The Safta Ministerial Council Meeting that took place at the end of February 2007 can be best described as a “step backward” in fostering regional trade integration within South Asia. With India and Pakistan tossing allegations against each other, the Safta (South Asian Free Trade Area) platform is transforming into a South Asian Fighting and Trampling Area. India raised the issue of Pakistan providing the most favoured nation treatment to exports of Indian origin only under 773 tariff lines, in spite of agreeing to provide such a treatment to around 4,000-plus items while signing the Safta pact. And Pakistan tried to dilute the importance of India’s allegation by showing that India is erecting a host of non-tariff barriers against exports of other Safta members. Pakistan is also said to have circulated a ‘non-paper’ to this effect during the meeting.
If liberalization of trade in goods is causing so much trade hostility across borders, it is tough to expect Safta to expand into trade in services. If services, which are gradually accounting for larger shares of GDP in all Safta nations, remain outside the purview of Safta, it will be very difficult for their governments to use the platform as a tool for alleviating poverty in the region.
Unfortunately, the smaller member-governments, the Saarc Chamber of Commerce as well as the businessmen in these nations have shown no leadership in set ting the Safta boat to sail. It is equally likely that they are not being allowed to do so by their larger counterparts.
Another interesting phenomenon since Safta was established is Pakistan’s growing interest in establishing free trade agreements (FTAs) with countries/regions which are already engaged in FTA negotiations with India .
Pakistan has lately entered into an FTA in goods with Sri Lanka. India had signed its FTA with Sri Lanka in 1998 and is now expanding this trade relationship into a full-fledged comprehensive economic partnership agreement encompassing goods, services and investment.
Pakistan is trying to persuade the EU and Switzerland (the largest economy within the European Free Trade Area—EFTA) to negotiate an FTA. EU and EFTA have already approached India to negotiate a comprehensive trade agreement.
Pakistan is also wooing members of the Gulf Cooperation Council to negotiate a goods agreement, while the latter had initiated negotiations with India on an FTA in goods in 2006.
Fed up with Pakistan’s antics, India is also said to have started using Bimstec (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation involving Bangladesh, Bhutan, India Myanmar, Nepal, Sri Lanka and Thailand), as a vehicle to liberalize trade with Bangladesh, Bhutan, Nepal and Sri Lanka—countries which also happen to be members of Safta.
India has also renewed its trade agreement with Nepal and has been trying to cajole Bangladesh on a bilateral FTA.
In an evolving spaghetti bowl of trade relationships within the region, South Asian governments need to provide an honest answer to their citizens on how serious they are about utilizing Safta as a vehicle to alleviate poverty in the region. If they are not, then should they be spending public monies on meetings that only intensify hostility and do not yield the desired regional trade integration?
It’s high time that we are honest about our motives. Otherwise we will only end up spending resources on meetings, which could well be utilized to create infrastructure or spent on poverty reduction programmes within the Saarc member countries.
Raghav Narsalay is chief economist with Economic Laws Practice, Advocates and Solicitors.