The Hindu : ANOTHER ATTEMPT AT SAFTA

Online edition of India's National Newspaper
Thursday, Jan 08, 2004

Opinion

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ANOTHER ATTEMPT AT SAFTA

HISTORIC IS PERHAPS an exaggerated description of the decision taken by the leaders of South Asia to make this region a free trade bloc by 2006. This is the third and not the first time that the member-countries of the South Asian Association for Regional Cooperation (SAARC) have laid down a target date for setting up a free trade area. However, there are two reasons to be optimistic that the latest attempt at creating a South Asian Free Trade Agreement (SAFTA) area will succeed unlike the previous ones. The first is the new hope that political relations between India and Pakistan are set for an improvement. With the two biggest member-states of SAARC at daggers drawn during much of the 1990s, the earlier moves towards a free trade zone could make no headway. The second ground for optimism is that the Islamabad summit has seen the adoption of a framework agreement on SAFTA that contains specific schedules for the lowering of tariffs and meets some of the concerns of the three least developed countries (LDCs) in the region, Bangladesh, Bhutan and Nepal.

The case for closer economic ties among the countries of South Asia does not bear repeating. Intra-SAARC trade accounts for barely five per cent of the value of exports and imports of the countries in the subcontinent. Economic fears and political hostility have constrained the growth of trade and these obstacles have not been confined to ties between India and Pakistan. South Asia is one of the few regions without an effective economic grouping in a world where bilateral and regional trade pacts are proliferating by the year. The agreement signed in Islamabad this week visualises a graded reduction in import tariffs over the next decade. The first milestone will be in 2006 when the more advanced members of SAARC will have to bring average tariffs down to 20 per cent and the LDCs will have the flexibility of retaining customs duties at 30 per cent. That will still be a far cry from the minimal tariffs that characterise a free trade area, but it is a more realistic target considering that the SAARC member-states now have some of the highest import duties in the world. The stiffer task will be to cut tariffs after 2006 to between 0 and 5 per cent over five to eight years.

There are, however, many daunting challenges that must be met if the new effort at promoting trade in South Asia is not to fail as well. The first and most obvious one is to maintain the momentum in improving bilateral political relations between India and Pakistan. The second is to address economic insecurity among the smaller countries of South Asia. This requires both India and Pakistan to make unilateral trade concessions of some substance, something that the two countries have been loathe to do. In general, the way the existing preferential trade agreement has been implemented shows that no SAARC country is willing as yet to make major tariff concessions. The third challenge is quickly to create the basic economic infrastructure required to handle higher volumes of trade. With just one land crossing point at present between India and Pakistan, it is extremely ambitious to plan for free trade between the two countries. Finally, the fears of specific sectors in each country — for example, tea in India, textiles in Bangladesh and light engineering in Pakistan — that they have more to lose than to gain from SAFTA can be assuaged only with a more gradual reduction of tariffs on "sensitive" products.

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