The SAFTA mirage

SAARC trade ministers could not manage to meet even once between the November 2001 Doha Ministerial and the August 2003 Cancun Ministerial Conference of World Trade Organisation (WTO). There is no such thing as a 'common SAARC position' at the gatherings of the WTO, and this is because the trade interests of the WTO members from Southasia vary a lot. Against this backdrop, the adoption of the South Asian Free Trade Agreement (SAFTA) at the January 2004 SAARC summit in Islamabad could be considered a landmark decision. SAFTA is supposed to open a new vista of regional economic cooperation and integration. SAARC member states seem to have, to some extent, set aside their parochial interests and apprehensions and decided to move forward with an open mind towards creating a free trade area. First, the sense of urgency for SAFTA is laudable. Second, the normalisation of India-Pakistan relations becomes very critical for the operation of the free trading regime in its true sense.

SAFTA is slated for launch in 2006, with a ten year period for full-fledged implementation. The treaty has taken up some of the issues with very clear provisions including those on tariff reduction and the procedural aspects of the application of balance of payment and 'safeguard' measures, as well as a dispute settlement mechanism. The treaty has clearly stipulated the actions that contracting states can take while facing balance of payment difficulties, during import surges or in the case of disputes. Likewise, the treaty has also laid down a clear path for tariff reduction, which spans ten years, beginning 2006.

This meeting also took environmental issues as a priority area. In the Islamabad Declaration adopted at the meeting, ministers recognised the need to "undertake and reinforce regional cooperation in the conservation of our water resources, environment, pollution prevention and control as well as our preparedness to deal with natural calamities". Ministers also encouraged the establishment of a Coastal Zone Management Centre in the Maldives. Five out of seven SAARC members have long coastal zones and this management centre would study the nature of problems such as tidal surges, cyclones and the greenhouse effect. Ministers furthermore "stressed the early submission of the State of the Environment (SOE) reports to expedite the preparation of SAARC State of Environment report and the commissioning of the work on drafting a Regional Environment Treaty". It is pertinent to mention here that a "State of Environment of Pakistan Report", prepared by the Sustainable Development Policy Institute (SDPI) for Pakistan's Ministry of Environment (MOE) before the 2002 World Summit on Sustainable Development could, however, never get approval from the MOE apparently due to the hard facts and critical analysis presented in the report about the state of the environment in Pakistan. One wonders if such report for SAARC would be digestible to our relevant environmental ministries.  Anyhow, the good news is that environment is on the SAARC agenda now and if implemented in letter and spirit, the Islamabad Declaration could be a fruitful juncture for 'trade and environment'.

Despite the historic adoption of the SAFTA treaty, the treaty itself does not incorporate all components that are essential for the effective functioning of a free trade regime. There are some apprehensions that need to be immediately, or at least in the near future, addressed. These apprehensions arise due to the fact that the SAFTA treaty has some confusing provisions and gray areas. Besides, many issues that should have been addressed in the initial treaty itself are lacking. It seems that the negotiators have not learnt their lessons from the failed South Asian Preferential Trade Agreement (SAPTA) which was inked in 1993. The flaws in SAPTA such as the issue of 'rules of origin', 'non tariff trade barriers', etc., need to be meticulously looked into for the purpose of realising optimal benefits from SAFTA.

Some of the important and apparent deficiencies in the SAFTA treaty arise out of the inability of the member states to draw concrete consensus on certain issues namely – revenue compensatory mechanism, rules of origin, sensitive lists, and technical assistance for least developed members, among others. Moreover, rules and regulations for the effective implementation of the Trade Liberalisation Programme and granting of special and differential treatment to the 'least developed members' (Bangladesh, Bhutan, Maldives and Nepal) have not been clearly spelt out. These issues form the crux of the treaty, and until concrete and constructive negotiations are concluded on them, the future of SAFTA would remain uncertain.

Southasian LDCs

While many of the deficiencies highlighted above have been left for future negotiations and finalisation, the deadlines for completion of negotiations have not been mentioned in most of the cases. The only case in which a deadline for completion has been specifically mentioned is in Article 11(e) that relates to the rules and regulations with regard to a revenue compensatory mechanism for the benefit of the Southasian LDCs. The rules and regulations are to be finalised before SAFTA is formally launched in 2006. Likewise, on other issues such as the harmonisation of legislation, identification of special needs of the LDCs, the number of products under the sensitive list, areas of technical assistance for LDCs and rules of origin, the treaty makes no mention of deadlines. This is likely to create complications in the actual implementation of the treaty, unless of course the proposed actions are completed before the implementation of the Trade Liberalisation Programme (phasing out of tariffs and quantitative restrictions).

Likewise, there are some ambiguous provisions in the treaty which need to be eradicated if the treaty is to be a legal and binding document. For example, Article 3(2) (f) states that the special needs of the LDCs would be clearly recognised by 'adopting concrete preferential measures in their favour on a non-reciprocal basis'. Due to the lack of deadlines and concrete plans for the identification of the special needs of LDCs, this provision is ambiguous. Besides, the treaty has no concrete provision relating to anti-dumping, subsidies, countervailing duties, technical barriers to trade, and sanitary and phytosanitary measures. These issues are pertinent while a region moves into a free trading arrangement.

It is a fact that world over, except in Southasia, the trade between neighbouring countries runs up to high levels of volume. The trade within NAFTA is 60 percent of the total trade of the regional countries; similarly 55 percent of the total trade of the EU is within the European region; this figure is 30 percent for ASEAN, whereas it is only 5 percent for the SAARC region. It is expected that SAFTA has the potential to increase the regional trade manifold, but to reap these benefits our political leadership would have to be pressed to make SAFTA stronger. We have to work for:

Free movement of people. Movement of capital and goods would be useless unless there is free movement of people. Our leaders would have to work for a regime where simple things like obtaining a visa to travel to any of the SAARC countries would not be a big task.

Trade in Services. Service sector contribution to Southasian GDP is increasing. One aim must be to increase the trade in services.

Improved physical infrastructure
: It is natural that increased movement of goods/services/persons would require improved physical infrastructure.Need of harmonisation: For us to really reap the benefits of SAFTA, harmonisation of custom, banking (including a Letters of Credit system understandable to bankers and acceptable to businessmen) and effective insurance systems are all necessary. There is also a need to harmonise the quality standards within the SAARC region.

Finally, it must be kept in mind that trade follows investment. Trade volumes cannot increase significantly in the absence of investment. Hence for SAFTA to be meaningful there is a need to work out a regional arrangement or a framework for investment promotion as well as protection. Critically speaking, SAPTA, meant for preferential trade, did not lead to any real gain. For years we were fooling ourselves by giving concessions to neighbouring countries on commodities which they do not produce or trade in at all.  Now we have SAFTA and we must try to make it successful by being realistic, for surely increased trade and investment in region is the key to lasting peace…

It is imperative to conduct empirical research on pros and cons of implementing SAFTA to make it a win-win situation for all.  WTO watch groups and a network of civil society organisations including Pakistan's SDPI, have already started studying these aspects. With similar studies from public, private and the non-government sector, the shortcomings in the treaty would be identified and our policy makers would be equipped with the knowledge to rectify those shortcomings in order to move towards an effective free trade regime rather than a mirage.

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Himal Southasian