The India-Pakistan World Cup semi-final at Mohali has led to bonhomie between the two neighbours in the last few days. But in all the discussions and analysis that have followed Prime Minister Manmohan Singh’s invitation to his Pakistani counterpart, trade did not seem to figure on top.
However, it is interesting to note that an expert group meeting of SAARC nations has been on in Kathmandu since Tuesday where the South Asian nations are trying to put together the next steps to implement the South Asian Free Trade Agreement (SAFTA). The agreement was reached at the 12th SAARC summit at Islamabad to create a framework for the creation of a free trade area (FTA) covering India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan and the Maldives.
The seven foreign ministers of the region signed a framework agreement on SAFTA in 2004, which calls for an elimination of customs duty on the trade of practically all products in the region by 2016. India and Pakistan will have to move towards a zero duty on the agreed tariff lines by 2012.
Under Article 7 of SAFTA, a phased tariff liberalisation programme from the date of its coming into force was envisaged. Only a small sensitive item list is supposed to be kept out of this liberalisation effort. However, there has been very little progress towards creating a free-trade zone as was planned when SAFTA was conceived. Despite some advancement made by countries, intra-regional trade in South Asia is about five per cent of the total trade of the region. Some studies show that 90 per cent of the total imports of the region come from outside while this can be easily brought down drastically if the region becomes a regional trade zone.
A market of over 1.5 billion people with a sizeable middle class population, the region offers a large market to countries to collaborate and build domestic industry through a series of value chains, which can be built in several important sectors.
While there has been some reasonable progress towards creating a market for goods through tariff liberalisation there has been very little movement in the area of services. To make services an important part of the negotiations countries will need to ratify the SAARC Agreement on Trade in Services signed at the 16th SAARC Summit in Bhutan in April 2010. The potential to boost services trade between the South Asian countries is huge. In a recent initiative between India and Pakistan, CEOs from the two sides discussed the possibility of cooperation in the field of ICT. Participants were of the view that the discussions were in the right direction and were hopeful of progress happening in that sector.
India has already submitted its sector-specific request list of services to various members for opening up the services sector and hopefully the ‘request-offer process’ will soon gather pace. “The Group on Customs Cooperation has also been working for the harmonisation of customs standards within the region and good progress has been achieved over the years. The appointment of the first Director-General of a SAARC Arbitration Council is also expected to contribute to facilitating the trading environment in the region.
For SAFTA to succeed it will be important for India and Pakistan to normalise trade relations. Islamabad, however, has been reluctant to move forward on the idea of SAFTA succeeding and it continues to let direct trade between the two countries languish. The best way for Pakistan to move forward on this issue maybe to identify the top 10 items of interest on both sides and then move those products to either zero or have nuisance tariffs of one to two per cent. India has shown its willingness to move forward and any move from Pakistan should see reciprocity from New Delhi. This would allow the two sides to develop a strong trade agenda, which can then help create an environment for greater collaboration.
The two sides should also identify some specific area of services where they can collaborate to build global scale. There is a need for a deeper study in this area which needs to be addressed as soon as possible.
Political compulsions have held Pakistan from moving the SAFTA agenda forward. Hopefully the World Cup match at Mohali will spur the two sides to look at different dimensions of collaboration and trade certainly has to be an important component of such a partnership.
(The author is Principal Adviser APJ-SLG Law Offices)
