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Islamabad may stay out of South Asian Free Trade Area treaty

Dawn, Pakistan

Islamabad may stay out of South Asian Free Trade Area treaty

By Mubarak Zeb Khan

16 January 2006

ISLAMABAD, Jan 15: Pakistan is likely to stay away from the South Asian Free Trade Area (Safta) to avoid its political fallout on the country’s principled stand on Jammu and Kashmir dispute. Well-placed sources told Dawn that the ratification of the agreement by Islamabad would mean that Pakistan has opened its border for all kinds of tradable items with all Saarc member countries, including India.

The ratification of Safta by Pakistan would automatically grant MFN status to India. Pakistan’s longstanding position that talks with India on trade could progress in tandem with progress on Kashmir question would thus stand dissolved.

The federal cabinet in its forthcoming meeting is likely to take up the issue of ratification of the agreement. Out of seven Saarc member countries, India, Bangladesh, Nepal and Bhutan have ratified the treaty.

Pakistan currently allows import of only 773 categories of items from India under an approved list while all other goods outside the scope of the list are banned for import.

This means that following the endorsement of the agreement Islamabad would allow import of all kinds of items from India as well as from other members of the grouping.

Safta agreement covers negative lists of items, which means that duty on these goods would not be reduced but their trade would be allowed at normal duties applicable in member states.

According to the sources, the main beneficiary of the Safta agreement would be India as it would not only enjoy preferential market access for its products but would also export all kinds of goods to Pakistan.

Moreover, with the coming into force of the Safta agreement from July 2006, Pakistan would have automatically granted India the most favoured nation (MFN) status.

Under the article-I (MFN clause) and article-III (national treatment clause) of the general agreement on tariffs and trade (GATT), which were made part of the SAFTA agreement, Pakistan could not discriminate between imports and domestic goods/products other than the imposition of a tariff at the national boundaries.

This means that Pakistan would accord similar treatment in case of tariff on ports and other domestic regulations and duties to all WTO member countries, including India, as is accorded to the locally produced products.

The sources said Pakistan might have only one option to violate the WTO articles but again it would be very difficult to defend the restrictions in case India challenged it in the dispute settlement body (DSB) of the WTO.

Official statistics made available to this correspondent showed that Pakistan’s trade with India was in surplus in the year 1998-99 and stood at $27.807 million. During the last few years, however, the surplus turned into a trade deficit and stood at $73.736 million in 1999-2000; $179.689 million in 2000-01, and $137.294 million in 2001-02.

Pakistan’s trade deficit with India declined by 30 per cent to $95.845 million during 2002-03 from $137.294 million recorded in 2001-02.

The sharp fall in the volume of trade deficit with India in one year had occurred due to the suspension of air, train and bus links in December 2001.

Pakistan’s trade deficit with India rose by 201 per cent to $288.687 million during the fiscal 2003-04 against $95.845 million in the preceding year.

The volume of trade between the two countries stood at 476.047 million in the year 2003-04 as against $237.173 million during the financial year 2002-03, an increase of 100.7 per cent.