Is a South Asia Free Trade Agreement sailing down?

ISLAMABAD — The hoped for trade cooperation in South Asia remains a dream, six decades down the line. Even the much trumpeted South Asia Free Trade Agreement (SAFTA), by some accounts, seems to be sailing down to the sea — the Indian Ocean, unless the region’s leaders cooperate.

By M. Aftab (Analysis)

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Published: Sun 18 Mar 2007, 8:46 AM

Last updated: Sat 4 Apr 2015, 10:52 PM

The latest tiff was ignited when Indian Minister for Commerce Kamal Nath announced at the Kathmandu conference of Safta Ministerial Council (SMC), New Delhi’s decision to unilaterally withdraw tariff concessions given to Pakistan. India alleges Pakistan is "not complying with the Safta agreement." "There cannot be qualified or limited ratification by Pakistan where India is concerned," Nath insists. "India is committed to reducing non-tariff and "perceived barriers’ and is participating in Safta to provide greater market access. However, Pakistan has not complied with the treaty and where India is concerned, it has only issued a small positive list of goods that can be traded. India, however, is not withdrawing the concessions given to Pakistan. Since Pakistan has not complied with Safta provisions, we are entitled even today to deny it such benefits," he also said.

This was a softer version, but at the start of the Kathmandu meeting, he did say India is withdrawing the concessions. That raised a loud protest from his Pakistani counterpart Humyun Akhtar Khan.

India and six other South Asian member countries had extended tariff concessions to each other under Safta agreement that went into effect July 1,2006, after much delay, following its signing in January, 2004 at Islamabad.

Non-Tariff Barriers (NTBs) being applied in India, are "not Pakistani-specific." "These are part of New Delhi’s policy, applicable to all imports into India," New Delhi insists.

Since the Safta launch, Islamabad has been seeking "a level playing field from India, and asking for removal of Para-tariffs (PT) and NTBs. Islamabad maintains the Indian policy is "violation of Article 7 of the Safta agreement." It also says, it has the right to act under Article 20, and "all other options will be exhausted to settle the issue. Commerce Secretary Asif Ali Shah says, "Pakistan will not review its tariff concessions extended to all member countries, including India, under Saafta. We remain committed to continue with the trade liberalisation programme, as stipulated in the Safta agreement."

Pakistan Commerce Minister Humayun Akhtar, has linked progress on trade liberalisation with India to "removal of all NTBs," and has offered bilateral consultations on these issues with New Delhi under Safta. On return from Kathmandu conference, he said, "Pakistan believes, due to these NTBs and para-tariffs, products of Pakistani interest cannot enter the highly protected Indian market." India, he said, will have to remove NTBs either for all countries or bilaterally for Pakistan, because they "restrict market access to us in India."

Other member countries of South Asian Association for Regional Cooperation (Saarc), of which Safta is a key element, also have tabled list of NTBs, restricting trade with India. Akhtar said, Pakistan wants the entire market access issue should be discussed and resolved by SMC.

"But India wants to de-link the two issues— (1) maintenance of a positive list of imports by Pakistan, and (2) NTBs and Para-tariffs," he says. New Delhi has proposed that Pakistan’s positive list should be taken at SMC level, but NTBs and Para-Tariffs should be discussed at a technical level, by a sub-group of the Committee of Experts (CoEs) of Safta. India disagreed on it, and made a statement that New Delhi will "review its tariff concessions to Pakistan."

That sparked the present row, and Salvos, were fired, both by Nath and Akhtar, that can ditch down somewhat growing trade. The trend has to be strengthened — not stunted, businessmen in both countries insist. Indian formal exports to Pakistan are projected to rise to a historic $ 1.0 billion, and those from Pakistan to India to $ 350 million by end of June, 2007.

