It may have been a pipe dream of the South Asian
nations but there was mere a forlorn sign of any regional accord in
presence of potential nuclear war threat between the two archrivals
India and Pakistan. The two nuclear powers stood with all their
military might to encroach against each other's frontiers in recent
About a million of Indian and Pakistani troops were
deployed along their respective borders following a bloody terrorist
attack on the Indian parliament in December 2002 which New Delhi
blamed on Pakistan-based militants fighting Indian rule in Kashmir.
Austerity prevailed after a ten-month nerve racking
military standoff, when New Delhi decided to pull troops back from the
border. Islamabad's instant reciprocative response let normalization
setting in the region so much so it surpassed all previous levels of
tranquillity between the two archrivals, which have fought three
full-fledged wars and innumerable border skirmishes.
The subsequent truce allowed South Asian
Association of Regional Cooperation (SAARC), which literally remained
dormant due mainly to chronic Indo-Pak hostility, since it was formed
in 1985, to make unprecedented headway. The last SAARC summit held in
Islamabad January 2004 thus paved the way for historic regional trade
pact — South Asian Free Trade Area (SAFTA).
The member countries, Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan and Sri Lanka, home to 1.4 billion people or
the one fifth of world's population, have replaced the defunct South
Asian Preferential Trade Agreement (SAPTA) with the new SAFTA. Under
the agreement India, Pakistan and Sri Lanka, which have been
categorized as developing countries, will reduce their duties to 0-5
percent within seven years beginning from 2006. Remaining, the least
developed countries, have been given extra four years to bring their
duty rates at par with the former three countries. Until 2015 SAFTA
will reign the external trade of this region in full, which present
size stands about $160 billion, being India as leader with over $110
billion dollars. It is followed by Pakistan, which external trade
comes to about $25 billion.
REGIONAL TRADE POTENTIAL
SAARC states took their first step towards free
trade as back as in 1993 when all the member countries drafted South
Asian Preferential Trade Agreement (SAPTA). It envisaged tariff
reduction on bilateral basis but largely fell short of the
expectations of the members. India, with largest industrial base and
the cheapest consumers' goods, emerged as almost the sole beneficiary
and grew its balance of trade within SAARC.
Despite the Indian supremacy in consumer and
industrial goods, SAARC countries aspired to vying in the regional
market on the back of growing urge to tape the so far unexplored
potential. Unlike European Union, South East Asian Nations and North
America Free Trade Areas, trade among SAARC countries stands mere 4
percent. The intra-SAARC trade could be grown to a mammoth level.
"At present the regional trade is very low but
what I can tell you now that (regional) trade will grow tremendously
after full implementation of SAFTA," Pakistani minister for trade
and commerce Humayon Akhtar said.
"We believe that with the implementation of
SAFTA the regional trade could grow as high as 60 percent," said
Ilyas Bilour, president of India-Pakistan Chamber of Commerce and
Molding SAFTA into a level-playing field is now the
biggest challenge faced with the nations.
In order to avoid dumping and misuse of the treaty
all the countries are holding meetings to draw impeccable Rules of
Origin of the manufactured goods. Tariff, non-tariff, hidden
incentives and subsidies are being taken into account. Drawing a list
of goods and industries to be protected is yet another crucial issue.
"We, like other member countries, are
preparing list of items which we will continue to protect even under
the new trade regime," Arshad Alam, vice president of Federation
of Pakistan Chamber of Commerce and Industry (FPCCI) said.
After signing of SAFTA, representatives are meeting
frequently to exchange and discuss the lists of the goods to be
traded. However, caveats are yet to be addressed during many
brainstorming sessions among the technocrats as well the bureaucrats
of all the SAARC countries to get maximum benefit out of the final
While preparation and exchanges of negative lists
is going on Pakistani food and agriculture ministry, for instance, has
very strong reservations on giving 'too much relaxation' to the SAARC
states, especially India on agriculture goods. Pakistan's key focus is
protecting its auto industry and engineering sectors, as it will be
hit hard by far advanced Indian goods. The industrialists are
lobbying, and have almost convinced, the government of continuing
trade related investment measures (TRIMs) up to 2007 and beyond for
the auto industry.
Nevertheless, protectionism could be substituted
with joint ventures in engineering, automobile, pharmaceuticals, and
textile machinery to the benefits of all the stakeholders.
"I personally see India as the futures largest
single source of direct foreign investment (DFI) in Pakistan in
automobile, engineering and other sectors," Alam, who is a member
of committee of experts for overseeing Pakistan's interest in SAFTA,
Inflow of Indian DFI to Pakistan may still be far,
but regularization under SAFTA alone could trigger the bilateral
present bilateral trade of $237 million (2002-03) to many-fold.
"With the ratification and implementation of
the accord, the bilateral size of the trade between the two countries
go up to $4 billion forthwith," Bilour said giving the $1.5-2
billion as size of existing smuggling and third-country imports from