KARACHI, March 23: Pakistan should avoid putting too many items in the sensitive list of trade so as to make the South Asian Free Trade Area (Safta) agreement successful.

The items included in the sensitive list will be subject to a maximum tariff ceiling to be agreed among the contracting states after the negotiations. The product where preferential imports could cause serious injury to the domestic industry may fall in the list.

This has been pointed out by the Karachi Chamber of Commerce and Industry in its recent study on "Safta: its challenges and opportunities for Pakistan", prepared by its research and economic development cell.

Auto parts, pharmaceuticals, etc., are some of the sectors that will be adversely affected. On apprehensions that Pakistan's heavily-taxed industries will have no chance to compete with the subsidized Indian industry, the KCCI study feels that India has to remove subsidies sooner rather than later to meet the requirements of WTO regime.

Besides, legal framework is available in shape of anti-dumping, countervailing and safeguard measures under the WTO regime, which would be applied under Safta for protecting the local industry.

India's strong industrial base and organized engineering industry can help Pakistan Steel to import its basic raw materials like iron ore from India instead of Australia at cheaper rates to produce steel products at lower cost.

Vast opportunity is available to import diesel from India which annually exports more than five million tons. Pakistan imports 4.5 million tons of diesel annually, mostly from Kuwait, the study says.

India is the only country in the region that has naphtha cracking facilities. Pakistan exports naphtha and can put up a naphtha cracker plant in collaboration with Indians.

The vehicle sector in India has grown tremendously and export of components more than doubled in the last four years to one billion dollars. Pakistan could benefit from the availability of low priced Indian components (instead of importing from Far East) and offer their customers competitively priced vehicles, the KCCI study said.

All other members of Saarc countries lag far behind from the India's chemical industry. Current production capacity of the chemical industry in Pakistan can meet only 10 per cent of its requirements.

Pakistan can greatly benefit from import of dyestuff and chemicals and plastic raw materials from India at lower prices, which will also enhance competitiveness of Pakistan export sectors like textile and leather.

The Safta accord may not have provision for collaboration in the services sector but movement of people, frequent exchanges of delegations and interactions will lend impetus to cross border collaboration in this sector, the KCCI said.

Petrochemical industry in India is quite advanced, but Pakistan has not taken a start so far and is wholly dependent on imports of major polymers to feed demand of petrochemical consumer industries.

Currently, Indian medicines, tyres and tubes, spices, betel leaves, toiletries, viscose fibre, machinery parts, etc., are finding way into Pakistan, and cotton cloth from Pakistan are making their way into India through informal trading.

Pakistan can export with advantage to vast Safta market, products such as cotton yarn, textile fabrics, leather products, surgical instruments, herbal products, processed foods, fruits and vegetables and other agricultural products to meet regional shortfalls.

The KCCI study says that Saarc countries must come together and evolve common export strategy for agricultural commodities, which are the mainstay of their economies. They can cooperate and share agricultural technologies for quantum jump in agricultural yield, production as well as agro-based processing.

The Safta agreement does not explicitly envisage any measures for cross border investment, nor links the free trade measures with movement of people and items. But easing of visa regime, specially with India will open up opportunities for cross border investment, joint ventures and for technology transfer and upgradation.

The Safta accord will help create conducive environment for investing in each other's country and other countries and multinational companies will follow suit.

The KCCI said that some negative sentiments on Safta, specially on free trade with India prevails due to India's strong industrial base and cutting edge in industries like capital goods and engineering.

In contrast, the KCCI pointed out that India had similar apprehensions about opening up trade with China, but today the trade between the two countries has crossed the $9 billion market with balance tilting in favour of India.