April 15, 2002	Monday	Safar 1, 1423

India has responded positively to the proposal of President Pervez Musharraf for a free trade zone in South Asia. Mr. K.C. Pant, deputy chairman of the Indian Planning Commission, who led the Indian delegation to the third meeting of the Saarc finance ministers, and is usually India’s principal negotiator in Kashmir, has said India has decided to support the President’s proposal aimed at unfettered trade among the seven Saarc states.

India has over the years been in favour of free trade in the Saarc region because of its relatively developed economy. But while such moves or suggestions have led to marginal increases in trade among Saarc states, serious political constraints have stood in the way.

And that stalemate has lasted despite the excellent ground-work done by the senior officials of Saarc region to promote a South Asia Preferential Trade Area first, and then a South Asia Free Trade Area. But despite the support of the Saarc governments to SAFTA in principle or as an ideal such a wholesome trade arrangement is far from a reality, as noted by the third meeting of the Saarc finance ministers last week in Islamabad.

Leaders of trade and industry on both sides have also been excited by the prospects of large free trade in the area, and the officials of the federations of chambers of commerce of both the countries have been meeting each other often and spoken in euphoric terms about the prospects of such a trade, and the efforts they were determined to put to make that goal a reality. And there is a Saarc chamber of commerce and industry as well symbolising their consensus in this regard.

The All Pakistan Textile Mills Association, which normally could be against such free trade as its textile industry is younger than India's well established industry, has been in favour of larger trade with India. And it has been repeatedly calling for import of textile machinery form India, manufactured under licences from Switzerland and Germany, as that is far cheaper than direct imports from their European manufacturers. Now the same machinery components and spare parts are coming through other countries or with bills of lading changed, but at far higher prices. With the narrow margin of profits enjoyed by the textile industry now in its exports, the Pakistani textile industry finds it cannot afford to pay such higher prices for its critical inputs. In spite of the support in principle provided by officials of the Saarc states and the clamour of trade and industry in the Saarc region for larger trade among them, their mutual trade is less than five per cent of their total external trade, says finance minister Shaukat Aziz who presided over the third meeting of the Saarc finance ministers. In fact the total trade is around three per cent of their total external trade.

India-Pakistan trade in recent years has been very small and the total two-way trade is far below $500 million. It touched $180 million in 1999-2000 with imports by Pakistan of $127 billion and exports of $53.6 million and last year the exports of Pakistan were $55 million and imports $235 million. But in 1998-99 Pakistan's exports were $174 million and imports $145.6 million. The trade in recent years has been favourable to India, but by a small amount. When India imports cotton from Pakistan the latter's exports go up and when Pakistan imports sugar from India, India's trade balance goes up, all within a narrow range.

At the same time the volume of smuggling between the two countries is estimated at a billion dollars which could mean a loss of revenues for Pakistan of over 200 million dollars.

The choice for the two countries, it is said, is between open trade that is profitable for the governments of the two countries as well and secretive smuggling, which has been rather half open for long. So far the smugglers have been winning, including in the import of contraband items like liquor.

India under the well-known Gujral Doctrine, decided that if it could not have free trade with Pakistan or normal economic cooperation, it should sign separate trade agreements with other Saarc states. On that basis it has signed free trade agreement with Sri Lanka and Nepal, and its negotiations for such an agreement with Bangladesh are in the final stage. They have to reach agreement on a few details which may come through soon.

The problem, as Shaukat Aziz has said, is when the Saarc countries asked for larger market access in the U.S. or Europe they are promptly asked why did they not improve the market access to each other in the Saarc region itself? The Saarc leaders have no convincing answer save saying that political road-blocs stood in the way.

These are the days of regional trade blocs.The ASEAN of initial five countries has now become a ten-member alliance by including even Mayanmar.

The European Union has moved from a trading bloc to the Euro region and in the American continent the North American Free Trade Zone of the US, Canada and Medico has been followed by the much larger Asia Pacific Economic Cooperation Organization. But the poorest region in the world with around 40 per cent of the people living below the poverty line have no such regional trade bloc. The 17-year old Saarc is lacking in teeth and is more marked for its ceremonies or meetings than its achievements.

The prime focus of the Saarc finance ministers in Islamabad was on poverty reduction. Promoting larger regional trade is one way of increasing economic activities in the region and reducing poverty.

The poor people of the region would benefit by importing cheaper goods from other countries in the region instead of the more expensive goods from other regions.

There are two ways of solving problems between countries increasing economic cooperation and rising mutual contacts between leaders of countries involved in disputes can lead to eventual settlement of political disputes. Or the political disputes are settled first and then all round co-operation follows.

President Musharraf prefers the latter option and wants the settlement of the Kashmir dispute which he regards as the core issue, first. But now following India's opposition to the "Kashmir first" strategy he has said that other issues could be discussed along with Kashmir but Kashmir should have primacy.

China and Russia had a different approach to the capitalist countries led by the U.S. They had as much of trade as possible with the U.S. and Europe and finally their political relations became far better.

That is the kind of approach China is following to achieve eventual merger of Taiwan with it. It is encouraging Taiwanese investors to invest more and more in China in all areas and the Taiwanese investment in China is estimated at many billions of dollars, including on night clubs and game parlours.

But when Gen. Musharraf calls for a free trade zone in South Asia he wants a settlement of the Kashmir issue to precede that or the negotiations to b