The Hindu Business Line : Does SAFTA have a future?

The signs are not at all propitious for the South Asia Free Trade Area agreement to deliver the goods. The key to successful implementation of SAFTA lies in the hands of Islamabad and, going by the hints dropped by the Musharraf regime, it does not seem likely that the key will be used soon to open up the South Asian economies to the advantages the agreement could offer.

THIS is probably a heretical to ask at this point of time when all eyes are focused on the actual start of trading under the SAFTA regime in three or four months time, but the fact remains that the signs are not at all propitious for the South Asia Free Trade Area agreement to deliver the goods. Briefly, the key to successful implementation of SAFTA lies in the hands of Islamabad and, going by the hints dropped by the Musharraf regime, it does not seem likely that the key will be used soon to open up the South Asian economies to the advantages the agreement could offer.

But first, what is the position enjoyed by SAFTA within the SAARC framework? In a word, it can be said to be integral to the ultimate success of the entire experiment the core of which is "regional cooperation" (the `region' here comprising India, Pakistan, Sri Lanka, Bangladesh, Nepal, Bhutan and the Maldives). The question may be asked whether free trade is essential for the success of an exercise in `cooperation' covering the entire gamut of relations between nations, in this case nations which form the geographical entity called South Asia?

This is a complex issue because, on the face of it, one can have, say, close cooperation in the production and transmission of energy without having a free-trade structure. This also applies for cooperation in a host of spheres such as education, research and development, which can strengthen the economic bonds among nations without there being any parallel initiative on free-trade.

Theoretically, such bonding under a regional cooperation set-up is possible. But in the case of SAARC, the economic aspects have been formally recognised by the organisation's Charter (adopted in 1985 at Dhaka), not to speak of the fact that very frequently the association is compared to other regional groupings such as the EU, NAFTA and ASEAN which are wholly based on the principle of economic integration. In the SAARC Charter, eight objectives have been listed of which three are specifically economic. These are: To accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realise their full potentials; to promote and strengthen collective self-reliance among the countries of South Asia; and to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields.

With time, the economic focus of SAARC was gradually sharpened and, inevitably, a time came in the early 1990s when a serious effort was made to provide teeth to the economic initiatives.

The seventh SAARC summit held in Dhaka in 1993 had the following paragraphs on "trade, manufactures and services", which not only set the official seal so to speak on the centrality of economic issues within the association but also set the grouping firmly on the way to SAFTA via SAPTA.

The declaration reads in part (paras 14 to 16): "The Heads of State or Government reaffirmed the need to liberalise trade as early as possible through a step by step approach. They underscored that this should be done in such a manner that all countries in the region could share the benefits of trade expansion equitably. In this context, the Heads of State or Government welcomed the finalisation of the framework Agreement on SAARC Preferential Trading Arrangement (SAPTA). They expressed their deep satisfaction over the signing of the framework Agreement.

"The Leaders stressed that all necessary steps should be taken to begin the first round of trade negotiations to exchange trade preferences among Member States under the Arrangement. The Heads of State or Government further underlined the critical importance of urgently promoting intra-regional cooperation, particularly in the area of manufactures in order to enhance the productive capacity of the Member Countries, and to promote sustained growth and development to prevent the marginalisation of South Asia's trade interest in the larger global context".

The policy progression from SAPTA to SAFTA was enunciated further at the ninth SAARC summit held in Male in 1997 when the leaders declared (para 14 of the Male declaration): "The Heads of State or Government noted with satisfaction the entry into force of the Agreement on SAARC Preferential Trading Arrangement (SAPTA) on 7 December 1995. They recognised the importance of achieving a free trade area by the year 2001 A.D. and reiterated that steps towards trade liberalisation must take into account the special needs of the smaller and the Least Developed Countries and that benefits must accrue equitably". Instead of 2001, SAARC has had to wait till January 1, 2006 for SAFTA to come into force (SAPTA had materialized on December 7, 1995), the target for actual trade to begin in terms of the agreement being set for June-July. SAFTA is all about free trade, the central inference being that all nations engaging in such trade should be able to do so on a footing of equality and equity (where LDCs are concerned). The agreement on SAFTA in fact makes this very clear.

Thus, Article 3(2)(b) and (c) says: "(b) The Contracting States affirm their existing rights and obligations with respect to each other under the Marrakesh Agreement establishing the World Trade Organisation and other Treaties/Agreements to which such Contracting States are signatories", and "(c) "SAFTA shall be based and applied on the principles of overall reciprocity and mutuality of advantages in such a way as to benefit equitably all Contracting States, taking into account their respective levels of economic and industrial development, the pattern of their external trade and tariff policies and systems".

Among other things, Article 1 of GATT says: "With respect to customs duties and charges of any kind imposed on or in connection with importation and exportation or imposed on the international transfer of payments for imports or exports... any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties".

This is what is known as the most-favoured-nation treatment principle, one which, as the SAFTA agreement has made clear, is also applicable to trade among nations in the SAARC grouping.

It is crystal clear that a free-trade regime will not be able to deliver unless every participant in it observes the ground rules of equality and equity laid down by the stipulated guidelines. And yet this is precisely what Pakistan has done vis-à-vis its trade with India under SAFTA.

Specifically, while Islamabad has ratified the agreement (which would imply acceptance of the MFN principle), it has dropped dark hints — through comments made by Ministers — that its India policy on trade issues would remain unimpaired till it was satisfied with `progress' made on the Kashmir issue. The two-track trade policy vis-à-vis India simply cannot be implemented in view of the absence in SAFTA of any provision which would legitimise any list of tradable items between the two countries which cannot be traded.

Currently, Pakistan allows trade with India on only 773 categories of items while all other goods are banned. SAFTA has a negative list which really means that duty on these goods would not be reduced although their trading would be permitted at normal duty rates applicable in member States.

In many ways, this inability on the part of Pakistan to fall into line with other SAFTA participants will deliver the death-blow as it were to the free-trade exercise under SAARC auspices. This certainly would harm the image of SAARC no end, especially in view of the increasing economic orientation of the association in recent years.

Indeed, without an effective SAFTA, the real worth of SAARC will have to be evaluated once again, the main issue of study being whether the association would not be better off focussing on non-trade cooperation and partnership in the South Asian region.

After all, FTAs have already been signed bilaterally between member States and more are in the offing which, viewed dispassionately, would probably fulfil SAFTA objectives more efficiently than through the SAARC portal.

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