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SAFTA to double intra-regional trade every five years

With this, Pak would have to give MFN status to India, which has been a major block to the region's trade.

india Updated: Jan 04, 2004 11:00 IST

The South Asian Free Trade Agreement to be signed at the SAARC Summit here will double intra-regional trade every five years from the current level of $6 billion.

The draft framework treaty approved by the SAARC Foreign Ministers on Friday, is seen by trade and industry as a "heartening development" as it would help in drastically reducing tariff barriers, which are still high in South Asia as compared to other regions.

The long-awaited treaty, originally formulated in 1995, has missed the deadline of 2001 and with the signing of the framework treaty, the Free Trade Zone will be operationalised by 2006.

The treaty seen as a major confidence building measure to ease tensions in the region, particularly Indo-Pak, would enable the South Asian region to emerge as a global player in trade, Indian Trade and Industry said.

With the signing of the framework treaty, Pakistan would have to automatically give Most Favoured Nation treatment to India, which has been a major stumbling block to promote trade in the region.

SAFTA will also facilitate in lowering tariffs at a faster speed. According to CII though the peak tariffs have come down substantially in the region since liberalisation process started over a decade ago, South Asian countries still had one of the highest tariffs even now.

"We have seen how limited resumption of business exchanges and people-to-people contacts between India and Pakistan has already contributed to the rise of a new optimism in our region," External Affairs Minister Yashwant Sinha told SAARC business chambers of Commerce and Industry on Saturday.

Statistics showed that total exports from the South Asian region had grown from $35.8 billion in 1991 to $76.8 billion in 2001, growing at an average rate of 10.3 per cent annually.

Finance Minister Jaswant Singh said trade did act as a "lubricant" in promoting peace and SAFTA would help towards this end.

SAFTA has been perceived as a transition from SAPTA through a gradual progress in tariff concessions.

Under SAPTA, so far a total of 5550 tariff lines have been earmarked for concessional tariffs by all the countries and value addition norm has been reduced from 50 to 40 per cent and from 40 to 30 per cent for least developed countries.

Of the 5550 tariff lines, 2927 tariff lines have been from India. Despite extension of concessional tariffs, the trade within SAARC at the moment was less than five per cent of the total trade of the individual members countries of SAARC.

SAFTA would immensely benefit Pakistan as it would enable it to import tea, auto parts, consumer durables, pharmaceuticals and films from India at cheaper prices.

At present, Pakistan, which has one of highest per capita consumption of tea, imports 150 million kg of tea, mainly from Kenya, even though Pakistanis prefer Indian tea.

Indian tea industry is facing troubled times— surplus production, falling exports and declining global prices.

If a free trade area comes into being, a substantial part of Pakistani market is expected to be diverted to India because of price competitiveness, easy transportation and popularity of Indian tea.

Presently, India accounts for less than 4 million kg of Pakistani tea imports. That too through indirect route shipped to Karachi via Colombo, Singapore and Dubai, making Indian tea costly, industry sources said.

Apart from cheap imports of these items from India, Pakistan could benefit by exporting cotton and textiles to India.

Indian auto industry too would benefit from SAFTA. Suzuki Mehran, the Pakistani equivalent of Maruti 800, is one of the most popular cars in Pakistan and is currently available at almost double the Indian price.

In pharmaceuticals as well, India, an emerging global supplier of generics, can not only find a market but also can facilitate availability of cheaper but quality drugs in the neighbouring country.

Illegal trade between India and Pakistan was estimated at nothing less than $1.5-2 billion while official trade stood at $262 million in 2002-03.

First Published: Jan 04, 2004 09:54 IST