The Hindu Business Line : SAFTA is on

THE SUCCESSFUL LAUNCH of the South Asian Free Trade Agreement (SAFTA) on New Year's Day is a feather of sorts in the cap of the South Asian Association of Regional Cooperation, especially as the schedule — set two years ago when the agreement was signed in Islamabad — has been maintained despite the sharp differences particularly between the least-developed countries (Bangladesh, Maldives, Bhutan and Nepal) and the non-LDCs (India, Pakistan and Sri Lanka) on issues of trade integration. But, then, if deadline-meeting was the principal objective of those behind SAFTA, will the whole-hearted implementation of the agreement be delayed?

Indeed, at the 14th SAARC summit in Dhaka in November, the Foreign Secretary, Mr Shyam Saran, had clearly identified three areas where an agreement on SAFTA was being elusive. These were: the negative lists dealing with the exclusion of commodities not falling within the ambit of free trade; the rules of origin to ensure that third country goods did not slip into intra-regional trade without adequate value-addition in a member-nation; and the revenue composition of the LDCs to compensate them for the loss of duties following freer trade. Mr Saran had said that only in the matter of compensation was there an agreement in principle, the inference being that tough bargaining was continuing on the two other issues. It is entirely possible that things were hurried up the following weeks because of the approaching deadline, resulting in an accord on the other two issues, but the actual implementation may be far from smooth because of the deep-rooted differences on them.

The Prime Minister, Dr Manmohan Singh, has argued consistently that India must take the lead to open its market to the economically smaller and weaker SAARC members; this SAFTA achieves in large measure. The agreement is, as it should be, heavily skewed in favour of the LDC members not merely on the staggered tariff reduction schedule (slated to be completed by 2016) but also in the drawing up of the negative lists of items not covered by the agreement. Under the arrangement, while India, Pakistan and Sri Lanka will have to complete their trade liberalisation programme vis-a-vis the four LDCs by 2009, each participating country will have to draw up two sensitive lists of tradable commodities, one for the LDCs and the other for the non-LDCs. On the rules of origin, a minimum of 40 per cent of value-addition has been decided on; this is certain to create problems for the LDCs, which have become havens of third-country exportable items.

Clearly, effective implementation of SAFTA will determine the larger success of SAARC. But for SAFTA to exploit its true potential, it will have to be widened to cover, apart from "free movement of goods," investments and services. After all, five SAARC members (Bangladesh, India, Sri Lanka, Nepal and Bhutan) are also part of the BIMSTEC grouping which, under a Free Trade Agreement, allows free movement of goods, services and investments. If Pakistan is the stumbling block, it will perhaps be safe to say that SAFTA's growth will always be stunted — for reasons other than purely economic.