a Vice President of
Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said
that the Safta agreement would help synchronize with the WTO. "The
volume of trade among the Saarc nations stands negligible at present and
the official trade between the two biggest members sharing the longest
border among any of the others members. However, the proximity would
offer great incentives for trade because the cost of doing business with
India, and to lesser extent with other five Saarc members, would
decrease to help offer substantial savings.
"The government should include machinery and
captital goods in the HS Codes to facilitate import of these industrial
items from India at prices which offer substantial savings. We are
importing these items presently from the European Union countries and
the Far East that we can get from India at much lower prices. At present
we are allowed to import the capital goods and machinery from anywhere
but India despite the fact that the same are available at much lower
prices there. Measures should also be taken to allow the import of
automobiles from India because the local auto industry has abused the
envious protection accorded to it by failing to produce affordable cars.
Safta should also pave the way to include 'services'
in addition to 'goods' presently to help encourage giant cooperation
between India and Pakistan to help get big subcontracting particularly
in the Middle East. This would not help encourage trade but also offer
vast investment opportunities for the economic benefit of the peoples in
The trade liberalisation programme among the Saarc
members backed up by the accord to turn the region into a free trading
area is indeed welcomed in an area which houses around 23 per cent or
nearly 1.4 billion people. It is all the more significant because it
also houses half of the world's poor and economically marginalised.