KARACHI, Jan 10: Industrialists are optimistic about the outcome of the South Asia Free Trade Area (Safta) treaty and do not feel threatened by its implementation when regional economic relations specially between Pakistan and India take a new turn in the next two years.
They perceive that trade liberalisation will open new avenues for their products in gigantic middle class Indian markets. They say that the volume of smuggling between the two arch rivals, which range between $1.5-2 billion a year, will shrink when commodities will be traded through official channels. Currently, trade is taking place through third countries most of the time. Liberalisation of trade will also increase the custom revenues in both the countries.
Furthermore, Pakistani products enjoy an edge in quality particularly in textile related items, fruits and vegetables, leather goods. However, they think that Pakistan's auto industry and its entire vending base, two wheeler industries, information technology, software and cement sectors will face stiff competition in times to come.
President, Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Riaz Ahmed Tata feels that Pakistan excels in the textile sector as compared to India which is evident from the fact that local textile items are actively competing in the world markets. "We are more developed in textile sectors," he added.
He said textile makers would benefit from the import of cheap textile machineries as well as various chemicals and raw materials, which are abundant in India.
Pakistani fruits and vegetables are already giving tough time to India in world markets while Pakistan's leather goods are far superior than India.
The most nail biting competition will be seen in the auto sector because India offers cheaper bikes and cars to its consumers. Engineering industry is far too developed in India and there is no comparison of Pakistan with India in IT and software development.
He said the financial viability of country's pharmaceutical industries would definitely receive a jerk when Indian drugs would land here at cheaper rates. "India is making medicines with generic names while in Pakistan many multinational companies are marketing their products under various brand names. However, the ultimate beneficiary of this battle will be consumers who will get cheaper medicines."
Tata said Pakistan has already brought the import duty slab to 20 per cent (two years ahead of Safta treaty implementation) while India as well as Bangladesh have to lower the import duty. The cut in duty will ultimately benefit Pakistan.
"I think the Safta treaty is business friendly for both Pakistan and India's business community," the FPCCI chief said adding that India will initially benefit from the free trade because it has a very developed industrial base, but Pakistani exporters will get a big market to increase the country's export earnings.
However, he said he had some reservations on Safta agreement as the business community (private sector) had not been involved during the whole exercise.
The chairman, Site Association of Industry, Mohammad Nisar Sheikhani was also satisfied with the Safta treaty particularly in the context of exporters and industrialists who would get a big market to divert their surplus production.
Consumers, he said, would turn out to be the main gainers when local drug companies would be bound to curtail prices owing to a possible invasion of cheaper Indian drugs.
He dispelled the impression that arrival of Indian goods would play havoc with Pakistani goods. He said local goods were still surviving in hard times since cheap and smuggled Chinese goods had swamped the markets. He said automobile parts would also become cheaper. "Overall, opening of trade with India will benefit Pakistanis in a big way," Sheikhani said.
He said cost of production of many items would decline as India was a major source of procuring cheap raw materials.
The chairman, Special Committee of the Karachi Chamber of Commerce and Industry (KCCI) on regional trade, AQ Khalil also said that Pakistani industrialists and exporters would get a big market of India.
He was of the view that joint venture with Indian companies or technology transfer were the only options in saving those industries that feel threatened owing to free movement of goods after two years. He said joint venture possibilities exist in IT, software, steel products, electrical and mechanical engineering, chemical and dyes, auto sector, vending industry, pharmaceuticals, plastic industries, etc.
He said the government had to make a spadework before full implementation of Safta like effective enforcement of anti dumping laws in imposing anti-dumping duties and remove hurdles in shipping, road and railway links so that genuine and legitimate trade could flourish.
He urged the government to immediately invite those industrial sectors for talks who are expected to be hurt in free trade with India and chalk out strategies as any setback to the industries will lead to massive unemployment. Khalil said that tariff protection to the industries and lowering of utility charges can bring a big relief for the industries to compete in hard times.
According to KCCI, bilateral trade between Pakistan and India was $237 million during 2002-2003. Pakistan's exports to India were $70.7 million and imports from India were $166.6 million. Pakistan is having a continuous deficit in balance of trade with India since 1999-2000. Major items of imports from India during 2002-2003 were organic chemicals, iron ore, rubber manufacturers, tyres and tubes, tea, iron and steel products while Pakistan's exports were vegetables and fruits and textile yarn and fabrics.
Pakistan has vast opportunities of collaboration with India in software, IT services and business process outsourcing. In these sectors, India's exports were $10 billion in 2002. Pakistan has considerable competence in IT sector but software exports are merely $30-50 million which can be boosted through collaboration. In India, export of gem and jewellery is over five billion dollars and Pakistan can also expand exports through collaboration in this field, the KCCI study says.