South Asian free trade has many benefits
The Union Cabinet’s approval for the implementing the South Asian Free Trade Area (SAFTA) agreement, in time for the January 1, 2006, deadline, is indicative of New Delhi’s commitment to freer trade in the region. Given the variations in size and strength between the seven-member economies, SAFTA allows for a differential and progressively freer regime. India, in effect, will offer relatively unhindered access to its markets for Bangladesh, Bhutan, Maldives and Nepal, the poorest SAARC members, while different “sensitive lists” on goods and services would be prepared for Pakistan and Sri Lanka. The poorer countries will also have a longer time in which to reduce duties.
SAFTA’s success, of course, depends on more than Indian commitment. Sri Lanka already has a successful free trade agreement with India since 2000, and has asked for more time to ratify Safta. It has cited transition problems with the taking over of a new government, but is known to have some reservations on the agreement itself. Pakistan too, has continued to debate SAFTA’s benefits and disadvantages, especially vis-à-vis India, its main concern; much will thus depend on how Pakistan advances on its commitments. Apart from ratification of the agreement, the creation of sensitive lists, formulation of rules of origin, and a revenue loss compensation mechanism will have to be decided on by all member-countries.
Pakistan has indicated that it intends to treat the current import list from India, which includes some 700-odd items, separately from SAFTA. This would not be legally permissible, and a tiff with India over this would undermine the regime. Businesses in Pakistan are also divided over SAFTA. It is political equations, however, which will ultimately determine SAFTA’s fate. Regional trade agreements have grown many-fold over the last few years, in contrast to the difficulties faced by the WTO regime. Trade between the SAARC nations constitutes a measly 5 per cent of member countries’ total trade. Trade within member-countries of ASEAN and the EU, in contrast, account for over two-thirds. The region stands to benefit immensely from SAFTA, and members should pull out all stops to ensure its success.
