Economic integration in South Asia: Pakistans perspective

Col Muhammad Hanif (Retd)

Introduction As is evident from progress achieved by other free trading areas (FTAs) like EU, NAFTA and ASEAN it is quite clear that implementing free trading agreement (SAFTA) already signed in South Asia and advancement of further economic integration involving mutual investments, joint ventures, trading energy and improving connectivity will be beneficial for all South Asian countries. Since formation of SAARC in 1985, signing of SAPTA in 1993 and SAFTA in 2004, Pakistan has always endeavoured to make use of regional cooperation and trade agreements to draw economic benefits. However due to Pakistan- India lingering disputes and Indias lukewarm attitude to resolve disputes with all smaller South Asian countries and also its rigidity in removing tariff and non tariff trade barriers true trade potential in the region could not be realized. However after becoming nuclear powers and realizing that disputes cannot be resolved by use of force and also after witnessing other regions and countries enjoying trade and economic relations despite having political disputes, since last few years Pakistan and India have gone positive on building mutual trade and economic relations which will largely contribute towards enhancing progress of regional economic integration in South Asia.

It is also good thing that while India has shown flexibility in easing non tariff barriers on trade with regional countries, Pakistan has also almost accorded MFN status to India. It

is expected that this evolving cordiality between Pakistan and India will prove better for South Asian economic cooperation. Therefore under the improving environment Pakistan wants to make positive contribution towards hastening South Asian economic integration with particular attention to overcoming main challenges to it such as enhancing regional trade and investments, meeting energy shortages and improving mutual connectivity. In this context Pakistans perspective on meeting these challenges is discussed in the ensuing paragraphs.

Increasing Trade and Investment Pakistan considers that implementing SAFTA will benefit all countries in the long run by increasing growth rates, technological diffusion, and foreign investment although initially some concessions accorded to LDCs under the agreement are necessary which non LDCs should adhere to. Greater trade between Pakistan and India also offers an immediate and rich possibility of economic growth for both countries. It will be beneficial for Pakistani investors to carry out joint ventures with the Indian investors in petrochemicals, automobiles, agro processing, technology transfer arrangements among IT firms and joint infrastructure and gas pipeline projects. On according MFN status to India, some Pakistani industrialists and agriculture stakeholders have shown reservations and requested for protection for next five years which Pakistan will have to consider. However in this regard if India reduces its tariffs on agriculture commodities, textiles, and other goods of potential value to Pakistan, it will be good for Pakistani stakeholders. Both India and Pakistan should also quickly phase out the negative list and rationalize and simplify the technical barriers to trade. Both should open bank branches in other country and replace domestic tax, tariff and subsidy policies that distort incentives for production and trade. It is also necessary to harmonize trade integration policies such as standards, quality control, technical regulations and material testing.

South Asian countries should harmonize legal regulations for investor protection and simplify rules of origin of trade able goods. For durable mutual trade and sustainable economic integration in South Asia it is imperative that India and Pakistan agree on an

interim solution of Kashmir dispute with the consent of people of Kashmir to alleviate their existing political, economic and human rights concerns. This could comprise

giving self rule to the Kashmiris on both sides of LOC, withdrawal of security forces on both sides of LOC and opening up of LOC for Kashmiris to freely meet and trade goods. As part of the self rule Kashmiris should be given freedom to choose their own representatives and governments on both sides of LOC and run their administration comprising all subjects except defence, foreign and financial policies. This kind of

concrete progress in Indo-Pakistan relations will also make it easier for Pakistans Government to meet Indias request for granting it the facility of transit trade to Afghanistan and beyond. After self rule in Jammu and Kashmir for about ten years it will become easier to find a permanent solution to the dispute under the spirit of UNSC resolutions and according to wishes of the Kashmiri people.

Meeting Energy Shortages As the South Asian economies grow at faster rates it increases the demand of energy resources for domestic, commercial, industrial and transportation sectors. To meet energy shortages Pakistan favours mutual trade of energy with in South Asia and also through imports from neighbouring regions and countries such as Central Asia, Gulf region, Iran and Myanmar. In this context Pakistan wants that oil and gas pipelines and electricity transmission lines and connected installations are mutually planned and constructed by investments by South Asian countries and also attracting foreign investments. For this purpose Pakistan is ready to provide guarantees for secure and uninterrupted flow of oil, gas and electricity through pipelines and transmission lines passing through its territory. Since Indias state owned oil and Gas Company GAIL wants to provide liquefied natural gas (LNG) to Pakistan it might now be possible as Pakistan-India relations have started warming up. This can be done through an extension of gas pipeline to Lahore from Indian Punjab to which a pipeline is planned to be laid from Indian Gujrat state. Pakistan is also considering importing 500 Mega Watts of electricity from India through Kasur border since Indian Prime Minister has already offered that to Pakistan. India and Pakistan have already signed TurkmenistanAfghanistan-Pakistan-India (TAPI) Gas pipeline for which Russia is ready to invest.

