February issue 2004

Though automobile tycoon Yusuf Shirazi considers the South Asia Free Trade Agreement (SAFTA) a death knell for Pakistan’s industry, there are business executives in multinational corporations who see it as a “challenging opportunity,” which demands courage, vision and business manoeuvering if it is to reap any gains from the hefty 1.4 billion consumer market. Then there are Karachi traders in Jodia Bazar who see SAFTA as a godsend which will resume trade links with India, snapped after the 1965 war.

Any discussion on Safta, however, eventually boils down to the Pakistan-India business relationship alone. Trade relations with the five other member countries, Bangladesh, Sri Lanka, Nepal, Maldives and Nepal, is of no significance to local businessmen. Pakistan has not given the most favoured nation (MFN) status to India mainly for political reasons. The MFN is a reciprocal arrangement under which two countries offer each other equal opportunities for import in terms of tariff rates and non- tariff measures. Foreign ministry bureaucrats and the military have never approved any normalisation moves with India made by any political government. Today, it is ironical that a government led by a serving army chief has now finally signed the SAFTA on January 6 this year. Musharraf’s government has been actively involved in a long series of negotiations since 1999 that ultimately led to signing SAFTA.

“I have absolutely no hesitation in declaring that the winds of change are blowing in the SAARC region,” a jubilant Vishwant Sinha, the Indian foreign minister, told a SAARC journalists gathering in Rawalpindi on January 3. “I have a sense of history. Agreements have been reached on issues that were previously considered not just as conflicts but also perhaps impossible.” This was an oblique reference to the protocol on terrorism signed three days later.

The journalists community, meanwhile, were asking for “free movement of media persons accross the borders of the seven SAARC countries.” Said Imtiaz Alam, secretary general of SAFMA (South Asia Free Media Association), “We are fed up with the bureaucracies of the seven SAARC countries.” He made a blunt demand to Sinha: “Make an up-front declaration to allow media persons and media products free access to India.” He jokingly announced, “I will lead a procession of 400 protesting journalists from SAARC tomorrow in Islamabad.” A smiling Sinha retorted, “I am under threat,” and proceeded to declare that his country would support any move aimed at free movement of journalists and newspapers, magazines etc.

SAFTA was signed in an environment never seen before in the sub-continent for the past 55 years. South Asia has never been so tension-free as it is now after the SAARC summit and the signing of SAFTA. SAFTA provides a framework in which the seven members are free to trade, and provides all necessary safeguards and checks to any member country who feels any sector of their economy is being threatened.

But before SAFTA is fully implemented, the SAARC member countries will have to take a number of measures to facilitate the free flow of goods and services across their borders. Much has to be done to facilitate travel, institute mechanisms to settle disputes that are bound to arise in business and trade, put in place tax agreements, currency arrangements, customs regulations and other issues related to business and economic activities.

With a population of 1.4 billion, SAFTA is the biggest free trade zone of the world. However, it represents a real market of hardly 400 million — 200 million in India, 55 million in Pakistan, 45 million in Bangladesh and 100 million in the other four member countries: Sri Lanka, Nepal, Maldives and the tiny Himalyan Kingdom of Bhutan. Almost 40 per cent of the people living in this part of world are poor, malnourished and shelterless. Its market potential as compared to ASEAN, NEFTA and other such regional blocs is negligible. Will SAFTA turn the people of the region into consumers and enable them to play a meaningful role in economic activity? This is a question that can only be answered by the politicians of the seven member countries.

“Free movement of goods and services, mainly between Pakistan and India and also between all the seven member countries, has tremendous potential to generate economic activities which will activate the idle population,” says Raees Ashraf Tar Mohammad, leader of the Jodia Bazaar traders. Raees states that India has a very developed Ayurvedic and oriental medicine system, which needs a large variety of herbs and shrubs. These herbs and shrubs are abundant in Balochistan, Sindh and other parts of Pakistan and have a large market in India. Raees recalls that Pakistan has provided India with potatoes and other vegetables in the last few years, while India has sold textile and tannery equipment to Pakistan at a much lower cost than Japan, Europe or the USA.

Amin Hashwani represents a group of business professionals in both India and Pakistan who are carrying out detailed sector-wise studies for future collaboration. “We hope to complete our studies in a few sectors before April,” he said and disclosed that these reports would be given to the governments of both India and Pakistan. The studies will identify the areas of cooperation as well as ‘grey areas’ and areas of “unknown fears.” Business professionals in both India and Pakistan are convinced that trade and economic links should offer mutual benefits. There is a realisation that in SAARC, and more particularly in India and Pakistan, there is no complementary business and economic activity.

No wonder then that intra-SAARC trade remains hardly two per cent of the trade that SAARC countries have with the rest of the world. Business professionals in both countries are exploring ways to push up the volume of trade and establish long-term economic relationships based on joint ventures. Qazi Sajid, country chief in Pakistan of the German chemical multinational BASF, says that there would be initial hiccups once SAFTA comes into play in 2006 when tariffs would fall to 20 per cent. But Pakistan’s tariffs are the lowest in the region and business is well adapted to these tariff rates.

According to Sajid, the chemical market in Pakistan is around 4.5 to 5 billion dollars, of which imports constitute 40 per cent. With an investment of over 100 billion rupees, Pakistan’s domestic chemical manufacturing is gradually increasing its share in the chemical market. “India’s only advantage is that it manufactures basic chemicals because of a well developed petrol chemical industry and there are fears that Indian chemical products may flood the Pakistan.”

Yusuf Shirazi, the auto tycoon, is angry because the government did not bother to consult businessmen when it was signing TRIM (Trade and Investment Mechanism) in 1995 with WTO and SAFTA in 2004. “The WTO and SAFTA are a double-edged sword for Pakistan’s business,” he claims. According to Shirazi, India offers a generous subsidy to its agricultural, engineering and industrial sectors because of which Indian businessmen have a competitive edge on Pakistan. Indian exports are based on domestic production whereas Pakistan depends on imports.

There are many businessmen who believe that India will simply flood Pakistan with their goods. The Pakistani market is already saturated with Chinese goods which is adversely affecting local production. These fears must be addressed and the business community taken into confidence before throwing open the trade flood-gates.