Akhtar also assures India and other Safta members, "Pakistan has fully complied with Safta and all of its provisions will be implemented in letter and spirit." In case India has a different view, the agreement provide a dispute settlement mechanism in its Article 20. This process starts with bilateral consultations, consideration by the Committee of Experts (CoEs) and the final disposal in appeal by SMC. But, "if India carries out its threat to withdraw concessions to Pakistan, it will be a serious blow to Safta. It will be a step Pakistan will deeply regret.I hope India will not take any drastic steps which will reserve Safta," he said. Pakistan has, however, assured Safta members and New Delhi, " it will not withdraw or review concessions already extended to India" and it will continue to allow all tariff reductions under the trade liberalisation programme in future, irrespective of any Indian action."

Governments in New Delhi and Islamabad are villain of the peace belying rapidly building hopes of the private sector of days when there will be a greater trade and investment flows, closer cooperation in all economic fields, and industries will benefit from the factor endowment of the region— particularly the two biggest countries of South Asia — India and Pakistan. These two countries and their people, suffer too due to lack of economic cooperation.

The other five smaller member of Safta, Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka, which are part of this 1.5 billion market, suffer too. Safta was signed in Islamabad in January 2,004, by heads of state and Prime Ministers of the seven, including Prime Minister Shaukat Aziz and Atal Bahadur Vajpai, but trade has remained stunted. Businessmen, diplomats, and politicians all had hoped the trade cooperation that Safta will generate will lead to much more expanded cooperation in all other fields, end political tensions in the region, and help the South Asian governments to concentrate on raising the living standards of the people, more than 30 per cent of whom live below the poverty line.

The present tiff between New Delhi and Islamabad has a history, besides the general feuding and skirmishing, that has gone on between the two for the last six decades, in areas ranging from political to defence, and trade thrown in between. Soon after the Safta launch July 1, 2006 when tariff concessions were offered by member countries, New Delhi criticised Islamabad. It alleged that tariff concessions given by Pakistan were "subject to Islamabad’s Import Policy Order, and for this reason, are "against the spirit of the agreement."

Pakistan rebutted the allegation, saying, "the Import Policy regulations are provided in the import regime of all Saarc countries." "Pakistan," Islamabad said, "has only indicated this requirement in its notification to make it transparent." The fact, that such conditions are not included by other Saarc members in their own notifications, "does not imply that they have waived such conditions for trade within the region."

This skirmishing apart, businessmen across South Asia, hope to expand trade and share the global opportunities, opened up with WTO regime coming into play. Their hopes are focussed on the large tariff reductions Safta provides. It has provided a framework to establish a free trade zone, where tariff will be brought down to zero, on almost all products, by 2012.

Three of the region’s more developed countries — India, Pakistan and Sri Lanka — are slated to bring down their tariffs to 20 per cent in the first two years that end 2007. In the final five years, that will end 2012, the 20 per cent tariff will be gradually reduced and brought down to zero. Bhutan, Bangladesh, Maldives and Nepal, the four least developed countries, are allowed an additional three year period to being down their tariffs to zero.

"If EU can emerge as a single common market of 25 countries, why can't Saarc become the most powerful trade and economic group of the world," asks Majyd Aziz, President of the powerful Karachi Chamber of Commerce & Industry. Add to that the successes achieved just next door — the Asean.

The opportunities for Saarc and Safta are immense. Its current foreign trade works to a mere 0.8 per cent of the total global exports, and 1.3 per cent of world imports. Its intra-Saarc trade is only 5.3 per cent of overall exports of the region, and 4.8 per cent of its imports. Indian and Pakistani GDP alone now totals $ 900 billion and growing. Their current bilateral official trade is $ 1.35 billion, and informal trade is more than $ 2.0 billion. State Bank of Pakistan (SBP) the central bank, reports that the trade potential between the two countries is $ 5.0 billion a year. World Bank projects trade can spiral to $ 9.0 billion, if, and that is a big "if," the two countries cut down present barriers.

It all shows, literally, sky is the limit for business growth in the region—-but only if their government leaders and their policies mature and grow, too. Take it or leave it !

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