Pakistan is still wishing to import Gas from Iran through proposed Iran-Pakistan-India (IPI) pipeline although as a party to it India has opted out under US pressure. In this regard Pakistan would suggest India to rejoin the project. Pakistan is also planning to import electricity from Tajikistan for which Russia has shown interest to invest in this project which has been named as CASA-1000. In case these three projects are completed and India becomes part of these then South Asian energy deficiency can be met to a large extent. This will also facilitate building and using Pakistani route for India to transport Iron ore from Afghanistan since India wants to do that as it has been awarded contract worth eleven billion dollars by Afghanistan for Iron ore extraction. This grand strategy of laying and maintaining pipelines for gas, oil and Iron ore and transmission lines for electricity from central Asia and Afghanistan to India and beyond via Pakistan will largely succeed if India addresses Kashmir dispute in line with the UNSC resolutions and according to the wishes of Kashmiri people and it also does not bite Pakistans interests in Afghanistan by enhancing its military influence there.

Improving and Expanding Connectivity For regional economic integration through trade, investments and sharing of energy it is important that road, rail, air and maritime transport and telephone communication systems between South Asian countries are well connected. As far as Pakistan is concerned its road and rail communication are well built which can be used immediately for intra regional trade from Afghanistan to India and beyond. Pakistan has built motorway from Lahore to Peshawar and railway line from Lahore to Peshawar also exists. However there is a need to further expand this facility by laying a dual railway track. Already Wagha-Lahore and Srinagar-Muzaffarabad trade routes have been opened for trade between India and Pakistan. Pakistan also suggests that existing trade routes between Jammu and Mirpur -Mangla, between Jammu and Sialkot and between Monabao and Khokrapar(Sindh) should also be opened. On these routes there is a need to further expand the existing road and rail network along with organizing LOC and border crossings on modern lines to facilitate quick custom and security clearance. Pakistan would also like to further ease the visa regime with India so that mutual trade can take place easily. Subsequently the arrangement should also cater for mutual

tourism. There is also a need that air traffic between Pakistan and India is increased so that businessmen can visit each others countries more quickly and frequently. Pakistan would like to carry out trade with other South Asian countries via land routes passing through India including import of electricity from Nepal and Bhutan and gas from Myanmar. It is also necessary that maritime facilities for trade between India, Bangladesh, Srilanka and Pakistan are improved and expanded. At the moment tariff rates for telephone calls within South Asia are high. This needs consideration by all SAARC countries for rationalizing the rates and modernizing the calling facilities.

Recommendations -While widening trade with India Pakistan wants to increase trade with all other South Asian countries via land routes passing through India. -After according MFN status to India Pakistan is willing to increase trade with it by opening various trade routes along the border. While this is being done Pakistan would like India to also agree on opening additional trade routes along LOC in Jammu and Kashmir such as Jammu-Mirpur-Mangla and Jammu-Sialkot so that people of Jammu and Kashmir can also benefit from this trade facility. -SAFTA may be implemented with speed. -SARRC countries should work out a comprehensive agreement for intra regional trade of energy, sign it and take immediate steps for its implementation. -Similarly SAARC should chart out and sign a detailed plan for enhancing mutual connectivity. -To ensure quick success of regional economic integration under sustainable cordial political environment SAARC countries should now amend its Charter to also allow discussion of bilateral disputes at its platform to help resolve outstanding issues and address related tensions quickly as and when these occur.

Conclusion During the last SAARC Summit it was encouraging to note the strong desire expressed by all leaders to pursue regional economic integration with the required urgency. Since Pakistan and India are now both willing to improve their political and mutual trade

relations, this evolving scenario also largely favours hastening of regional economic integration. Therefore Pakistan has started taking initiatives to implement SAFTA and increasing trade relations with India. It is expected that above given recommendations will positively contribute to the efforts already being made by SAARC countries to realize the objective of mutual economic integration so that its advantages can be made use of for alleviating poverty in South Asian thus adding to the welfare of its people.

The writer works for Islamabad Policy Research Institute (IPRI)