Free trade agreement with India?
For many in Pakistan, Commerce Minister Razak Dawood's mention of the possibility of a free trade agreement with India comes more like a bolt from the blue.
He has mentioned that at a time when the forces of India and Pakistan are massed on each other's borders, and India is punctiliously avoiding a summit meeting between the two countries, and trying to side-step the January Saarc summit in Islamabad.
But the suggestion has come at a time when Indian foreign minister Yashwantrao Sinha loudly asks what is the use of a Saarc summit when its member states cannot increase their economic cooperation? He wants in particular the seven Saarc states to ratify the South Asia Free Trade Area Agreement approved by the lower level officials earlier in the 1990s.
Pakistan has linked full scale trade with India to the solution of the political disputes between the two countries, particularly the Kashmir dispute, which it regards the core issue. But India wants progress in the area of trade, cultural relations etc., to come first and pave the way for solution of the harder issues.
Pakistan on its part is ready to discuss all issues beginning with a summit level meeting; but India has been avoiding a summit following the Agra meeting that fizzled out.
Pakistan with Razak Dawood as commerce minister has developed great faith in the commercial returns of free trade agreements. It is now negotiating free trade agreements with Sri Lanka and Bangladesh. But the earlier breezy optimism signing such agreements rather quick has now given way to realism as the nut and bolt issues of exports and imports came to the fore and proved to be vexatious. Nevertheless Pakistan is hopeful signing such agreements. And it is now negotiating free trade agreements with Kenya and Morocco as well.
In its eagerness to sign more such agreements, and with larger countries, Pakistan had spoken of a free trade agreement with the US as well which seemed much too ambitious. When President Musharraf raised the issue with President Bush he asked him to talk to the US officials.
Now we are told the minimum time such a deal would take would be three years, as that involved congressional approval as well. The textile lobby in the U.S. which has been resisting larger access for Pakistani textiles to the US may block such a deal for long.
When India realised that the SAFTA which it had been backing for long, was not coming through it came up with the Gujral doctrine - named after former prime minister Inder Gujral - to sign free trade agreements with other countries than Pakistan in the Saarc region.
On that basis it has signed FTA agreements with Nepal and Sri Lanka and is negotiating an agreements with Bangladesh, which fears that could usher in a flood of Indian goods into its territory in return for too little of its goods going into India.
Pakistan on its part began free trade negotiations with Sri Lanka and Bangladesh. Razak Dawood now says finalisation of the free trade agreements with Sri Lanka and Bangladesh would make all imports and exports zero-rated after five years. Evidently other countries are not too ready to jump into free trade deals quick as the less developed countries have their own nascent industries to protect and employment to safeguard.
Three countries with which we are negotiating free trade are interested in exporting more of their tea to Pakistan, which Kenya has been almost monopolizing for long now because of the control of tea gardens there by the Unilever. Bangladesh would want to export its jute and some of the pharmaceutical products it makes. Sri Lanka would want to sell us some more of coconuts.
Meanwhile Razak Dawood says that as a result of the trade talks the Saarc officials had in Katmandu they had agreed to reduce the import duty for each other's products by two per cent. And the rates would be reduced further following future rounds of talks.
Evidently India is not happy with such step by step reduction of import duties and wants the SAFTA to come into operation quick. Hence the earlier piece-meal approach through the Gujral doctrine, and now the pressure by stressing it was useless to have Saarc summit without real progress in economic cooperation, particularly ratifying SAFTA.
Dawood, who was speaking to the Lahore Chamber of Commerce, cautioned the businessmen against expecting tariff protection for their products for ever. He said the tariff protection which they enjoyed now would vanish in five years. He hoped future governments would keep the import tariff at 25 per cent but reduce the tariff for raw materials to strengthen the industry.
India on its part has claimed it had slashed import duties on over 600 items for Pakistan. And Pakistan had claimed to have done that in respect of over 300 items. But when the volume of trade between them is too small for reasons political, such concessions have little relevance.
Pakistan's exports to India last year were $ 49 million and imports $186 million. But indirect trade or smuggling is said to have a volume of half a billion to one billion dollars. Some of this trade takes place through third countries. The two governments lose a good deal of revenues on that score, may be between Rs. 15 and Rs. 20 billion.
Razak Dawood is miffed by the fact that while businessmen in Pakistan welcome opportunities to export to zero-rated import duty countries following free trade agreements, as with Sri Lanka and Bangladesh, they do not welcome duty free status for their goods in Pakistan. Such lop-sided one - way traffic is not possible under the new arrangements contemplated. The solution lies in improving efficiency in production and export practices.
Even otherwise India is mounting pressure through the World Trade Organization to do away with discriminatory trade practices against it. It wants Pakistan give it the most favoured nation treatment as it has given to over 150 countries.
The favour done to India through this means is not as generous as it sounds but provides for normal trade relations between the neighbours which Pakistan cannot deny India for ever.