India, Pakistan pledge to cut trade barriers to spur growth

The leaders of the South Asian Association for Regional Cooperation, or Saarc, which also includes Afghanistan, Nepal, Bangladesh, Maldives and Bhutan, agreed to slash the number of items on the sensitive list of commodities that are banned from trading and include services in their free-trade pact.

South Asian nations, where a quarter of the world's population lives, have each kept about 800 items outside their free-trade accord — almost double the number of goods excluded from India's accord with the Association of Southeast Asian Nations, known as Asean. That's undermined trade within South Asia, which contributes less than 2 per cent to global commerce.

"Free trade in South Asia was never implemented in the true spirit," said Ameeta Sarkar, head of the South Asia division at the Federation of Indian Chambers of Commerce and Industry in New Delhi. "One hopes this time the countries go beyond the rhetoric."

Intra-Saarc trade is less than 5 per cent of the countries' total, according to the Federation of Indian Chambers. By comparison, trade among Asean accounts for 30 per cent of their total while intra-European Union commerce is about 55 per cent. Saarc's two-day summit in Colombo ended yesterday.

Economic progress in the region has been frustrated by hostility between India and Pakistan, South Asia's biggest economies. India accuses Pakistan of supporting armed extremists in Jammu and Kashmir, its only Muslim-dominated state. Pakistan denies it and says it offers only moral support to separatists.

"We need to open our eyes to the wonder of the great opportunities that we missed," said Lyonchhen Jigme Y. Thinley, prime minister of Bhutan, a landlocked country in the Himalayas. "Furtherance of intra-regional trade is the key to promoting economic growth."

The World Bank estimates about 40 per cent of South Asia's 1.4 billion people live on less than $1 a day. If the region can accelerate growth to 8 per cent a year from the average 6 per cent since 2000 by opening up for greater trade, poverty can be wiped out in one generation, the World Bank says.

Annual trade between India and Pakistan, which make up more than four-fifths of the $1.2 trillion South Asian economy, is currently at about $1 billion. With trade liberalisation, it can be as much as $9 billion, according to the Washington-based institution.

The collapse of global trade talks last week at the World Trade Organisation in Geneva may help increase the relevance of regional groupings like Saarc.

"The failure of WTO talks is a severe blow to multilateral trading system," said Tapan K. Bhaumik, chairman of economic affairs committee of New Delhi-based Associated Chambers of Commerce and Industry."Emergence of regional trade blocs will be the way forward." Sri Lanka has already forged a free-trade agreement with India to take advantage of the world's fastest growing major economy after China. India also has open borders with Bhutan and Nepal. Pakistan has a free trade accord with Sri Lanka.

The leaders from the eight South Asian nations identified terrorism as the biggest threat to growth in South Asia, home to half the world's poor. They signed an accord to classify terrorism as a crime for the first time.

Indian Prime Minister Manmohan Singh and his Pakistan counterpart Yousuf Raza Gilani, who met on August 2 on the sidelines of a Saarc regional summit in Colombo, agreed to adhere to a 2003 cease-fire plan along their border, defusing tensions between the two sides.