CALCUTTA, India, Feb. 6 (UPI) -- Picture this: One of the world's largest consumers of tea, Pakistan, has the world's largest producer, India, as its neighbor. Yet political compulsions force Pakistan to import most of its tea from far away Kenya.
And for items like Hindi films, where no easy substitutes are available, Pakistan solves the problem by pirating them.
Barriers to trade like these exist among all members of the South Asian Association for Regional Cooperation, called the SAARC countries, which includes India, Pakistan, Bangladesh, Bhutan, Nepal, Sri Lanka and the Maldives. And, while the rest of the world is busy bringing down trade barriers, SAARC had been infamous for dragging its feet.
Therefore, after working at it for over six years, when the leaders of the SAARC nations finally signed the South Asian Free Trade Agreement in early January in Islamabad, it was termed a "breakthrough."
But even as the January agreement promised to enhance a free flow of trade in the region, economists and trade experts fear that the long awaited SAFTA may not prove to be a big deal for India.
The agreement, however, still stands as a notable achievement. That's because first, it comes after years of tough and often failed negotiations that started in 1998, and two, it aims to bring down barriers significantly.
Starting Jan. 1, 2006, SAFTA will ensure that over the next 10 years Pakistan, India and Sri Lanka will reduce their maximum import duties to 20 percent, and others like Bangladesh, Nepal, Bhutan and the Maldives, will reduce their maximum duties to 30 percent.
Additionally, all member states will establish their own Committee of Experts that will identify non-tariff barriers and other restrictive measures so that, barring a few sensitive items, all items that are now traded on preferential basis between some of the countries can move to a completely free trade regime.
According to estimates, the free flow of trade in the region may increase from current levels of $6 billion a year to $14 billion annually within two years of SAFTA's existence.
Attractive numbers, but according to Mahendra Lama, professor of South Asian economies at New Delhi's Jawaharlal Nehru University, with India dominating most of the trade in the South East Asian region, "what will smaller countries like Bangladesh, Nepal, Bhutan, or, even Pakistan sell to India in a free trade environment?"
Presently, regional trade is largely dominated by Indian exports to SAARC member states, amounting to almost 80 percent of all regional trade. That is expected to be about $6.2 billion by the end of he March 2004 fiscal year. Comparatively, Pakistan's share -- the next largest nation in SAARC -- in trade volume in the region would be just $510 million.
"Thus," says Lama, "lop-sided trade practice will remain, which, in turn, will defeat the very process."
Another problem is that the smaller countries like Nepal, Bhutan, the Maldives and Bangladesh fear that Indian products, due to the low duty regime that the SAFTA regime will usher in, will swamp them. Under the preferential regime, low tariff lines on some 5,500 products have been agreed to so far.
There's another big concern. India, in its recent external trade policies, has already said that it would pay even more attention to its relations with the wider "southern Asian" neighborhood, including ASEAN member countries -- Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam -- and the Gulf States.
Indeed, in some ways this has already happened. SAARC's stagnation in the past years has increased the profile of another "club" -- BIMSTEC -- the Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation forum. Going beyond BIMSTEC, India is actively encouraging the idea of an Asian Economic Community that would include ASEAN, China, Japan and Korea.
And, India has just recently entered into a free trade agreement with Thailand. The country is slated to enter into a similar agreement with Singapore in the next two months.
Therefore, "the rapid increase in India's economic engagement with countries outside SAARC," said one economist with a prominent industry lobby "would make SAFTA of little relevance from India's perspective."
Nevertheless, according to optimists, SAFTA could emerge to be important for the country after all.
"Formation of SAFTA is likely to impart a fresh dynamism to intra-SAARC trade, which could give Indian industry larger power and opportunities to increase business with other Asian countries and a unique regional identity," said T.K. Bhoumick, a senior trade advisor with the Confederation of Indian Industry,
Bhoumick added, "If hostilities -- between India and Pakistan -- can create nuclear powers in the region, cooperation could create economic super powers."
