Implementation of the pact will help regional growth by 60pc


Feb 07 - 13, 2005



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 past.

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.


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 Industry (IPCCI)


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 deal.

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, believes.

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 India.