South Asian Free Trade Agreement (SAFTA) and implication for Pakistan

South Asian region constitutes around 22 percent of world’s population, potential market for the world due to its huge population and it has its own importance due to its geo-strategic location and abundance of natural resources. South Asian Free Trade Agreement (SAFTA) is in the process of implementation. The process of implementation of SAFTA is, unfortunately, not as smooth as envisaged earlier, and Pakistan-India political relations does stall the process of implementation.

The case study in hand is primarily designed to investigate the implications of SAFTA for Pakistan with the main objectives of the paper to come up with a trend analysis of the country’s trade and investment links with other South Asian countries. The study will also try to assess the role of Pakistan in making SAFTA a success especially in the context of multilateralism and emerging regionalism. The key question would be whether SAFTA is beneficial or not in the context of multilateral trade negotiations. This paper will also give policy recommendations based on research as how SAFTA can be an effective tool for trade-led growth in Pakistan and the South Asian region.

Pakistan is trying to increase international trade and reduce both the tariffs and tariff slabs. The most significant potential benefit, under these policy choices, from implementation of SAFTA will increase in international trade to GDP ratio.Greater openness of Pakistan through SAFTA will have positive impact on trade with two countries – one on the eastern border with India and on the western border with Afghanistan. Conservative estimates claim that Pakistan’s trade (formal and informal) with these two countries can reach more than US $ 28 billion during the next ten years. A socio- economic benefit for Pakistan will be in the shape of attracting tourists from India especially the Sikh pilgrims.

Pakistan can look forward to getting into the banking sector market in India while India can penetrate the information communication technology market in Pakistan. Pakistan has two important challenges to cope with. It should develop itself to face more competition and build competitiveness as well as increase economic freedom. And use short sensitive lists to regulate trade initially and dispensed with over time.

However, it must be noted that growth of countries of South Asia which includes Pakistan is not possible without accepting inter-dependencies (in products) that trade inevitably creates. The only way to harness the potentials of SAFTA is to prepare domestic environment for increased trade and help develop inter-dependencies and Pakistan is no exception to it.