SAFTA as An Instrument of Rejuvenating Indo-Pak Trade Relations

Abstract

The history of Indo-Pak economic relations has perhaps been one of the most controversial and sensitive issue that has held the centrestage of South Asian politics. During 1997-2004, Pakistan�s actual imports from India were 4.8 per cent and India�s actual imports from Pakistan were 6.4 per cent only of the respective potential imports, on an average per annum. The establishment of SAARC (South Asian Association for Regional Cooperation) in December 1985 has also played an important role in boosting the intra-trade ties between India and Pakistan. The agreement of South Asian Free Trade Agreement (SAFTA), effective from 1 January 2006 has also further improved trade between the two countries. SAFTA is a step forward in the right direction for fostering regional economic integration. But a major limitation of SAFTA is its narrow coverage. Different countries have kept a significant part of their imports out of the purview of the Tariff Liberalization Programme (TLP) by putting them on the sensitive or negative list. Apparently, 58.5 per cent of India�s exports to SAARC countries are subject to sensitive list (Pakistan 34%). Pakistan�s imports from India are still governed by a positive list as Pakistan has not provided Most Favoured Nation (MFN) status to India. Therefore, there is urgent need for extending the coverage of the Agreement to substantially all trade in the region, as per the WTO requirement. This paper looks deep into the problems and potentials of trade between India and Pakistan. The article analyzes how SAFTA has in fact given a fillip to a better understanding between the two countries; how the latter has contributed to the furthering of the two countries� relations notwithstanding the fact that the bilateral disputes are out of the purview of the SAARC agenda. The article also focuses on how the inclusion of bilateral problems would derail the SAARC process.