ISLAMABAD, Feb 15: The cabinet on Wednesday approved a proposal to ratify the South Asia Free Trade Area (Safta) agreement. Except for Pakistan and Sri Lanka all other Saarc member countries have already ratified the treaty.

The cabinet meeting presided over by Prime Minister Shaukat Aziz approved the ratification of Safta which came into effect retrospectively from January 1, 2006. However, a cut in tariffs along with the rules of origin would come into force from July 1, 2006.

Commerce Minister Humayun Akhtar Khan, however, said that bilateral trade with India would continue through a positive list approach even after the implementation of Safta.

Talking to Dawn after the cabinet meeting, the minister said the implementation of the agreement would not allow trade with India on all products.

Under the agreement, the seven-member Saarc countries would bring down their tariffs to 0-5 per cent within the agreed time period to increase the volume of regional trade.

“We would continue our bilateral trade with India through 773 items. Those products which are not included in the positive list would not be allowed to be imported under the Safta agreement,” the minister maintained.

Answering a question, the minister said that Pakistan would not grant the most favoured nation (MFN) status to India until there was a tandem move in other bilateral issues, particularly Kashmir. Mr Khan said: “The implementation of Safta could not bind us (Pakistan) to grant the MFN status to India until bilateral issues are not resolved amicably.”

He said there were some provisions in the WTO that allowed the member countries a cushion of not granting an MFN status to any country for some peculiar reasons. When Pakistan did not give the MFN status to India under the WTO, then how it would be possible to give the same under a regional agreement, the minister said.

The agreement contained annexes of items — one for reduction in duties during the specified period for the least developed countries, including Bangladesh, Nepal, Bhutan and Maldives — while there is a list of items for duty reduction for non-LDCs — India, Pakistan and Sri Lanka.

There is another list of sensitive items that includes around 20-22 per cent products of tariff lines of the member countries. These items are not allowed reduction in duty. This means that trade of these items would be allowed for trade among the member countries on normal duties and will not be banned.

In case of India, he said the approach of sensitive list would not apply at the movement. “The products, which are committed under the lists for duty reduction but not part of the positive list, would also be not considered even for trade,” the minister disclosed. In reply to a question, he said that the number of items on the positive list could be increased at some later stage following progress in other issues.

Analysts says Pakistan could have disputed certain Safta clauses, but again it will be very difficult for it to defend such tariff restrictions in case India challenges them in the dispute settlement mechanism of the Saarc secretariat as allowed under the agreement.