It was unlikely for the plebeians to have missed the self-congratulatory tide which followed the January 2004 Islamabad SAARC summit. The South Asian Free Trade Area (SAFTA) agreement signed by the foreign ministers of the seven SAARC countries was hailed as the biggest outcome of the summit and the framework for the Free Trade Area (FTA) which SAFTA envisions was projected as the remedy to alleviate the economic woes of the region. While the thaw in the relations between the two 'biggest' players in the area was a positive step, setting aside the compulsions of an upcoming election in India and the ex-gratia benefits of good neighbourly behaviour on the part of Pakistan, the agreement on trade liberalisation and intra-region free trade in goods needs to be reviewed in the face of pretentious optimism.
Globally, regional trading agreements (RTA's) have been proliferating over the second half of the 1990s, enabling many states to gain from freer trade. Depending on the level of integration, these have ranged from preferential trading agreements, free trade agreements such as the North American Free Trade Agreement (NAFTA), customs unions such as Mercosur (a Latin American regional integration mechanism with Argentina, Brazil, Paraguay and Uruguay as full members, and Bolivia and Chile as associate members), to economic union such as the European Union (EU). The SAFTA agreement is a higher stage in the evolution of the earlier SAARC Preferential Trade Agreement (SAPTA) of 1993.
Tied down as it was by various political limitations, SAPTA proved inadequate to boost intra-region trade on a commodity-wise basis. The present agreement proposes to address the current low levels of intra-SAARC trade (chart 1), which hovers around the 5 percent mark, through a phasing out of barriers (primarily tariffs and quantitative restrictions) to trade in goods between member nations over a 10 year period. The operation of the draft agreement is subject to its ratification by member states by 1 January 2006.
The agreement requires the 'least developed' countries—Nepal, Bhutan and the Maldives—to reduce tariff rates to the 0-5 percent target over 10 years starting from 2006. Of the 'non-least developed' countries, India, Pakistan and Bangladesh will get five years to implement the new tariff regime while Sri Lanka will get six years to reach the target. Such purposeful time-frames and schedules suggest a gung-ho can-do attitude that does great credit to the Southasian leadership's vision of common future, but can this vision withstand critical scrutiny? The present visualisation of a free trade arrangement in Southasia has been endorsed by many quarters, but is such confidence warranted? The hard realities on the ground do not, prima facie, inspire much faith in the possibility of a workable arrangement emerging in the near future. All the 'feel good' chatter that has come to dominate the Indian media in particular must perforce when it has the time contend with the fundamentals of international trade.