Hope for SAFTA

Yet another SAARC Summit came and went. As usual, many were the declarations at the end of the Summit. Reference to trade in the final declaration was as follows:

Recognising the importance of the full implementation of SAFTA as a measure towards the creation of an enabling economic environment in the region:

Do hereby declare:

1. To direct the SAFTA Ministerial Council to intensify efforts to fully and effectively implement SAFTA and the work on reduction in Sensitive Lists as well as early resolution of non-tariff barriers and expediting the process of harmonising standards and customs procedures.”

Previous declarations also had reference to the “full implantation of SAFTA,” but all these years, despite all declarations to this effect, SAFTA never took off the way the other regional agreements did. The major reason for it was the political issues between the two very important and large members of the Agreement which spilled over to trade.

This year, it appears that there is hope for SAFTA, not because of what is stated in the declaration or the rhetoric of politicians, but because of the thaw in trade relations between India and Pakistan.

Pakistan’s decision on 2 November to grant MFN status to India reciprocating a move made by India to Pakistan in 1996 as a part of the warming of ties between the neighbours is a major step forward. The recent meeting in Delhi between the two Commerce Secretaries is aimed at implementing a deal to double annual trade in the next three years to $ 6 billion. At present, official trade between the two countries is only $ 2.7 billion.

Pakistan has also agreed to implement all the obligations under SAFTA meeting a long pending demand from India. A joint statement by the two Commerce Ministers after a recent meeting stated: “The ministers affirmed that fully normalised commercial link... would strengthen the bilateral relationship and build the bridges of friendship, trust and understanding for mutual benefit of their people and promotion of prosperity in South Asia.”

For normalising business ties, the ministers “agreed that all mutual obligations contracted under SAFTA would be implemented with full sincerity”.

Pakistan has also said that it would allow imports from India on all but few items in the negative list, while working towards further reducing the long negative list to make SAFTA more effective and meaningful. It was also reported that by the end of the year, Pakistan would move from a “positive list” to “negative list” trade regime with India as required under the SAFTA agreement.

Positive indications have also come from the Indian side. The Indian Foreign Secretary said last week that the two countries would take the process of normalisation of trade to its “logical conclusion” and India would also work towards a preferential trade agreement with Pakistan and easing of visa restrictions for businessmen. There has also been an agreement to boost bilateral trade through the Wagah border crossing by increasing trading hours and speeding cargo clearance.

Last month India dropped opposition to EU tariff cuts offered to Pakistan on its textile goods in the wake of 2010 devastating floods in Pakistan. Exchange of business delegations resulting in many transactions have also increased.

Bangladesh, which also opposed the tariff cuts, is reported to have said that it would withdraw its objections.

The Indian Prime Minister in his speech at the Summit recognised that non-tariff barriers were an area of concern and promised India’s commitment to dismantling them as “competition begins at home”. He said: “Our industries have to learn to compete if our economies are to have a future in this globalised world that we live in.”

All these are positive signs for the forward movement of SAFTA. The move towards normalising trade between India and Pakistan is just beginning. But it is a positive move. It will take some more time for the effects of this move to be felt within SAARC and impact on the movement of SAFTA, but it is like “spring is in the air”.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)