SAFTA to boost Indo-Pak trade

Since India and Pakistan are looked as emerging leaders in regional trade, some argue that bilateral trade between the two may even become vital for the sheer existence of SAFTA, a treaty which has eluded SAARC since 1998.Also, with trade relations normalising, both countries will be able to pare their trade through unofficial channels and third-country trade and concentrate on official trade routes writes Girish Chadha.

India-Pakistan bilateral trade is expected to rise several-folds with SAARC nations agreeing on the framework treaty on South Asian Free Trade Area (SAFTA).

Post-SAFTA, India and Pakistan are seen commanding a major share of the intra-SAARC trade which is currently estimated at around $6 billion. Experts see India and Pakistan tapping a powerful trade bloc with a combined consumer base of well over 1.4 billion in the SAARC region.

HT Image

Since India and Pakistan are looked as emerging leaders in regional trade, some argue that bilateral trade between the two may even become vital for the sheer existence of SAFTA, a treaty which has eluded the South Asian Association for Regional Cooperation (SAARC) since 1998.

Trade to improve bilateral relations

"Indo-Pak trade would be a necessary and sufficient condition for SAFTA's success", says Confederation of Indian Industry's senior advisor and economist TK Bhaumik.

Also, with trade relations normalising, both countries will be able to pare their trade through unofficial channels and third-country trade and concentrate on official trade routes.

The official two-way annual trade between the two neighbours currently stands at a meagre $200-250 million while the unofficial trade is estimated to be over $1.5 billion. The SAARC Chamber of Commerce and Industry estimates that trade between the two alone can grow up to well over $ 4 billion if relations improve further.

Industry feels the issue of Pakistan not granting Most Favoured Nation (MFN) status to India and a fear among Pakistani businessmen about Indian goods wiping away their local markets is coming in way of enhanced trade ties.

With SAFTA envisaging almost all items of trade being off the sensitive list and tariff structures coming down drastically, even the consumers of both the nations are likely to get a wider choice of goods at competitive prices.

Bhaumik sees businessmen on both sides benefiting from SAFTA. "Industry needs a market. Creation of SAFTA will enhance the opportunities for industry on both sides," he adds.

Sound economics necessary for good politics

The combined external trade of the seven SAARC members -- India, Pakistan, Bangladesh, Sri Lanka, Bhutan, Nepal and Maldives - is currently to the order of $66 billion. A CII study postulates that completion of SAFTA and SAPTA by 2005 will be required to ensure doubling of current level of $6 billion intra-SAARC trade and continue to double the trade every five years.

However, others like chief economist (trade) with the National Council of Applied Economic Research (NCAER) Dr Rajesh Chadha feel that though creation of SAFTA will enhance the general goodwill between the two nations, India would be better off focusing on multilateral trade forums than concentrate on bilateral trade relations. "A fearless socio-political environment will need to be created if businessmen on both sides have to think of enhancing trade with each other," says Chadha.

MFN status and Pak fears

Trade ties between the nations have been on the upswing for the past about two years since the two began a dialogue at the political front. The past year saw exchange of several business delegations between the two countries besides carving of some joint business fora to further the trade ties.

Industry feels the issue of Pakistan not granting Most Favoured Nation (MFN) status to India and a fear among Pakistani businessmen about Indian goods wiping away their local markets is coming in way of enhanced trade ties.

In order to end such fears and to get over the stronger-weaker economy argument, experts suggest India should play a more accommodative role in bilateral trade relations. "If Pakistani businessmen fear large scale dumping of Indian goods, India can have special negotiations with Pakistan over some safeguard measures," advocates Bhaumik.