Improved trade among SAARC nations

There appears to be slightly more than a ray of hope for improved trade among the SAARC nations from next year with political and economic ties between the two largest SAARC members – India and Pakistan – improving and agreeing to move forward in their trade relations.

Political rivalry between these two countries which had spilled over to affect their bilateral trade also adversely impacted on trade within the SAARC region. While lack of direct transport links and other factors did inhibit trade within the region, trade restrictions between these two large countries had definitely adversely affected expansion of trade within the region and made SAFTA less effective than it should have been.

Pakistan announced recently that it intends to grant India Most Favoured Nation (MFN) status by this year’s end. The Pakistan Commerce Secretary’s statements had indicated that Pakistan would remove its ‘negative list’ for Indian products by the end of the year. Pakistan has in the past maintained a ‘Positive List’ for India, permitting less than 2,000 items for import from India. In March this year, it was announced that Pakistan would do away with the Positive List and replace it with this Negative List.

Although all WTO members are required to treat all member nations equally under the MFN principle and India granted MFN status to Pakistan in 1996, due to the problems related to the Kashmir region between the two countries, Pakistan had not reciprocated with MFN status to India. In November last year, the Pakistani Government agreed to begin the process of granting India MFN treatment.

The two sides also recently outlined a timeline for reducing their sensitive lists for each others’ imports under the South Asia Free Trade Area (SAFTA) Agreement, as part of their ongoing efforts to boost bilateral trade ties. Pakistan had earlier announced that it intends to reduce its sensitive list for India under SAFTA from around 1,000 products to 100 products by 2017 while India has stated that the sensitive for Pakistan will be reduced to 100 items by 2013.

In a previous development indicating the thawing of relations between the two countries, India dropped its objections to the EU getting a WTO waiver to grant temporary concessions to Pakistan to overcome the effects of floods on its economy.

Whether these positive plans will be fully implemented remains to be seen as some Pakistani industry representatives have expressed concern about the possible adverse effects of opening up to Indian products. Some industry associations have argued that India needs to reduce its non tariff barriers before implementing Pakistan’s Negative List. It is in this context that Pakistan will implement the new list in 2017 instead of 2013 as the Indian side would do, so as to give the Pakistani industrialists time to adjust to new competition. Recently, the two sides also signed three new agreements aimed at removing trade barriers.

If India and Pakistan can increase their bilateral trade, the entire region stands to benefit. These two countries have large populations, particularly young educated middle classes with substantial purchasing power. Meetings under SAFTA would become more meaningful and results-oriented with more cooperation between the two delegations.



(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)